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DEF 14A

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES

EXCHANGE ACT OF 1934

(AMENDMENT NO.    )

Filed by the Registrant    x

Filed by a Party other than the Registrant    ¨

Check the appropriate box:

 

¨ Preliminary Proxy Statement
¨ CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
x Definitive Proxy Statement
¨ Definitive Additional Materials
¨ Soliciting Material Pursuant to Section 240.14a-12

FIFTH THIRD BANCORP

 

(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

 

 

(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)

Payment of Filing Fee (Check the appropriate box):

 

x No fee required.

 

¨ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

  (1) Title of each class of securities to which transaction applies:

 

  (2) Aggregate number of securities to which transaction applies:

 

  (3) 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):

 

  (4) Proposed maximum aggregate value of transaction:

 

  (5) Total fee paid:

 

¨ Fee paid previously with preliminary materials.

 

¨ 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.

 

  (1) Amount Previously Paid:

 

  (2) Form, Schedule or Registration Statement No.:

 

  (3) Filing Party:

 

  (4) Date Filed:

 

 

 


 

LOGO

38 FOUNTAIN SQUARE PLAZA

CINCINNATI, OHIO 45263

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

March 7, 2013

To the Shareholders of Fifth Third Bancorp:

You are cordially invited to attend the Annual Meeting of the Shareholders of Fifth Third Bancorp to be held at the Regency Ballroom, located on the third floor of the Hyatt Regency Cincinnati, at 151 West 5th Street, Cincinnati, Ohio on Tuesday, April 16, 2013 at 11:30 a.m. for the purposes of considering and acting upon the following:

 

  (1) Election of all members of the Board of Directors to serve until the Annual Meeting of Shareholders in 2014.

 

  (2) Approval of the appointment of the firm of Deloitte & Touche LLP to serve as the independent registered public accounting firm for the Company for the year 2013.

 

  (3) An advisory approval of the Company’s executive compensation.

 

  (4) An advisory vote to determine whether the shareholder vote on the compensation of the Company’s executives will occur every 1, 2, or 3 years.

 

  (5) Transaction of such other business that may properly come before the Annual Meeting or any adjournment thereof.

Shareholders of record at the close of business on February 28, 2013 will be entitled to vote at the Annual Meeting.

All shareholders who find it convenient to do so are invited to attend the Annual Meeting in person. In any event, please vote at your earliest convenience by signing and returning the proxy card you receive or by voting over the internet or by telephone.

 

If you plan to attend the Annual Meeting:

Please note that space limitations make it necessary to limit attendance only to shareholders of the Company and the holders of shareholder proxies. Admission to the Annual Meeting will be on a first-come, first-served basis and will require presentation of a valid driver’s license or other federal or state issued photo identification card. Shareholders of record should bring the admission ticket attached to their proxy card or the Notice of Internet Availability they receive in order to be admitted to the meeting. “Street name” shareholders will need to bring a copy of a brokerage statement reflecting stock ownership as of the record date in order to be admitted to the meeting. Registration and seating will begin at approximately 11:00 a.m. Communication and recording devices will not be permitted at the Annual Meeting. A copy of the regulations for conduct at the Annual Meeting is attached as Annex 1 to the proxy statement.

If you have any questions or need assistance voting your shares, please call D.F. King & Co., Inc., which is assisting us, toll-free at 1-800-859-8508.

By Order of the Board of Directors

Paul L. Reynolds

Secretary


FIFTH THIRD BANCORP

38 Fountain Square Plaza

Cincinnati, Ohio 45263

PROXY STATEMENT

The Board of Directors of Fifth Third Bancorp (the “Company”) is soliciting proxies for the Annual Meeting of Shareholders to be held at the Regency Ballroom, located on the third floor of the Hyatt Regency Cincinnati, at 151 West 5th Street, Cincinnati, Ohio on Tuesday, April 16, 2013 at 11:30 a.m. (the “Annual Meeting”). Each of the approximately 874,474,423 shares of Common Stock outstanding on February 28, 2013 is entitled to one vote on all matters acted upon at the Annual Meeting. Only share holders of record on the books of the Company at the close of business on February 28, 2013 will be entitled to vote at the Annual Meeting, either in person or by proxy. The shares represented by all properly executed proxies which are sent to the Company will be voted as designated and each not designated will be voted and counted as described in this proxy statement. Each person giving a proxy may revoke it by giving notice to the Company in writing or in open meeting at any time before it is voted.

The laws of Ohio under which the Company is incorporated provide that if notice in writing is given by any shareholder to the President, a Vice President, or the Secretary of the Company not less than forty-eight (48) hours before the time fixed for holding a meeting of shareholders for the purpose of electing Directors that such shareholder desires that the voting at such election shall be cumulative, and if an announcement of the giving of such notice is made upon the convening of the meeting by the Chairman or Secretary or by or on behalf of the shareholder giving such notice, each shareholder shall have the right to cumulate such voting power as he or she possesses in voting for Directors.

The expense of soliciting proxies will be borne by the Company. Proxies will be solicited principally by mail, but may also be solicited by the Directors, officers, and other regular employees of the Company, who will receive no compensation therefor in addition to their regular compensation. Brokers and others who hold stock on behalf of others will be asked to send proxy material to the beneficial owners of the stock, and the Company will reimburse them for their expenses.

The Company has retained D.F. King & Co., Inc., a proxy solicitation firm, to assist the Company in soliciting proxies. The Company anticipates that the costs of D.F. King’s services will be approximately $13,000.

The Annual Report of the Company for the year 2012, including financial statements, has been delivered or made available to all shareholders. Such report and financial statements are not a part of this proxy statement. This proxy statement and the form of proxy are first being sent or made available to shareholders on or about March 7, 2013.


CERTAIN BENEFICIAL OWNERS

Under Section 13(d) of the Securities Exchange Act of 1934, a beneficial owner of a security is any person who directly or indirectly has or shares voting power or investment power over such security. Such beneficial owner under this definition need not enjoy the economic benefit of such securities. The following are the only shareholders known to the Company to be deemed to be beneficial owners of 5% or more of the common stock of the Company as of December 31, 2012:

 

Title of Class

  

Name and Address of

Beneficial Owner

   Amount and Nature
of Beneficial Ownership
    

Percent

of Class

Common Stock

  

BlackRock, Inc.

40 East 52nd Street

New York, NY 10022

     53,980,945       6.02%

ELECTION OF DIRECTORS

(Item 1 on Proxy Card)

In accordance with the Company’s Code of Regulations, Directors are elected annually to a one (1) year term expiring at the next Annual Meeting of Shareholders. The terms of the Directors listed below expire at the Annual Meeting on April 16, 2013 and these individuals constitute the nominees to be elected to serve until the Annual Meeting of Shareholders in 2014. Any vacancies that occur after the Directors are elected may be filled by the Board of Directors in accordance with law for the remainder of the full term of the vacant directorship.

Director candidates are nominated by the Company’s Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee’s Charter directs the Committee to investigate and assess the background and skills of potential candidates and to maintain an active file of suitable candidates for directors. The Nominating and Corporate Governance Committee utilizes its pool of existing subsidiary and affiliate directors as well as the significant network of business contacts of its existing Directors and executive management as the primary pipeline from which its Director candidates are identified. Upon identifying a candidate for serious consideration, one or more members of the Nominating and Corporate Governance Committee initially interviews such candidate. If the candidate merits further consideration, the candidate subsequently interviews with all other Committee members (individually or as a group), meets the Company’s Chief Executive Officer and other Executive Officers and ultimately meets many of the other Directors. The Nominating and Corporate Governance Committee elicits feedback from all persons who meet the candidate and then determines whether or not to nominate the candidate.

The Company’s Corporate Governance Guidelines set forth the following criteria for Directors: independence (in order to compose a Board of Directors that has a majority of its members who are independent); highest personal and professional ethics and integrity; willingness to devote sufficient time to fulfilling duties as a Director; impact on the diversity of the Board’s overall experience in business, government, education, technology and other areas relevant to the Company’s business; impact on the diversity of the Board’s composition in terms of age, skills, ethnicity and other factors relevant to the Company’s business; and number of other public company boards on which the candidate may serve (generally, should not be more than three public company boards in addition to the Company). The Company’s Corporate Governance Guidelines provide that shareholders may propose nominees by submitting the names and qualifications of such persons to the Nominating and Corporate Governance Committee no later than December 31 of each year. Submissions are to be addressed to the Nominating and Corporate Governance Committee at the Company’s executive offices, which submissions will then be forwarded to the Committee. The Nominating and Corporate Governance Committee would then evaluate the possible nominee using the criteria outlined above and would consider such person in comparison to all other candidates. The Nominating and Corporate Governance Committee is not obligated to nominate any such individual for election. No such shareholder nominations have been received by the Company for this Annual Meeting. Accordingly, no rejections or refusals of such candidates have been made by the Company.

 

 

2


The Nominating and Corporate Governance Committee of the Board of Directors has nominated for election as Directors the following fourteen (14) persons: Darryl F. Allen, B. Evan Bayh, Ulysses L. Bridgeman, Jr., Emerson L. Brumback, James P. Hackett, Gary R. Heminger, Jewell D. Hoover, William M. Isaac, Kevin T. Kabat, Mitchel D. Livingston, Ph.D., Michael B. McCallister, Hendrik G. Meijer, John J. Schiff, Jr., and Marsha C. Williams. Unless instructed otherwise, it is the intention of the persons named in the Proxy to vote for the election of all nominees named. If any nominee(s) shall be unable to serve, which is not now contemplated, the proxies will be voted for such substitute nominee(s) as the Nominating and Corporate Governance Committee of the Board of Directors recommends. Proxies in the form solicited hereby which are returned to the Company will be voted in favor of the fourteen (14) nominees specified above unless otherwise instructed by the shareholder. Shares not voted by brokers and other entities holding shares on behalf of beneficial owners will not be counted and will have no effect on the outcome of the election in accordance with Ohio law and the Company’s Articles of Incorporation and Code of Regulations. The Board of Directors recommends a vote “For” each of the candidates for Director named above.

Under Ohio law and the Company’s Articles of Incorporation and Code of Regulations, as long as cumulative voting is not in effect, in an uncontested election of Directors (i.e., an election where the number of candidates nominated for election to the Board of Directors equals the number of Directors to be elected), those persons receiving a greater number of votes “for” his or her election than votes “against” his or her election will be elected as Directors. In the event of a contested election or if cumulative voting is in effect, the fourteen nominees receiving the greatest number of votes “for” his or her election shall be elected. The Company has also adopted provisions of its Corporate Governance Guidelines stating that, as long as cumulative voting is not in effect, in an uncontested election of Directors, any nominee for Director who receives a greater number of votes “against” his or her election than votes “for” his or her election will promptly tender his or her resignation to the Chairman of the Board following certification of the shareholder vote. The Nominating and Corporate Governance Committee will promptly consider the tendered resignation and will recommend to the Board whether to accept or reject the tendered resignation no later than 60 days following the date of the shareholders’ meeting at which the election occurred. In considering whether to accept or reject the tendered resignation, the Nominating and Corporate Governance Committee will consider factors deemed relevant by the Committee members including, without limitation, the Director’s length of service, the Director’s particular qualifications and contributions to Fifth Third, the reasons underlying the majority against vote (if known) and whether these reasons can be cured, and compliance with stock exchange listing standards and the Corporate Governance Guidelines. The Board will act on the Nominating and Corporate Governance Committee’s recommendation no later than 90 days following the date of the shareholders’ meeting at which the election occurred. In considering the Nominating and Corporate Governance Committee’s recommendation, the Board will consider the factors considered by the Committee and such additional information and factors the Board believes to be relevant.

 

3


The following tables set forth information with respect to each Director nominee for election at the Annual Meeting including their business experience, share holdings and qualifications as a Director of the Company. The Board of Directors has determined that all Directors have met the independence standards of Rule 4200(a)(15) of the National Association of Securities Dealers listing standards with the exception of Mr. Kabat.

 

                     Shares of Company
Common Stock
Beneficially Owned

on December 31,
2012(1)
 
        

Name, Age and Principal Occupation During the Past Five Years

   Director
Since
     Number(2)      Percent
of Class
 
     Nominees for Election as Directors:         
LOGO     

DARRYL F. ALLEN, 69, is the retired Chairman, CEO and President of Aeroquip-Vickers, Inc., formerly known as Trinova Corporation, a manufacturer and distributor of engineered components for industry, automotive, aerospace and defense. Manager of Allen Ventures, LLC. Former Director of Milacron Inc.

 

     1997         48,727         .0100
     As a certified public accountant, Mr. Allen brings a wealth of financial expertise to the Board. Mr. Allen also possesses practical business experience as the former CFO and then CEO of a Fortune 500 manufacturing company. He has a great knowledge of banking through five years of board service with another bank and intimate knowledge of the Company through his experience as a director of one of the Company’s banking affiliates in Northwestern Ohio.        
LOGO     

B. EVAN BAYH III, 57, is a Partner for the law firm McGuireWoods LLP and a senior advisor to the private equity firm, Apollo Global Management. Mr. Bayh also serves on the Board of Directors of Marathon Petroleum Corporation, Berry Plastics Group, Inc. and RLJ Lodging Trust.

 

     2011         9,486         .0011
     For two decades, first as Governor of Indiana and then in the United States Senate, Mr. Bayh dealt with a variety of financial, economic and policy issues that impact a wide variety of businesses. He had supervisory authority over thousands of employees and oversaw a budget in excess of $10 billion. As a member of the Senate Banking Committee and Chairman of the International Trade and Finance Subcommittee, Mr. Bayh gained perspective on issues of particular relevance to Fifth Third Bancorp.        
LOGO     

ULYSSES L. BRIDGEMAN, JR., 59, is the owner and president of B.F. Companies, which operates a number of Wendy’s Old Fashioned Hamburger restaurants and Chili’s restaurants. Director of Churchill Downs, Incorporated.

 

     2007         32,118         .0036
    

Mr. Bridgeman brings entrepreneurial business knowledge and experience to the Board through his ownership and operation of a restaurant franchisee with 300 locations in 11 states. He also has intimate knowledge of the Company through his experience as a director of one of the Company’s banking affiliates in Louisville, Kentucky.

 

 

     

 

4


                     Shares of Company
Common Stock
Beneficially Owned

on December 31,
2012(1)
 
        

Name, Age and Principal Occupation During the Past Five Years

   Director
Since
     Number(2)      Percent
of Class
 
LOGO      EMERSON L. BRUMBACK, 61, Retired President & COO of M&T Bank. Former director of M&T Bank Corporation.      2009         29,909         .0034
    

Mr. Brumback possesses a vast amount of knowledge regarding banking though his 30+ years of experience in the financial services industry with several banking organizations including the Buffalo branch of the Federal Reserve Bank of New York. He has gained valuable insight through his experience in executive positions overseeing many aspects of the banking field including retail banking, commercial banking, banking operations and systems. He also brings his experience as a board member with another financial services company.

 

 

        

LOGO      JAMES P. HACKETT, 57, President, CEO and Director of Steelcase Inc., a manufacturer of office systems. Trustee of The Northwestern Mutual Life Insurance Company.      2001         52,580         .0060
    

Mr. Hackett’s knowledge and experience in leading a large global organization are valuable attributes for his service as a Director. He also possesses skills in building a lean manufacturing environment and has directed the innovation of legacy businesses and practices. Mr. Hackett also brings his knowledge and experience of the financial services industry gained from his position as a Director of a large insurance company and a predecessor banking organization.

 

 

       

LOGO      GARY R. HEMINGER, 59, President, CEO and Director of Marathon Petroleum Corporation.      2006         34,560         .0040
     Mr. Heminger possesses valuable business knowledge gained from his responsibilities in overseeing all operations, performance, reporting and financial metrics for Marathon’s refining, marketing transportation and Speedway business and has financial experience through his oversight of all financial data, working capital, and merger and acquisition activity.       

 

5


                     Shares of Company
Common Stock
Beneficially Owned

on December 31,
2012(1)
 
        

Name, Age and Principal Occupation During the Past Five Years

   Director
Since
     Number(2)      Percent
of Class
 
LOGO     

JEWELL D. HOOVER, 64, Principal and bank consultant with Hoover and Associates, LLC and author of the “Ultimate Guide for Bank Directors.” Ms. Hoover is a former director of First Charter Corporation.

 

     2009         27,999         .0032
    

Ms. Hoover’s qualifications for service as a Director of the Company include 28 years of service with the Office of the Comptroller of the Currency- including service as the Deputy Comptroller of the agency’s Western District. She also has gained valuable banking experience and knowledge as a bank consultant for corporate governance, director training and problem bank resolution matters. Additionally, she has first-hand knowledge of the Company through her service as a director of its North Carolina affiliate and a predecessor banking organization.

 

 

        

LOGO     

WILLIAM M. ISAAC, 69, Chairman of Fifth Third Bancorp and Senior Managing Director of FTI Consulting, as well as Chairman of Isaac Property Companies.

 

     2010         64,885         .0074
    

Mr. Isaac’s banking experience spans 40+ years of service in roles such as lawyer, consultant, regulator, and director. Mr. Isaac also served for nearly eight years on the board of the Federal Deposit Insurance Corporation, holding the title of Chairman for nearly five of those years.

