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Share Name | Share Symbol | Market | Type |
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Discover Financial Services | NYSE:DFS | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
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4.02 | 2.93% | 141.08 | 141.95 | 136.74 | 137.00 | 1,080,889 | 17:53:09 |
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Soliciting Material Pursuant to §240.14a-11(c) or §240.14a-12
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
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Dat
e Filed:
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March 25, 2019
Dear Fellow Shareholder,
I cordially invite you to attend Discover Financial Services’ 2019 Annual Meeting of Shareholders to be held at 9:00 a.m., local time, May 16, 2019, at our corporate headquarters located at 2500 Lake Cook Road, Riverwoods, Illinois 60015.
All shareholders of record of our outstanding shares of common stock at the close of business on March 18, 2019 will be entitled to vote at the Annual Meeting.
Your vote is important! Whether or not you plan to attend the Annual Meeting, please read the enclosed proxy statement and vote as soon as possible via the Internet, by telephone or, if you receive a paper Proxy Card or voting instruction form in the mail, by mailing the completed Proxy Card or voting instruction form.
Using the Internet or telephone voting systems or mailing your completed Proxy Card will not prevent you from voting in person at the meeting if you are a shareholder of record and wish to do so.
Important information about the matters to be acted upon at the meeting is included in the notice of meeting and proxy statement. Our 2018 Annual Report contains information about our Company and its financial performance.
I am very much looking forward to our 2019 Annual Meeting of Shareholders.
Very truly yours,
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Lawrence A. Weinbach
Independent Chairman |
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This proxy statement is dated March 25, 2019 and is first being sent or made available to shareholders on or about April 3, 2019.
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Notice of 2019 Annual
Meeting of Shareholders
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Date and Time
May 16, 2019 9:00 a.m., local time |
Place
Discover Financial Services 2500 Lake Cook Road Riverwoods, IL 60015 |
Record Date
You are entitled to notice of and to vote at the meeting and at any adjournment or postponement of the meeting if you were a shareholder of record as of the close of business on March 18, 2019. |
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Items of Business
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Board Recommendation
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1
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To elect 11 members of the Board of Directors named in the Proxy Statement as nominees, each for a term of one year.
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FOR
each director nominee
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2
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To conduct an advisory, non-binding vote to approve named executive officer compensation.
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FOR
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3
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To ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2019.
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FOR
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4
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To amend the Company's Amended and Restated Certificate of Incorporation to eliminate supermajority voting requirements.
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FOR
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5
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To amend the Company's Amended and Restated Certificate of Incorporation to grant shareholders the right to call special meetings.
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FOR
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6
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To consider an advisory vote on one shareholder proposal, if properly presented.
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AGAINST
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To transact any other business as may properly come before the meeting or any adjournment or postponement of the meeting.
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It is important that your shares be represented and voted at the Annual Meeting. You can vote your shares by completing and returning your Proxy Card or by voting on the Internet or by telephone. The only voting securities of the Company are shares of our common stock, $0.01 par value per share (the "Common Stock"), of which there were 326,237,525 shares outstanding as of the Record Date (excluding treasury stock). See the Questions and Answers About the Annual Meeting and Voting section beginning on page 60 for more details.
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Advance Voting Methods
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Internet
Go www.investorvote.com/dfs |
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Webcast
A live audio webcast of our Annual Meeting will be available through our investor relations page of our internet site, www.discover.com, starting at 9:00 a.m., local time, on May 16, 2019. Information included on our website, other than our Proxy Statement and form of proxy, is not a part of our proxy solicitation materials. |
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Telephone
Call toll free 1-800-652-VOTE (8683) within the USA, territories & Canada |
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Mail
Follow the instructions on your proxy card |
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PROPOSAL 1
Election of Directors
Our Board recommends a vote
FOR
each director nominee
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See Page
8
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Committees
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Name
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Age
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Director Since
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AC
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C&LD
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N&G
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ROC
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Other Public Company Boards
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JEFFREY S. ARONIN
Independent
Chairman and CEO of Paragon Pharmaceutical Capital, LLC and Paragon Biosciences, LLC |
51
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2007
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¢
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• None
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MARY K. BUSH
Independent
Chairman of Bush International, LLC |
70
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2007
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¢
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¢
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• Bloom Energy
• ManTech International Corporation
• Marriott International, Inc.
• T. Rowe Price Group, Inc.
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GREGORY C. CASE
Independent
CEO of Aon plc |
56
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2007
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●
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• Aon plc
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CANDACE H. DUNCAN
Independent
Former Managing Partner KPMG LLP, Washington D.C. Metropolitan Area |
65
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2014
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¢
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¢
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• FTD Companies, Inc.
• Teleflex Inc.
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JOSEPH F. EAZOR
Independent
CEO of Rackspace |
56
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2016
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¢
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• None
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CYNTHIA A. GLASSMAN
Independent
Former Under Secretary for Economic Affairs U.S. Department of Commerce |
71
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2009
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●
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• Navigant Consulting, Inc.
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ROGER C. HOCHSCHILD
CEO and President, Discover Financial Services |
54
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2018
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• Principal Financial Group
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THOMAS G. MAHERAS
Independent
Managing Partner Tegean Capital Management, LLC |
56
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2008
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¢
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• None
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MICHAEL H. MOSKOW
Independent
Retired President and CEO Federal Reserve Bank of Chicago |
81
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2007
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●
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• Commonwealth Edison Company
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MARK A. THIERER
Independent
Managing Partner, AssetBlue Investment Group |
59
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2013
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¢
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• None
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LAWRENCE A. WEINBACH
Independent Chairman
Chairman, Great Western Products Holdings, LLC Managing Director, Yankee Hill Capital Management, LLC |
79
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2007
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¢
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●
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• None
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AC
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Audit Committee
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●
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Chairperson of the Committee
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C&LD
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Compensation and Leadership Development Committee
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Member of the Committee
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N&G
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Nominating and Governance Committee
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ROC
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Risk Oversight Committee
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All Director nominees exhibit:
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As a group, our Director nominees have the following characteristics, skills, and experience:
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• Broad and relevant spectrum of experience and expertise
• A reputation for integrity
• Experience in positions with a high degree of responsibility
• Commitment to represent the interests of shareholders
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CEO or CFO
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Public Board
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Financial
Services Industry |
Technology
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Finance,
Accounting and Financial Reporting |
Government/
Regulatory |
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Risk
Management |
Corporate
Governance |
International
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Marketing
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Strategy and
Business Development |
Compensation
and Succession Planning |
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Board Independence
ü
All directors are independent except CEO; Board committees are 100% independent
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Non-Executive Board Chairman is independent
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Executive sessions of directors held at all in-person Board meetings
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Board Performance
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All directors attended more than 75% of the Board and their committee meetings
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Diverse Board with mix of skills, tenure and age; 27% of our directors are women
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Annual Board, committee and director performance evaluations
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Director education and access to experts
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Best Practices
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Risk aware culture overseen by a separate Risk Oversight Committee
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Significant shareholder ownership requirements for Executives and Board
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Longstanding commitment to sustainability
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Shareholder Rights
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Annual election of directors with majority voting standard
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Shareholders have proxy access with market standard conditions for director nominations
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In response to shareholders' vote at the 2018 Annual Meeting, Board is recommending that shareholders eliminate supermajority voting requirements
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Board is recommending that shareholders approve the right of shareholders to call special meetings
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PROPOSAL 2
Advisory Vote to Approve Named Executive Officer Compensation
Our Board recommends a vote
FOR
this Proposal
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See Page
22
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Achieved profit target with higher revenues offsetting higher credit losses
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Based on net income of $2,742 million, the Company achieved
profit before taxes and reserves (“PBTR”) of $4,020 million
(1)
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Continued strong card loan and sales growth while maintaining a disciplined approach to credit
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The Company achieved
year-over-year loan growth of 7% and card sales growth of 8%
while progressing new underwriting capabilities
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Accelerated volume growth in Payment Services, led by PULSE
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Payment Services transaction dollar volume
grew 15% year-over-year
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Strong return on equity and significant capital deployment
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The Company
achieved return on equity of 25%
for the full year while
increasing quarterly dividend by 14%
to $0.40 per share of Common Stock and
repurchased
approximately 28 million shares
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Pay for Performance
Our compensation should reflect Company, business segment, and individual performance. |
Balanced Compensation Structure
We seek to deliver a mix of fixed and variable compensation that is aligned with shareholder interests and the long-term interests of the Company and that appropriately balances risk and reward. |
Market-Competitive Pay Opportunity
Our compensation should be competitive relative to our peers in order to attract, motivate and retain a talented executive team. |
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(At Risk)
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Element
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Base Salary
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Short-Term Cash Incentive
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Long-Term Equity Incentive
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Highlights
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Fixed compensation based on scope of responsibility, impact on the organization, expertise, experience, and individual performance.
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Annual cash bonus opportunity based on Company financial performance, primarily PBTR, and other performance factors, risk and individual performance.
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Annual stock award opportunity based on financial performance, other performance factors, risk and individual performance. The award is granted using a mix of PSUs and RSUs.
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2018 CEO Target Pay Mix
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14.9%
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21.5%
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RSUs
19.1%
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PSUs
44.5%
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(1)
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Profit before taxes and reserves ("PBTR") is a non-GAAP financial measure which should be viewed in addition to, not as a substitute for, the Company's reported results. PBTR is derived by adding the increase in the allowance for loan losses of
$423 million
and income tax expense of $
855 million
to net income of
$2,742 million
. The Compensation and Leadership Development Committee believes that PBTR is a better measure of the core operating performance of the business that increases focus on factors the Company's incentive-eligible employees are most able to directly impact and influence and controls for variability in significant macroeconomic impacts.
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We Do
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We Do Not
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ü
Pay for performance
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Align compensation with the shareholder interests
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Have oversight by an independent Compensation & Leadership Development Committee
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Apply share ownership guidelines to NEOs
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Apply share retention requirements to NEOs
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Apply incentive award limits to NEOs
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Clawback incentive compensation under certain circumstances
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Regularly evaluate risk performance in incentive compensation design and decisions for our NEOs
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Provide a balanced change in control with a double trigger and no excise tax gross-ups
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Include non-competition and non-solicitation provisions in our long-term incentive awards
ü
Limit perquisites
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û
Have employment contracts for our named executive officers (the “NEOs”)
û
Provide special benefit plans to our executives not generally available to other employees
û
Directors and NEOs are prohibited from hedging or pledging Company securities
û
Have single trigger severance arrangements or provide excise tax gross-ups
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PROPOSAL 3
Ratify the Appointment of Deloitte & Touche LLP as Independent Auditors for 2019
Our Board recommends a vote
FOR
this Proposal
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See Page
49
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PROPOSAL 4
Amend the Company's Amended and Restated Certificate of Incorporation to Eliminate Supermajority Voting Requirements
Our Board recommends a vote
FOR
this Proposal
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See Page
52
›
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PROPOSAL 5
Amend the Company's Amended and Restated Certificate of Incorporation to Grant Shareholders the Right to Call Special Meetings
Our Board recommends a vote
FOR
this Proposal
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See Page
53
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PROPOSAL 6
Advisory Vote on One Shareholder Proposal, if Properly Presented
Our Board recommends a vote
AGAINST
this Proposal
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See Page
56
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PROPOSAL 1
Election of Directors
The Board of Directors recommends that you vote
“FOR”
the election of each director nominee. Proxies solicited by our Board will be voted
“FOR”
the election of each nominee unless otherwise instructed.
The Board believes strong corporate governance is critical to achieving the Company’s long-term goals and maintaining the trust and confidence of investors, employees, customers, regulatory agencies, and other stakeholders. The Board oversees the Company’s business and directs its management. The non-employee directors of the Board are not involved in day-to-day operations. Instead, the Board meets periodically with management to review the Company’s Annual Operating Plan (the “Annual Plan”), multi-year strategic plan and performance against such plans, risks, and business strategies. Directors also consult with management about the Company’s performance outside of formal meetings, which include opportunities for directors to have in-depth conversations with management about particular areas of the business.
All of the director nominees set forth below are standing for election at the Annual Meeting. Director nominees stand for election at each annual meeting of shareholders. Each director holds office until his or her successor has been duly elected and qualified or the director’s earlier resignation, death or removal. In August 2018, Director David W. Nelms informed the Company that he intended to retire as the Company's Chairman and CEO, and the Board elected the Company's then-President and Chief Operating Officer Roger C. Hochschild as a Director. Subsequently, in October 2018, Mr. Hochschild succeeded Mr. Nelms as the Company's CEO, and effective December 31, 2018, Mr. Nelms retired from the Board. As a result of Mr. Nelms' retirement, the Board elected Director Lawrence A. Weinbach to serve as the Board's Independent Chairman. The nominees below are current directors of the Company, and each such nominee has indicated that he or she will serve if elected. We do not anticipate that any nominee will be unable or unwilling to stand for election, but if that happens, your proxy will be voted for another person nominated by the Board. The Board may also choose to reduce the number of directors to be elected, as permitted by our Bylaws. The experience, qualifications, attributes and skills of each of the Company’s director nominees are set forth below.
The Board believes that an effective board consists of a diverse group of individuals who bring a variety of complementary skills and experiences. The Nominating and Governance Committee and the Board consider the skills and experiences of the directors in the broader context of the Board’s overall composition, with a view toward constituting a board that has the best skill set and experience to oversee the Company’s business. As indicated below, our directors have a combined wealth of leadership experience derived from extensive service guiding large, complex organizations as executive leaders or board members, and in government. They collectively have substantive knowledge and skills applicable to our business, including in the areas of regulation, public accounting and financial reporting, finance, risk management, business development, technology, marketing, operations, strategic planning, management development and succession, compensation, corporate governance, public policy, international matters, banking, and financial services.
