COMPENSATION DISCUSSION AND ANALYSIS | EXECUTIVE COMPENSATION
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Pay determination and pay mix
EVALUATING MARKET PRACTICES
In order to effectively attract, properly motivate and retain our senior executives, the CMDC periodically reviews market data relating to pay levels, pay mix and pay practices.
In evaluating market data for OC members, the CMDC benchmarks against our primary financial services peer group, which consists of large financial services companies with which the Firm directly competes for both talent and business. The following companies comprise our primary financial services peer group, which remains unchanged from last year:
|•||Bank of America|
Given the diversity of the Firm’s businesses, the CMDC may also periodically reference the pay plans and practices of other financial services companies as well as leading large, global firms across multiple industries. The CMDC considers the size, presence, brand and reputation of the companies, and the nature and mix of their businesses in using this data. These companies include, but are not limited to: 3M, AT&T, Barclays, BlackRock, BNY Mellon, Boeing, Capital One Financial, Chevron, Coca-Cola, Comcast, Credit Suisse, CVS Health, Deutsche Bank, ExxonMobil, General Electric, HSBC, IBM, Johnson & Johnson, Merck, Oracle, PepsiCo, Pfizer, Procter & Gamble, UBS, United Technologies, Verizon, Wal-Mart and Walt Disney. Although these reference companies are not part of our primary financial services peer group, we believe that their practices can provide a relevant point of reference for maintaining a competitive talent and compensation program.
DISCIPLINED PROCESS TO DETERMINE PAY
In determining total compensation levels for individual OC members, the CMDC evaluates various pay scenarios in light of the following considerations to inform their judgment:
Performance, based on the four broad assessment dimensions as discussed on pages 54-64, including risk and control
Value of the position to the organization and shareholders over time (i.e., “value of seat”)
Leadership and the example they set for others by acting with integrity and strengthening the Firm’s culture
External talent market (i.e., market data)
While market data provides the CMDC with useful information regarding our competitors, the CMDC does not target specific positioning (e.g., 50th percentile), nor does it use a formulaic approach in determining competitive pay levels. Instead, the CMDC uses a range of data as a reference, which is considered in the context of each executive’s performance over a multi-year period, and the CMDC’s assessment of the value the individual delivers to the Firm.
In its assessment of the Operating Committee’s 2019 performance as a whole, the CMDC took into account that the Firm achieved record financial performance across several measures and continued to execute well on its long-term business strategy, among other factors. Consideration of such strong performance in isolation could have justified significantly increasing the OC members’ 2019 total compensation awards. However, in making their ultimate OC member pay decisions, the CMDC and Board further considered that rationale against other determinants that included a balanced assessment of the strong progress that was made against Firmwide initiatives, reinforcing our culture and values, addressing issues and enhancing controls, as well as the value of each individual OC member’s respective seat, and the competitiveness of their respective pay levels.
Once the CMDC determines OC members’ total incentive compensation, it then establishes the appropriate pay mix between an annual cash incentive and long-term equity, including PSUs and RSUs.
For OC members other than the CEO and Mr. Pinto, consistent with prior years, the CMDC continued to apply the Firm’s standard cash/equity incentive mix formula to each of their 2019 incentive compensation awards. For the CEO, also consistent with prior years, the Board continued to override the standard cash/equity formula to maintain a lower cash allocation of $5 million, so that a larger majority of his incentive compensation would be comprised of shareholder-aligned equity, with 100% of it in the form of performance-conditioned PSUs. PSUs are 100% at-risk and will result in no payout unless a threshold performance level is achieved.
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