 

 

     

LOGO     

KEVIN T. KABAT, 56, Vice Chairman of the Bancorp since September 2012 and Chief Executive Officer of the Bancorp since April 2007. Previously, Mr. Kabat was President of the Bancorp from June 2006 through September 2012 and was Executive Vice President of the Bancorp from December 2003 through June 2006. Prior to that he was President and CEO of Fifth Third Bank (Michigan) since April 2001. Director of Unum Group.

 

     2007         2,429,033         .2750
     Mr. Kabat brings valuable insight and knowledge to the Board due to his service as its Chief Executive Officer. Mr. Kabat also has gained valuable banking knowledge from his years of service in the financial services industry, including his leadership of a predecessor banking organization and his service on the board of a large insurance company.       

 

6


                     Shares of Company
Common Stock
Beneficially Owned

on December 31,
2012(1)
 
        

Name, Age and Principal Occupation During the Past Five Years

   Director
Since
     Number(2)      Percent
of Class
 
LOGO     

DR. MITCHEL D. LIVINGSTON, 68, retired Vice President for Student Affairs and Chief Diversity Officer, University of Cincinnati from July 2007 through December 2012 and is currently serving as an Adjunct Professor in Educational Studies at the University of Cincinnati. Formerly, Dr.Livingston was Vice President for Student Affairs, University of Cincinnati.

 

     1997         44,993         .0051
     Dr. Livingston’s qualifications for Board service include 40 years of management experience in large, complex organizations with hundreds of employees under his supervision as well as his management of multi-million dollar budgets. He has extensive educational experiences in financial matters and the banking industry in particular and has served on the boards of other corporations and community affairs organizations.       
LOGO     

MICHAEL B. MCCALLISTER, 60, is the Chairman of the Board of Directors of Humana Inc. Previously, Mr. McCallister was the Chief Executive Officer of Humana Inc. from February 2000 until his retirement as CEO in December 2012. He was elected as a Humana board member in February 2000 and became Chairman of the Board in August 2010. Mr. McCallister joined Humana in June 1974. Director of AT&T Inc. and director of Zoetis Inc.

 

     2011         10,271         .0012
    

As a 38-year veteran of Humana Inc., Mr. McCallister brings an unparalleled depth of experience in the health care sector combined with an intimate knowledge of Humana’s operational, financial and strategic development. Beyond Humana, Mr. McCallister plays a leadership role in key business advocacy organizations. He is on the board of the Business Roundtable and is the past chairman of the organization’s Health and Retirement Task Force. He is also a member of the board of directors of America’s Health Insurance Plans, the health benefits industry’s primary trade association.

 

 

        

LOGO      HENDRIK G. MEIJER, 61, Co-Chairman, Director and CEO of Meijer, Inc. and its affiliates, a food and general merchandise retailer with approximately 200 supercenters located in Michigan, Ohio, Indiana, Illinois and Kentucky.      2001         75,339         .0090
     Mr. Meijer has extensive business knowledge and experience gained through his position as the CEO of a company with more than 60,000 employees and 200 retail and wholesale locations that competes successfully with the largest retailers in the United States. Mr. Meijer also has valuable banking knowledge through his service a director of a predecessor banking organization.       

 

7


                     Shares of Company
Common Stock
Beneficially Owned

on December 31,
2012(1)
 
        

Name, Age and Principal Occupation During the Past Five Years

   Director
Since
     Number(2)      Percent
of Class
 
LOGO     

JOHN J. SCHIFF, JR., 69, Chairman of the Executive Committee, Director and former CEO of Cincinnati Financial Corporation. Former Chairman of John J. & Thomas R. Schiff & Co., Inc., an insurance agency. Director of Standard Register Co. and former director of Cinergy Corp.

 

     1983         568,612         .0700
    

Mr. Schiff brings extensive knowledge of the financial services industry with a specialty in insurance and investment operations as well as valuable knowledge of the Company through his tenure on its Board of Directors.

 

 

    

LOGO     

MARSHA C. WILLIAMS, 61, retired Senior Vice President and Chief Financial Officer of Orbitz Worldwide, Inc. from July 2007 through December 31, 2010. From 2002 to 2007, Ms. Williams served as Executive Vice President and Chief Financial Officer of Equity Office Properties Trust, the nation’s largest owner and operator of office buildings. Supervisory Director of Chicago Bridge & Iron Company N.V. and Director of Modine Manufacturing Company and the Davis Funds.

 

     2008         25,950         .0030
    

Ms. Williams’ qualifications for Director include her extensive experience in financial matters including 38 years in finance and her service as the Chief Financial Officer of Orbitz and Equity Office Properties Trust as well as her service on the board of directors of other publicly traded corporations and mutual funds. Ms. Williams also possesses knowledge and experience in the financial services industry through her 15 years of service with other banking organizations.

 

 

       

    

All Directors and Executive Officers as a Group (26 persons)

        7,470,861         .843

 

(1) As reported to Fifth Third Bancorp by the Directors as of the date stated. Includes shares held in the name of spouses, minor children, certain relatives, trusts, estates and certain affiliated companies as to which beneficial ownership may be disclaimed. As of December 31, 2012, none of the Company’s current Executive Officers or Directors owned any Series G Preferred Stock or any Depositary Shares representing interests therein.

 

(2) The amounts shown represent the total shares owned outright by such individuals together with shares which are issuable upon the exercise of currently exercisable (or exercisable within 60 days), but unexercised, stock options and stock appreciation rights. Specifically, the following individuals have the right to acquire the shares indicated after their names, upon the exercise of stock options and stock appreciation rights, respectively: Mr. Allen, 5,000 and 5,000; Mr. Bridgeman, 500 and 1,000; Mr. Hackett, 5,000 and 5,000; Mr. Heminger, 500 and 500; Ms. Hoover, 0 and 375; Mr. Kabat, 60,000 and 1,620,684; Dr. Livingston, 5,000 and 5,000; Mr. Meijer, 5,000 and 5,000; and Mr. Schiff, 5,000 and 5,000. The aggregate number of shares issuable upon the exercise of currently exercisable (or exercisable within 60 days), but unexercised, stock options and stock appreciation rights held by the Executive Officers who are not also Directors or nominees is 2,599,822.

 

8


BOARD OF DIRECTORS, ITS COMMITTEES, MEETINGS AND FUNCTIONS

The Board of Directors of the Company met eight (8) times during 2012. The Company’s Board of Directors also regularly holds executive sessions of those members of the Board of Directors who meet the then current standards of independence. The chairman at these executive sessions is the Chairman of the Company’s Board of Directors.

No member of the Board of Directors of the Company attended less than 75% of the aggregate meetings of the Board of Directors and all committees on which such Director served during 2012.

Neither the Board nor the Nominating and Corporate Governance Committee has implemented a formal policy regarding Director attendance at the Annual Meeting. Typically, the Board holds its annual organizational meeting directly following the Annual Meeting, which results in most directors being able to attend the Annual Meeting. In 2012, 13 out of 14 Directors attended the Annual Meeting.

In 2012, there were six (6) committees of the Board of Directors: Audit, Human Capital & Compensation, Finance, Nominating and Corporate Governance, Risk and Compliance, and Trust.

The Audit Committee of the Company serves in a dual capacity as the Audit Committee of the Company and Fifth Third Bank. Twelve (12) meetings of this Committee were held during 2012. This Committee’s functions include the engagement of the independent registered public accounting firm, reviewing with that firm the plans and results of the audit engagement of the Company, approving the annual audit plan and reviewing the results of the procedures for internal auditing, reviewing the independence of the independent registered public accounting firm, reviewing the Company’s financial results and periodic Securities and Exchange Commission filings, reviewing the design and effectiveness of the Company’s internal controls and similar functions and approving all auditing and non-auditing services performed by its independent registered public accounting firm. Another function of this Committee is to carry out the statutory requirements of a bank audit committee as prescribed under applicable law. The Board of Directors has adopted a written charter for the Audit Committee, which may be found in the Corporate Governance Section of the Company’s website at www.53.com. The Audit Committee members for 2012 were Darryl F. Allen, Emerson L. Brumback, Jewell D. Hoover, Michael B. McCallister and Marsha C. Williams. All members of the Audit Committee met the independence standards of Rule 4200(a)(15) and the audit committee qualifications of Rule 4350(d)(2) of the National Association of Securities Dealers listing standards. The Board of Directors has determined that Darryl F. Allen and Marsha C. Williams are audit committee financial experts for the Company and are independent as described in the preceding sentence. The formal report of the Audit Committee with respect to the year 2012 is on page 52 herein.

The Company has a Human Capital & Compensation Committee comprised entirely of independent Directors. Executive compensation and equity plan allocations are determined by this Committee of the Board of Directors. The Board of Directors has adopted a Human Capital & Compensation Committee Charter which may be found in the Corporate Governance Section of the Company’s website at www.53.com. This Committee consisted of Emerson Brumback, Gary R. Heminger, Mitchel D. Livingston, Ph.D., Hendrik G. Meijer and Marsha C. Williams and met eight (8) times during 2012. The formal report of the Compensation Committee with respect to 2012 compensation is on page 51 herein.

The Finance Committee of the Company served in a dual capacity as the Finance Committee of the Company and Fifth Third Bank. This Committee exercises, during the intervals between the meetings of the Board of Directors, all the powers of the Board of Directors of the Company and Fifth Third Bank in the management of the business, properties and affairs of the Company and Fifth Third Bank that may be permissibly exercised by a committee thereof. The Finance Committee met nine (9) times in 2012 and consisted of Emerson Brumback, James P. Hackett, Gary R. Heminger, William M. Isaac and Kevin Kabat. The Board of Directors have adopted a Finance Committee Charter which may be found in the Corporate Governance Section of the Company’s website at www.53.com.

 

9


The Company has a Nominating and Corporate Governance Committee comprised entirely of independent Directors. This Committee develops and recommends to the Board corporate governance policies and guidelines for the Company and for the identification and nomination of Director and committee member candidates; and nominates Directors for election to the Board and appointment to committee membership. The Board of Directors has adopted a Nominating and Corporate Governance Committee Charter which may be found in the Corporate Governance Section of the Company’s website at www.53.com. This Committee consisted of Darryl F. Allen, B. Evan Bayh, Ulysses L. Bridgeman, Jr. and James P. Hackett and met three (3) times during 2012.

The Company’s Risk and Compliance Committee serves in a dual capacity as the Risk and Compliance Committee of the Company and the Bank. This Committee oversees management’s compliance with all of the Company’s regulatory obligations arising under applicable federal and state banking laws, rules and regulations, including any terms and conditions required from time to time by any action, formal or informal, of any federal or state banking regulatory agency or authority and any responses of management to any inquiries from any applicable banking regulator, and oversees management’s implementation and enforcement of the Company’s risk management policies and processes. The Board of Directors has adopted a Risk and Compliance Committee Charter which may be found in the Corporate Governance Section of the Company’s website at www.53.com. This Committee met eight (8) times in 2012 and consisted of B. Evan Bayh, Ulysses L. Bridgeman, Jr., Jewell D. Hoover, Hendrik G. Meijer and Marsha C. Williams.

The Company has a Trust Committee which serves in a dual capacity as the Trust Committee of the Company and the Bank. This Committee reviews the fiduciary activities of the Bank and, more generally, oversees the structure for fiduciary activities for each of the Company’s subsidiary banks, including the Bank. In this regard, the Committee has responsibility to report risks identified in its review of such fiduciary activities to the Company’s Risk and Compliance Committee. The Committee also has overall responsibility for evaluating and approving the fiduciary policies of the Company and its bank subsidiaries. The Board of Directors has adopted a Trust Committee Charter which may be found in the Corporate Governance Section of the Company’s website at www.53.com. This Committee consisted of Messrs. Livingston, Kabat and Schiff, and met four (4) times during 2012.

CORPORATE GOVERNANCE

The Board of Directors has adopted the Fifth Third Bancorp Corporate Governance Guidelines which may be found in the Corporate Governance Section of the Company’s website at www.53.com. The Board of Directors has also adopted the Fifth Third Bancorp Code of Business Conduct and Ethics which applies to the Company’s Chief Executive Officer, Chief Financial Officer, Controller and its other employees and may also be found in the Corporate Governance Section of the Company’s website at www.53.com.

Board Leadership

The same person does not serve as the Company’s Chief Executive Officer and Chairman. The Company’s Chairman is a non-executive director and the Company also uses an independent Lead Director who serves as the Chair of its Nominating and Corporate Governance Committee. The position duty statement for the Lead Director may be found in the Corporate Governance Section of the Company’s website at www.53.com. The Board believes that the Company’s shareholders are best served by a Board that has the flexibility to establish a leadership structure that fits the needs of the Company at any particular point in time. Under the Company’s Code of Regulations and Corporate Governance Guidelines, the Board of Directors has the authority to combine or separate the positions of Chairman and Chief Executive Officer as well as determine whether, if the positions are separated, the Chairman is an affiliated Director or an independent Director.

The Board believes this structure is appropriate at the current time in order to allow the Chairman to provide support and guidance to the Chief Executive Officer while also allowing the Board to have a separate Director handle governance matters and coordinate meetings of independent Directors. These decisions were based, in

 

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part, on the qualifications of the individuals serving in these roles including the experience of the Chairman as the former Chairman of the Federal Deposit Insurance Corporation and the experience of the Lead Director as the Chief Executive Officer of a global manufacturing organization.

From time to time, the Board may consider combining the role of Chairman and Chief Executive Officer or discontinuing its use of its Lead Director. These decisions will be dependent on the make-up of the Board at that time and the availability and willingness of candidates for Chairman and/or Lead Director who meet any expertise and experience criteria and qualifications identified by the Board, as well as other factors.

Risk Management Oversight

The role of the Board of Directors is to provide oversight to ensure an effective enterprise risk management program is in place, including an appropriate enterprise risk management framework and related governance structure. The Board sets the overall risk appetite for the Company, including the establishment and monitoring of risk tolerances. The formulation of risk appetite considers the Company’s operating capacity, which is represented by its available financial resources less adjustments for planned capital actions, that sets an absolute limit on risk assumption in the Company’s annual and strategic plans. The Company’s risk appetite is limited by policy to a maximum of 95 percent of operating capacity. Tolerances are the maximum amount of risk applicable to each of the eight specific risk categories included in the enterprise risk management framework. Through their oversight role, Directors ensure that the risk management processes designed and implemented under this framework and governance structure are aligned to the Board’s corporate strategy and are functioning as directed. The Board also considers the optimal organizational structure at both the Board and management levels. This may include delegating responsibility through Board committees, management committees, the Chief Executive Officer and the Chief Risk Officer.

Risk management oversight and governance is provided primarily by the Risk and Compliance Committee of the Board of Directors and through the Enterprise Risk Management Committee, a management committee that reports to it. The Enterprise Risk Management Committee is supported by several management committees whose membership includes a broad cross-section of line of business, affiliate and support representatives. The Risk and Compliance Committee of the Board of Directors consists of five outside directors and has responsibility for the oversight of risk management for the Company, as well as ensuring that risks are properly controlled, quantified and within the Company’s risk appetite.

The primary purposes of the Risk and Compliance Committee are to oversee management’s compliance with all of Fifth Third’s regulatory obligations arising under applicable federal and state banking laws, rules and regulations, including any terms and conditions required from time to time by any action, formal or informal, of the Board of Governors of the Federal Reserve, the Federal Reserve Bank of Cleveland, the Consumer Financial Protection Bureau, or any other federal or state banking regulatory agency or authority, and any responses of management to any inquiries from any applicable Banking Regulator; oversee management’s development and implementation of a Risk Appetite Framework, with an enterprise view of risk capacity, risk appetite, risk tolerances, risk targets and limits, and which is further supported by the Enterprise Risk Management Framework; oversee management’s implementation of an Enterprise Risk Management Framework, including the implementation of consistent processes for identifying, assessing, managing, monitoring and reporting risks of all types, including the categories of credit risk, market risk, liquidity risk, operational risk, regulatory compliance risk, legal risk, reputation risk and strategic risk; ensure that risk processes are supported by a risk governance structure that includes Board oversight, policies, risk limits, and risk committees, and further by a culture that supports risk management objectives and reflects a model of shared accountability between the Enterprise Risk Management Division, lines of business, affiliates and support functions.

The Risk and Compliance Committee charter outlines more specific responsibilities under all categories of risk. The Chief Risk Officer has a dotted line reporting relationship to the Risk and Compliance Committee and has regular executive sessions with the Risk and Compliance Committee without other members of management present. In addition, the Director of Credit Risk Review reports directly to the Risk and Compliance Committee.

 

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Communication with the Board

The Audit Committee has established Fifth Third’s EthicsLine, a toll free hotline through which confidential complaints may be made by employees regarding: illegal or fraudulent activity; questionable accounting, internal controls or auditing matters; conflicts of interest, dishonest or unethical conduct; disclosures in the Company’s SEC reports, bank regulatory filings and other public disclosures that are not full, fair, accurate, timely and understandable; violations of the Company’s Code of Business Conduct and Ethics; and/or any other violations of laws, rules or regulations. Complaints submitted through this process are presented to the Audit Committee on a regular, periodic basis.

Shareholders may communicate directly to the Board of Directors in writing by sending a letter to the Board at: Fifth Third Bancorp Board of Directors, 38 Fountain Square Plaza, MD 10AT76, Cincinnati OH, 45263 or by a secure e-mail via the Company’s website at www.53.com. All communications directed to the Board of Directors will be received and processed by the Fifth Third Legal Department and will be transmitted to the Chairman of the Nominating and Corporate Governance Committee (who serves as the Lead Director of the Board of Directors) without any editing or screening by the Legal Department.