The Nominating and Governance Committee regularly reviews the composition of the Board and its assessment of the Board’s performance in light of our evolving business requirements to maintain a Board with the appropriate mix of skills and experiences needed for the broad set of challenges that the Company confronts. Annually, the Lead Director (now Independent Chairman) conducts individual interviews with each director that include topics such as Board and committee performance and effectiveness, leadership of the Board and committees, and the performance of individual directors. The Lead Director (now Independent Chairman) then reports the results of these interviews to the full Board during its self-evaluation. The full Board evaluates such results and also conducts an evaluation of the Lead Director (now Independent Chairman) and Chair of the Nominating and Governance Committee. In addition, each committee annually conducts a self-evaluation.
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Jeffrey S. Aronin
Independent
Biography
Mr. Aronin has been chairman and chief executive officer of Paragon Pharmaceutical Capital, LLC, a global pharmaceutical development company, since 2010. He is also chairman and chief executive officer of Paragon Biosciences, LLC, an affiliated global healthcare development and biopharmaceutical investment firm. From 2010 to 2017, Mr. Aronin was also chairman and chief executive officer of Marathon Pharmaceuticals, a research-based prescription biopharmaceutical company. From 2000 to 2009, Mr. Aronin was president and chief executive officer of Ovation Pharmaceuticals Inc., a biopharmaceutical company he founded in 2000.
In addition
Mr. Aronin has experience as a chief executive officer leading several global biopharmaceutical companies. His skills include strategy and business development, finance and brand marketing. He brings valuable leadership experience and knowledge in the operations and day-to-day management of a global corporation in a regulated industry. Mr. Aronin also has experience in the structuring and execution of strategic corporate transactions, including mergers and acquisitions.
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AGE:
51
DIRECTOR SINCE:
2007
OTHER CURRENT PUBLIC
COMPANY BOARDS:
None
COMMITTEES:
Compensation and Leadership Development
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Mary K. Bush
Independent
Biography
Ms. Bush has served as the chairman of Bush International, LLC, a financial and business strategy advisory firm, since 1991. She advises U.S. companies and foreign governments on international financial markets, banking, and economic matters. Ms. Bush served as managing director of the Federal Housing Finance Board, where she established financial policies and oversaw management and safety and soundness for 12 Federal Home Loan Banks. She also served as vice president and head of international Finance of Fannie Mae, where she led funding transactions globally, and as the U.S. Alternate Executive Director of the International Monetary Fund Board.
In addition
Ms. Bush brings extensive financial market, banking, government and international experience to the Board. Additionally, she brings a broad understanding of the operations and business and economic challenges of public companies and the financial services industry.
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AGE:
70
DIRECTOR SINCE:
2007
OTHER CURRENT PUBLIC
COMPANY BOARDS:
Bloom Energy,
ManTech International Corporation, Marriott International, Inc., T. Rowe Price Group, Inc.
COMMITTEES:
Nominating and Governance, Risk Oversight
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Gregory C. Case
Independent
Biography
Mr. Case has been chief executive officer of Aon plc, a leading global professional services firm providing advice and solutions in risk, retirement and health, since 2005 and was president from 2005 to 2018. He is also a member of Aon’s board of directors. Prior to joining Aon, Mr. Case was with McKinsey & Company, an international management consulting firm, for 17 years, most recently serving as head of the Financial Services Practice.
In addition
Mr. Case has approximately 20 years of experience in the insurance and financial services industries, including in the areas of risk management services, insurance and reinsurance brokerage, and through his management consulting and banking experience. He brings valuable leadership experience and knowledge of business operations and the day-to-day management of a large, regulated global financial corporation. His skills include strategy and business development, risk management and people management.
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AGE:
56
DIRECTOR SINCE:
2007
OTHER CURRENT PUBLIC
COMPANY BOARDS:
Aon plc
COMMITTEES:
Compensation and Leadership Development (Chair)
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Candace H. Duncan
Independent
Biography
Ms. Duncan retired from KPMG LLP, a global network of professional firms providing audit, tax and advisory services, in November 2013 where she had been managing partner of the Washington, D.C. metropolitan area since 2009. Ms. Duncan also was on the KPMG LLP board of directors from 2009 to 2013, and served as chair of the board’s nominating committee as well as the partnership and employer of choice committee. Prior thereto, she served in various roles at the firm, including managing partner for audit for the Midatlantic area and audit partner in charge for the Virginia business unit.
In addition
Ms. Duncan has experience leading and managing a large accounting firm’s growth priorities across its audit, tax and advisory functions in key markets. She also has a strong financial and accounting background, gained through her many years of experience at KPMG LLP, including her experience as a lead audit partner for major international and domestic companies. She has served clients on a wide range of accounting and operational issues, public securities issuances and strategic corporate transactions. Her thorough knowledge of public company accounting, financial statements and corporate finance is of significant value to the Company.
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AGE:
65
DIRECTOR SINCE:
2014
OTHER CURRENT PUBLIC
COMPANY BOARDS:
FTD Companies, Inc., Teleflex Inc.
COMMITTEES:
Audit, Nominating and Governance
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Joseph F. Eazor
Independent
Biography
Mr. Eazor has been the chief executive officer of Rackspace, a leading managed cloud company, since 2017. He previously served as the president and chief executive officer of EarthLink, Inc., a leading communications and IT services provider, and was a member of EarthLink’s board from January 2014 until February 2017. From 2011 to 2013, he served as executive vice president and chief operating officer of global sales and customer operations at EMC and prior to that he served in a variety of leadership roles at Hewlett Packard and Electronic Data Systems. Mr. Eazor also served on the board of Commvault, a data protection and information management company, from October 2015 to July 2018.
In addition
Mr. Eazor has a proven track record of leading successful global companies. He has extensive experience in international strategy and business development and in technology and IT services. In addition to his corporate roles, Mr. Eazor has management consulting experience from his time as a senior partner with McKinsey & Co. and as a partner and board member of A.T. Kearney, Inc.
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AGE:
56
DIRECTOR SINCE:
2016
OTHER CURRENT PUBLIC
COMPANY BOARDS:
None
COMMITTEES:
Audit
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Cynthia A. Glassman, Ph.D.
Independent
Biography
Dr. Glassman was appointed by President Bush as Under Secretary for Economic Affairs at the U.S. Department of Commerce from 2006 to 2009 and as Commissioner of the U.S. Securities and Exchange Commission from 2002 to 2006, including serving as acting chair during the summer of 2005. Dr. Glassman is also a Senior Research Scholar at the Institute for Corporate Responsibility at the George Washington University School of Business. She held various positions over 12 years at the Federal Reserve, including as Chief of the Financial Reports Section and an Economist in the Capital Markets Section. She also has 15 years of experience in financial services consulting, including as a Principal of Ernst & Young LLP and Managing Director of Furash & Company.
In addition
Dr. Glassman brings extensive regulatory, corporate governance, risk management, financial services and banking experience to the Board. She holds a Ph.D. in economics and has spent over 40 years in the public and private sectors focusing on financial services regulatory and public policy issues.
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AGE:
71
DIRECTOR SINCE:
2009
OTHER CURRENT PUBLIC
COMPANY BOARDS:
Navigant Consulting, Inc.
COMMITTEES:
Audit (Chair)
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Roger C. Hochschild
Biography
Mr. Hochschild has served as the chief executive officer and president of Discover since October 2018 and served as our president and chief operating officer from 2004 to 2018. He was executive vice president, chief administrative and strategic officer for Morgan Stanley from 2001 to 2004, and was executive vice president, chief marketing officer - Discover from 1998 to 2001, when Discover was a part of Morgan Stanley.
In addition
Mr. Hochschild's deep understanding of the Company’s business and the financial services industry provides valuable expertise to the Company. He also brings leadership experience in risk management, consumer financial services, including operating in the current regulatory environment, corporate finance, information technology and knowledge of operations and the day-to-day management of a global financial corporation, which plays a critical role in board discussions regarding strategic planning and business development for the Company.
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AGE:
54
DIRECTOR SINCE:
2018
OTHER CURRENT PUBLIC
COMPANY BOARDS:
Principal Financial Group
COMMITTEES:
None
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Thomas G. Maheras
Independent
Biography
Mr. Maheras has been the managing partner of Tegean Capital Management, LLC, an investment advisory firm based in New York since 2008. Prior to that, he was chairman and co-chief executive officer of Citi Markets and Banking, the investment banking division of Citigroup, Inc., where he held roles of increasing responsibility after starting his career as a fixed-income trader at Salomon Brothers. He has served as chairman of the U.S. Treasury Department Borrowing Advisory Committee and as an executive committee member of the Board of Directors of the Securities Industry and Financial Markets Association.
In addition
Mr. Maheras has extensive risk management, banking and capital markets experience, including 23 years at Citigroup, Inc. where his responsibilities included leading the global capital markets business. He also brings valuable leadership experience and knowledge of operations and the day-to-day management of a global financial services organization. Mr. Maheras’ financial background and banking and financial services experience includes a knowledge of financial statements, corporate finance, accounting and capital markets.
|
|
|
|
AGE:
56
DIRECTOR SINCE:
2008
OTHER CURRENT PUBLIC
COMPANY BOARDS:
None
COMMITTEES:
Risk Oversight
|
|
|
|
Michael H. Moskow
Independent
Biography
Mr. Moskow is currently Vice Chair and Distinguished Fellow, Global Economy at The Chicago Council on Global Affairs. He retired as president and chief executive officer of the Federal Reserve Bank of Chicago in 2007, where he had served since 1994. Mr. Moskow was a Deputy U.S. Trade Representative, following his appointment by President Bush in 1991, and earlier in his career, held a number of senior positions with the U.S. government, including undersecretary of labor at the U.S. Department of Labor, director of the Council on Wage and Price Stability and senior staff economist with the Council of Economic Advisers. Mr. Moskow serves on the board of directors of CityBase, Commonwealth Edison Company, a subsidiary of Exelon Corporation, and Cresset Private Equity Opportunity Fund. In the past five years, he has also served as a director of Taylor Capital Group Inc.
In addition
Mr. Moskow brings extensive regulatory, risk management, financial services and banking experience to the Board and has extensive knowledge of the economy and financial markets. Through his senior regulatory positions, particularly in the financial services arena, and service on the boards of other financial institutions, he brings a thorough and insightful perspective to a wide range of issues.
|
|
|
|
AGE:
81
DIRECTOR SINCE:
2007
OTHER CURRENT PUBLIC
COMPANY BOARDS:
Commonwealth Edison Company
COMMITTEES:
Risk Oversight (Chair)
|
|
|
|
Mark A. Thierer
Independent
Biography
Mr. Thierer currently serves as the managing partner of AssetBlue Investment Group, a position he has held since June 2017. From October 2017 through February 2018, Mr. Thierer also served as the interim chief executive officer of Dentsply Sirona Inc., a manufacturer of dental implants. Mr. Thierer was chief executive officer of OptumRx, a pharmacy care services company, from July 2015 until September 2017. He previously served as chairman and chief executive officer of Catamaran Corporation, one of the nation’s largest pharmacy benefit management companies, from March 2011 until it combined with OptumRx in 2015.
In addition
Mr. Thierer has experience as a chief executive officer leading a national pharmacy benefit and healthcare information technology solutions company. His skills include strategy and business development, technology, finance and marketing. He brings valuable leadership experience and knowledge of operations and the day-to-day management of a national corporation. Mr. Thierer also has experience in the structuring and execution of strategic corporate transactions, including mergers and acquisitions.
|
|
|
|
AGE:
59
DIRECTOR SINCE:
2013
OTHER CURRENT PUBLIC
COMPANY BOARDS:
None
COMMITTEES:
Compensation and Leadership Development
|
|
|
|
Lawrence A. Weinbach
Independent Chairman
Biography
Mr. Weinbach has been chairman of Great Western Products Holdings, LLC, a manufacturer and master distributor of food and nonfood concession products, since 2009, and has been a managing director of Yankee Hill Capital Management, LLC, a private equity firm, since 2006. Prior to that, he was the executive chairman of Unisys Corporation, a worldwide information services and technology company, from 2005 to 2006, and its chairman and chief executive officer from 1997 to 2004. He began his career at Arthur Andersen, ultimately serving as managing partner and chief executive of Andersen Worldwide, a global professional services organization, which included Arthur Andersen and the company now known as Accenture, from 1989 to 1997.
In addition
Mr. Weinbach has experience in the financial and accounting industry and the information technology and financial services sectors. Mr. Weinbach’s strong financial background, gained through his private equity, accounting, investment banking and financial services experience, includes knowledge of risk management, governance, financial statements, corporate finance, accounting and capital markets. As a former chief executive officer, he also brings valuable leadership experience and knowledge of operations, corporate governance and the day-to-day management of a global corporation.
|
|
|
|
AGE:
79
DIRECTOR SINCE:
2007
INDEPENDENT CHAIRMAN
SINCE:
2019
(Lead Director from 2009-2018)
OTHER CURRENT PUBLIC COMPANY BOARDS:
None
COMMITTEES:
Audit, Nominating and Governance (Chair)
|
|
AUDIT COMMITTEE
9
Meetings in 2018
REPORT:
Page
50
|
|
MEMBERS
Dr. Glassman (Chair)
Ms. Duncan Mr. Eazor Mr. Weinbach |
Primary Responsibilities
|
|
|
•
Oversee the integrity of our consolidated financial statements, our system of internal control over financial reporting, our risk management, and the qualifications and independence of our independent registered public accounting firm.
•
Oversee the internal audit function, including the performance of our internal audit executive.
|
•
Sole authority and responsibility to select, determine the compensation of, evaluate the performance of, and, when appropriate, replace our independent registered public accounting firm.
•
Oversee the Company's compliance with legal and regulatory requirements.
|
COMPENSATION AND LEADERSHIP DEVELOPMENT
7
Meetings in 2018
REPORT:
Page
39
|
MEMBERS
Mr. Case (Chair)
Mr. Aronin Mr. Thierer |
|
Primary Responsibilities
|
|
|
•
Annually review and approve the corporate goals and objectives relevant to the compensation of the CEO and evaluate his performance in light of these goals.