COMPENSATION DISCUSSION AND ANALYSIS

The Company’s Compensation Discussion and Analysis provides information concerning the compensation for our executive officers. This information is set forth in the following sections:

 

   

Executive Summary

 

   

The Company’s Human Capital and Compensation Committee (“the Committee”)

 

   

Executive Compensation Philosophy, Risk Management, and Strategy

 

   

2012 Compensation Structure, Plan Design, and Awards

 

   

2012 Executive Compensation Awards and Decisions

 

   

Executive Benefits & Perquisites

 

   

Tax & Accounting Impact

 

   

Executive Ownership & Capital Accumulation

Throughout this proxy statement, the individuals who served as the Company’s Chief Executive Officer and Chief Financial Officer during fiscal 2012, as well as the other individuals included in the Summary Compensation Table on page 35, are referred to as the “Named Executive Officers” or “NEOs”.

Executive Summary

2012 was a year of major accomplishments as we continued to strengthen the Company amid uncertain economic times. We believe we are well positioned for the future. Key themes of our performance include:

 

   

Launched the new Fifth Third Bank brand positioning as The Curious Bank

 

   

Achieved strong levels of profitability

 

   

Increased common share dividend by over 28%

 

   

Broad-based credit improvements

 

   

Strengthened capital structure and positioning to be among the strongest in the industry

 

   

Repurchased over 44 million shares of Fifth Third stock

 

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Continued investments to maintain and enhance revenue creation

 

   

Disciplined expense control

 

   

Increased level of employee engagement

 

   

2012 Say-on-Pay approved with over 95% of the votes cast voting in favor of that proposal

The success on these themes was demonstrated by our 2012 performance against the key financial measures used to determine funding for our annual incentive plan:

 

   

2012 earnings per share (as adjusted for select items) of $1.59 vs. our financial plan of $1.40; our reported earnings per share was $1.66 and was adjusted to exclude non-recurring items not included in the Company’s financial plan including, but not limited to: Vantiv, Inc. initial public offering gains and related debt refinancing charges, Vantiv warrant gains/losses, gain on the sale of Vantiv shares, Federal Home Loan Bank debt termination charges, trust preferred securities redemption charges, losses associated with Visa total return swap, and net gains on sale of certain mutual funds.

 

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2012 return on tangible common equity (as adjusted for select items) of 13.7% vs. our financial plan of 11.9%; our reported return on tangible common equity was 14.3% and was adjusted to exclude non-recurring items not included in the Company’s financial plan including, but not limited to: Vantiv, Inc. initial public offering gains and related debt refinancing charges, Vantiv warrant gains/losses, gain on sale of Vantiv shares, Federal Home Loan Bank debt termination charges, trust preferred securities redemption charges, losses associated with Visa total return swap, and net gains on sale of certain mutual funds.

LOGO

 

   

Relative efficiency ratio (as adjusted for select items) at the 57th percentile of the peer group versus our target of median of the peer group; efficiency ratio is a measure of expenses as a percentage of revenue, and generally a lower efficiency ratio relative to peers reflects better expense management in

 

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conjunction with higher revenue generation. Our reported efficiency ratio was 61.7% (51st percentile) and was adjusted, along with the reported results of our peers, to normalize the results for comparison. The adjustments for the Company included securities gains/losses, losses associated with Visa transactions, gains/losses on Vantiv transactions, and debt extinguishment gains/losses.

 

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In addition to these key financial performance measures, we had strong performance on other measures considered by the Committee in assessing annual performance:

 

   

Net charge-offs (NCO): .85% vs. target level of 1.02%

 

   

Held for investment non-performing assets: 1.49% vs. a target level of 1.99%

 

   

Pre-tax, pre-provision earnings (as adjusted for select items outlined above): $2.368 billion vs. target of $2.221 billion

 

   

Available liquidity: $38.5 billion vs. a target range of $12.0 billion to $16.0 billion

 

   

Capital levels: exceeded required minimum regulatory and internal levels

 

   

Tier 1 common ratio: 9.51%

 

   

Tier 1 capital ratio: 10.65%

 

   

Tier 1 leverage ratio: 10.05%

 

   

Total risk-based capital ratio: 14.42%

In 2009 through early 2011, compensation to all Named Executive Officers was modified as required by TARP Standards including, among other modifications, the elimination of eligibility for the Variable Compensation Plan (the Company’s annual cash incentive compensation plan). As a result, 2010 and 2011 compensation reflected on the Summary Compensation Table on page 35 was subject to TARP Standards. Fiscal 2012 compensation reflects a full year of the Company’s ability to tie pay to performance.

Key compensation/governance actions for 2012 included:

 

   

Revised the Human Capital & Compensation Committee charter to effectively reflect the Committee’s responsibilities including oversight of management’s development and implementation of the incentive plan strategy for the Company; oversight of the incentive compensation plans, policies, and programs encompassing Covered Employees (includes senior executives and other employees who, either individually or as part of a group, have the ability to expose the banking organization to material amounts of risk); and review and approval of incentive compensation policies, performance management guidelines, and a review of the independence of the Committee’s compensation consultant

 

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Established the Compensation Risk Oversight Committee (a management committee) whose purpose is to provide oversight of incentive and variable compensation practices across the Company on behalf of the Human Capital & Compensation Committee

 

   

Kept NEO and other Executive Officers base salaries flat with 2011 base salaries

 

   

Revised the senior executive compensation programs for both short-term and long-term incentive (for the 2012 performance year), in accordance with guidance from our banking regulators; the program design changes created processes, controls, and safeguards that continue to reinforce balance of risk and reward

 

   

Revised the senior executives’ long-term incentive plan to include performance based vesting relative to stock appreciation rights and restricted stock subject to return on tangible common equity performance

 

   

Revised the senior executives’ long-term incentive award mix, with stock appreciation rights at 30%, restricted stock at 40%, and performance shares at 30%, effective for the upcoming April 2013 grant

 

   

Eliminated the excise tax gross-up from any new change-in-control agreements

 

   

Established a Company policy prohibiting all Executive Officers and non-employee directors from engaging in speculative trading or hedging strategies with respect to Fifth Third securities

 

   

Amended the share ownership guidelines from an absolute number of shares to a multiple of base salary by job level, in effect raising the share ownership requirements for executives

The Company’s Human Capital and Compensation Committee

The Committee’s Role. The Committee is composed of independent directors and is responsible for establishing, implementing, and monitoring the administration of compensation and benefits programs in accordance with the Company’s compensation philosophy and strategy and approving executive compensation and equity plan awards. The Committee focuses on the attraction and retention of key executives and, when making decisions, considers the Company’s compensation philosophy, the achievement of business goals set by the Company, relevant peer data, recommendations made by the Chief Executive Officer, and the advice of Compensation Advisory Partners LLC (“CAP”), an external executive compensation consulting firm with financial services industry expertise.

The Committee seeks to establish Total Rewards for the Company’s Executive Officers that are fair, reasonable, and competitive. The Total Rewards Program includes base salary, annual cash incentive compensation, long-term equity-based incentive compensation, benefits, and certain perquisites. Generally, the types of compensation and benefits paid to the Executive Officers are similar to those provided to other officers of the Company.

The Committee has taken the following steps to ensure that it effectively carries out its responsibilities:

 

   

Engaged CAP, a respected external compensation consultant with expertise in executive compensation, to provide the Committee with relevant market data and to advise the Committee on alternatives when making compensation decisions for the Named Executive Officers and on the recommendations being made by the Company’s Management for Executive Officers other than the Named Executive Officers. In addition to the support provided by CAP, employees who have significant compensation experience in the Company’s Human Capital division provide support, data, and analysis to the Committee

 

   

Conducted an annual review of the Committee Charter to ensure that it effectively reflects the Committee’s responsibilities and as a result the charter was revised to include oversight of management’s development and implementation of the incentive plan strategy for the Company; oversight of the incentive compensation plans, policies, and programs encompassing Covered Employees (includes senior executives and other employees who, either individually or as part of a

 

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group, have the ability to expose the banking organization to material amounts of risk); review and approval of incentive compensation policies, performance management guidelines, and a review of the independence of the Committee’s consultant

 

   

Established the Compensation Risk Oversight Committee, as mentioned above

 

   

Conducted an annual review of the Company’s compensation philosophy to ensure that it remains appropriate given the Company’s strategic objectives

 

   

Conducted an annual review of the Company’s Compensation Peer Group

 

   

Reviewed all compensation components for the Company’s Chief Executive Officer, Chief Financial Officer, and other Named Executive Officers, incorporating a tally sheet and pay-for-performance sensitivity analysis for each executive

 

   

Initiated an annual evaluation of the execution of the Company’s pay-for-performance philosophy, to ensure that the actual award decisions resulted in alignment of relative pay and relative performance compared to the Compensation Peer Group

 

   

Scheduled an executive session prior to the conclusion of each Committee meeting, without members of management, for the purpose of discussing decisions related to the CEO’s performance, goal-setting, compensation levels, and other items deemed important by the Committee

 

   

Reviewed the Company’s CEO succession profile and assessment process

 

   

Completed an annual self-evaluation of the Committee’s effectiveness

 

   

Completed an annual review of the external compensation consultant’s performance to ensure the Committee receives the appropriate resources and counsel. Also reviewed the consultant’s independence and conducted a process to consider other top consultants

 

   

Reviewed the Company’s risk assessment of executive and employee incentive plans with the Chief Risk Officer to ensure that the Company’s compensation design does not incent unnecessary risk

 

   

Worked to meet expectations and guidance from our banking regulators

Role of Executive Officers in Compensation Decisions. The Chief Executive Officer annually reviews the performance of each of the other Named Executive Officers, along with a risk performance evaluation. Based on this review, the Chief Executive Officer makes compensation recommendations to the Committee, including recommendations for salary adjustments, annual cash incentives, and long-term equity-based incentive awards. In addition, the CEO and other members of Management also annually assess performance for other Executive Officers and make compensation recommendations to the Committee. Although the Committee considers these recommendations along with data provided by its other advisors, it retains full discretion to set all compensation for the Company’s Executive Officers.

Additionally, the Chief Risk Officer discusses, evaluates, and reviews with the Committee all Executive Officer and employee incentive compensation plans. The purpose of the review is to ensure that the Company’s incentive compensation plans do not incent or pose unnecessary or excessive risks to the Company.

The Role of the Third Party Compensation Consultant. The Committee uses the services of an outside executive compensation consultant, CAP, to provide guidance and advice to the Committee on all matters covered by its charter. This consultant was directly selected and engaged by the Committee to provide a broad set of services pertaining to the compensation of the Company’s executives.

The consultant fulfills the following responsibilities:

 

   

Reviews the Company’s compensation philosophy and competitive positioning for reasonableness and appropriateness

 

   

Annually reviews the Committee’s charter and recommends changes as appropriate

 

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Reviews Committee agendas and supporting materials in advance of each meeting

 

   

Advises the Committee on management proposals, as requested

 

   

Reviews the Company’s Compensation Peer Group and survey data for competitive comparisons

 

   

Annually reviews the Company’s executive compensation programs and advises the Committee on the design of incentive plans or practices that might be changed to improve the effectiveness of its compensation program

 

   

Annually reviews competitive pay practices of the Compensation Peer Group for its Boards of Directors and recommends to the Committee changes required to pay the Company’s Board of Directors in a competitive fashion

 

   

Reviews, analyzes, and summarizes survey data on executive pay practices and amounts that come before the Committee

 

   

Attends all Committee meetings, including executive sessions with only Committee members as requested

 

   

Advises the Committee on potential practices for Board governance of executive compensation as well as areas of concern and risk in the Company’s programs

 

   

Undertakes special projects at the request of the Committee, including ISS test simulation

During 2012, CAP was specifically engaged on the following projects:

 

   

Advised the Committee with respect to the appropriateness of compensation targets and actual amounts paid to the Company’s executive officers given the Company’s compensation philosophy, size, and Compensation Peer Group

 

   

Actively participated in the review and design of all executive compensation programs, including the Fifth Third Bancorp 2011 Incentive Compensation Plan approved at the 2011 Annual Meeting

 

   

Advised on the appropriateness of executive performance goals and metrics

 

   

Reviewed and advised on the compensation program for the Company’s Board of Directors

 

   

Advised on the development of and reviewed the Company’s risk assessment of executive and employee incentive plans

 

   

Advised the Committee on market and regulatory trends and developments

 

   

Reviewed the 2012 Compensation Discussion and Analysis and related sections for the proxy statement and assisted in drafting the 2013 Compensation Discussion and Analysis

 

   

Attended all Committee meetings held in 2012

The Company does not engage CAP for any additional services outside of executive compensation consulting.

The Committee believes that the third party services of CAP are objective and unbiased. The Committee conducted an assessment of potential conflicts of interest of CAP and no conflicts of interest relating to CAP’s services were identified by the Committee.

The Committee’s Considerations. The Committee considers both the aggregate amounts and mix of an Executive Officer’s Total Direct Compensation (base salary, annual cash incentive compensation, and long-term equity-based incentive compensation) when making decisions. The Committee generally assesses Total Direct Compensation relative to competitive market data in its November meeting, discusses recommendations for executive compensation in its January meeting, and approves final merit and VCP recommendations at its February meeting. In 2012, final long-term incentive recommendations were approved at its April meeting.

 

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Based on its most recent review of the competitive data, the Committee has determined that the compensation structure for Executive Officers is effective and appropriate. The structure reflects the Company’s compensation philosophy, in that its targets are tied to the market median, it has appropriate leverage to ensure a strong linkage between compensation and performance, and it drives rewards based on the most relevant performance measures for the Company. Also based on this review, the Committee determined that the Company’s aggregate 2012 Total Rewards packages (and potential payouts in the severance and change-in-control scenarios where applicable) for its Named Executive Officers are reasonable, consistent with market practices, and not excessive.

The Committee believes that the relative difference between the compensation of the Chief Executive Officer and the compensation of the Company’s other Executive Officers is consistent with such differences found in the Company’s Compensation Peer Group and external reference labor market. Further, the Committee has reviewed the internal relationships between the compensation for the Chief Executive Officer and for other Executive Officers and has deemed them to be appropriate.

The remainder of this report outlines the Company’s compensation philosophy and executive compensation structure, and provides an analysis of compensation decisions made during 2012. The discussion of 2012 will focus primarily on the compensation structure established for our Named Executive Officers.

Executive Compensation Philosophy, Risk Management, and Strategy

Compensation Philosophy

The Company endeavors to attract and retain the best people in the financial services industry, and motivate them to fulfill the Company’s vision of becoming the one bank that people most value and trust. We will accomplish this in the way that we consider our shareholders’ long-term interests, by establishing compensation programs that reward our people for delivering products our customers highly value, and avoiding excessive risk.

Our compensation philosophy comprises the following key objectives

 

   

Drive the business strategy and human capital plan

 

   

Balance risk and rewards to ensure incentives do not promote excessive risk taking

 

   

Provide strong oversight of executive pay

 

   

Conduct recurring processes that ensure strategic and fiscal soundness along with balanced risk taking

 

   

Communicate for understanding and transparency

In order to drive our business strategy and human capital plan, compensation must be competitive to attract and retain essential talent, reward high performance, and be internally equitable. In addition, the Company is committed to making compensation decisions that are fiscally responsible, such that we carefully consider the expected return on investment for the decisions. These principles apply to all compensation components, including base pay, cash incentive compensation, and long-term incentives.

Compensation Risk Management

The above strategic principles include the integration of sound risk management in all aspects of our compensation programs, particularly incentive compensation. We believe it is critical to bring a multi-faceted strategy toward mitigating risk in incentive plans. We incorporate formulaic and discretionary risk mitigants, which outline specific metrics for modifying payouts to discourage unnecessary or imprudent risk-taking actions.

 

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Successful risk management requires strong oversight on pay for senior executives, given their role in Fifth Third’s strategic direction. For this reason, senior executives’ pay includes a heavy focus on long-term incentives and mandatory incentive deferral. This facilitates collaboration among business units, ownership in the Company, and a focus on shareholder goals. In addition, we believe that executive pay should be commensurate with the performance of the organization, such that we target 50th percentile pay for 50th percentile performance and target 75th percentile pay for upper quartile performance, relative to our financial services peers.

To execute the risk mitigation strategies, it is important to conduct yearly review processes, which are documented and incorporate input from Finance, Human Resources (“HR”), Risk Management, and business leaders. These processes include:

 

   

Market reviews, which use peer benchmark data to ensure that pay programs are competitive in the financial services industry

 

   

Incentive plan reviews, in which senior business leaders ensure that plans support the business strategy

 

   

Risk reviews, where senior risk and credit leaders determine whether incentive plans support Fifth Third’s risk culture and the incentive compensation risk framework

 

   

Financial reviews, in which senior executives, including the CEO, confirm that the incentive plans are fiscally sound, risk aligned, and successfully contribute to shareholder value

 

   

Board reviews, in which independent directors, serving on the Human Capital & Compensation and Risk & Compliance committees, assess the strategic, risk, and fiscal soundness of compensation plans and ensure that they are aligned with Fifth Third’s compensation philosophy

Finally, we believe it is critical that our people clearly understand how they are rewarded to ensure that pay facilitates the appropriate strategic and risk awareness behaviors. Because of this, we provide ongoing compensation education, including e-learnings, company-wide communications, and explanatory literature, which provide transparency for employees and other stakeholders. These communications are carefully coordinated by HR, Finance, Risk, and the business line.

In January 2012, the Human Capital and Compensation Committee reviewed its executive and other incentive programs to determine if their design and/or metrics encourage unnecessary and or material risk taking. The Committee believes, based on the provisions and actions described above, that they do not.

Benchmarking Methodology

In making compensation decisions, the Committee compares Company performance and each element of Executive Officers’ Total Direct Compensation with compensation information from a peer group of publicly traded banking and financial institutions (collectively the Compensation Peer Group). The Committee refers to this Compensation Peer Group for both compensation and performance-related benchmarking. Financial performance data is prepared either by the Committee’s external compensation consultant or by the Company, using publicly available data from public filings. Compensation data is generally prepared by the Committee’s external compensation consultants, using proprietary compensation databases and publicly available data from proxy statements. The Company’s consultant reviews any financial and/or compensation data that is prepared by the Company and provided to the Committee.

 

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The Compensation Peer Group consists of companies with which the Committee believes the Company competes for talent and for stockholder investment, and which are similar in asset size and business mix. The following 12 companies were identified by the Committee as the 2012 Compensation Peer Group:

 

BB&T Corporation

   The PNC Financial Services Group, Inc.

Capital One Financial Corporation

   Regions Financial Corporation

Comerica Incorporated

   SunTrust Banks, Inc.

Huntington Bancshares Incorporated

   U.S. Bancorp

KeyCorp

   Wells Fargo & Company

M&T Bank Corporation

   Zions Bancorporation

The Committee annually reviews the Compensation Peer Group and considers changes to the Compensation Peer Group deemed necessary to ensure that the nature and size of the organizations continue to be appropriate. Based on the Committee’s evaluation of the Compensation Peer Group for 2012, there were no changes from the prior year. The Company’s assets were at approximately the 44th percentile of its 2012 Compensation Peer Group as of December 31, 2012.

Compensation Strategy

The Company’s compensation strategy refers to the structure and programs designed to achieve its compensation philosophy.

2012 Compensation Structure, Plan Design, and Awards

Compensation Structure. The compensation structure (i.e., each element of pay described below and the respective targets and ranges of pay for each element) for Executive Officers is reviewed annually. When determining the compensation structure, the following items are considered:

 

   

The most recent and prior years’ comparative proxy statement and survey data for similar jobs among the Compensation Peer Group

 

   

The 25th percentile, median (i.e., 50th percentile), and 75th percentile peer data for each element of compensation (base salary, target annual cash incentive compensation, and target long-term equity-based incentive compensation as well as the resulting Total Direct Compensation)

 

   

The ability to provide market median (i.e., 50th percentile) Total Cash Compensation (i.e., base salary plus annual cash incentive compensation) for 50th percentile performance relative to the Compensation Peer Group

 

   

The ability to provide 75th percentile Total Cash Compensation for upper quartile (i.e., 75th percentile or better) performance relative to the Compensation Peer Group

Under the pay-for-performance compensation structure, compensation is delivered through three primary elements:

 

   

Base Salary

 

   

Annual Incentive (delivered through the Variable Compensation Plan)

 

   

Long-term Incentives

The Variable Compensation Plan includes the Management Stock Purchase Plan (“MSPP”), which is a mandatory deferral of 25% of annual incentive payments into Restricted Stock with 50% Company match.

 

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Below is the compensation structure for Named Executive Officers approved by the Committee at its April 2012 meeting:

2012 Target Total Compensation

 

Executive

   Base Salary      Annual
Incentive*
     MSPP
Match
     Long-Term
Incentive
     Total Comp  

Kevin T. Kabat, Vice Chair & CEO

   $ 1,000,000       $ 1,500,000       $ 187,500       $ 4,500,000       $ 7,187,500   

Daniel T. Poston, EVP & CFO

   $ 500,000       $ 500,000       $ 62,500       $ 1,100,000       $ 2,162,500   

Greg D. Carmichael, President & COO

   $ 675,000       $ 877,500       $ 109,688       $ 1,947,500       $ 3,609,688   

Paul L. Reynolds, EVP & CRO

   $ 550,000       $ 550,000       $ 68,750       $ 1,000,000       $ 2,168,750   

Robert A. Sullivan, EVP

   $ 570,000       $ 456,000       $ 57,000       $ 1,000,000       $ 2,083,000   

* The annual incentive column includes the mandatory 25% deferral related to MSPP

Pay Mix and Total Compensation for Executive Officers

Annual vs. Long-Term Compensation. The Company seeks to attract, retain, and motivate talented executives with competitive salaries and annual cash incentive compensation opportunities that deliver market-appropriate awards based on annual performance, balanced by long-term equity-based incentive compensation awards that also provide market-competitive opportunities to deliver value commensurate with shareholder gains. The Company employs a pay mix (i.e., proportions of base salary, annual cash incentive, and long-term equity-based incentive compensation comprising Total Direct Compensation) that approximates that of its peers to be consistent with its pay philosophy and to maximize the Company’s ability to attract, motivate, and retain talented executives.

 

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The 2012 target compensation structure results in a mix of cash and equity awards. The Company typically pays base salary and a portion of the annual incentive compensation in cash. All long-term equity-based incentive compensation awards are paid in shares of the Company’s common stock. Generally, our Named Executive Officers have approximately 50% or more of their target compensation delivered in the form of equity-based compensation. The table below shows the mix between cash and equity for each NEO, with the application of the MSPP included.

 

LOGO

Tally Sheet. The Company annually prepares a tally sheet of all compensation and potential payouts for the Committee’s use when approving compensation matters. The Committee reviews all components of the Company’s Chief Executive Officer, Chief Financial Officer, and the other Named Executive Officers’ compensation, including:

 

   

Base salary

 

   

Annual cash incentive compensation

 

   

Long-term equity-based incentive compensation

 

   

Accumulated, realized ,and unrealized equity award gains

 

   

The dollar value to the executive and cost to the Company of all perquisites and other personal benefits

 

   

The earnings and accumulated payout obligations under the Company’s nonqualified deferred compensation program

 

   

The projected payout obligations under the Company’s supplemental executive retirement plan

 

   

Several potential termination scenarios, including change in control where applicable

In February 2012 and February 2013, the Committee reviewed tally sheets containing all the above components and the associated dollar amounts for projected 2012 and 2013 compensation and found that the figures were appropriate and reasonable. Also at that time, the Committee reviewed a sensitivity analysis of the relationship between each Named Executive Officer’s 2012 and 2013 target Total Direct Compensation and the Company’s performance (both stock price performance and financial results). The Committee was satisfied that the 2012 and 2013 compensation structures provided significant differentiation in the payouts for high versus low levels of both absolute and relative performance.

 

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Final Determinations. The Committee considers several factors and objectives relevant to each specific program when determining compensation, including a risk performance evaluation. The Committee also contemplates each award’s impact on the Total Direct Compensation package. Total Direct Compensation is intended to target the median (i.e., 50th percentile) of the relevant market data, and actual compensation (both amount and mix) for executives varies based on their performance, prior experience, and other pertinent factors. In addition, for purposes of attracting and retaining key executives, the Committee may determine that an additional award, an above-median sign-on package and/or an incentive guarantee for a new hire, or a Total Direct Compensation package that is above market median is appropriate.

2012 Executive Compensation Awards & Decisions

Base Salary. The Committee reviews individual base salaries of the Company’s Executive Officers annually (and/or at the time of promotion). Salary increases, if any, are based on the Company’s overall performance and the executive’s attainment of individual objectives during the preceding year in the context of competitive market data. The objectives of the Company’s base salary program are to provide salaries at a level that allows the Company to attract and retain qualified executives and to recognize and reward individual performance. The following items are considered when determining base salary levels:

 

   

Market data provided by the Company’s external compensation consultant

 

   

The Executive Officer’s experience, scope of responsibilities, performance, and potential

 

   

Internal equity in relation to other Executive Officers with similar levels of experience, scope of responsibilities, performance, and potential

 

   

Other relevant information, which may include federal programs, regulatory requirements, etc.

In establishing 2012 compensation levels for Named Executive Officers, the Committee was guided by these principles and kept the NEOs and other senior executive base salaries flat with 2011 base salaries, as set forth above.

Pay for Performance

Under the 2012 target compensation structure, target annual and long-term incentives comprise the majority of Executive Officers’ target Total Direct Compensation. The actual amounts realized by Executive Officers under these incentive plans vary based on the performance of the Company and individual performance. Company performance is evaluated from a variety of perspectives, including:

 

   

Absolute performance and performance relative to peers

 

   

Return measures including total shareholder return

 

   

Growth in earnings per share

 

   

Efficiency ratio

 

   

Stock price growth

 

   

Risk performance evaluation

Annual cash incentive compensation awards to Executive Officers are approved and funded on the basis of Company performance relative to the specific targets described below and is allocated to each participant based on individual performance. Long-term equity-based incentive compensation awards are made to each participant based on individual performance. Long-term equity-based incentive compensation awards granted in 2012 are earned, and derive value, based on shareholder return and stock price appreciation. Amounts realizable from prior compensation awards do not influence decisions relative to future awards or benefits because of the Company’s belief that prior awards were made on a performance basis.

Each 2012 compensation decision is described in detail below.

 

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2012 Annual Cash Incentive Compensation

Annual Cash Incentive Compensation. The annual cash incentive compensation program’s objective is to reward executives for performance relative to the Compensation Peer Group. Target award levels are established at the beginning of the year for each Executive Officer based primarily on market median target awards and are expressed as a percentage of base salary. The maximum annual cash incentive compensation award under the program that a Named Executive Officer could earn for 2012 was 225% of target.

Plan Design. The Company refers to its annual cash incentive compensation program as the “Variable Compensation Plan” or the “VCP.” During meetings held in late 2011 and early 2012, the Committee engaged in discussions about the VCP’s objectives and the metrics and design that would best achieve those objectives.

The design of the VCP was comprised of the following three primary funding measures. The measures were weighted as illustrated below to reflect its relative importance to the Company:

 

  1. Earnings per share vs. plan: 50% weight

 

  2. Return on tangible common equity vs. plan: 25% weight

 

  3. Efficiency ratio vs. peers: 25% weight

It is the view of the Committee that these measures provide executives with balanced incentives to increase the absolute level of earnings, while also ensuring that investors’ capital is used efficiently to generate competitive returns. Efficiency ratio is useful as a complementary measure for two reasons: 1) it provides a measure of the cost efficiency of the Company’s operations and 2) it can be assessed on a relative basis vs. peers to ensure that the Company is operating competitively with others in the industry.

In addition to the primary funding measures, there are three funding modifier metrics that allow the Human Capital & Compensation Committee to increase the calculated pool funding by ten percentage points based on the achievement of threshold goals. The modifier metric and corresponding increase values are as follows:

 

   

Net charge-offs: the calculated pool funding increases by an incremental 2.5 percentage points

 

   

Non-performing assets: the calculated pool funding increases by an incremental 2.5 percentage points

 

   

Pre-tax/pre-provision core earnings: the calculated pool funding increases by an incremental 5 percentage points

In addition to the metrics above, the Human Capital & Compensation Committee retains downward discretion to reduce pool funding based on other factors including, but not limited to, available liquidity and capital levels. VCP awards for senior executives, including all NEOs, may, also, be moved downward based on a risk performance assessment that includes results of examinations by our banking regulators, internal examinations by our audit staff, and an annual qualitative review.

The financial plan approved by the Board of Directors included specific target levels for each of the measures that are shown below. Actual performance against these targets was considered, in addition to the three primary funding metrics listed above, to determine the available funding for all participants of the VCP.

Performance Goals. The Committee set the 2012 performance metrics to exclude non-recurring items not included in the Company’s financial plan and excluded those items when determining the adjusted Company performance results. The earnings per share and return on tangible common equity goals under the VCP were scaled to represent three levels of performance: threshold, target, and maximum. The Committee established baseline earnings per share target for 2012 at $1.40, and a return on tangible common equity target of 11.9%. Linear interpolation is used to calculate funding levels between stated performance levels and actual performance between threshold and maximum performance levels for both measures. The Committee placed the target goal for relative efficiency ratio at the median of the Compensation Peer Group, reflecting the Company’s philosophy to tie target pay to median (i.e., 50th percentile) performance. The threshold, target, and maximum performance levels and the Company’s adjusted performance levels (as calculated per the discussion set forth below in “Determination of Awards”) are outlined below.

 

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Variable Compensation Plan Primary Performance Metrics

 

Primary Performance
Metric

 

Threshold Performance

 

Target Performance

 

Maximum Performance

 

Adjusted
Company Performance

Earnings per
share

  $1.20   $1.40   $1.60   $1.59(1)
Return on tangible common equity   10.1%   11.9%   13.7%   13.7%(2)
Efficiency
ratio
  25th percentile  

Median

(i.e.,  50th percentile)

  75th percentile   57th percentile(3)

 

(1) Our reported earnings per share was $1.66 and was adjusted to exclude non-recurring items not included in the Company’s financial plan including, but not limited to: Vantiv, Inc. initial public offering gains and related debt refinancing charges, Vantiv warrant gains/losses, gain on the sale of Vantiv shares, Federal Home Loan Bank debt termination charges, trust preferred securities redemption charges, losses associated with Visa total return swap, and net gains on sale of certain mutual funds.

 

(2) Our reported return on tangible common equity was 14.3% and was adjusted to exclude non-recurring items not included in the Company’s financial plan including, but not limited to: Vantiv, Inc. initial public offering gains and related debt refinancing charges, Vantiv warrant gains/losses, gain on sale of Vantiv shares, Federal Home Loan Bank debt termination charges, trust preferred securities redemption charges, losses associated with Visa total return swap, and net gains on sale of certain mutual funds.

 

(3)

Our reported efficiency ratio was 61.7% (51st percentile) and was adjusted, along with the reported results of our peers, to normalize the results for comparison. The adjustments for the Company included securities gains/losses, losses associated with Visa transactions, gains/losses on Vantiv transactions, and debt extinguishment gains/losses.

As mentioned in the above Plan Design section, ranges for the three additional measures are established based on the financial plan, as approved by the Board of Directors. These measures are outlined below:

Variable Compensation Plan Additional Performance Metrics

 

Performance Metric

 

Target Performance

 

Adjusted
Company Performance

Net charge-offs

  1.02%     .85%
Held for investment non-performing assets   1.99%   1.49%
Pre-tax / pre-provision earnings   $2.221 billion   $2.368 billion*

In addition, available liquidity and capital levels were met.

 

* Pre-tax / pre-provision earnings was adjusted for the adjustments made to earnings per share and return on tangible common equity

Determination of Awards. The pool funding calculation, based on the adjusted primary and adjusted modifier metrics outlined in the tables above, produced a VCP pool equal to 213% of target for all of the Named Executive Officers, other than Mr. Sullivan. This funding level equates to the maximum individual award of 213% of target for each NEO, other than Mr. Sullivan. This funding level reflects the Company’s strong results in all of the performance metrics relative to the approved target level. Although the Company’s performance merited a maximum pool funding percentage of 213%, management recommended a downward adjustment to reduce the impact of certain income, which had not been included in the financial plan when the performance metrics were established. The Committee accepted the recommendation and exercised downward discretion to approve a total pool equal to 188% of target.

 

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Mr. Sullivan’s maximum VCP award funding was equal to 188% of target based on the primary and modifier metrics outlined above, as well as specific regional financial performance, engagement and development, and customer experience metrics particular to his position. The Human Capital & Compensation Committee, with input from management regarding items not included in the financial plan at the beginning of the year, exercised downward discretion to approve a total award funding equal to 169% of target with respect to Mr. Sullivan.

When making the final determination of awards, which may reflect an up or down adjustment from the total pool funding percentage, but not exceed the 213% of target (188% of target for Mr. Sullivan), the Human Capital & Compensation Committee had the benefit of information relating to market median and market 75th percentile compensation levels, Company financial performance, and a qualitative assessment from the Board of Directors with respect to the individual performance of the Chief Executive Officer and from the Chief Executive Officer with respect to the other Named Executive Officers.

For Mr. Kabat: Leadership and performance as Chief Executive Officer relating to objectives tied to Company financial performance in a well managed risk environment, customer and employee index goals, One Bank success, and promotion of core values of accountability, integrity, respect & inclusion, and teamwork & collaboration.

For Mr. Poston: Leadership and execution as Executive Vice President and Chief Financial Officer relating to objectives concerning balance sheet, capital and financial management, risk management and compliance, credit loss management, operational excellence, maintaining a strong financial team, and promotion of core values of accountability, integrity, respect & inclusion, and teamwork & collaboration.

For Mr. Carmichael: Leadership and execution as President and Chief Operating Officer relating to objectives tied to Company and line of business financial performance in a well managed risk environment and growth, customer service levels, team work across divisional and functional areas, and promotion of core values of accountability, integrity, respect & inclusion, and teamwork & collaboration.

For Mr. Reynolds: Leadership and execution as Executive Vice President and Chief Risk Officer relating to objectives concerning development of a strong risk governance structure and self-assessment program, risk management and compliance, focus on One Bank execution; as well as talent development and promotion of core values of accountability, integrity, respect & inclusion, and teamwork & collaboration.

For Mr. Sullivan: Leadership and execution as Executive Vice President and President of Fifth Third Bank (Chicago) relating to objectives concerning loan and deposit growth and overall financial performance of the Chicago business in a well managed risk environment, team building, One Bank success, and effectiveness and promotion of core values of accountability, integrity, respect & inclusion, and teamwork & collaboration.