•
Determine the compensation of our executive officers and other appropriate officers.
|
•
Oversee risk management associated with our compensation practices.
•
Administer our incentive and stock-based compensation plans.
•
Oversee plans for management development and succession.
|
NOMINATING AND GOVERNANCE
4
Meetings in 2018
|
MEMBERS
Mr. Weinbach (Chair)
Ms. Bush Ms. Duncan |
|
Primary Responsibilities
|
|
|
•
Identify and recommend candidates for election to our Board and each Board committee.
•
Consider matters of corporate governance and make recommendations or take action.
|
•
Oversee the annual evaluation of the members of our Board and its committees, and management.
•
Recommend director compensation and benefits.
•
Review annually our Corporate Governance Policies.
|
RISK OVERSIGHT
8
Meetings in 2018
|
MEMBERS
Mr. Moskow (Chair)
Ms. Bush Mr. Maheras |
|
Primary Responsibilities
|
|
|
•
Oversee the enterprise-wide risk management framework, make recommendations to the Board on risk management policies and the Company’s risk appetite and tolerance, oversee risk management governance and policies and perform other functions pursuant to the Federal Reserve’s regulations.
|
•
Oversee the performance of our Chief Risk Officer.
•
Oversee capital planning, liquidity risk management and resolution planning activities.
|
•
|
presides at all meetings of the Board, and has the authority to call, and will lead, non-employee director sessions and independent director sessions;
|
•
|
approves Board meeting agenda items and the schedule of Board meetings;
|
•
|
helps facilitate communication between senior management and the independent directors;
|
•
|
acts as a mentor to the CEO; and
|
•
|
participates and provides leadership on CEO performance evaluation and succession planning.
|
RISK OVERSIGHT COMMITTEE
|
The Risk Oversight Committee is responsible for overseeing our risk management policies and the operations of the Company’s enterprise-wide risk management framework and capital planning, liquidity risk management and resolution planning activities. The Risk Oversight Committee is responsible for, among other things:
•
approving and periodically reviewing our risk management policies;
•
overseeing the operation of policies and procedures which establish risk management governance, and risk-control infrastructure;
•
overseeing the operation of processes and systems for implementing and monitoring compliance with such policies and procedures;
•
reviewing and making recommendations to the Board, as appropriate, regarding the Company’s risk management framework, key risk management policies and the Company’s risk appetite and tolerance;
•
receiving and reviewing regular reports from our Chief Risk Officer on current and emerging risks, the status of and changes to risk exposures, policies, procedures and practices, and the steps management has taken to monitor and control risk exposures;
•
reviewing and approving the Company’s information security program, which seeks to mitigate information security risks, including cybersecurity risks; and
•
receiving reports regarding compliance with risk appetite limits, risk management policies, procedures and controls.
The Risk Oversight Committee shares information with (which it may do through the Chair of the Committee) and meets in joint session with the Audit Committee as necessary or desirable to provide the committees with the information necessary to permit them to fulfill their duties and responsibilities with respect to oversight of risk management matters. For example, at least quarterly, the Risk Oversight and Audit Committees meet in joint session and receive updates on the Company’s information security program, including trends and developments regarding information security risks.
The Risk Oversight Committee also authorizes the Company’s Risk Committee, which is comprised of the members of the Company’s Executive Committee and the Discover Bank President. The Chief Risk Officer, a member of the Executive Committee, serves as the Risk Committee chair. The Risk Committee provides a forum for key members of our executive management team to review and discuss credit, market, liquidity, operational, legal and compliance and strategic risks across the Company and for each business unit.
|
AUDIT COMMITTEE
|
Our Audit Committee assists the Board in the oversight of, among other things, the integrity of our consolidated financial statements, our compliance with legal and regulatory requirements, our system of internal controls and the qualifications and independence of our independent registered public accounting firm. With respect to compliance matters, our Audit Committee approves our Compliance Policy and reinforces the importance of compliance risk management. The Audit Committee assists the Board in its oversight of the Company’s anti-money laundering program. In addition, the Audit Committee receives reporting on the effectiveness of our Compliance Risk Management Program. Our Audit Committee also, taking into consideration the Board’s allocation of the review of risk among various committees of the Board, receives and reviews reports from the Chief Risk Officer and other members of management as the Audit Committee deems appropriate. These reports include a review of the guidelines and policies for assessing and managing the Company’s exposure to risks, the corporation’s major financial risk exposures, and the steps management has taken to monitor and control such exposures. The Audit Committee shares information with (which it may do through the Chair of the Committee) and meets in joint session with the Risk Oversight Committee as necessary or desirable to provide the committees with the information necessary to permit them to fulfill their duties and responsibilities with respect to oversight of risk management matters.
The Audit Committee provides oversight of the Company’s internal audit function. The Audit Committee reviews and approves the appointment, replacement and compensation of the head of Internal Audit and the charter, budget and staffing levels of the Company’s internal audit function. The Audit Committee reviews and approves the annual audit plan. The Audit Committee also receives periodic reports from the head of Internal Audit on the status of the annual audit plan, including significant results and the status of corrective actions.
|
COMPENSATION AND LEADERSHIP DEVELOPMENT COMMITTEE
|
The Compensation Committee is responsible for overseeing risk management associated with the Company’s employee compensation practices, including an annual review of the Company’s risk assessment of its compensation plans and practices to assess whether employee plans have features that might encourage excessive risk-taking that could threaten the value of the Company, are reasonably likely to have a material adverse effect on the Company or could result in a failure to comply with regulatory requirements. The Compensation Committee reviews reports from and meets with the Company’s Chief Risk Officer and the Risk Oversight and Audit Committees of the Board of Directors to discuss the annual employee incentive compensation risk assessment and to review outcomes of certain risk events and any impact to compensation decisions.
Separately, the Compensation Committee meets with the Company’s Chief Risk Officer to monitor the results of the Company’s incentive compensation program payments for certain employees, including our NEOs.
The Compensation Committee also oversees the Company’s succession planning process. On an annual basis, management conducts succession planning for all of the Company’s officer level roles, including our NEOs. Management further identifies critical roles beyond the officer level where there are uniquely strong needs for immediate successors, where restructuring is not likely to be a viable succession plan, and where having the role unfilled for a period of time could create regulatory, risk management or business continuity gaps. Annually, our CEO and President and Chief Human Resources Officer partner to conduct succession planning for our NEOs and other executives. For each of our NEOs, the role is reviewed to determine options for succession and development needed to increase succession readiness. Consideration is given to external hiring where appropriate. Management then reviews NEO succession plans with the Compensation Committee and the Board.
|
COMPENSATION AND LEADERSHIP DEVELOPMENT COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
|
The following persons served on our Compensation Committee during 2018: Messrs. Case, Aronin, Lenny
(1)
and Thierer. During 2018, no member of the Compensation Committee was an officer or employee or former officer of the Company or any of our subsidiaries. None of our executives served as a member of (i) the compensation committee of another entity in which one of the executive officers of such entity served on our Compensation Committee or (ii) the compensation committee of another entity in which one of the executive officers of such entity served as a member of our Board.
|
(1)
|
Mr. Lenny retired from the Board, effective May 2, 2018
|
•
|
An annual retainer fee of $100,000 (increased to $105,000, effective January 1, 2019);
|
•
|
A Lead Director retainer fee of $75,000 (replaced with an Independent Chairman annual retainer of $210,000, effective January 1, 2019);
|
•
|
A committee chair retainer fee of: (i) $30,000 each for the chairpersons of the Audit Committee and Risk Oversight Committee; (ii) $25,000 for the chairperson of the Compensation Committee; and (iii) $20,000 for the chairperson of the Nominating and Governance Committee; and
|
•
|
A non-chair committee membership fee of: (i) $20,000 for each member of each of the Audit Committee and Risk Oversight Committee; (ii) $10,000 for each member of the Compensation Committee; and (iii) $5,000 for each member of the Nominating and Governance Committee.
|
Director
|
Fees Earned or
Paid in Cash
($)
|
Stock Awards
($)
(1)
|
|
Total
($)
|
Jeffrey S. Aronin
|
110,000
|
139,943
|
|
249,943
|
Mary K. Bush
|
125,000
|
139,943
|
|
264,943
|
Gregory C. Case
(2)
|
125,000
|
139,943
|
|
264,943
|
Candace H. Duncan
(2)
|
123,324
|
139,943
|
|
263,267
|
Joseph F. Eazor
|
120,000
|
139,943
|
|
259,943
|
Cynthia A. Glassman
|
130,000
|
139,943
|
|
269,943
|
Richard H. Lenny
(3)
|
38,860
|
—
|
|
38,860
|
Thomas G. Maheras
|
120,000
|
139,943
|
|
259,943
|
Michael H. Moskow
|
130,000
|
139,943
|
|
269,943
|
Mark A. Thierer
(2)
|
110,000
|
139,943
|
|
249,943
|
Lawrence A. Weinbach
|
215,000
|
139,943
|
|
354,943
|
(1)
|
Reflects RSUs granted under the Directors’ Compensation Plan described above. Amounts reflect the grant date fair value of the 2018 RSUs, which were granted on May 2, 2018 for all non-employee directors. These amounts reflect the RSUs’ grant date fair value in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Stock Compensation (“FASB ASC Topic 718”) and may not correspond to the actual value that might be realized by the named individuals. Additional details on accounting for stock-based compensation can be found in Note 2: “Summary of Significant Accounting Policies - Stock-based Compensation” and Note 10: “Stock-Based Compensation Plans” of our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31,
2018
. As of December 31,
2018
, each non-employee director held the following number of RSUs, including deferred RSUs: Mr. Aronin held
59,292
; Ms. Bush held
54,060
; Mr. Case held
66,195
; Ms. Duncan held
11,179
; Mr. Eazor held
1,985
; Dr. Glassman held
1,985
; Mr. Lenny held
0
; Mr. Maheras held
42,947
; Mr. Moskow held
46,975
; Mr. Thierer held
14,120
; and Mr. Weinbach held
51,007
.
|
(2)
|
The amounts listed for these individuals in the “Fees Earned or Paid in Cash” column were deferred under the Directors’ Voluntary Nonqualified Deferred Compensation Plan.
|
(3)
|
Mr. Lenny retired from the Board, effective May 2, 2018.
|
|
|
|
PROPOSAL 2
Advisory Vote to Approve Named Executive Officer Compensation
The Board of Directors recommends a vote
“FOR”
approval of the NEO compensation as disclosed pursuant to Item 402 of SEC Regulation S-K, including in the "Compensation Discussion and Analysis," the compensation tables, and any related information contained in this Proxy Statement. Proxies solicited by the Board will be voted
“FOR”
this proposal unless otherwise instructed.
|
|
Achieved profit target with higher revenues offsetting higher credit losses
|
|
Based on net income of $2,742 million, the Company achieved
profit before taxes and reserves (“PBTR”) of $4,020 million
(1)
|
Continued strong card loan and sales growth while maintaining a disciplined approach to credit
|
|
The Company achieved
year-over-year loan growth of 7% and card sales growth of 8%
while progressing new underwriting capabilities
|
Accelerated volume growth in Payment Services, led by PULSE
|
|
Payment Services transaction dollar volume
grew 15% year-over-year
|
Strong return on equity and significant capital deployment
|
|
The Company
achieved return on equity of 25%
for the full year while
increasing quarterly dividend by 14%
to $0.40 per share of Common Stock and
repurchased
approximately 28 million shares
|
•
|
Based on net income of
$2,742 million
, the Company achieved profit before taxes and reserves ("PBTR") of $
4,020 million
(1)
, relatively flat to the
2018
Annual Operating Plan ("Annual Plan") target of $
4,050 million
, with revenue favorability more than offset by higher credit losses.
|
•
|
The Company continued its strong loan growth with year-over-year growth of
7%
, in line with the Annual Plan target. The growth was supported by double digit growth in the Company's credit card new accounts and
8%
growth in card sales.
|
•
|
Credit performance, on average, was in line with most competitors, but unfavorable compared to the prior year and the Annual Plan as credit losses continued to increase to long-run levels as the supply of consumer credit grows
. Total provision expense increased $
456 million
year-over-year primarily due to higher levels of net charge-offs, partially offset by a lower reserve build
.
The total net charge-off rate on average loans outstanding was
3.06%
, up from the prior year rate of
2.70%
.
|
•
|
The Company continued to make progress in addressing the Written Agreement with the Federal Reserve relating to the Company's AML program.
|
•
|
Other non-interest expenses in our Direct Banking segment
slightly exceeded the Annual Plan target and were higher than the prior year by
8%
as the Company invested in profitable loan growth, global acceptance, new capabilities, and product enhancements.
|
(1)
|
Profit before taxes and reserves ("PBTR") is a non-GAAP financial measure which should be viewed in addition to, not as a substitute for, the Company's reported results. PBTR is derived by adding the increase in the allowance for loan losses of
$423 million
and income tax expense of $
855 million
to net income of
$2,742 million
. The Committee believes that PBTR is a better measure of the core operating performance of the business that increases focus on factors the Company's incentive-eligible employees are most able to directly impact and influence and controls for variability in significant macroeconomic impacts.
|
•
|
Payment Services segment pre-tax income increased
$7 million
, primarily driven by revenue growth due to higher volume at PULSE and Network Partners. Transaction dollar volume for the segment was higher by
15%
from the prior year, primarily driven by increases in PULSE network volume. Diners Club International volumes increased
7%
over the prior year driven by growth in the EMEA (Europe, Middle East, and Africa) and Asia Pacific regions. In Network Partners, volume increased
33%
from the prior year based on continued expansion with our AribaPay product.
|
•
|
Direct-to-consumer deposit balances increased
13%
year-over-year and represented
47%
of the Company’s funding at year-end.
|
•
|
Discover Bank issued approximately $4.8 billion of public credit card asset-backed securities and approximately $10.4 billion of brokered deposits. The Company issued $1.7 billion of senior unsecured debt and $0.5 billion of subordinated unsecured debt. These wholesale funding activities are part of the Company's strategy to maintain access to a broad and diverse set of funding channels that complement growth in core deposit funding.
|
•
|
The Company increased its quarterly dividend by 14% to $0.40 per share of Common Stock and repurchased approximately 28 million shares, or approximately 8%, of the Company’s outstanding Common Stock in 2018. The Company had a
93%
payout ratio
(1)
. This is the eighth year in a row that we have increased our dividend.
|
•
|
The Company’s continued focus on delivering outstanding customer satisfaction resulted in its distinction as being ranked “Highest in Customer Satisfaction with Credit Card Companies” for the fourth time in five years by J.D. Power.
(2)
|
•
|
In 201
8
, the Company launched the Discover it® Business credit card, offering an unlimited 1.5 percent cash back on all purchases with no annual fee. The Discover it® Business credit card is the latest addition to the Discover it® family of credit cards and includes all the features and benefits that Discover it® credit cards are known for, including no foreign transaction fees, Social Security Number alerts, Freeze, and FICO credit scores. This new card also includes free business features to help small business owners manage their finances; employers can get free employee cards with spending limits for each employee and the ability to earn rewards on all of their purchases, as well as the ability to download transactions directly into QuickBooks, Quicken, and Excel.
|
•
|
In 2018, the Company relaunched Identity Theft Protection, a digital fee product that notifies Discover cardmembers of potential threats to their identity. Identity Theft Protection monitors the three major credit bureaus and other data sources to provide bank account, loan, criminal court, address change, credit utilization alerts, and more. The product also includes $1MM in Identity Theft insurance
(3)
for legal expenses, reimbursement of stolen funds, and other covered expenses.
|
(1)
|
Payout ratio represents capital returned to common shareholders divided by net income allocated to common shareholders.
|
(2)
|
Discover received the highest score in the J.D. Power 2014-2016 and 2018 Credit Card Satisfaction Studies of customers’ satisfaction with their primary credit card. Visit jdpower.com/awards.
|
(3)
|
Identity Theft Insurance is underwritten by insurance company subsidiaries or affiliates of American International Group, Inc. (AIG) 175 Water Street, New York, New York 10038. Please refer to the actual policies for terms, conditions, and exclusions of coverage. Coverage may not be available in all jurisdictions.
|
We Do
|
We Do Not
|
ü
Pay for performance:
The majority of the compensation for our NEOs is in the form of variable compensation linked to the long-term financial and strategic goals of the Company over a three-year performance period. Incentive compensation metrics are tied to the Company’s Annual Plan and NEOs’ goals are designed to be aligned to the plan.
ü
Shareholder alignment:
Our compensation program is designed to be aligned with our long-term interests and those of our shareholders with deferred long-term incentives (“LTI”) in the form of RSUs and PSUs linked to stock price appreciation. PSUs represent the majority of LTI for our NEOs, and in addition to being subject to time-based vesting for three years, are subject to Company performance, and stock price fluctuations over the three-year performance period.
ü
Independent oversight:
Our Compensation Committee includes only directors who are independent under applicable NYSE listing standards and the Committee is advised by an independent compensation consultant.
ü
Share ownership guidelines for NEOs:
Our CEO and Executive Chairman must own shares with a value of at least seven times their respective base salaries and our other NEOs must own shares with a value of at least three times their respective base salaries. Each NEO must achieve his or her ownership guideline within five years of appointment.
ü
Share retention requirements:
NEOs must hold 100% of net shares received upon vesting for one year post-vesting to promote continued shareholder alignment.
ü
Incentive award limits:
NEOs' incentive awards have a maximum payout cap.
ü
Clawback of incentive compensation:
Our Employee Compensation Policy and equity awards provide for clawbacks that allow us to recover shares issued pursuant to RSUs and PSUs under certain circumstances.
ü
Risk management:
We regularly evaluate the risk impact of the design of our incentive compensation program. The compensation decisions for our NEOs include a risk review that is considered before we make annual short-term incentive ("STI") and LTI awards and before the determination of vesting for all outstanding stock grants which may result in a reduction in the number of the shares vesting.
ü
Balanced change in control:
Our change in control severance policy includes a double trigger and does not provide excise tax gross-ups for any employees.
ü
Restrictive covenants:
LTI awards to NEOs are subject to non-competition and non-solicitation provisions.
ü
Limited perquisites:
Perquisites provided to our NEOs are generally limited to access to an executive gym, charitable contributions and security. On occasion, our NEOs may use the Company’s tickets for sporting, cultural or other events for personal use when they are not otherwise used for business purposes.
|
û
No employment contracts for NEOs:
We do not have individual employment agreements with any of our NEOs.
û
No special benefit plans:
We do not provide any benefit plans to our executives that are not generally available to other employees and we do not provide any supplemental executive retirement plan benefits to any executive.
û
No hedging or pledging:
Directors and executive officers, including NEOs, are prohibited from hedging Company securities, holding Company securities in a margin account or otherwise pledging Company securities, including as collateral for a loan.
û
No excise tax gross-ups:
We do not provide excise tax gross-ups for any employee.
|
|
|
|
Pay for Performance
Our compensation should reflect Company, business segment, and individual performance. |
Balanced Compensation Structure
We seek to deliver a mix of fixed and variable compensation that is aligned with shareholder interests and the long-term interests of the Company and that appropriately balances risk and reward. |
Market-Competitive Pay Opportunity
Our compensation should be competitive relative to our peers in order to attract, motivate and retain a talented executive team. |
•
|
Financial Performance:
How well the Company performed compared to its Annual Plan. For
2018
, the main factor the Committee considered in evaluating financial performance was the Company's PBTR.
|
•
|
Other Performance Factors:
How well the Company performed compared to other secondary financial metrics, key focus areas as well as relative to competitors.
|
–
|
Other Financial Metrics:
How well the Company performed compared to other secondary financial metrics, including net income, return on equity ("ROE") (and risk-adjusted returns), earnings per share ("EPS"), total revenue (defined as net interest income plus other income), net charge-offs, and operating expenses.
|
–
|
Key Focus Areas:
How well the Company accelerated profitable growth, enhanced capabilities and operating models, and matured risk management.
|
–
|
Relative Performance:
How well the Company performed against a select group of competitors on profitability, credit performance, growth, total shareholder return, and other measures.
|
•
|
Risk Performance:
How well the Company performed with respect to risk management, capital adequacy, and regulatory compliance.
|
•
|
Individual Performance:
How well each NEO performed relative to individual objectives, including relative role impact, experience, and internal pay equity.
|
•
Ally Financial, Inc.
•
American Express Company
•
Ameriprise Financial, Inc.
•
Capital One Financial Corporation
•
CIT Group Inc.
•
Comerica Incorporated
|
•
Fidelity National Information Services, Inc.
•
Fifth Third Bancorp
•
Fiserv, Inc.
•
KeyCorp
•
M&T Bank Corporation
|
•
Mastercard Incorporated
•
Regions Financial Corporation
•
Synchrony Financial
•
Visa Inc.
•
The Western Union Company
|
•
|
Achieved operating efficiency ratio
(1)
of
38%
driven by strong revenue growth in Direct Banking; revenue grew faster than expenses as the Company invested in profitable loan growth, global acceptance, new capabilities, and product enhancements.
|
•
|
Continued strong loan and revenue growth while maintaining a disciplined approach to credit.
|
•
|
Enhanced next generation analytical capabilities in customer acquisition, collections, and credit risk, driving strong new accounts and charge-off savings.
|
•
|
Improved network acceptance, domestically and internationally, through increased merchant and acquirer relationships and network-to-network partnerships.
|
•
|
Utilized deposit growth initiatives and capital markets transactions to maintain a balance sheet position to benefit from a rising interest rate environment.
|
•
|
Maintained strong capital position while returning over $2.6 billion
(2)
of capital to shareholders in buybacks and Common Stock dividends.
|
•
|
Maintained a disciplined focus on key initiatives including the launch of the
Discover it® Business credit card with free business features to help small business owners manage their finances, and the relaunch of Identity Theft Protection, a digital fee product that helps Discover cardmembers protect themselves from identity theft or fraud and manage their credit.
|
•
|
Implemented new digital and mobile capabilities focused on operating efficiencies and customer service.
|
|
2018
|
|
Change from 2017
|
|
Total Revenue
(4)
|
$10,709
|
8
|
%
|
|
Net Charge-off Dollars
|
$2,612
|
23
|
%
|
|
Operating Expense
|
$4,077
|
8
|
%
|
|
Net Income
|
$2,742
|
31
|
%
|
|
Diluted Earnings Per Share
|
$7.79
|
44
|
%
|
|
Return on Equity
|
25
|
%
|
6
|
%
|
(1)
|
Operating efficiency ratio represents total other expense divided by revenue net of interest expense.
|
(2)
|
The sum of Common Stock dividends and share repurchases, net of Common Stock issued under stock-based compensation plans.
|
(3)
|
Profit before taxes and reserves ("PBTR") is a non-GAAP financial measure which should be viewed in addition to, not as a substitute for, the Company's reported results. PBTR is derived by adding the increase in the allowance for loan losses of
$423 million
and income tax expense of $
855 million
to net income of
$2,742 million
. The Committee believes that PBTR is a better measure of the core operating performance of the business that increases focus on factors the Company's incentive-eligible employees are most able to directly impact and influence and controls for variability in significant macroeconomic impacts.
|
(4)
|
Total revenue equals the sum of net interest income and other income.
|
•
|
Total loan growth of
7%
, supported by strong sales growth and balance transfer volume. Loan growth is considered a key driver of revenue and future profitability, and the Company continued its strong momentum after achieving 9% loan growth in 2017.
|
•
|
Direct Banking revenue was higher than 2017 by
8%
driven by loan and sales growth as well as net interest margin expansion.
|
•
|
Total net charge-off rate on average loans outstanding of
3.06%
was up from the prior year rate of
2.70%
due primarily to supply-driven credit normalization and the seasoning of loan growth from the last few years.
|
•
|
The Company achieved a strong operating efficiency ratio
(1)
of
38%
as revenue growth of
8%
slightly outpaced that of expenses.
|
•
|
Total network volume was higher than the prior year by
12%
driven by strong PULSE network volume growth of
14%
and Network Partners volume growth of
33%
driven by continued expansion of our AribaPay product.
|
•
|
Payment Services pre-tax earnings of
$
152 million
were above 2017 by
$
7 million
driven by higher revenue from volume growth at PULSE and Network Partners.
|
•
|
Continued progress was made on regulatory matters and maturing risk programs.
|
R. MARK GRAF
Executive Vice President, Chief Financial Officer |
||
|
|
|
2018 COMPENSATION
|
Key Achievements
|
|
|
Exceeded treasury funding goals in the aggregate
Fortified the balance sheet through effective risk and capital management; supported all governing and risk management committee requirements
|
Continued strength in investor relations, including industry recognition for this function
Drove positive operating leverage and drove savings through corporate procurement
Supported maturing risk management, including regulatory risk
|
DIANE E. OFFEREINS
Executive Vice President, President - Payment Services |
||
|
|
|
2018 COMPENSATION
|
Key Achievements
|
|
|
Exceeded Payments Services Annual Plan volume and income target performance in the aggregate
Progressed Payments Strategy
Increased global acceptance through agreements with new and existing partners
Increased network acceptance, network-to-network partners, and issuer base for PULSE
|
Launched PayPal account linking and Pay with CBB; Launched Apple Business Chat
Installed Enterprise Payments Platform to improve Pulse dispute capabilities, align with industry standards, and enhance technology infrastructure
Supported maturing risk management, including regulatory risk
|
CARLOS M. MINETTI
Executive Vice President, President - Consumer Banking |
||
|
|
|
2018 COMPENSATION
|
Key Achievements
|
|
|
Implemented strategies to balance growth, risk, and profitability across Consumer Banking
Met Consumer Banking Annual Plan target for PBTR
Exceeded Annual Plan target for New Deposits and met targets for other banking product new originations
Launched Cashback Checking
|
Led significant improvement in Discover Home Equity versus prior year
Continued focus on building next generation capabilities in banking system platform across Consumer Banking Products
Supported maturing risk management, including regulatory risk
|
DAVID W. NELMS
Executive Chairman |
||
|
|
|
2018 COMPENSATION
|
Key Achievements
|
|
|
Met
Annual Plan target for PBTR and loan growth
Met
EPS target, despite provision higher than Annual Plan
Achieved favorable company operating efficiency ratio
(2)
of 38%
|
Renewed payments volume and profit growth
Progressed Payments strategy
Supported maturing risk management, including regulatory risk
Transitioned seamlessly to the new CEO
|
(1)
|
Discover received the highest score in the J.D. Power 2014-2016 and 2018 Credit Card Satisfaction Studies of customers’ satisfaction with their primary credit card. Visit jdpower.com/awards
|
(2)
|
Operating efficiency ratio represents total other expense divided by revenue net of interest expense.
|
•
|
Review, approve, and administer all compensation programs affecting NEOs and evaluate whether such plans are aligned with the Company’s compensation structure policies;
|
•
|
Annually review and approve:
|
–
|
Performance criteria, goals, and award vehicles used in our compensation plans for our NEOs, and
|
–
|
Performance of and compensation delivered to our NEOs;
|
•
|
Review the Company’s compensation practices to evaluate whether such practices take into account risk outcomes in making compensation determinations and do not encourage imprudent risk-taking;
|
•
|
Oversee the Company’s management development and succession planning efforts; and
|
•
|
Review and approve any contracts, policies, or programs related to compensation, contractual arrangements, or severance plans affecting NEOs.