As stated above, the maximum individual VCP award was equal to 213% of target for each NEO, other than Mr. Sullivan. Mr. Sullivan’s maximum individual VCP award was equal to 188% of target. After reviewing the individual qualitative assessments, along with 2012 Company financial performance and market compensation levels, the Committee approved VCP awards ranging from 169%-210% of the VCP targets for the NEOs, therefore, the award recommendations do not exceed the described maximum award percentages.

2012 Long-term Equity-based Compensation

Long-term Equity-Based Incentive Compensation. The objective of the long-term equity-based incentive program is to align executives’ interests with shareholders’ interests and to link executive wealth accumulation with the long-term performance of the Company. Target award levels are established at the beginning of the year for each Executive Officer based primarily on market median target awards, and actual awards are made based on such target award levels and Company performance. The Committee may also consider qualitative assessments of the individual performance of each Executive Officer to raise or lower their awards from target award levels.

 

26


The Company employs various long-term equity-based incentive compensation awards intended to align executives’ awards with shareholders’ interests. These awards include stock-settled stock appreciation rights (“SARs”), restricted stock, and performance shares. The Company historically awarded incentive and non-qualified stock options. Beginning in 2004, the Company generally discontinued granting incentive and non-qualified stock options. All previously awarded incentive and non-qualified stock options outstanding are fully vested and exercisable.

The Company reviewed the mix of long-term equity-based incentive compensation awards for its Executive Officers in 2012 to ensure that it effectively supported the Company’s objectives:

 

   

Align management and shareholders’ interests

 

   

Motivate senior executives to optimize long-term shareholder value

 

   

Encourage stock ownership among senior executives

 

   

Enhance the Company’s ability to retain key executives

 

   

Ensure the program design is consistent with our compensation philosophy and reflective of external market trends

 

   

Strengthen the risk adjusted pay decisions

The Committee maintained its historical mix of award types to evenly balance growth and full-value awards for 2012. The Committee believes that a portion of the long-term equity-based incentive compensation opportunity should come from a growth-oriented incentive (i.e., SARs) that aligns executives’ interests with those of the Company’s shareholders. In addition, the Committee believes that full-value share awards (i.e., performance shares and restricted stock) compliment each other and are important to drive stronger retention value and enhanced ownership creation opportunities, and should therefore also be granted in a meaningful amount (i.e., 25% each). The Committee also believes that performance shares further the objective of creating a clear connection between results achieved and compensation earned. The Committee determined that these weightings were appropriate based on the Company’s strategic objectives, compensation philosophy, and competitive practice.

In 2012, Named Executive Officer awards were granted in April based on the mix of awards described below. Total long-term incentive awards were first denominated in dollars, and generally granted in share-denominated amounts in the following manner:

 

Award Type

   Proportion  of
long-term
incentive value
   

Calculation of Awards

Stock Appreciation Rights

     50   Total award dollar value multiplied by 50% divided by stated 2012 SAR value of $4.23 (see page 29 for a description of how the Company determines the compensation value of a SAR)

Performance Shares

     25   Total award dollar value multiplied by 25% divided by 30-day average beginning share price (i.e., for 30 trading days prior to the grant date) of $13.88 for 2012

Restricted Stock

     25   Total award dollar value multiplied by 25% divided by $14.36, the Company’s closing stock price on April 17, 2012

The Company assigns a compensation value for SARs at the beginning of each calendar year, based on a number of factors including the calculated Black-Scholes value using the six year expected life. This valuation utilizes the estimated accounting or expense value of the stock appreciations rights.

 

27


Long-term equity-based incentive compensation awards for the Named Executive Officers are made to align the focus and rewards with the interests of the Company’s shareholders and to facilitate share ownership among Named Executive Officers. Target awards are established based on market median compensation for each position, and the values awarded represent the reward opportunity that may be realized only with commensurate performance. Award levels are not automatically made at target. The actual award levels are based on Company performance and the Committee may include qualitative assessments of the individual performance of each Named Executive Officer in areas such as:

 

   

The Company’s revenue and expense results

 

   

Division’s revenue and expenses vs. budget

 

   

Internal and external customer service levels

 

   

Performance relative to the Company’s strategic initiatives

 

   

Results related to specific individual responsibilities

Determination of Awards. The Chief Executive Officer recommends the award levels for the other Named Executive Officers and the Committee makes the final award determination for all Named Executive Officers. The award considerations are not based on a formula. Rather the Committee may choose to make the actual award higher or lower than the target award based on the qualitative assessment of performance in areas such as the factors described above. The Committee believes that by including a performance element as part of the upfront grant process, the Company is able to further reinforce the pay-for-performance objective of the long-term incentives.

When making the final determination to grant long-term equity incentive compensation awards at target level in April 2012, the Committee had the benefit of information relating to market median compensation levels, Company financial performance during 2011 and a qualitative assessment of individual performance from the Board of Directors with respect to the Chief Executive Officer and from the Chief Executive Officer with respect to the other Named Executive Officers.

The individual qualitative performance assessments indicated the strong 2011 performance of each of the Named Executive Officers relative to the following objectives:

For Mr. Kabat: Leadership and performance as Chief Executive Officer relating to objectives tied to Company financial performance in a well managed risk environment, operational effectiveness, broad based credit improvement, customer service levels, support of our community, and promotion of core values of accountability, integrity, respect & inclusion, and teamwork & collaboration.

For Mr. Poston: Leadership and execution as Executive Vice President and Chief Financial Officer relating to objectives concerning balance sheet, investments to maintain and enhance revenue streams, capital and financial management, risk management and compliance, credit loss management, strategic initiatives, maintaining a strong financial team, and promotion of core values of accountability, integrity, respect & inclusion, and teamwork & collaboration .

For Mr. Carmichael: Leadership and execution as Executive Vice President and Chief Operating Officer relating to objectives tied to Company and line of business financial performance in a well managed risk environment, One Bank execution, improving the strategic planning process, customer service levels, team work across divisional and functional areas, and promotion of core values of accountability, integrity, respect & inclusion, and teamwork & collaboration.

For Mr. Reynolds: Leadership and execution as Executive Vice President and Chief Administration Officer relating to objectives concerning enhanced risk management practices to balance risk and rewards, Community Reinvestment Act and Fair Lending, Bancorp cost reduction initiatives, and the execution of “One Bank” strategy; as well as talent development and promotion of core values of accountability, integrity, respect & inclusion, and teamwork & collaboration.

 

28


For Mr. Sullivan: Leadership and execution as Executive Vice President and President of Fifth Third Bank (Chicago) relating to objectives concerning customer driven loan and deposit growth and overall financial performance of the Chicago business, team building, and effectiveness and promotion of core values of accountability, integrity, respect & inclusion, and teamwork & collaboration.

After reviewing these qualitative assessments, along with market median compensation levels and Company financial performance during 2011, the Committee granted 2012 long-term equity incentive compensation awards at target levels and did not raise or lower the amounts based on the qualitative assessments of performance.

These grants provide incentive for the creation of shareholder value since the full benefit of the grant to each Executive Officer can only be realized with an appreciation in the price of the Company’s common shares or based on relative total shareholder return, depending on the type of award. The Company does not grant discounted stock options or SARs, re-price previously granted stock options or SARs, or grant reload stock options.

SARs for Executive Officers have been and will continue to be granted at the closing price of the Company’s common stock on the date of grant, with a 10-year term and generally a 4-year graded vesting schedule. These award terms are consistent with the annual grant for all eligible employees at the Company. The grant date is the date of the Human Capital & Compensation Committee’s approval of the awards, which will typically be at a March or April Human Capital & Compensation Committee meeting or at the annual shareholder meeting in April. The grant dates for 2012 awards are detailed in the 2012 Grants of Plan-Based Awards table. The Company does not adjust the timing of its annual grant based on SEC filings or press releases. Rather, the annual grant date is established and communicated well in advance.

Performance shares are granted with goals set at the date of the award grant in terms of three-year total shareholder return relative to the Company’s Compensation Peer Group. Total shareholder return was selected as the measure when the plan was introduced in 2004, and subsequently retained, because of its strong alignment with shareholder interests. The grants established varying payouts for increasing levels of relative total shareholder return, and are aligned with the Company’s philosophy of tying median pay to median performance with appropriate upside and downside leverage:

 

Performance Level

   Payout

40th percentile (threshold)

   50% of award

50th percentile (target)

   100% of award

90th percentile (maximum)

   200% of award

Beginning in 2010, the Committee determined that performance shares would be settled 100% in shares. The 2009 performance share award measures performance from April 1, 2009 through March 31, 2012. Fifth Third’s performance over this period was at the 100th percentile of peers, resulting in a payout of 200% of target. The total shareholder return for subsequent awards made under this program (i.e., 2010, 2011, and 2012) is currently above the threshold level. If the total shareholder return for the 2010 grant remains at or above the threshold, the 2010 award will be earned in April 2013.

Restricted stock awards vest ratably on the first, second, and third anniversaries of the grant date. These awards are full-value shares of stock that are eligible for dividend payments and receive voting rights during the restriction period.

2013 Long-term Incentive Plan Changes. As stated above the Company and the Committee review the long-term incentive plan annually to determine if any changes need to be made to the plan (i.e. award mix, performance measures, modifiers, etc.) for the next year. During 2012, the Company reviewed the long-term incentive plan and while the current comprehensive design has positive features related to risk assessment and associated pay decisions, the Company decided to make changes to the long-term incentive program to strengthen the governance, reporting, and risk adjusted pay decisions. The Committee approved the changes at the June 2012 meeting.

 

29


Beginning in 2013, the mix of award types will change based on the below table.

 

Award Type

   Proportion  of
long-term
incentive value
   

Calculation of Awards

Stock Appreciation Rights

     30   Total award dollar value multiplied by 30% divided by stated 2013 SAR value

Performance Shares

     30   Total award dollar value multiplied by 30% divided by 30-day average beginning share price

Restricted Stock

     40   Total award dollar value multiplied by 40% divided by the Company’s closing stock price on April 16, 2013

Similar to the 2012 awards, the award considerations will not be based on a formula. Rather the Committee may choose to make the actual award higher or lower than the target award based on the qualitative assessment of performance in areas such as the factors described above. The Committee believes that by including a performance element as part of the upfront grant process, the Company is able to further reinforce the pay-for-performance objective of the long-term incentives. In addition, a qualitative and quantitative risk performance evaluation will be used to modify the long-term incentive awards. The quantitative portion of the risk assessment will include a review of loss data by line of business, results from banking regulator examinations, and internal examinations by audit staff.

Lastly, for senior executives (including NEOs), performance based vesting will be introduced in 2013 using Return on Tangible Common Equity (ROTCE) as the threshold metric before each SAR and restricted stock annual vesting tranche is earned. ROTCE represents how much after-tax income is generated for common shareholders with the capital the Company has raised. Consequently, in the event of poor return on capital results, executive pay will be negatively impacted.

Management Stock Purchase Plan. The objective of the Management Stock Purchase Plan (“MSPP”) is to maintain an appropriate balance between the short-term focus of the VCP and long-term shareholder value creation through a combination of increased equity ownership coupled with a holding period requirement. This plan was adopted by the Committee to increase the overall retention value and create enhanced ownership opportunities for the senior leadership team. This is accomplished by automatically redirecting 25% of the earned annual cash incentive award into restricted shares, and then applying a Company match of 50% to the shares purchased by the executive. The purchased shares are immediately vested, but must be held by the executive for at least three years before they can be sold or transferred. The matching restricted stock vests one-third per year on the first through third anniversaries of the grant date.

Other Plan Provisions. The annual cash and long-term equity-based incentive compensation awards are authorized under the Company’s Incentive Compensation Plan (the “Plan”). This Plan was approved and adopted by the Company’s shareholders in 2011.

The Company’s Code of Business Conduct and Ethics provides that the Company reserves the right to and, if appropriate, will seek restitution of any bonus, commission, or other compensation received as a result of an employee’s intentional or knowing fraudulent or illegal conduct or misconduct, including the making of a material misrepresentation contained in the Company’s financial statements.

The Committee has delegated to certain Named Executive Officers, as well as to the Director of Total Rewards, the authority to grant equity awards for recruiting and retention purposes up to specified limits.

Non-Binding Advisory Say on Pay Proposal. In 2012, our shareholders approved a non-binding advisory say-on-pay proposal at our 2012 Annual Meeting with over 95% of the votes cast voting in favor of that proposal. The Committee reviewed the results of the shareholder vote and took the high percentage in favor as an indication that there is strong support among our shareholders for our pay-for-performance approach. We intend to maintain but continue to monitor our current compensation structure and future votes to ensure that there is continued support for our pay programs among our shareholders.

 

30


Compensation Risk. As a bank that is regulated by the FDIC and the Federal Reserve, the Company has gone through a rigorous process over the past few years to ensure that our compensation programs for our executives do not provide incentives to take excessive risks that could have material adverse impact on the company. Our compensation program for our Named Executive Officers has several features that help to address potential concerns about risk:

 

   

Downward discretionary pay adjustment based on risk performance evaluation which includes results of examinations by our banking regulators, internal examinations by our audit staff, and a qualitative review

 

   

Caps on the maximum payment under our annual cash incentive plan (VCP) and our performance share plan

 

   

Mandatory deferral of 25% of the cash incentive plan payment into shares in the Management Stock Purchase Plan

 

   

Balanced mix of short-term, medium-term, and long-term compensation

 

   

Stock ownership guidelines

 

   

Company clawback rights (as outlined above under Other Plan Provisions)

Executive Benefits & Perquisites

Summary of Eligibility for Benefits and Perquisites

The Company provides few benefits and perquisites to Executive Officers that are not available to the general employee population. Special benefits include the deferred compensation plan and a supplemental executive retirement plan (frozen for all employees except those who were age 50 with 15 years of services as of December 31, 1998). Special perquisites for executives include the following: financial planning reimbursement, country club memberships (the Company eliminated the reimbursement of future company club dues to its Executive Officers in March 2010 but will honor its commitments to pay any existing forgiveness loans entered into to purchase such memberships), and parking. The Company does not provide tax gross-ups for these special perquisites.

Retirement Benefits

The Company’s retirement benefits are designed to assist employees in accumulating wealth to provide income during their retirement years. The retirement benefits are designed to attract and retain employees and to encourage employees to save money for their retirement while maintaining a competitive cost structure. Based on the Company’s research using two national benefits surveys, its retirement benefits are positioned near the market median for similar employers. The Company’s primary retirement benefit plan is a defined contribution 401(k) plan with a company match and possible additional discretionary contributions, both of which are subject to vesting requirements. The Company also maintains a defined benefit plan that has been frozen except for approximately 14 employees who had previously met its eligibility requirements and are permitted to continue participating.

401(k) and Profit-Sharing. The Company maintains a 401(k) plan for all eligible employees. The 401(k) plan provides a match to employee contributions and may provide an annual discretionary profit-sharing contribution. The Company’s match is 100% of the first 4% of eligible compensation an employee contributes to the plan, and is invested in any of the plan’s existing investment alternatives that the employee selects. The discretionary profit-sharing contribution is based on the Company’s performance, and is invested in the participant’s existing 401(k) investment allocations. The discretionary contribution for 2012, paid in 2013, was 4% of eligible compensation based on the Company’s financial results. All Named Executive Officers are eligible for this plan up to the IRS wage or contribution limits.

 

31


Pension Plan. The Company maintains a defined benefit pension plan. On November 15, 1998, the benefit plan was frozen except for employees who were age 50 or older and had at least 15 years of service at December 31, 1998. The plan was frozen because the combination of this plan and the defined contribution plan provided benefits that may have exceeded retirement income needed by employees and resulted in the Company having benefit costs higher than its competitors. Employees who met the age and service requirement were “grandfathered” and continue to accrue benefits under that plan. No Named Executives continue to accrue benefits under this plan. Mr. Kabat has a frozen benefit for his service while at Old Kent Bank prior to it being acquired by the Company. The Old Kent Bank defined benefit plan was frozen for all participants shortly after the Company acquired Old Kent Bank. Mr. Reynolds has a frozen benefit for his service prior to the Plan being frozen. The Company also has a supplemental executive retirement plan, The Fifth Third Bancorp Supplemental Retirement Income Plan (“SERP”) that mirrors the qualified defined benefit plan except that it provides benefits that are lost under the qualified plan due to IRS qualified plan limits. The SERP was also frozen for all participants except for the grandfathered participants in the qualified defined benefit pension plan. Mr. Reynolds has a frozen SERP benefit for his service prior to the Plan being frozen. The retirement benefit under both the defined benefit pension plan and the SERP is based on years of service and a percent of an employee’s highest five consecutive years of earnings over the last ten years of employment. Compensation for retirement benefit calculations is defined as the base salary plus variable compensation.

Health and Welfare Benefits

The Company offers medical, dental, life and disability insurance to its employees. The benefits are designed to attract and retain employees and provide security to employees for their health and welfare needs. Based on the Company’s research using two national benefits surveys, its health and welfare benefits are positioned near the market median for similar employers. These benefits are offered to employees and Named Executive Officers on a uniform basis and are subject to insurance policy limitations. The Company provides Company-paid life insurance coverage equal to an employee’s base salary, up to $1,000,000. The Company’s long-term disability benefit is 60% of an employee’s base salary and the benefit is limited to $20,000 per month. The Company also offers a Company-paid short-term disability benefit with similar benefits to the long-term disability program.