|
(1)
|
Profit before taxes and reserves ("PBTR") is a non-GAAP financial measure which should be viewed in addition to, not as a substitute for, the Company's reported results. PBTR is derived by adding the increase in the allowance for loan losses of
$423 million
and income tax expense of $
855 million
to net income of
$2,742 million
. The Committee believes that PBTR is a better measure of the core operating performance of the business that increases focus on factors the Company's incentive-eligible employees are most able to directly impact and influence and controls for variability in significant macroeconomic impacts.
|
LONG-TERM INCENTIVE AWARD MIX
|
|
CEO and Executive Chairman
|
All other NEOs
|
|
|
2018 CEO MIX OF COMPENSATION
|
|
Executive
|
Year
|
Salary
(1)
($)
|
|
Stock
Awards (2)
($)
|
|
Non-Equity
Incentive Plan Compensation (3)
($)
|
|
Change in
Pension Value and NQDC Earnings (4)
($)
|
|
All Other
Compensation (5)
($)
|
|
Total
($)
|
Roger C. Hochschild
|
2018
|
840,385
|
|
3,569,969
|
|
1,211,250
|
|
0
|
|
42,498
|
|
5,664,102
|
CEO and President
|
2017
|
800,000
|
|
3,200,017
|
|
1,320,000
|
|
32,668
|
|
18,750
|
|
5,371,435
|
|
2016
|
798,077
|
|
3,199,992
|
|
1,254,000
|
|
14,457
|
|
18,550
|
|
5,285,076
|
R. Mark Graf
|
2018
|
690,385
|
|
2,204,990
|
|
831,250
|
|
0
|
|
39,658
|
|
3,766,283
|
EVP, Chief Financial
|
2017
|
650,000
|
|
1,950,058
|
|
822,250
|
|
0
|
|
18,750
|
|
3,441,058
|
Officer
|
2016
|
649,038
|
|
1,950,014
|
|
781,150
|
|
0
|
|
18,550
|
|
3,398,752
|
Diane E. Offereins
|
2018
|
690,385
|
|
2,204,990
|
|
962,500
|
|
0
|
|
34,758
|
|
3,892,633
|
EVP, President -
|
2017
|
650,000
|
|
1,950,058
|
|
863,375
|
|
28,228
|
|
18,750
|
|
3,510,411
|
Payment Services
|
2016
|
650,000
|
|
3,500,035
|
|
863,375
|
|
17,168
|
|
18,550
|
|
5,049,128
|
Carlos M. Minetti
|
2018
|
690,385
|
|
2,204,990
|
|
787,500
|
|
0
|
|
41,158
|
|
3,724,033
|
EVP, President -
|
2017
|
650,000
|
|
1,950,058
|
|
781,150
|
|
22,718
|
|
18,750
|
|
3,422,676
|
Consumer Banking
|
2016
|
650,000
|
|
3,500,035
|
|
781,150
|
|
10,344
|
|
18,550
|
|
4,960,079
|
Julie Loeger
(6)
|
2018
|
648,077
|
|
1,876,885
|
|
897,850
|
|
0
|
|
44,366
|
|
3,467,178
|
EVP, President -
|
|
|
|
|
|
|
|
|||||
US Cards
|
|
|
|
|
|
|
|
|||||
David W. Nelms
(7)
|
2018
|
1,100,000
|
|
6,930,013
|
|
2,090,000
|
|
0
|
|
48,758
|
|
10,168,771
|
Executive Chairman
|
2017
|
1,080,770
|
|
6,600,021
|
|
2,500,000
|
|
29,391
|
|
18,750
|
|
10,228,932
|
|
2016
|
1,000,000
|
|
6,000,039
|
|
1,741,250
|
|
16,184
|
|
18,550
|
|
8,776,023
|
(1)
|
Represents the base salary earned during the year. Prior year base salary earned has been updated to reflect actual salary paid as follows: Mr. Hochschild's 2016 salary from $800,000 to $798,077; Mr. Graf's 2016 salary from $650,000 to $649,038; and Mr. Nelms' 2017 salary from $1,100,000 to $1,080,770.
|
(2)
|
Represents the aggregate grant date fair value of RSU and PSU awards granted to the NEOs pursuant to FASB ASC Topic 718. The value of PSUs is based on the probable outcome of the performance conditions on the grant date. The grant date fair value of the PSUs granted for
2018
, assuming the highest level of performance conditions is met was $
3,748,483
for Mr. Hochschild; $
1,984,491
for Mr. Graf; $
1,984,491
for Ms. Offereins; $
1,984,491
for Mr. Minetti;
$1,689,197
for Ms. Loeger; and $
7,796,304
for Mr. Nelms. Please see "Components of Compensation" for further details on our LTI program. Additional details on accounting for stock-based compensation can be found in Note 2: "Summary of Significant Accounting Policies — Stock-based Compensation" and Note 10: "Stock-Based Compensation Plans" of our consolidated financial statements in our Annual Report on Form 10-K.
|
(3)
|
Represents the annual cash short-term incentive earned for the year and paid to the NEOs within the first two and a half months of the following year if employed on the payment date.
|
(4)
|
Represents the actuarial increase during the year in the pension value, primarily due to the change in the Pension Plan discount rate and mortality tables. The change in pension value for eligible NEOs resulted in negative amounts in 2018 for Mr. Hochschild $(18,085), Ms. Offereins $(12,016), Mr. Minetti $(11,634), Ms. Loeger $(30,542), and Mr. Nelms $(14,808). For details on the valuation method and assumptions used in calculating the present value of accumulated benefit, please see Note 11: "Employee Benefit Plans" of our consolidated financial statements in our Annual Report on Form 10-K. There were no above market nonqualified deferred compensation earnings for the NEOs. A description of the Company's pension benefits is provided under "2018 Pension Benefits."
|
(5)
|
Represents the incremental cost to the Company of providing certain perquisites and other personal benefits. For 2018, these amounts include:
|
Executive
|
401(k) Contributions
(a)
($)
|
|
Charitable Contributions
(b)
($)
|
|
Other
(c)
($)
|
|
Total
($)
|
|
Roger C. Hochschild
|
19,100
|
|
10,000
|
|
13,398
|
|
42,498
|
|
R. Mark Graf
|
19,100
|
|
10,000
|
|
10,558
|
|
39,658
|
|
Diane E. Offereins
|
19,100
|
|
4,500
|
|
11,158
|
|
34,758
|
|
Carlos M. Minetti
|
19,100
|
|
10,000
|
|
12,058
|
|
41,158
|
|
Julie Loeger
|
19,100
|
|
14,500
|
|
10,766
|
|
44,366
|
|
David W. Nelms
|
19,100
|
|
20,000
|
|
9,658
|
|
48,758
|
|
(a)
|
Represents the Company's contributions to the Discover 401(k) Plan for each NEO during each calendar year.
|
(b)
|
Represents contributions made by the Company to charitable organizations chosen by each NEO, as well as contributions made on behalf of certain NEOs under our charitable contribution matching programs, under which personal contributions meeting the guidelines of our program are eligible for Company matching contributions (exceeding the amount generally available to the broader employee population).
|
(c)
|
Includes costs of perquisites or personal benefits that do not exceed the greater of $25,000 or 10% of the total amount of perquisites and personal benefits or have no aggregate incremental cost to the Company including the following: airline concierge keys, the Company’s cost for providing a personal security assessment and additional personal security services to each NEO, the aggregate incremental cost attributable to each NEO for access to/use of the Company’s Executive Fitness Center, the estimated resale value of gifts received from third parties, and estimated resale value of Company tickets for sporting, cultural or other events for personal use when they are not otherwise used for business purposes.
|
(6)
|
Prior year compensation information has been intentionally omitted, as this is Ms. Loeger's first year as a Company NEO.
|
(7)
|
Mr. Nelms served as the Company's Chief Executive Officer until October 1, 2018. Mr. Nelms continued to serve on the Board and remained the Company's Executive Chairman until December 31, 2018. Effective December 31, 2018, Mr. Nelms stepped down as Executive Chairman and as a Director, but remained an executive officer of the Company until his retirement in March 2019.
|
|
|
Estimated future
payouts under
non-equity
incentive plan
awards
(1)
|
|
Estimated future payouts under
equity incentive plan awards
(2)
|
All Other Stock
Awards:
Number of
Shares of Stock
or Units
(3)
(#)
|
|
Grant Date
Fair Value of
Stock and
Option
Awards
(4)
($)
|
|
|||||
Name
|
Grant Date
|
Target
($)
|
|
|
Threshold
(#)
|
Target
(#)
|
|
Maximum
(#)
|
|
||||
Roger C. Hochschild
|
|
1,275,000
|
|
|
|
|
|
|
|
|
|
|
|
|
2/22/2018
|
|
|
|
|
|
|
|
|
13,775
|
|
1,071,006
|
|
|
2/22/2018
|
|
|
|
0
|
32,141
|
|
48,212
|
|
|
|
2,498,963
|
|
R. Mark Graf
|
|
875,000
|
|
|
|
|
|
|
|
|
|
|
|
|
2/22/2018
|
|
|
|
|
|
|
|
|
11,344
|
|
881,996
|
|
|
2/22/2018
|
|
|
|
0
|
17,016
|
|
25,524
|
|
|
|
1,322,994
|
|
Diane E. Offereins
|
|
875,000
|
|
|
|
|
|
|
|
|
|
|
|
|
2/22/2018
|
|
|
|
|
|
|
|
|
11,344
|
|
881,996
|
|
|
2/22/2018
|
|
|
|
0
|
17,016
|
|
25,524
|
|
|
|
1,322,994
|
|
Carlos M. Minetti
|
|
875,000
|
|
|
|
|
|
|
|
|
|
|
|
|
2/22/2018
|
|
|
|
|
|
|
|
|
11,344
|
|
881,996
|
|
|
2/22/2018
|
|
|
|
0
|
17,016
|
|
25,524
|
|
|
|
1,322,994
|
|
Julie Loeger
|
|
816,219
|
|
|
|
|
|
|
|
||||
|
2/22/2018
|
|
|
|
|
|
9,656
|
|
750,754
|
|
|||
|
2/22/2018
|
|
|
0
|
14,484
|
|
21,726
|
|
|
1,126,131
|
|
||
David W. Nelms
|
|
2,200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
2/22/2018
|
|
|
|
|
|
|
|
|
22,283
|
|
1,732,503
|
|
|
2/22/2018
|
|
|
|
0
|
66,849
|
|
100,274
|
|
|
|
5,197,510
|
|
(1)
|
Represents the target payout under the annual STI program. Payments can range above or below target primarily based on annual Company PBTR. The Compensation Committee also considers other secondary Company-wide metrics as described in more detail under "Components of Compensation — Short-Term Incentive Program." Because there is no threshold or maximum payout, those columns have been omitted in accordance with SEC rules. Actual payout amounts for
2018
are included in the "Non-Equity Incentive Plan Compensation" column of the "
2018
Summary Compensation Table."
|
(2)
|
Represents PSUs awarded in February
2018
under the 2014 Omnibus Incentive Plan. PSUs will vest and convert to shares of Common Stock on February 1,
2021
, within the represented threshold and maximum amounts, depending on the extent the Company exceeds specific cumulative EPS performance goals over the three-year period and provided the executive remains employed by the Company (with exceptions for certain termination events as detailed below), and are subject to an evaluation of compliance with the Company’s risk policies. The entire PSU award will be canceled if the minimum cumulative EPS performance threshold is not met. To the extent the NEO voluntarily terminates from the Company or is terminated for cause prior to the scheduled vesting date, other than as described below, none of the PSUs will vest and the entire award will be forfeited. In certain instances of a termination of the NEO’s employment prior to the scheduled vesting date, including due to (i) involuntary termination such as a reduction in force or elimination of the executive’s position, provided that a fully-executed irrevocable release agreement is executed or (ii) the executive's eligible retirement, a pro-rata portion of the PSUs will vest and convert to shares following the conclusion of the performance and vesting periods, based on actual performance. In the event of death or disability, the award will vest and shares will convert and be paid at the end of the performance period based on actual performance achieved. In the event of a change in control of the Company during the first year of the performance period, the award will convert to cash at target performance and be paid out according to the vesting schedule or sooner in the event of a qualified termination following the change in control event. In the event of a change in control of the Company during the second or third year of the performance period, performance will be measured through the last day of the Company’s quarter preceding the change in control and the award will then be converted to cash and paid out according to the vesting schedule or sooner in the event of a qualified termination following the change in control event.
|
(3)
|
Represents RSUs awarded in February
2018
under the 2014 Omnibus Incentive Plan, which are expected to vest and convert in three equal installments on February 1,
2019
,
2020
and
2021
. In certain instances of a termination of the NEO’s employment prior to the scheduled vesting date, including due to (i) involuntary termination such as a reduction in force or elimination of the executive’s position, provided that a fully-executed irrevocable release agreement is executed or (ii) the executive's eligible retirement, a pro-rata portion of the RSUs will vest and convert to shares. Vesting of these RSUs will be accelerated in the event of termination of the executive’s employment due to (i) a change in control or (ii) the executive’s death or disability. Unvested RSUs will be canceled in the event of a termination of employment for any other reason.
|
(4)
|
Represents the aggregate grant date fair value of the awards pursuant to FASB ASC Topic 718. Additional details on accounting for stock-based compensation can be found in Note 2: "Summary of Significant Accounting Policies - Stock-based Compensation" and Note 10: "Stock-Based Compensation Plans" of our consolidated financial statements contained in our Annual Report on Form 10-K.
|
|
Stock Awards
(1)
|
|||||||||
|
Number of Shares, Units or Other Rights That Have Not Vested
(#)
|
|
|
Market Value of Shares, Units or Other Rights That Have Not Vested
($)
|
|
|
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested
(#)
|
|
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
($)
|
|
Roger C. Hochschild
(2)
|
100,000
|
(3)
|
5,898,000
|
|
|
47,211
|
(8)
|
2,784,505
|
|
|
|
6,585
|
(4)
|
388,383
|
|
|
48,212
|
(9)
|
2,843,544
|
|
|
|
8,992
|
(5)
|
530,348
|
|
|
|
|
|
||
|
13,775
|
(6)
|
812,450
|
|
|
|
|
|
||
|
49,788
|
(7)
|
2,936,496
|
|
|
|
|
|
||
R. Mark Graf
|
17,149
|
(4)
|
1,011,448
|
|
|
24,660
|
(8)
|
1,454,447
|
|
|
|
5,351
|
(4)
|
315,602
|
|
|
25,524
|
(9)
|
1,505,406
|
|
|
|
7,306
|
(5)
|
430,908
|
|
|
|
|
|
||
|
11,344
|
(6)
|
669,069
|
|
|
|
|
|
||
|
26,005
|
(7)
|
1,533,775
|
|
|
|
|
|
||
Diane E. Offereins
|
9,604
|
(4)
|
566,444
|
|
|
24,660
|
(8)
|
1,454,447
|
|
|
|
7,306
|
(5)
|
430,908
|
|
|
25,524
|
(9)
|
1,505,406
|
|
|
|
11,344
|
(6)
|
669,069
|
|
|
|
|
|
||
|
46,677
|
(7)
|
2,753,009
|
|
|
|
|
|
||
Carlos M. Minetti
|
9,604
|
(4)
|
566,444
|
|
|
24,660
|
(8)
|
1,454,447
|
|
|
|
7,306
|
(5)
|
430,908
|
|
|
25,524
|
(9)
|
1,505,406
|
|
|
|
11,344
|
(6)
|
669,069
|
|
|
|
|
|
||
|
46,677
|
(7)
|
2,753,009
|
|
|
|
|
|
||
Julie Loeger
|
4,665
|
(4)
|
275,142
|
|
|
23,394
|
(8)
|
1,379,778
|
|
|
|
6,932
|
(5)
|
408,849
|
|
|
21,726
|
(9)
|
1,281,399
|
|
|
|
9,656
|
(6)
|
569,511
|
|
|
|
|
|
||
|
22,671
|
(7)
|
1,337,136
|
|
|
|
|
|
||
David W. Nelms
(2)
|
10,290
|
(4)
|
606,904
|
|
|
104,328
|
(8)
|
6,153,265
|
|
|
|
15,456
|
(5)
|
911,595
|
|
|
100,274
|
(9)
|
5,914,161
|
|
|
|
22,283
|
(6)
|
1,314,251
|
|
|
|
|
|
||
|
100,021
|
|
(7)
|
5,899,239
|
|
|
|
|
|
(1)
|
All equity award values are based on a
December 31, 2018
closing stock price of
$58.98
per share of our Common Stock. RSUs include the right to receive dividend equivalents in the same amount and at the same time as dividends are paid to all Company common shareholders. PSUs include the right to receive dividend equivalents which will accumulate and pay out in cash if and when the underlying shares are released to the NEOs.
|
(2)
|
Excludes
502,557
deferred RSUs for Mr. Nelms and
430,763
deferred RSUs for Mr. Hochschild, as described in "
2018
Nonqualified Deferred Compensation Table." These shares will convert to shares of Common Stock when Mr. Nelms and Mr. Hochschild leave the Company.
|
(3)
|
These RSUs are expected to vest and convert to shares of Common Stock on December 17, 2020.
|
(4)
|
These RSUs vested and converted to shares of Common Stock on February 1,
2019
.
|
(5)
|
These RSUs vested or are expected to vest and convert to shares of Common Stock in equal installments on February 1,
2019
and
2020
.
|
(6)
|
These RSUs vested or are expected to vest and convert to shares of Common Stock in equal installments on February 1,
2019
, 2020 and
2021
.
|
(7)
|
These PSUs vested and converted to shares of Common Stock on February 1,
2019
, based on EPS performance and after a satisfactory risk policies review. Amounts reported reflect the actual vesting level as determined by the Committee following its review of performance and risk assessment.
|
(8)
|
These PSUs are expected to vest and convert to shares of Common Stock on February 1,
2020
, if the performance conditions are met and the risk policies review is satisfactory. As required under applicable SEC guidance, because cumulative performance exceeded the target level, unvested PSUs are shown at the amounts corresponding to, and assuming achievement of, the maximum performance level for the full performance period. The final payout will be determined by the Committee and may be less than amount shown.
|
(9)
|
These PSUs are expected to vest and convert to shares of Common Stock on February 1,
2021
, if the performance conditions are met and the risk policies review is satisfactory. As required under applicable SEC guidance, because performance during the first year of the performance period exceeded the target level, unvested PSUs are shown at the amounts corresponding to, and assuming achievement of, the maximum performance level for the full performance period. The final payout will be determined by the Committee and may be less than amount shown.
|
|
Stock Awards
|
|||
Name
|
Number of Shares
Acquired on Vesting (#) |
|
Value Realized on Vesting
(1)
($) |
|
Roger C. Hochschild
|
61,011
|
|
4,918,707
|
|
R. Mark Graf
|
52,101
|
|
4,200,383
|
|
Diane E. Offereins
|
42,697
|
|
3,442,232
|
|
Carlos M. Minetti
|
42,697
|
|
3,442,232
|
|
Julie Loeger
|
16,716
|
|
1,347,644
|
|
David W. Nelms
|
322,520
|
|
21,673,562
|
|
(1)
|
The amount shown represents the closing price of a share of our Common Stock on the scheduled vesting date multiplied by the number of RSUs and PSUs that vested.
|
Name
|
Plan Name
|
Number of Years
of Credited
Service
(1)
(#)
|
|
Present Value of
Accumulated
Benefit
(2)(3)
($)
|
|
Roger C. Hochschild
|
Discover Financial Services Pension Plan
|
9.1667
|
|
192,892
|
|
R. Mark Graf
(4)
|
Discover Financial Services Pension Plan
|
n/a
|
|
n/a
|
|
Diane E. Offereins
|
Discover Financial Services Pension Plan
|
9.0833
|
|
242,109
|
|
Carlos M. Minetti
|
Discover Financial Services Pension Plan
|
7.0000
|
|
146,958
|
|
Julie Loeger
|
Discover Financial Services Pension Plan
|
16.8333
|
|
360,815
|
|
David W. Nelms
|
Discover Financial Services Pension Plan
|
9.3333
|
|
210,316
|
|
(1)
|
For actuarial valuation purposes, credited service is attributed through the measurement date of December 31, 2008, the date that the Discover Pension Plan was frozen.
|
(2)
|
Service credit and actuarial values are calculated as of December 31,
2018
, the plan’s measurement date for the last year.
|
(3)
|
For details on the valuation method and assumptions used in calculating the present value of accumulated benefit, please see Note 11: "Employee Benefit Plans" of our consolidated financial statements in our Annual Report on Form 10-K.
|
(4)
|
Mr. Graf does not participate in the Discover Pension Plan as he was hired after it was frozen.
|
Name
|
Plan Name
|
Executive
Contributions
in Last FY
($)
|
|
Registrant
Contributions
in Last FY
($)
|
|
Aggregate
Earnings in
Last FY
(1)
($)
|
|
Aggregate
Withdrawals/
Distributions
($)
|
|
Aggregate
Balance at
Last FYE
($)
|
|
Roger C. Hochschild
|
2007 Omnibus Incentive Plan
|
—
|
|
—
|
|
(7,727,888
|
)
|
—
|
|
25,406,402
|
|
David W. Nelms
|
2007 Omnibus Incentive Plan
|
—
|
|
—
|
|
(9,015,873
|
)
|
—
|
|
29,640,812
|
|
(1)
|
Reflects decrease in value of deferred RSUs due to decline in stock price as compared to December 31, 2017. Excludes cash dividend equivalent payments of $
753,836
and $
646,145
paid on deferred RSUs for Mr. Nelms and Mr. Hochschild, respectively.
|
•
|
A lump sum cash payment equal to 1.5 times the sum of his or her annual base salary plus average cash bonus paid in the prior three years or, if the NEO has been an employee for less than three years, the number of years the NEO has been employed by the Company;
|
•
|
A lump sum cash payment equal to the prorated target cash bonus under the Company’s incentive compensation plans for the year of termination, or if no target was established for the year of termination, the annual cash bonus for the prior year;
|
•
|
Full vesting of all stock-based awards granted to the NEO under the Company’s incentive compensation plans;
|
•
|
Outplacement services for a period of two years at the Company’s expense with a firm selected by the Company;
|
•
|
Certain legal fees if the NEO commences litigation after exhausting the internal administrative claims procedure and, as a result, becomes entitled to receive benefits in an amount greater than those offered by the Company prior to such litigation; and
|
•
|
A lump sum cash payment equal to the difference between COBRA (for medical, dental and vision) and active employee premiums for 24 months.
|
•
|
A lump sum cash payment of 12 months of his or her annual base salary plus target annual cash bonus;
|
•
|
A lump sum cash payment equal to the prorated target annual cash bonus under the Company’s incentive compensation plan for any prior year and the year of termination (to the extent earned and not yet paid);
|
•
|
Outplacement services for a period of one year at the Company’s expense with a firm selected by the Company; and
|
•
|
A lump sum cash payment equal to 12 months of the applicable premium for group health plan coverage in place prior to termination of employment, plus a payment for income taxes on such amount.
|
Executive
Payment Elements
|
Termination in
Connection
with a Change
in Control
($)
|
|
Involuntary
Termination
Without
Cause
($)
|
|
Death
($)
|
Disability
($)
|
Voluntary Termination or Involuntary Termination with Cause
($)
|
Retirement
(7)
($)
|
Roger C. Hochschild
|
|
|
|
|
|
|
|
|
Salary and Other Cash Payments
|
6,080,250
|
(1)
|
2,125,000
|
|
70,833
|
0
|
0
|
n/a
|
Target Annual Incentive Plan Payout
(2)
|
1,275,000
|
|
1,275,000
|
|
1,275,000
|
1,275,000
|
0
|
n/a
|
Equity Awards
(3)
|
15,331,751
|
|
15,584,457
|
|
15,584,457
|
15,584,457
|
0
|
n/a
|
Health Coverage
(4)
|
29,290
|
|
30,921
|
|
0
|
0
|
0
|
n/a
|
Other
(5)
|
25,000
|
|
12,500
|
|
0
|
0
|
0
|
n/a
|
Section 280G Cut-Back
(6)
|
0
|
|
n/a
|
|
n/a
|
n/a
|
n/a
|
n/a
|
Total
|
22,741,291
|
|
19,027,878
|
|
16,930,290
|
16,859,457
|
0
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
Payment Elements
|
Termination in
Connection
with a Change
in Control
($)
|
|
Involuntary
Termination
Without
Cause
($)
|
|
Death
($)
|
Disability
($)
|
Voluntary Termination or Involuntary Termination with Cause
($)
|
Retirement
(7)
($)
|
R. Mark Graf
|
|
|
|
|
|
|
|
|
Salary and Other Cash Payments
|
4,359,400
|
(1)
|
1,575,000
|
|
58,333
|
0
|
0
|
n/a
|
Target Annual Incentive Plan Payout
(2)
|
875,000
|
|
875,000
|
|
875,000
|
875,000
|
0
|
n/a
|
Equity Awards
(3)
|
6,464,075
|
|
6,597,861
|
|
6,597,861
|
6,597,861
|
0
|
n/a
|
Health Coverage
(4)
|
29,589
|
|
25,486
|
|
0
|
0
|
0
|
n/a
|
Other
(5)
|
25,000
|
|
12,500
|
|
0
|
0
|
0
|
n/a
|
Section 280G Cut-Back
(6)
|
0
|
|
n/a
|
|
n/a
|
n/a
|
n/a
|
n/a
|
Total
|
11,753,064
|
|
9,085,847
|
|
7,531,194
|
7,472,861
|
0
|
n/a
|
Diane E. Offereins
|
|
|
|
|
|
|
|
|
Salary and Other Cash Payments
|
4,614,250
|
(1)
|
1,575,000
|
|
58,333
|
0
|
0
|
0
|
Target Annual Incentive Plan Payout
(2)
|
875,000
|
|
875,000
|
|
875,000
|
875,000
|
0
|
875,000
|
Equity Awards
(3)
|
7,004,514
|
|
7,138,301
|
|
7,138,301
|
7,138,301
|
0
|
7,138,301
|
Health Coverage
(4)
|
8,820
|
|
10,016
|
|
0
|
0
|
0
|
0
|
Other
(5)
|
25,000
|
|
12,500
|
|
0
|
0
|
0
|
0
|
Section 280G Cut-Back
(6)
|
0
|
|
n/a
|
|
n/a
|
n/a
|
n/a
|
n/a
|
Total
|
12,527,584
|
|
9,610,817
|
|
8,071,634
|
8,013,301
|
0
|
8,013,301
|
Carlos M. Minetti
|
|
|
|
|
|
|
|
|
Salary and Other Cash Payments
|
4,372,300
|
(1)
|
1,575,000
|
|
58,333
|
0
|
0
|
0
|
Target Annual Incentive Plan Payout
(2)
|
875,000
|
|
875,000
|
|
875,000
|
875,000
|
0
|
875,000
|
Equity Awards
(3)
|
7,004,514
|
|
7,138,301
|
|
7,138,301
|
7,138,301
|
0
|
7,138,301
|
Health Coverage
(4)
|
31,229
|
|
29,063
|
|
0
|
0
|
0
|
0
|
Other
(5)
|
25,000
|
|
12,500
|
|
0
|
0
|
0
|
0
|
Section 280G Cut-Back
(6)
|
0
|
|
n/a
|
|
n/a
|
n/a
|
n/a
|
n/a
|
Total
|
12,308,043
|
|
9,629,864
|
|
8,071,634
|
8,013,301
|
0
|
8,013,301
|
Julie Loeger
|
|
|
|
|
|
|
|
|
Salary and Other Cash Payments
|
3,785,750
|
(1)
|
1,516,219
|
|
58,333
|
0
|
0
|
0
|
Target Annual Incentive Plan Payout
(2)
|
816,219
|
|
816,219
|
|
816,219
|
816,219
|
0
|
816,219
|
Equity Awards
(3)
|
4,857,183
|
|
4,971,062
|
|
4,971,062
|
4,971,062
|
0
|
4,971,062
|
Health Coverage
(4)
|
0
|
|
0
|
|
0
|
0
|
0
|
0
|
Other
(5)
|
25,000
|
|
12,500
|
|
0
|
0
|
0
|
0
|
Section 280G Cut-Back
(6)
|
0
|
|
n/a
|
|
n/a
|
n/a
|
n/a
|
n/a
|
Total
|
9,484,152
|
|
7,316,000
|
|
5,845,614
|
5,787,281
|
0
|
5,787,281
|
David W. Nelms
|
|
|
|
|
|
|
|
|
Salary and Other Cash Payments
|
9,028,750
|
(1)
|
3,300,000
|
|
91,667
|
0
|
0
|
0
|
Target Annual Incentive Plan Payout
(2)
|
2,200,000
|
|
2,200,000
|
|
2,200,000
|
2,200,000
|
0
|
2,200,000
|
Equity Awards
(3)
|
18,971,942
|
|
19,497,536
|
|
19,497,536
|
19,497,536
|
0
|
19,497,536
|
Health Coverage
(4)
|
20,484
|
|
19,020
|
|
0
|
0
|
0
|
0
|
Other
(5)
|
25,000
|
|
12,500
|
|
0
|
0
|
0
|
0
|
Section 280G Cut-Back
(6)
|
0
|
|
n/a
|
|
n/a
|
n/a
|
n/a
|
n/a
|
Total
|
30,246,176
|
|
25,029,056
|
|
21,789,203
|
21,697,536
|
0
|
21,697,536
|
(1)
|
Includes change in control severance and consideration for entering into the non-competition agreement.