Deferred Compensation

The Company offers some of its employees (at certain salary band levels, including its Executive Officers) a nonqualified deferred compensation plan. This plan allows for the deferral of base salary, bonus, and/or performance-based restricted stock. The plan also provides for the Company to make a contribution for loss of qualified plan 401(k) match and/or discretionary contributions due to deferral of pay into this plan or due to wage and/or contribution limitations under the qualified 401(k) plan. These contributions had historically been invested 100% in the Company’s common stock; however, beginning January 1, 2007 participants were able to diversify their investments into the existing 401(k) plan investment alternatives, with the exception of performance-based restricted stock that is deferred.

Severance and Change-in-Control Benefits

The Company maintains change-in-control agreements for approximately 45 of its officers (including all of the 2012 Named Executive Officers). The severance benefits conferred in these agreements range from one to 2.99 times the individual’s base salary plus target annual cash incentive compensation, and other benefits, and are effective only in the event of both a change in control and termination of employment (including a constructive termination). For this purpose, a change in control would occur in any of the following instances:

 

   

Any person is or becomes the beneficial owner of 25% or more of the Company’s outstanding common stock

 

   

During any consecutive 2-year period, the Directors in office in the beginning of such period (or Directors who were approved by 2/3 of such Directors) cease to constitute a majority of the Board

 

32


   

The sale or disposition of substantially all of the Company’s assets or the merger or consolidation of the Company with any other corporation unless the voting securities of the Company outstanding prior to such action continue to represent at least 50% of the voting power of the merged or consolidated entity

 

   

The Company’s shareholders approve a plan of complete liquidation of the Company

In 2011, the Company eliminated the excise tax gross-up with respect to any new change-in-control agreements. Mr. Poston and Mr. Reynolds have signed the new change-in-control agreement.

The agreements defer to the 2004, 2008, and 2011 Incentive Compensation Plans for treatment of long-term equity-based incentive compensation in the event of a change in control. If a change in control occurs, all stock-based awards granted prior to April 15, 2008 would vest immediately (i.e. single trigger) without the requirement of a termination of employment. (These awards will be completely vested by April 2013.) Awards granted on or after April 15, 2008 do not provide for single trigger vesting. Instead, the vesting provisions for those awards provide for accelerated vesting only if there is a change in control and a subsequent qualifying termination of employment (i.e. double trigger). Performance-based awards (including performance shares and performance-based restricted stock) would be paid out at the higher of (1) the extent to which the performance goals had been met through the date of the change in control or (2) the value at the date of the change in control of the number of target shares awarded at the grant.

Tax and Accounting Impact

Deductibility of Executive Compensation. Section 162(m) of the Internal Revenue Code limits the deductibility of compensation paid to or earned by certain executive officers of a public company. Section 162(m) has historically limited the annual deductibility of certain (non-performance based) executive compensation to $1 million per covered executive officer. However, both the amount of the executive compensation that is deductible for certain executive officers and the allowable compensation vehicles for payment of performance-based compensation changed as a result of the Company’s participation in TARP. In particular, the Company was not permitted to deduct compensation earned by certain executive officers in excess of $500,000 per year per covered executive officer as a result of the Company’s participation in TARP. Therefore, compensation in excess of this $500,000 limitation earned by certain executive officers for the period in which the Company participated in TARP was not deductible by the Company. Subsequent to ending its participation in TARP in 2011, certain limitations on the deductibility of executive compensation will continue to apply to some forms of compensation earned while under TARP. Beginning, in 2012, the deductibility of compensation earned by our covered executive officers is governed by the Section 162(m) as in effect prior to our participation in TARP, and, as a result, the $1 million deduction limitation will not apply to compensation that qualifies as “performance-based” under Section 162(m). While the Company’s compensation philosophy has been to, where appropriate, position executive compensation to qualify for deductibility, in approving compensation that may not be deductible, the Compensation Committee has determined that the underlying executive compensation programs are appropriate and necessary to attract, retain, and motivate senior executives, and that failing to meet these objectives creates more risk for the Company and its value than the financial impact of losing the tax deduction. For the year ending December 31, 2012, the tax impact related to non-deductible compensation expense, which is based on the grant date fair values of the respective awards was $1 million. In addition, the deduction limitations prevented the Company from recognizing a tax benefit of $3 million for the year ended December 31, 2012 that otherwise would have resulted from the vesting and/or exercise of certain stock based compensation awards at fair values in excess of their respective grant date fair values.

Nonqualified Deferred Compensation. The American Jobs Creation Act of 2004 was signed into law on October 22, 2004, changing the tax rules applicable to nonqualified deferred compensation arrangements. The final regulations became effective January 1, 2008 and the Company believes it is operating in compliance with the regulations. A more detailed description of the Company’s nonqualified deferred compensation arrangements is provided on page 43 under the heading “Nonqualified Deferred Compensation.”

 

33


Accounting and Financial Reporting. The Company accounts for long-term equity-based incentive compensation payments including stock options, SARs, performance-based restricted stock, and performance shares in accordance with accounting principles generally accepted in the United States of America.

Executive Ownership and Capital Accumulation

The executive compensation program is designed to provide opportunities for Executive Officers to build ownership in the Company and to align performance with shareholder interests. Accordingly, the Company has established share ownership guidelines for senior employees in the Company’s salary band structure, including the Executive Officers. The amount of shares required to be retained varies based upon the assigned salary band and associated multiple of base salary. These employees are expected to use shares net of taxes obtained through awards under the long-term equity-based incentive compensation program to establish a significant level of direct ownership. Stock ownership includes:

 

   

Shares owned individually and by immediate family sharing the same household

 

   

Restricted stock not yet vested

 

   

Shares held in the 401(k) plan

 

   

Shares held in the employee stock purchase plan

 

   

Shares held in the nonqualified deferred compensation plan

Executive Officers who have not met the ownership guidelines are required to retain 50% of the net after-tax shares following exercise or receipt of the shares and have 5 years to achieve the new executive share ownership requirements. In addition, Executive Officers are required to retain 100% of the net after-tax shares for one year following exercise or receipt of the shares. Specific ownership guidelines for the Named Executive Officers are:

2012 Share Ownership Guidelines as of December 31, 2012

 

Chief Executive Officer

     6.0x Salary   

Other Named Executive Officers

     3.0x Salary   

The Committee reviews progress toward achieving the ownership goal for the Company’s Executive Officers on an annual basis. Based on the 2012 review and December 31, 2012 share price, all of the Named Executive Officers had reached their ownership guideline.

The Company prohibits its Executive Officers from engaging in speculative trading or hedging shares of Fifth Third Bancorp securities. This includes prohibitions against day trading or short selling of Fifth Third Bancorp securities and in transactions in any derivative of Fifth Third securities, including buying and writing options, and executives are restricted from buying Fifth Third securities on margin or using Fifth Third securities as collateral for a loan. Additionally, the Company’s insider trading policy prohibits trading during designated blackout periods and requires approval by the Legal Department prior to any trade.

 

34


COMPENSATION OF NAMED EXECUTIVE OFFICERS AND DIRECTORS

Summary Compensation Table

The table below summarizes the compensation awarded, paid to, or earned by the Company’s Named Executive Officers during 2010-2012. Compensation for Named Executive Officers was adjusted in 2010 in order to comply with the Interim Final Rule on TARP Standards for Compensation and Corporate Governance issued by the U.S. Department of the Treasury on June 15, 2009. The Company repaid its TARP obligations on February 2, 2011 and has since readopted a pay-for-performance structure more consistent with its long-term approach and compensation philosophy. The amounts in the Stock Awards and Option Awards columns indicate the grant date fair value associated with all grants awarded in the corresponding year and do not correspond with the amounts that the Named Executive Officers may eventually realize with respect to these awards. The benefit, if any, actually received from these awards will depend upon the future value of our common stock.

2012 Summary Compensation Table

 

Name & Principal
Position

  Year     Salary
($)(1)
    Bonus
($)
    Stock
Awards
($)(2)(3)
    Option
Awards
($)(2)
    Non-Equity
Incentive Plan
Compensation
($)(4)
    Change in Pension
Value & Nonqualified
Deferred  Compensation
Earnings
($)(5)
    All Other
Compensation
($)(6)
    Total ($)  

Kevin T. Kabat

    2012      $ 1,000,002        —        $ 3,346,412      $ 2,250,000      $ 2,115,000      $ 80,600      $ 195,327      $ 8,987,341   

Vice Chairman and Chief Executive Officer

    2011      $ 1,659,947        —        $ 2,624,573      $ 1,837,541      $ 855,041      $ 130,600      $ 130,497      $ 7,238,199   
    2010      $ 3,144,823        —        $ 1,572,411      $ —        $ —        $ 63,600      $ 40,779      $ 4,821,612   

Daniel T. Poston

    2012      $ 499,990        —        $ 978,690      $ 575,001      $ 787,500      $ —        $ 223,642      $ 3,064,823   

Executive Vice President and Chief Financial Officer

    2011      $ 638,458        —        $ 704,152      $ 449,178      $ 334,187      $ —        $ 51,598      $ 2,177,573   
    2010      $ 940,379        —        $ 470,181      $ —        $ —        $ —        $ 22,275      $ 1,432,835   

Greg D. Carmichael

    2012      $ 675,002        —        $ 1,692,291      $ 1,000,002      $ 1,350,000      $ —        $ 300,092      $ 5,017,386   

President and Chief Operating Officer

    2011      $ 966,542        —        $ 1,255,432      $ 795,247      $ 609,201      $ —        $ 89,349      $ 3,715,770   
    2010      $ 1,617,728        —        $ 808,864      $ —        $ —        $ —        $ 35,364      $ 2,461,956   

Paul L. Reynolds

    2012      $ 549,994        —        $ 902,396      $ 499,999      $ 787,500      $ 8,300      $ 81,036      $ 2,829,224   

Executive Vice President and Chief Risk Officer

    2011      $ 696,612        —        $ 676,373      $ 408,342      $ 376,265      $ 8,500      $ 60,896      $ 2,226,989   
    2010      $ 1,025,134        —        $ 512,568      $ —        $ —        $ 6,500      $ 29,469      $ 1,573,671   

Robert A. Sullivan

    2012      $ 570,003        —        $ 858,753      $ 499,999      $ 577,500      $ —        $ 88,335      $ 2,594,590   

Executive Vice President

    2011      $ 713,018        —        $ 679,201      $ 408,342      $ 381,919      $ —        $ 539,760      $ 2,722,241   
    2010      $ 1,034,802        —        $ 478,765      $ —        $ —        $ —        $ 28,589      $ 1,542,156   

 

(1) 2010 and 2011 amounts reflect salary paid in the form of cash and phantom stock units for all Named Executive Officers. The following chart depicts the portions of pre-tax salary delivered in cash and phantom stock units for each Named Executive Officer. For more information about phantom stock units, see also the Grants of Plan Based Awards table, as well as the Outstanding Equity Awards and Option Exercises and Stock Vested tables.

 

Executive

  2011 Salary     2010 Salary  
  Cash     Phantom
Stock
Units
    Total     Cash     Phantom
Stock
Units
    Total  

Kevin T. Kabat

  $ 1,000,002      $ 659,945      $ 1,659,947      $ 1,000,002      $ 2,144,821      $ 3,144,823   

Daniel T. Poston

  $ 504,042      $ 134,417      $ 638,458      $ 508,341      $ 432,038      $ 940,379   

Greg D. Carmichael

  $ 718,810      $ 247,732      $ 966,542      $ 814,988      $ 802,740      $ 1,617,728   

Paul L. Reynolds

  $ 560,298      $ 136,314      $ 696,612      $ 582,797      $ 442,337      $ 1,025,134   

Robert A. Sullivan

  $ 597,523      $ 115,495      $ 713,018      $ 659,443      $ 375,359      $ 1,034,802   

 

(2) Amounts reflect the aggregate grant date fair value of awards granted during the year valued in accordance with Statement accounting principles generally accepted in the United States of America. Assumptions used in determining fair value are disclosed in the footnote 23 “Stock Based Compensation” located on pages 140-143 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

 

(3)

The values shown for 2012 in both the Summary Compensation Table and the table below reflect the grant date fair value of $14.36 per share that is also the grant date closing stock price on April 17, 2012. However, as in prior

 

35


  years, the number of performance shares awarded was calculated using the 30-day average closing stock price prior to the April 1, 2012 start of the performance period. That 30-day average price stock was $13.88 in 2012. The values shown for 2011 reflect the grant date fair value of $13.36 per share that is also the grant date closing stock price on April 19, 2011. However, as in prior years, the number of performance shares awarded was calculated using the 30-day average closing stock price prior to the April 1, 2011 start of the performance period. That 30-day average price stock was $14.02 in 2011. No performance shares were awarded to Named Executive Officers in 2010. Fair value of 2012 and 2011 performance share awards assumes target performance achievement as of the date of grant. Fair values assuming maximum performance as of the date of grant are as follows:

 

Fair Value at Maximum Performance   

Executive

   2012      2011      2010  

Kevin T. Kabat

   $ 2,327,813       $ 2,144,093         —     

Daniel T. Poston

   $ 594,877       $ 524,113         —     

Greg D. Carmichael

   $ 1,034,581       $ 927,905         —     

Paul L. Reynolds

   $ 517,305       $ 476,471         —     

Robert A. Sullivan

   $ 517,305       $ 476,471         —     

 

(4) Amounts reflect the VCP award paid in cash to each NEO. The MSPP and MSPP match (25% of VCP that was automatically deferred to restricted stock and 50% company match) are reflected in the “Stock Award” column. The total VCP amount awarded to each NEO is as follows:

Mr. Kabat: $2,820,000

Mr. Poston: $1,050,000

Mr. Carmichael: $1,800,000

Mr. Reynolds: $1,050,000

Mr. Sullivan: $770,000

 

(5) Amounts reflect the change in pension value only. The Company has a nonqualified deferred compensation plan, but those amounts earned are disclosed in the “Nonqualified Deferred Compensation” table.

 

36


(6) All Other Compensation:

 

Name

  Year     Perquisites
and Other
Personal
Benefits
    Registrant
Contributions
to Defined
Contribution
Plans
    Insurance
Premiums
    Tax
Reimbursements(F)
    Severance     Other(G)  

Kevin T. Kabat

   

 

 

2012

2011

2010

  

  

  

  $

$

$

15,373

16,801

15,337

(A) 

(A) 

(A) 

  $

$

$

95,501

65,244

14,700

  

  

  

  $

$

$

804

804

804

  

  

  

   

 

—  

—  

  

  

   

 

—  

—  

  

  

  $

$

$

83,649

47,648

9,937

  

  

  

Daniel T. Poston

   

 

 

2012

2011

2010

  

  

  

  $

$

$

2,600

2,788

2,100

(B) 

(B) 

(B) 

  $

$

$

44,513

33,244

14,700

  

  

  

  $

$

$

409

413

342

  

  

  

   

 

—  

—  

  

  

   

 

—  

—  

  

  

  $

$

$

176,120

15,153

5,133

  

  

  

Greg D. Carmichael

   

 

 

2012

2011

2010

  

  

  

  $

$

$

9,438

16,689

13,509

(C) 

(C) 

(C) 

  $

$

$

65,376

47,332

14,700

  

  

  

  $

$

$

618

659

608

  

  

  

 

 

 

—  

—  

  

  

   

 

—  

—  

  

  

  $

$

$

224,660

24,669

6,546

  

  

  

Paul L. Reynolds

   

 

 

2012

2011

2010

  

  

  

  $

$

$

3,590

4,273

8,720

(D) 

(D) 

(D) 

  $

$

$

48,180

37,155

14,700

  

  

  

  $

$

$

460

471

455

  

  

  

   

 

 

—  

—  

—  

  

  

  

   

 

 

—  

—  

—  

  

  

  

  $

$

$

28,806

16,472

5,594

  

  

  

Robert A. Sullivan

   

 

 

2012

2011

2010

  

  

  

  $

$

$

15,487

287,154

7,633

(E) 

(E) 

(E) 

  $

$

$

51,208

39,606

14,700

  

  

  

  $

$

$

506

545

531

  

  

  

   

$

 

—  

198,316

—  

  

  

  

   

 

 

—  

—  

—  

  

  

  

  $

$

$

21,134

16,663

5,725

  

  

  

 

  (A) The amount shown for Mr. Kabat for 2012 represents trust and estate planning fees, parking, country club dues, and executive development program. The amount shown for Mr. Kabat for 2011 represents trust and estate planning fees, parking, country club dues, and a personal computer. The amount shown for Mr. Kabat for 2010 represents trust and estate planning fees, parking, and country club dues. The Company eliminated the reimbursement of future country club dues to its Executive Officers in March 2010 but will honor its commitments to pay any existing forgiveness loans entered into to purchase such memberships.

 

  (B) The amount shown for Mr. Poston for 2012 represents parking and executive development program. The amount shown for Mr. Poston for 2011 represents parking and a personal computer. The amount shown for Mr. Poston for 2010 represents parking.

 

  (C) The amount shown for Mr. Carmichael for 2012 represents trust and estate planning fees, parking, country club dues, and executive development program. The amount shown for Mr. Carmichael for 2011 represents trust and estate planning fees, parking, country club dues, and a personal computer. The amounts shown for Mr. Carmichael for 2010 represent trust and estate planning fees, parking, and country club dues. The Company eliminated the reimbursement of future country club dues to its Executive Officers in March 2010 but will honor its commitments to pay any existing forgiveness loans entered into to purchase such memberships.

 

  (D) The amount shown for Mr. Reynolds for 2012 represents trust and estate planning fees, parking, and executive development program. The amount shown for Mr. Reynolds for 2011 represents trust and estate planning fees, parking, and a personal computer. The amount shown for Mr. Reynolds for 2010 represents trust and estate planning fees, parking and country club dues.

 

  (E) The amount shown for Mr. Sullivan for 2012 represents country club dues and executive development program. The amount shown for Mr. Sullivan for 2011 represents relocation expenses of $280,126, parking, country club dues, and a personal computer. The amount shown for Mr. Sullivan for 2010 represents parking and country club dues. The Company eliminated the reimbursement of future country club dues to its Executive Officers in March 2010 but will honor its commitments to pay any existing forgiveness loans entered into to purchase such memberships.

 

37


  (F) Amount in this column represents tax reimbursements associated with relocation expenses.

 

  (G) Amounts in this column represent benefit choice dollars, dividends paid on unvested restricted stock, and Mr. Poston, Mr. Carmichael, and Mr. Reynolds received retainer fees from Vantiv for serving on the Vantiv’s Board of Directors.

Grants of Plan-Based Awards

The following table illustrates the long-term equity-based incentive compensation awards made to Named Executive Officers during 2012. The table reflects the full grant date fair value of awards made in 2012.

On April 17, 2012, each of the Named Executive Officers received grants of performance shares that will vest three years from the grant date (contingent on meeting the performance threshold), restricted stock that will vest in three equal annual installments from the date of grant, and SARs that will vest in four equal annual installments from the date of grant.

Dividends are paid on unvested restricted stock, which is reported in the All Other Stock Awards: Number of Shares of Stock or Units column below. None of these awards have been repriced or modified. As described in the Compensation Discussion and Analysis section, under the provisions of the 2012 Incentive Compensation Plans, these awards are subject to accelerated vesting in the event of a change in control followed by a qualifying termination of employment.

 

38


2012 Grants of Plan-Based Awards

 

                Estimated Future Payouts Under
Non-Equity Incentive Plan Awards(3)
    Estimated Future Payouts Under
Equity Incentive Plan Awards(4)
    All Other
Stock
Awards:
Number
of

Shares of
Stock

or Units
(#)
    All Other
Option
Awards:
Number of
Securities
Underlying
Options

(#)
    Exercise
or Base
Price of
Option
Awards
($ / Sh)
    Grant
Date Fair
Value of
Stock and
Option
Awards(5)

($)
 

Name

  Grant
Date(1)
    Date Grant
Approved by
Compensation
Committee(2)
    Number
of Units
  Threshold
($)
    Target
($)
    Maximum
($)
    Number
of Units
    Threshold
(#)
    Target
(#)
    Maximum
(#)
         

Kevin T. Kabat

        $ 750,000      $ 1,500,000      $ 3,375,000                   
    4/17/2012        4/17/2012                81,052        42,526        81,052        162,104            $ 1,163,907   
    4/17/2012        4/17/2012                          531,915      $ 14.36      $ 2,250,000   
    4/17/2012        4/17/2012                        78,343          $ 1,125,005   

Daniel T. Poston

        $ 250,000      $ 500,000      $ 1,125,000                   
    4/17/2012        4/17/2012                20,713        10,357        20,713        41,426            $ 297,439   
    4/17/2012        4/17/2012                          135,934      $ 14.36      $ 575,001   
    4/17/2012        4/17/2012                        20,021          $ 287,502   

Greg D. Carmichael

        $ 438,750      $ 877,500      $ 1,974,375                   
    4/17/2012        4/17/2012                36,023        18,012        36,023        72,046            $ 517,290   
    4/17/2012        4/17/2012                          236,407      $ 14.36      $ 1,000,002   
    4/17/2012        4/17/2012                        34,819          $ 500,001   

Paul L. Reynolds

        $ 275,000      $ 550,000      $ 1,237,500                   
    4/17/2012        4/17/2012                18,012        9,006        18,012        36,024            $ 258,652   
    4/17/2012        4/17/2012                          118,203      $ 14.36      $ 499,999   
    4/17/2012        4/17/2012                        17,409          $ 249,993   

Robert A. Sullivan

        $ 228,000      $ 456,000      $ 1,026,000                   
    4/17/2012        4/17/2012                18,012        9,006        18,012        36,024            $ 258,652   
    4/17/2012        4/17/2012                          118,203      $ 14.36      $ 499,999   
    4/17/2012        4/17/2012                        17,409          $ 249,993   

 

(1) Awards made prior to April 19, 2011 were made under the 2008 Incentive Compensation Plan as approved by shareholders on April 15, 2008. Awards made on or after April 19, 2011 were made under the 2011 Incentive Compensation Plan as approved by shareholders on April 19, 2011.

 

(2) In September 2009, the Compensation Committee amended the Company’s approved executive compensation structure to comply with the TARP standards for compensation. Awards approved by the Compensation Committee on April 16, 2010 reflect salary adjustments for the Named Executive Officers made in the form of immediately vested phantom stock units, which were granted each pay period through April 15, 2011. Awards will be settled solely in cash half on June 15, 2012 and half on June 15, 2013 or the executive’s death. The actual value to be paid to each executive on the settlement date is dependent upon the Company’s closing stock price on each grant date and the closing stock price on the settlement date, which may be higher or lower than the grant date fair value referenced above. The executive has no rights as a shareholder as to the phantom stock units, no rights to receive dividends, no rights to vote, and no right to transfer the units. The grant dates of these awards differ from the approval date of April 16, 2010 as awards were paid as salary at the end of each pay period commencing on January 7, 2011.

 

(3) Includes incentive awards made under the Annual Incentive Plan. Actual amounts paid under the Annual Incentive Plan in 2011 are included in the “Non-Equity Incentive Compensation” column of the “Summary Compensation Table” in this Proxy Statement.

 

(4) Includes performance shares that are settled in Company stock, only after threshold performance or greater is achieved.

 

(5)

Grant Date Fair Value of Equity Incentive Plan Awards granted on April 17, 2012 calculated as [total number of shares] multiplied by [$14.36].

     Grant Date Fair Value of Option Awards granted on April 17, 2012 calculated as [total number of shares] multiplied by [$4.23].
     Grant Date Fair Value of Stock Awards granted on April 17, 2012 calculated as [total number of shares] multiplied by [$14.36].

 

39


Outstanding Equity Awards at Year-End

The following table outlines outstanding long-term equity-based incentive compensation awards for the Named Executive Officers as of December 31, 2012. Each outstanding award is shown separately. Option Awards include non-qualified and incentive stock options, and stock appreciation rights. Stock awards include restricted stock, performance share awards and phantom stock units. The vesting schedule for each award is described in the footnotes to this table.

Outstanding Equity Awards at December 31, 2012

 

    Option Awards     Stock Awards(10)  

Name

  Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
    Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
    Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
    Option
Exercise
Price ($)
    Option
Expiration
Date
    Number
of
Shares
or Units
of Stock
That
Have
Not
Vested
(#)
    Market
Value of
Shares or Units
of

Stock
That Have
Not Vested
($)
    Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested(9)
(#)
    Equity
Incentive
Plan
Awards:
Market
or Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That Have
Not
Vested

($)
 

Kevin T. Kabat

    60,000        —          —        $ 51.4600        3/28/2013        —          —          —          —     
    55,000        —          —        $ 54.4000        4/19/2014        —          —          —          —     
    62,377        —          —        $ 42.9000        4/8/2015        —          —          —          —     
    60,000        —          —        $ 37.5800        1/23/2016        —          —          —          —     
    71,100        —          —        $ 39.3600        4/7/2016        —          —          —          —     
    233,333        —          —        $ 38.2700        4/9/2017        —          —          —          —     
    500,000        0        —        $ 40.1000        4/23/2017        —          —          —          —     
    269,231          —        $ 19.2600        4/15/2018        —          —          —          —     
    262,500        87,500 (1)      —        $ 3.9600        4/21/2019        —          —          —          —     
    107,143        321,428 (2)      —        $ 13.3600        4/19/2021        —          —          —          —     
    0        531,915 (3)      $ 14.3600        4/17/2022           
    —          —          —          —          —          106,244 (4)    $ 1,614,909        —          —     
    —          —          —          —          —          56,132 (5)    $ 853,206        —          —     
              78,343 (6)    $ 1,190,814       
              10,245 (7)    $ 155,724       
    —          —          —          —          —          65,794 (8)    $ 1,000,069        —          —     
    —          —          —          —          —          —          —          161,295      $ 2,451,684   

Daniel T. Poston

    30,000        —          —        $ 51.4600        3/28/2013        —          —          —          —     
    35,000        —          —        $ 54.4000        4/19/2014        —          —          —          —     
    36,058        —          —        $ 42.9000        4/8/2015        —          —          —          —     
    30,000        —          —        $ 37.5800        1/23/2016        —          —          —          —     
    35,550        —          —        $ 39.3600        4/7/2016        —          —          —          —     
    26,667        —          —        $ 38.2700        4/9/2017        —          —          —          —     
    30,769        0        —        $ 19.2600        4/15/2018        —          —          —          —     
    30,000        10,000 (1)      —        $ 3.9600        4/21/2019        —          —          —          —     
    26,191        78,571 (2)      —        $ 13.3600        4/19/2021        —          —          —          —     
    0        135,934 (3)      $ 14.3600        4/17/2022           
    —          —          —          —          —          31,769 (4)    $ 482,889        —          —     
    —          —          —          —          —          13,721 (5)    $ 208,559        —          —     
              20,021 (6)    $ 304,319       
              4,004 (7)    $ 60,861       
    —          —          —          —          —          13,418 (8)    $ 203,954        —          —     
    —          —          —          —          —          —          —          40,328      $ 612,986   

Greg D. Carmichael

    20,000        —          —        $ 57.41000        3/28/2013        —          —          —          —     
    45,000        —          —        $ 54.4000        4/19/2014        —          —          —          —     
    62,377        —          —        $ 42.9000        4/8/2015        —          —          —          —     
    60,000        —          —        $ 37.5800        1/23/2016        —          —          —          —     
    71,100        —          —        $ 39.3600        4/7/2016        —          —          —          —     
    66,667        —          —        $ 38.2700        4/9/2017        —          —          —          —     
    84,615        0        —        $ 19.2600        4/15/2018        —          —          —          —     
    93,750        31,250 (1)      —        $ 3.9600        4/21/2019        —          —          —          —     
    46,369        139,107 (2)      —        $ 13.3600        4/19/2021        —          —          —          —     
    0        236,407 (3)      $ 14.3600        4/17/2022           
    —          —          —          —          —          54,653 (4)    $ 830,726        —          —     
    —          —          —          —          —          24,292 (5)    $ 369,238        —          —     
              34,819 (6)    $ 529,249       
              7,300 (7)    $ 110,960       
    —          —          —          —          —          24,782 (8)    $ 376,681        —          —     
    —          —          —          —          —          —          —          70,750      $ 1,075,400   

 

40


    Option Awards     Stock Awards(10)  

Name

  Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
    Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
    Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
    Option
Exercise
Price ($)
    Option
Expiration
Date
    Number
of
Shares
or Units
of Stock
That
Have
Not
Vested
(#)
    Market
Value of
Shares or Units
of

Stock
That Have
Not Vested
($)
    Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested(9)
(#)
    Equity
Incentive
Plan
Awards:
Market
or Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That Have
Not
Vested

($)
 

Paul L. Reynolds

    60,000        —          —        $ 51.4600        3/28/2013        —          —          —          —     
    45,000        —          —        $ 54.4000        4/19/2014        —          —          —          —     
    46,154        —          —        $ 42.9000        4/8/2015        —          —          —          —     
    30,000        —          —        $ 37.5800        1/23/2016        —          —          —          —     
    35,550        —          —        $ 39.3600        4/7/2016        —          —          —          —     
    33,333        —          —        $ 38.2700        4/9/2017        —          —          —          —     
    46,154        0        —        $ 19.2600        4/15/2018        —          —          —          —     
    60,000        20,000 (1)      —        $ 3.9600        4/21/2019        —          —          —          —     
    23,810        71,428 (2)      —        $ 13.3600        4/19/2021        —          —          —          —     
    0        118,203 (3)      $ 14.3600        4/17/2022           
    —          —          —          —          —          34,633 (4)    $ 526,422        —          —     
    —          —          —          —          —          12,474 (5)    $ 189,605        —          —     
              17,409 (6)    $ 264,617       
              4,509 (7)    $ 68,537       
    —          —          —          —          —          13,620 (8)    $ 207,024        —          —     
    —          —          —          —          —          —          —          35,844      $ 544,829   

Robert A. Sullivan

    65,000        —          —        $ 51.4600        3/28/2013        —          —          —          —     
    60,000        —          —        $ 54.4000        4/19/2014        —          —          —          —     
    62,377        —          —        $ 42.9000        4/8/2015        —          —          —          —     
    60,000        —          —        $ 37.5800        1/23/2016        —          —          —          —     
    71,100        —          —        $ 39.3600        4/7/2016        —          —          —          —     
    66,667        —          —        $ 38.2700        4/9/2017        —          —          —          —     
    80,769        0        —        $ 19.2600        4/15/2018        —          —          —          —     
    65,625        21,875 (1)      —        $ 3.9600        4/21/2019        —          —          —          —     
    23,810        71,428 (2)      —        $ 13.3600        4/19/2021        —          —          —          —     
    0        118,203 (3)      $ 14.3600        4/17/2012           
    —          —          —          —          —          32,349 (4)    $ 491,705        —          —     
    —          —          —          —          —          12,474 (5)    $ 189,605        —          —     
              17,409 (6)    $ 264,617       
              4,576 (7)    $ 69,555       
    —          —          —          —          —          11,620 (8)    $ 176,624        —          —     
    —          —          —          —          —          —          —          35,844      $ 544,829   

 

(1) A portion of the awards issued in 2009 prior to the Interim Final Rule on TARP Standards for Compensation and Corporate Governance issued by the U.S. Department of the Treasury on June 15, 2009 were forfeited in 2011 order to comply with the Interim Final Rule. The value for the 2009 SAR award is the maximum possible award value, assuming a minimum proration factor calculated using the expiration date as the end date for the time awards are considered outstanding (proration is based on the number of days the executive officer was considered a TARP MHCE divided by the total number of days the award is considered outstanding). The award value will be less if the executive officer decides to exercise prior to the expiration date. The remaining unexercisable shares will vest on April 21, 2013.

 

(2) One-fourth of the unexercisable shares will vest on each of April 19, 2013, 2014, and 2015.

 

(3) One-fourth of the unexercisable shares will vest on each of April 17, 2013, 2014, 2015, and 2016.

 

(4) All unvested shares are scheduled to vest on April 20, 2013.

 

(5) One-third of the unvested shares will vest on each of April 19, 2013 and 2014.

 

(6) One-third of the unvested shares will vest on each of April 17, 2013, 2014, and 2015.

 

(7) One-third of the unvested shares will vest on each of April 17, 2013, 2014, and 2015.

 

(8) As referenced in the Compensation Discussion and Analysis section of this proxy statement, the Summary Compensation table and the Company’s 8-K filed in September 2009, the Human Capital & Compensation Committee amended the Company’s approved executive compensation structure to comply with the TARP standards for compensation. Awards reflect salary for the Named Executive Officers made in the form of immediately vested phantom stock units, which were granted each pay period through April 15, 2011 and will be settled solely in cash, half on June 15, 2012 and half on June 15, 2013 or the executive’s death. The actual value to be paid to each executive on the settlement date is dependent upon the Company’s closing stock price on each grant date and the closing stock price on the settlement date, which may be higher or lower than the market value referenced above.

 

41


(9) Equity Incentive Plan Awards in this column are comprised of 2011 and 2012 performance shares, which settle entirely in shares of Company stock, only after threshold performance or greater is achieved. Awards will vest three years from the date of grant, subject to achievement of stated performance goals:

Of the amount shown for Mr. Kabat, 80,243 will vest on April 19, 2014 and 81,053 will vest on April 17, 2015.

Of the amount shown for Mr. Poston, 19,615 will vest on April 19, 2014 and 20,713 will vest on April 17, 2015.

Of the amount shown for Mr. Carmichael, 34,727 will vest on April 19, 2014 and 36,023 will vest on April 17, 2015.

Of the amount shown for Mr. Sullivan, 17,832 will vest on April 19, 2014 and 18,012 will vest on April 17, 2015.

Of the amount shown for Mr. Reynolds, 17,832 will vest on April 19, 2014 and 18,012 will vest on April 17, 2015.

 

(10) Values are based on December 30, 2012 closing price of the Company’s common stock of $15.20 and are based on achievement of target performance.

Option Exercises and Stock Vested

The following table outlines SARs and stock options exercised and restricted stock awards, performance shares, and phantom stock units vested during 2012. The Named Executive Officers did not exercise any options or SARs in 2012. The dollar figures in the table below reflect the value on the vesting date for Stock Awards.

2012 Option Exercises & Stock Vested

 

     Option Awards(1)      Stock Awards(2)  

Name

   Number of Shares
Acquired on
Exercise (#)
     Value Realized
on Exercise ($)
     Number of Shares
Acquired on Vesting
(#)
     Value Realized
on Vesting

($)
 

Kevin T. Kabat

     —           —           982,668       $ 13,721,216   

Daniel T. Poston

     —           —           142,461       $ 1,982,536   

Greg D. Carmichael

     —           —           398,292       $ 5,561,950   

Paul L. Reynolds

     —           —           252,806       $ 3,531,420   

Robert A. Sullivan

     —           —           275,001       $ 3,842,622   

 

(1)

There were no option exercises for Named Executive Officers in 2012.