|
(2)
|
Includes pro rata bonus at target. Since termination is as of December 31, 2018, the value is equal to the target disclosed in the Estimated Future Payouts Under Non-Equity Incentive Plan Awards column under "Grants of Plan-Based Awards for 2018". The value for Mr. Nelms is reflective of his participation in the 2018 Annual Incentive Plan. He will not participate in the 2019 plan.
|
(3)
|
Represents the intrinsic value of the accelerated RSUs, PSUs, and accrued PSU dividends, all as of December 31,
2018
. For the PSUs, in the event of a qualified termination following a change in control of the Company during the first year of the performance period, the award will convert to cash at target performance and be paid out according to the vesting schedule, or sooner in the event of a qualified termination following the change in control event. In the event of a change in control of the Company during the second or third year of the performance period, performance will be measured through the last day of the Company’s quarter preceding the change in control and the award will then be converted to cash and paid out according to the vesting schedule or sooner in the event of a qualified termination following the change in control event. RSUs and PSUs have double trigger
|
(4)
|
For termination in connection with a change in control, a lump sum payment equal to the difference between COBRA (for medical, dental and vision) and active employee health and welfare premiums for 24 months. For involuntary termination without cause, a lump sum payment equal to 12 months of COBRA premiums (for medical, dental and vision) plus a payment for income taxes on such amount.
|
(5)
|
Includes value of expected outplacement benefits for a 24-month period for termination in connection with a change in control and for a 12-month period for involuntary termination without cause.
|
(6)
|
Payments made in the event of a qualified termination following a change in control of the Company that would qualify as “parachute payments” under Section 280G of the Internal Revenue Code may be subject to a reduction, referred to here as the “Section 280G Cut-Back,” to the extent that they are deductible under that section, provided that the after-tax benefit (inclusive of any applicable excise tax) is greater than that which the executive would have received if no reduction was made. In 2018, none of our NEOs would have been subject to such a reduction.
|
(7)
|
Messrs. Nelms and Minetti and Mses. Offereins and Loeger are eligible for retirement. For purposes of illustration, includes a proration of outstanding equity awards as well as the bonus at target equal to the value disclosed in the Estimated Future Payouts Under Non-Equity Incentive Plan Awards column under “Grants of Plan-Based Awards for 2018,” but excludes the pension benefits described under “2018 Pension Benefits." The value for Mr. Nelms is reflective of his participation in the 2018 Annual Incentive Plan. He will not participate in the 2019 plan.
|
(1)
|
We excluded employees from the following countries: four from Canada, 180 from China, four from France, two from Germany, five from India, one from Japan, eight from Singapore, one from Sweden, one from Switzerland, one from Turkey, one from the United Arab Emirates, and 150 from the United Kingdom.
|
|
|
|
PROPOSAL 3
Ratification of Appointment of Independent Registered Public Accounting Firm
The Board of Directors recommends a vote
“FOR”
the ratification of Deloitte’s appointment as our independent registered public accounting firm for the 2019 year. Proxies solicited by the Board will be voted
“FOR”
this ratification unless otherwise instructed.
The Audit Committee has the sole authority and responsibility to appoint, compensate, retain, oversee, evaluate and, when appropriate, replace the independent public accounting firm. Each year the Audit Committee evaluates the qualifications and performance of the independent public accounting firm and considers, as appropriate, the rotation of the independent audit firm. Based on this evaluation, the Board of Directors and the Audit Committee recommend that you approve the ratification of the appointment of Deloitte & Touche LLP (“Deloitte”) to serve as our independent registered public accounting firm for the 2019 year. The Board of Directors and the Audit Committee believe the continued retention of Deloitte is in the best interest of the Company and its shareholders. Deloitte has served as the independent registered public accounting firm for the Company since 2007 and its former parent company, Morgan Stanley, prior to that time. Consistent with the regulations adopted pursuant to the Sarbanes-Oxley Act of 2002 and the Audit Committee’s Charter, the lead audit partner having primary responsibility for the audit and the concurring audit partner are rotated every five years. In connection with this mandated rotation, the Audit Committee and its chair are directly involved in the selection of any new lead audit partner. The current lead Deloitte audit partner was designated commencing with the 2017 audit. A representative of Deloitte will be present at the Annual Meeting, will have the opportunity to make a statement, if desired, and will be available to respond to appropriate questions.
|
|
|
2018
($)
|
2017
($)
|
Audit Fees
(1)
|
5,541
|
5,256
|
Audit-Related Fees
(2)
|
1,695
|
1,507
|
All Other Fees
(3)
|
4
|
4
|
Total
|
7,240
|
6,767
|
(1)
|
Audit Fees services include: (i) the audit of our consolidated financial statements included in our Annual Report on Form 10-K and services attendant to, or required by, statute or regulation; (ii) accounting consultation attendant to the audit; (iii) reviews of the interim condensed consolidated financial statements included in our Quarterly Reports on Form 10-Q; (iv) consents and other services related to SEC and other regulatory filings; and (v) statutory or financial audits of subsidiaries.
|
(2)
|
Audit-Related Fees services include: (i) data verification and agreed-upon procedures related to asset securitizations; (ii) assessment and testing of internal controls and risk management processes beyond the level required as part of the audit pursuant to Statement on Standards for Attestation Engagements No. 16; (iii) agreed-upon procedures related to XBRL tagging of our consolidated financial statements included in our Annual Report on Form 10-K and our interim condensed consolidated financial statements included in our Quarterly Reports on Form 10-Q; and (iv) other consultations on financial accounting and reporting matters not classified as audit.
|
(3)
|
All Other Fees include fees for Deloitte’s accounting research tool.
|
|
|
|
PROPOSAL 4
Amend the Company's Amended and Restated Certificate of Incorporation to Eliminate Supermajority Voting Requirements
The Board of Directors recommends that you vote
“FOR”
the amendments to eliminate supermajority voting requirements in the Company’s Amended and Restated Certificate of Incorporation. Proxies solicited by the Board will be voted
“FOR”
this proposal unless otherwise instructed.
Management Proposal
At our 2018 Annual Shareholders’ Meeting, shareholders approved an advisory proposal that requested the Board of Directors to take the steps necessary to eliminate any voting requirements in the Company’s charter and bylaws that call for a greater than simple majority vote of shareholders. After careful consideration of a variety of factors, including the level of shareholder support for the advisory proposal, the Board has adopted proposed amendments to eliminate the supermajority voting requirements in our Amended and Restated Certificate of Incorporation (“Certificate of Incorporation”) and is recommending that shareholders approve and adopt such amendments.
Currently, the voting requirement in Article 5 of our Certificate of Incorporation provides that at least 80 percent of the voting power of the outstanding voting stock of the Company is required in order for shareholders to alter, amend, or repeal any provision of our Amended and Restated Bylaws (“Bylaws”), or to adopt a new Bylaw. Article 10 reinforces this supermajority voting requirement by requiring that 80 percent of the voting power of the outstanding voting stock of the Company is required to amend the supermajority voting requirement in Article 5 and the supermajority voting requirement of Article 10 itself.
The Board of Directors recognizes that many shareholders believe that a majority voting standard will provide shareholders with a greater voice in expressing their views on matters impacting a corporation. The Board of Directors believes reducing the voting standard is in the best interest of shareholders. Approval of this proposal will allow a simple majority of the Company’s outstanding shares to (a) amend the Company’s Bylaws, (b) adopt a new Bylaw, and (c) upon prior approval by the Board of Directors, amend the voting threshold with respect to shareholder-approved Bylaw amendments.
The proposed changes to the Certificate of Incorporation are set forth in their entirety in
Exhibit A
, with deletions indicated by strike-outs and additions indicated by underlining. In accordance with Delaware law, the Board of Directors, upon the recommendation of the Nominating and Governance Committee, has adopted resolutions approving and declaring advisable these proposed amendments and is recommending them to shareholders for approval and adoption. This summary of the proposed amendments is qualified in its entirety by reference to
Exhibit A
.
Under Article 10 of our Certificate of Incorporation, approval of this proposal requires the affirmative vote of the holders of at least 80% of the voting power of the Company’s outstanding common stock. Abstentions and broker non-votes will have the effect of votes against the proposal. If this proposal 4 is approved by shareholders, the Board has authorized the officers of the Company to file with the Delaware Secretary of State a certificate of amendment to our Certificate of Incorporation incorporating the amendments set forth in
Exhibit A
. The amendments will become effective on the date the certificate of amendment is filed with the Delaware Secretary of State (or at such later effective date set forth in the certificate of amendment). If this proposal 4 is not approved by the requisite vote, the amendments will not be implemented and the current voting requirement set forth in Article 10 of our Certificate of Incorporation will remain in place. The approval of this proposal 4 is not conditioned on the approval of any other proposal. If the shareholders approve and adopt these proposed amendments, the Board of Directors retains the discretion to abandon and not implement any of such amendments. If the Board of Directors exercises this discretion, it will publicly disclose that fact and the reasons for its determination.
Based on the outcome of the vote for this proposal, the Board of Directors will consider amending the related provision of the Bylaws that currently requires a supermajority voting requirement for shareholders to amend the Bylaws.
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|
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|
|
PROPOSAL 5
Amend the Company's Amended and Restated Certificate of Incorporation to Grant Shareholders the Right to Call Special Meetings
The Board of Directors recommends that you vote
“FOR”
the amendments to grant shareholders the right to call special meetings. Proxies solicited by the Board will be voted
“FOR”
this proposal unless otherwise instructed.
Management Proposal
The Board of Directors is requesting that shareholders approve and adopt amendments to our Amended and Restated Certificate of Incorporation (“Certificate of Incorporation”) that would enable shareholders who have, or persons acting on behalf of shareholders who have, beneficial ownership (as then defined in our Amended and Restated Bylaws (“Bylaws”)) of at least 25% of our outstanding shares of common stock to request the Secretary of the Company to call a special meeting of shareholders, subject to the requirements and procedures set forth in the Bylaws, as now or hereinafter in effect. Pursuant to our Certificate of Incorporation, our Bylaws (as amended from time to time) may define beneficial ownership (including without limitation to require ownership of a “net long position” and to require ownership for a minimum period of time) to exclude one or more shares from being deemed owned by any person for purposes of requesting a special meeting.
Currently, only the Secretary of the Company may call a special meeting of shareholders at the direction of the Board of Directors. The Board frequently reviews corporate governance best practices and, after due consideration, including a review of the shareholder proposal included as proposal 6 below, has determined that our shareholders should be permitted to call special meetings.
This right is increasingly considered by some shareholders to be an important element of good corporate governance. While the Board recognizes that providing a shareholder right to call special meetings is consistent with evolving best practices, the Board also believes that special meetings of shareholders should be extraordinary events that are held only when strategic concerns or other similar considerations require that the matters to be addressed not be delayed until the next annual meeting. Special meetings are expensive and time-consuming for the Company and potentially disruptive to its normal business operations.
Therefore, the Board determined to include a 25% threshold to call a special meeting based on several factors. First, the Company maintains robust governance practices that promote Board accountability, including, for example (i) a market-standard proxy access right that permits eligible shareholders to include their eligible director nominees in the Company’s proxy statement; (ii) majority voting in uncontested director elections, with a resignation policy mandating that directors who fail to receive the required majority vote tender their resignations for consideration by the Board; (iii) annual elections of all directors; and (iv) the proposed elimination of supermajority voting requirements in the Company’s governing documents in response to approval of a shareholder proposal on the topic at last year’s annual shareholders’ meeting (see Proposal 4 on page 52). Second, a small percentage of shareholders should not be entitled to utilize the right to call a special meeting for their own interests, which may not be shared by the majority of the Company’s shareholders. Third, benchmarking against S&P 500 companies and the Company’s peers as disclosed in this proxy statement indicated that the 25% threshold is lower than or the same as the most prevalent special meeting thresholds adopted by those companies.
Additionally, the exclusion of derivative securities from the determination of satisfaction of the prescribed ownership threshold will ensure that the shareholders seeking to call a special meeting have a true economic interest in the Company.
The proposed changes to the Certificate of Incorporation are set forth in their entirety in
Exhibit B
, with additions indicated by underlining. In accordance with Delaware law, the Board, upon recommendation of the Nominating and Governance Committee, adopted resolutions approving and declaring advisable these proposed amendments and is recommending them to shareholders for approval and adoption. This summary of the proposed amendments is qualified in its entirety by reference to
Exhibit B
.
Under Delaware law, approval of this proposal requires the affirmative vote of the holders of a majority of the Company’s outstanding common stock. Abstentions and broker non-votes will have the effect of votes against the proposal. If this proposal 5 is approved by shareholders, the Board has authorized the officers of the Company to file with the Delaware Secretary of State a certificate of amendment to our Certificate of Incorporation incorporating the amendments set forth in
Exhibit B
. The amendments will become effective on the date the certificate of amendment is filed with the Delaware Secretary of State (or at such later effective date set forth in the certificate of amendment). If this proposal 5 is not approved by the requisite vote, the amendments will not be implemented. If the shareholders approve and adopt these proposed amendments, the Board of Directors retains the discretion to abandon and not implement any of such amendments. If the Board of Directors exercises this discretion, it will publicly disclose that fact and the reasons for its determination.
The approval of this proposal 5 is not conditioned on the approval of any other proposal. If the proposed amendments are adopted and become effective, the Board of Directors will consider amendments to our Bylaws to adopt provisions, including notice and timing restrictions, relating to the shareholders’ right to call special meetings. The Board of Directors currently intends to amend the Bylaws to adopt the special meeting provisions set forth in
Exhibit C
hereto. These provisions could be further amended in the future by Bylaw amendments adopted by the Board of Directors or the shareholders.
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|
5% Beneficial Owners
|
Shares of Discover
Common Stock
Beneficially
Owned
(1)
|
Percentage
of Discover
Common Stock
Outstanding
|
|
BlackRock, Inc., 55 East 52nd Street, New York, New York 10055
(2)
|
22,426,508
|
6.85
|
%
|
Capital World Investors, 333 South Hope Street, Los Angeles, CA 90071
(3)
|
17,305,380
|
5.29
|
%
|
The Vanguard Group, 100 Vanguard Boulevard, Malvern, Pennsylvania 19355
(4)
|
25,121,186
|
7.67
|
%
|
Executive Officers and Directors
|
|
|
|
Roger C. Hochschild
(5)
|
712,159
|
*
|
|
R. Mark Graf
|
53,553
|
*
|
|
Diane E. Offereins
(6)
|
121,448
|
*
|
|
Carlos M. Minetti
(6)
|
124,301
|
*
|
|
Julie Loeger
(7)
|
42,458
|
*
|
|
David W. Nelms
(8)(9)
|
970,191
|
*
|
|
Jeffrey S. Aronin
(10)
|
66,195
|
*
|
|
Mary K. Bush
(11)
|
54,060
|
*
|
|
Gregory C. Case
(12)
|
66,195
|
*
|
|
Candace H. Duncan
(13)
|
11,179
|
*
|
|
Joseph F. Eazor
(14)
|
7,522
|
*
|
|
Cynthia A. Glassman
(14)
|
50,032
|
*
|
|
Thomas G. Maheras
(15)
|
51,120
|
*
|
|
Michael H. Moskow
(16)
|
50,027
|
*
|
|
Mark A. Thierer
(17)
|
14,120
|
*
|
|
Lawrence A. Weinbach
(18)
|
51,007
|
*
|
|
Directors and executive officers as a group (22 persons)
(19)
|
2,633,898
|
*
|
|
*
|
Represents beneficial ownership of less than 1%.
|
(1)
|
Does not include shares underlying unvested RSUs unless otherwise noted.
|
(2)
|
Based on a Schedule 13G/A filed on February 4, 2019 by BlackRock, Inc. regarding shares of our Common Stock deemed to be beneficially owned, directly or through its subsidiaries, as of
December 31, 2018
. The Schedule 13G/A discloses that BlackRock, Inc. had sole voting power as to
19,471,985
shares, and sole dispositive power as to
22,426,508
shares. The ownership percentage is based on the assumption that BlackRock, Inc. continued to own the number of shares reflected in the table on March 4, 2019.
|
(3)
|
Based on a Schedule 13G filed on February 14, 2019 by Capital World Investors regarding shares of our Common Stock deemed to be beneficially owned, directly or through its subsidiaries, as of
December 31, 2018
. The Schedule 13G/A discloses that Capital World Investors had sole voting and dispositive power as to
17,305,380
shares. The ownership percentage is based on the assumption that Capital World Investors continued to own the number of shares reflected in the table on March 4, 2019.
|
(4)
|
Based on a Schedule 13G/A filed on February 11, 2019 by The Vanguard Group regarding shares of our Common Stock deemed to be beneficially owned, directly or through its subsidiaries, as of
December 31, 2018
. The Schedule 13G/A discloses that The Vanguard Group had sole voting power as to
403,583
shares, shared voting power as to
89,373
shares, sole dispositive power as to
24,638,752
shares, and shared dispositive power as to
482,434
shares. The ownership percentage is based on the assumption that The Vanguard Group continued to own the number of shares reflected in the table on March 4, 2019.
|
(5)
|
Includes
430,763
shares underlying vested RSUs that would convert following a termination of service.
|
(6)
|
Includes
15,168
shares underlying RSUs that would vest and convert following a termination of service.
|
(7)
|
Includes
13,855
shares underlying RSUs that would vest and convert following a termination of service.
|
(8)
|
Includes
502,557
shares underlying vested RSUs that would convert following a termination of service, and
22,582
shares underlying RSUs that would vest and convert following a termination of service.
|
(9)
|
Mr. Nelms served as the Company's Chief Executive Officer until October 1, 2018. Mr. Nelms continued to serve on the Board and remained the Company's Executive Chairman until December 31, 2018. Effective December 31, 2018, Mr. Nelms stepped down as Executive Chairman and as a Director, but remained an executive officer of the Company until his retirement in March 2019.
|
(10)
|
Includes
57,307
shares underlying vested RSUs that would convert following a termination of service, and
1,985
shares underlying RSUs that are scheduled to vest within 60-days of March 4, 2019.
|
(11)
|
Includes
52,075
shares underlying vested RSUs that would convert following a termination of service, and
1,985
shares underlying RSUs that are scheduled to vest within 60-days of March 4, 2019.
|
(12)
|
Includes
64,210
shares underlying vested RSUs that would convert following a termination of service, and
1,985
shares underlying RSUs that are scheduled to vest within 60-days of March 4, 2019.
|
(13)
|
Includes
9,194
shares underlying vested RSUs that would convert following a termination of service, and
1,985
shares underlying RSUs that are scheduled to vest within 60-days of March 4, 2019.
|
(14)
|
Includes
1,985
shares underlying RSUs that are scheduled to vest within 60-days of March 4, 2019.
|
(15)
|
Includes
40,962
shares underlying vested RSUs that would convert following a termination of service, and
1,985
shares underlying RSUs that are scheduled to vest within 60-days of March 4, 2019.
|
(16)
|
Includes
44,990
shares underlying vested RSUs that would convert following a termination of service, and
1,985
shares underlying RSUs that are scheduled to vest within 60-days of March 4, 2019.
|
(17)
|
Includes
12,135
shares underlying vested RSUs that would convert following a termination of service, and
1,985
shares underlying RSUs that are scheduled to vest within 60-days of March 4, 2019.
|
(18)
|
Includes
49,022
shares underlying vested RSUs that would convert following a termination of service, and
1,985
shares underlying RSUs that are scheduled to vest within 60-days of March 4, 2019.
|
(19)
|
Includes
1,263,215
shares underlying vested RSUs that would convert following a termination of service,
87,523
shares underlying RSUs that would vest and convert following a termination of service, and
19,850
shares underlying RSUs that are scheduled to vest and convert within 60-days of March 4, 2019.
|
|
|
|
PROPOSAL 6
Advisory Vote on a Shareholder Proposal Relating to the Right to Call Special Meetings
The Board of Directors recommends that you vote
“AGAINST”
the shareholder proposal to grant shareholders who hold at least 15% of the Company's outstanding stock the right to call special meetings. Instead, the Board recommends a vote in favor of the management proposal relating to the same topic in Proposal 5. Proxies solicited by the Board will be voted
“AGAINST”
this proposal unless otherwise instructed.
Myra K. Young has notified the Company that she intends to submit the following proposal at this year’s Annual Meeting of Shareholders. As explained below, the Board recommends that you vote AGAINST this shareholder proposal. The proponent states that she beneficially owns 50 shares of Discover’s common stock, and there were 326,237,525 shares outstanding as of the Record Date (excluding treasury stock).
The proponent is responsible for the content of the following proposal, for which the Company and the Board accept no responsibility:
Shareholder Proposal
Proposal 6 - Provide Right to Call Special Shareholder Meetings
RESOLVED: The shareholders of Discover Financial Services ('Company') hereby request the Board of Directors take the steps necessary to amend our bylaws and each appropriate governing document to give holders with an aggregate of 15% net long of our outstanding common stock the power to call a special shareowner meeting. This proposal does not impact our board's current power to call a special meeting.
SUPPORTING STATEMENT: Delaware law allows 10% of company shares to call a special meeting. A shareholder right to call a special meeting is a way to bring an important matter to the attention of both management and shareholders outside the annual meeting cycle. This is important because there could be 15-months between annual meetings.
Currently, 64% of S&P 500 companies have adopted company bylaws, articles of incorporation, or charter provisions to allow shareholders to call a special meeting. Even 56% of all S&P 1500 companies allow shareholders this right.
In 2018, the topic of providing shareholders a right to call a special meeting or to reduce the threshold to call such meetings won 50%+ at Netflix, Lincoln National, Omnicom Group, Cummins, and Sprint Aerosystems Holdings, as well as 94% at Nuance Communications.
Large funds such as Vanguard, TIAA-CREF, BlackRock and SSgA Funds Management, Inc. (State Street) support the right of shareholders to call special meetings.
It may be possible to adopt this proposal by simply incorporating this text into our governing documents:
"Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the Chairman of the Board or the President, and shall be called by the Chairman of the Board or President or Secretary upon the order in writing of a majority of or by resolution of the Board of Directors, or at the request in writing of stockholders owning 15% net long of the entire capital stock of the Corporation issued and outstanding and entitled to vote."
Please vote for: Provide Right to Call Special Shareholder Meetings -- Proposal 6
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|
•
|
Following the retirement of Chairman and Director David W. Nelms in 2018, the Board elected Lead Director Lawrence A. Weinbach to serve as the Company’s new Independent Chairman;
|
•
|
Shareholders have the right to nominate directors and to have those nominations included in the Company’s Proxy Statement;
|
•
|
Directors are elected annually by a majority of votes cast in uncontested elections;
|
•
|
All of our directors are independent except our CEO and President, Mr. Hochschild, and all four Board committees are exclusively comprised of independent directors;
|
•
|
The Nominating and Governance Committee evaluates each director annually and makes a recommendation to the Board on his or her nomination for election;
|
•
|
In light of shareholders’ perspectives on supermajority voting provisions in the Company’s governing documents, the Board is asking shareholders to eliminate such provisions in this year’s Proxy Statement (see Proposal 4 on page 52); and
|
•
|
We provide opportunities for our shareholders to communicate directly with our Board (see page 19).
|
•
|
the commercial reasonableness of the terms of the proposed transaction;
|
•
|
the benefit to the Company;
|
•
|
the availability and/or opportunity costs of alternate transactions;
|
•
|
the materiality and character of the related person’s direct or indirect interest;
|
•
|
whether the transaction would, or would be perceived to, present an improper conflict of interest for the related person, taking into account: (i) the business of the Company; (ii) the size of the transaction; (iii) the overall financial position of the related person; (iv) the direct or indirect nature of the related person’s interest in the transaction; (v) whether the transaction is of an ongoing nature; and (vi) any other relevant factors; and
|
•
|
if the related person is a director (or an immediate family member of a director), the impact on the director’s independence.
|
|
|
|
|
|
|
|
Proposal
|
Our Board’s
Recommendation |
|
|
|
1
|
Election of Directors
|
“FOR”
the election of each director nominee
|
|
|
2
|
Advisory Vote to Approve Named Executive Officer Compensation
|
“FOR”
|
|
|
3
|
Ratification of Appointment of Independent Registered Public Accounting Firm
|
“FOR”
|
|
|
4
|
Amend Certificate of Incorporation to Eliminate Supermajority Voting Requirements
|
“FOR”
|
|
|
5
|
Amend Certificate of Incorporation to Grant Shareholders the Right to Call Special Meetings
|
“FOR”
|
|
|
6
|
Advisory Vote on One Shareholder Proposal, if properly presented
|
“AGAINST”
|
01 - Jeffrey S. Aronin
|
02 - Mary K. Bush
|
03 - Gregory C. Case
|
04 - Candace H. Duncan
|
|
|
|
|
05 - Joseph F. Eazor
|
06 - Cynthia A. Glassman
|
07 - Roger C. Hochschild
|
08 - Thomas G. Maheras
|
|
|
|
|
09 - Michael H. Moskow
|
10 - Mark A. Thierer
|
11 - Lawrence A. Weinbach
|
|
01 - Jeffrey S. Aronin
|
02 - Mary K. Bush
|
03 - Gregory C. Case
|
04 - Candace H. Duncan
|
|
|
|
|
05 - Joseph F. Eazor
|
06 - Cynthia A. Glassman
|
07 - Roger C. Hochschild
|
08 - Thomas G. Maheras
|
|
|
|
|
09 - Michael H. Moskow
|
10 - Mark A. Thierer
|
11 - Lawrence A. Weinbach
|
|
|
|
|
|
|
|
Signature 1
|
|
Signature 2
|
|
|
|
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|
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|
|
|
Date (mm/dd/yyyy) - Please print date
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