 

(2) The actual value to be paid to each executive on the settlement date is dependent upon the Company’s closing stock price on each grant date and the closing stock price on the settlement date, which may be higher or lower than the value realized on vesting as referenced above. Amounts also include performance share awards that vested and were settled half in shares and half in cash in 2012.

Pension Benefits

The following table illustrates the payments in connection with retirement, shown for each retirement plan. The table shows the present value of accumulated benefits payable to each of the Named Executive Officers, including the number of years of service credited to each such Named Executive Officer under each of The Fifth Third Bancorp Master Retirement Plan (the “Master Retirement Plan”) and The Fifth Third Bancorp Supplemental Retirement Income Plan (“SERP”) determined using interest rates and mortality rate assumptions consistent with those used in the Company’s Financial Statements (disclosed in footnote 20 “Retirement and Benefit Plans” located on pages 134-137 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2012). The purpose of the SERP is to provide benefits that would have been provided by the Master Retirement Plan if the Internal Revenue Code did not place annual limits on compensation and benefits.

The Master Retirement Plan and SERP were frozen as of November 15, 1998 except for employees who were at least age 50 and had 15 years of credited service as of December 31, 1998. For the purpose of computing a benefit under these Plans on December 31, 2012, Mr. Kabat has a frozen benefit related to his service with Old Kent Financial Corporation. His annual benefit at age 65 would be approximately $65,400. Mr. Reynolds has a frozen benefit related to his service with Fifth Third. His annual benefit under the Master Retirement plan at age 65 would be approximately $10,339. Mr. Reynolds also has a frozen benefit in the SERP and that benefit would

 

42


be paid in a lump sum. Assuming he terminated on December 31, 2012, his lump sum payment in 2013 would be $26,480. Messrs. Poston, Carmichael, and Sullivan joined the Company after these plans were frozen and therefore are not eligible to participate.

The figures in the table below were calculated as of December 31, 2012 using the earliest age (or current age, if older) at which the Named Executive Officer may retire under the plan without a reduction of benefits due to age.

The benefits under the Master Retirement Plan for Mr. Kabat are calculated using the highest five out of the last 10 years of eligible wages, which generally includes W-2 pay including pre-tax deferrals. The normal benefit is equal to 1.68% of average monthly compensation plus 0.625% of average monthly earnings in excess of his Social Security covered compensation. This monthly benefit was converted to a present value in the table below. Mr. Kabat became eligible for early retirement upon attainment of age 55.

The benefits under the Master Retirement Plan for Mr. Reynolds are calculated using the highest five consecutive years out of the last 10 years of eligible wages, which generally includes Base Pay and Variable Compensation. The normal benefit is equal to 30.5% of average monthly compensation minus 11.1% of average monthly compensation up to Social Security Covered Compensation. This benefit is then multiplied by the ratio of his credited years of service to his credited service at age 60. This benefit was converted to a present value in the table below. Mr. Reynolds is not eligible for early retirement until age 55. Mr. Reynolds’ SERP benefit mirrors the qualified defined benefit plan except that it provides benefits that are lost under the qualified plan due to IRS qualified plan limits.

Mr. Reynolds’ credited service is as of the date that the Master Retirement Plan and the SERP when frozen on November 15, 1998. His actual service with the company is over 22 years.

Mr. Kabat’s credited service is as of the date the Old Kent Retirement Income Plan was frozen on March 10, 2002. His actual service with the Company is over 30 years.

2012 Pension Benefits

 

Name

   Plan Name      Number
of Years
Credited
Service
(#)
     Present
Value of
Accumulated
Benefit ($)
     Payments
During
2012

($)
 

Kevin T. Kabat

     Master Retirement Plan         19.75       $ 658,300         —     

Daniel T. Poston

     —           —           —           —     

Greg D. Carmichael

     —           —           —           —     

Paul L. Reynolds

    

 

Master Retirement Plan

SERP

  

  

    

 

8.0

8.0

  

  

   $

$

121,100

31,000

  

  

     —     

Robert A. Sullivan

     —           —           —           —     

There is no additional value under either the Master Retirement Plan or the SERP for either Mr. Kabat or Mr. Reynolds upon termination.

Nonqualified Deferred Compensation

The Company maintains a Nonqualified Deferred Compensation Plan that allows participant and Company contributions.

Participants are able to defer all but $50,000 of their base salary and 100% of their annual cash incentive compensation award. Beginning January 1, 2007, participants were able to diversify their investments into investment alternatives that are similar to those that are available in the Company’s 401(k) plan.

 

43


In addition, the Company makes contributions for loss of qualified 401(k) plan matching and/or discretionary contributions due to base salary or annual cash incentive compensation deferrals or due to wage and/or contribution limitations under the qualified 401(k) plan. The Company’s contribution to this plan is determined by taking the participant’s eligible wages above the qualified 401(k) plan compensation limits ($250,000 for 2012) and applying the Company’s 401(k) match (4%) and discretionary contribution (4% for 2012) percent. If other qualified plan 401(k) limitations applied, the participants would also have contributions made to the plan for those limitations.

Distributions are made in a lump sum or in up to ten annual installments. The Named Executive Officers may elect when the payments commence. The earliest distribution is August of the calendar year following the year of retirement. The entire distribution may be made no later than the tenth calendar year following the year of retirement. This plan is intended to comply with the requirements of Section 409(A) of the Internal Revenue Code.

The following table illustrates the nonqualified deferred compensation benefits by plan. It includes each Named Executive Officer’s and the Company’s contributions under the nonqualified plan as well as the earnings during 2012 but it does not reflect matching 401(k) or discretionary contributions made under the qualified plan.

2012 Nonqualified Deferred Compensation

 

Name

  Plan(1)   Executive
Contributions
in 2012

($)(2)
    Registrant
Contributions
in 2012

($)
    Aggregate
Earnings
in 2012

($)
    Aggregate
Withdrawals/
Distributions
($)
    Aggregate
Balance at
December 31,
2012 ($)
 

Kevin T. Kabat

  NQDC   $ 130,693      $ 78,151      $ 178,932        —        $ 1,327,201   
  2008 Incentive
Compensation Plan
(2)
  $ 631,003        —        $ 901,406      $ 2,224,306      $ 1,673,528   

Daniel T. Poston

  NQDC     —        $ 27,525      $ 15,670        —        $ 121,022   
  2008 Incentive
Compensation Plan
(2)
  $ 127,657        —        $ 57,018      $ 320,132      $ 341,088   

Greg D. Carmichael

  NQDC   $ 235,052      $ 48,026      $ 25,138        —        $ 1,079,824   
  2008 Incentive
Compensation Plan
(2)
  $ 237,103        —        $ 343,135      $ 802,982      $ 630,176   

Paul L. Reynolds

  NQDC     —        $ 32,288      $ 42,023        —        $ 292,662   
  2008 Incentive
Compensation Plan
(2)
  $ 129,834        —        $ 223,861      $ 421,888      $ 346,213   

Robert A. Sullivan

  NQDC     —        $ 33,858      $ 38,387        —        $ 289,025   
  2008 Incentive
Compensation Plan
(2)
  $ 112,249        —        $ 114,014      $ 419,235      $ 295,317   

 

(1) The Company maintains a nonqualified deferred compensation plan (“NQDCP”). The investments under this plan would produce earnings equal to those of any other shareholder who invested like money for the same time period during the year.

 

(2)

As referenced in the Compensation Discussion and Analysis section of this proxy statement, the Outstanding Equity Awards table and the Company’s 8-K filed in September 2009, the Compensation Committee amended the Company’s approved executive compensation structure to comply with the TARP standards for compensation. The executive contributions include salary for the Named Executive Officers made in the form of immediately vested phantom stock units, which were granted under the 2008 Incentive Compensation Plan each pay period through April 15, 2011 and will be settled solely in cash half on June 15, 2012 and half on June 15, 2013 or the executive’s death. The executive contributions reflect the total grant date fair values. The actual value to be paid to each executive on the settlement date is dependent upon the Company’s closing stock price on each grant date and the closing stock price on the settlement

 

44


  date, which may be higher or lower than the contribution value and the aggregate balance as referenced above. The executive distributions include salary in the form of phantom stock units granted, and immediately vested, from June 26, 2009 to June 11, 2010. The executive distributions occurred on June 15, 2011 and the value is calculated as [total number of shares] multiplied by the closing price on June 15, 2011 of $12.72. The executive has no rights as a shareholder as to the phantom stock units, no rights to receive dividends, no rights to vote, and no right to transfer the units.

Potential Payments Upon Termination or Change in Control

The treatment of equity-based awards, under all termination scenarios, is dictated by the 2004, 2008, and 2011 Incentive Compensation Plans, which were approved by shareholders on March 23, 2004, April 15, 2008, and April 19, 2011, respectively. The design of the 2004 plan, including the vesting provisions under which equity awards continue to vest upon retirement and accelerate upon a Change in Control, was determined by the Committee to be appropriate and consistent with competitive practice among the Company’s peers at that time. The 2008 and 2011 plan provides immediate vesting upon a Change in Control only upon involuntary separation from service within two years after a Change in Control (i.e., a double-trigger).

The Change-in-Control agreements were also determined by the Committee to provide appropriate benefits based on a competitive review of the Compensation Peer Group and published guidance from institutional shareholder groups such as Institutional Shareholder Services and CalPERS.

These arrangements fit into the Company’s overall compensation objectives as they are viewed to be competitive, but not excessive, relative to our Compensation Peer Group, and allow us to attract and retain qualified senior executives. However, these arrangements impact neither the compensation target levels that are based on market median compensation, nor the compensation awards that are based on a variety of performance factors, as described in this proxy statement.

The estimated payouts under a variety of termination scenarios for the Named Executive Officers are shown below. For all termination scenarios, the figures reflect unvested long-term equity-based incentive compensation awards as of December 30, 2012, and at the closing stock price ($15.20) on that date.

Voluntary or Without Cause. The Company does not currently have contracts with its Named Executive Officers that would require cash severance payments upon termination. If the Named Executive Officer were retirement-eligible, he would continue vesting in outstanding equity awards, the values of which are included in the table below. The Named Executive Officer’s termination would not result in enhanced retirement benefits beyond the benefits described in the Pension Benefits Section. Eligibility for other payments would be determined in a manner consistent with all officers of the Company.

With Cause. The Company does not currently have contracts with its Named Executive Officers that would require cash severance payments upon termination. Under the terms of the 1998 Long Term Incentive Stock Plan and the 2004, 2008, and 2011 Incentive Compensation Plans, if the Named Executive Officer is retirement-eligible he may continue vesting in outstanding equity awards, the values of which are included in the table below. The Named Executive Officer’s termination would not result in enhanced retirement benefits. Eligibility for other payments would be determined in a manner consistent with all officers of the Company.

Death and Disability. Under the terms of the 2004, 2008, and 2011 Incentive Compensation Plans and the 1998 Long Term Incentive Stock Plan, all outstanding awards vest immediately. Performance shares are earned on a prorated basis based on the Named Executive Officer’s full months of service and are adjusted based on the achievement of the performance goals for the full performance period. The Named Executive Officers’ termination would not result in enhanced retirement benefits, beyond the benefits described in the Pension Benefits section. In the event of death, the defined benefit pension would be a 50% joint and survivor payout, the SERP death benefit would equal the regular termination benefit and the 401(k) Plan would immediately vest. Eligibility for other payouts would be determined in a manner consistent with all other officers.

 

45


Change in Control. As described in “Severance and Change-in-Control Benefits” in the Compensation Discussion and Analysis section, the Company maintains agreements with all of the Named Executive Officers, among others, providing for the payment of benefits upon termination following a change in control (a “triggering event”). In exchange for the payments and benefits of the agreement, the eligible Named Executive Officer must sign an agreement at the time of the triggering event to not compete with, nor solicit employees or customers from, the Company for a period of three years following the Executive Officer’s termination. Forms of these agreements were filed with the Company’s Current Reports on Form 8-K filed on December 31, 2008 and January 24, 2012. Equity awards were valued as of December 31, 2012 as described above.

The cash severance payment would be equal to 2.99 times the Named Executive Officer’s base salary plus his/her target annual cash incentive compensation award. In addition, the Named Executive Officer would earn a pro-rated VCP award for the fiscal year of the termination. The table below reflects an assumed full-year VCP award at the target level.

Upon a change in control, as defined in our Incentive Compensation Plans approved by shareholders outstanding equity awards (stock options, stock appreciation rights, and both service- and performance-based restricted stock) granted prior to April 15, 2008 would vest immediately. This is true for all equity award recipients, not just for the Company’s Executive Officers. The value of performance shares would be calculated based on the current market value of the Company’s stock on the date of the change in control times the target number of performance shares determined on the date(s) of grant. Awards granted after April 15, 2008, contain double-trigger vesting provisions under which accelerated vesting will apply in the event of involuntary termination of employment within two years after the change in control.

The Named Executive Officer would receive three additional years of age and service credit under the qualified and nonqualified defined contribution plans, three years of medical, dental and life insurance benefits, and the additional value, if any, of the pension benefit and SERP at age 60 (which are reflected in the Other Benefits and Potential Excise Tax Gross-Up category below) upon a triggering event. The Named Executive Officers’ termination would not result in enhanced retirement benefits, beyond the benefits described in the Pension Benefits section. In the event that the change-in-control benefits subject the Named Executive Officer to excise tax on excess parachute payments as outlined under Sections 280G and 4999 of the Internal Revenue Code, if a 10% reduction in the benefits would eliminate the excise tax, the Named Executive Officer’s benefits will be reduced to the extent necessary to avoid the excise tax. If the payment exceeds the limit by more than 10%, the Company will make a tax gross-up payment to reimburse the Named Executive Officer for the excise tax and associated income taxes.

Material differences in circumstances relate to retirement eligibility, as described above. As of December 31, 2012, each of our Named Executive Officers, other than Mr. Carmichael, is retirement-eligible for some equity compensation award agreements, which provide for continuing vesting of their outstanding equity awards.

In 2011, the Company eliminated the excise tax gross-up with respect to any new change-in-control agreements. Mr. Poston and Mr. Reynolds have signed the new change-in-control agreement.

 

46


The tables below contain the total payments under each termination scenario.

 

Termination Scenarios1   

Name

   Voluntary
or
Without
Cause
     With
Cause
     Death or
Disability
 

Kevin T. Kabat

     —           —         $ 7,202,500   

Daniel T. Poston

     —           —         $ 1,766,306   

Greg D. Carmichael

     —           —         $ 3,184,557   

Paul L. Reynolds

     —           —         $ 1,808,283   

Robert A. Sullivan

     —           —         $ 1,795,660   

 

1 Unvested equity and/or retirement benefits are the only eligible form of payment in each of the termination scenarios.

 

Change in Control   

Name

   Cash
Severance
     Unvested
Equity
     Other Benefits and
Potential Excise
Tax Gross-Up
     Total  

Kevin T. Kabat

   $ 9,000,000       $ 9,121,645       $ 8,508,082       $ 26,629,727   

Daniel T. Poston

   $ 3,500,000       $ 2,249,184       $ 794,421       $ 6,543,605   

Greg D. Carmichael

   $ 5,535,000       $ 4,029,561       $ 4,612,548       $ 14,177,109   

Paul L. Reynolds

   $ 3,850,000       $ 2,234,769       $ 1,889,883       $ 7,974,652   

Robert A. Sullivan

   $ 3,534,000       $ 2,222,145       $ 2,486,665       $ 8,242,810   

Director Compensation

The following table illustrates the 2012 compensation structure for non-employee Directors. Employee Directors receive no compensation for their Board service. In addition to the compensation described below, each Director is reimbursed for reasonable out-of-pocket expenses incurred for travel and attendance related to meetings of the Board of Directors or its committees.

 

Element of Compensation

   2012 Amount  

Annual retainer (cash)1

   $ 50,000   

Annual committee chair retainer (cash)2

   $ 10,000   

Board meeting fees – per meeting (cash)

   $ 1,500   

Committee meeting fees – per meeting (cash)

   $ 1,500   

Restricted stock award3 (common stock)

   $ 75,000   

 

1 $175,000 for Chairman and $130,000 for Lead Director

 

2 $17,500 for Audit Committee Chair, $15,000 for Human Capital & Compensation and Risk & Compliance

 

3 $250,000 for Chairman. Vests four years after the date of grant.

 

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The following table illustrates the 2013 compensation structure for the non-employee Directors; approved at the January 2013 Human Capital & Compensation Committee meeting and effective in April 2013:

 

Element of Compensation

   2013 Amount  

Annual retainer (cash)1

   $ 50,000   

Annual committee chair retainer (cash)2

   $ 10,000   

Board meeting fees – per meeting (cash)

   $ 2,000   

Committee meeting fees – per meeting (cash)

   $ 2,000   

Restricted stock award3 (common stock)

   $ 100,000   

 

1 $175,000 for Chairman and $130,000 for Lead Director

 

2 $17,500 for Audit Committee Chair, $15,000 for Human Capital & Compensation and Risk & Compliance

 

3 $250,000 for Chairman. Vests four years after the date of grant.

The Company’s 2011 Incentive Compensation Plan provides that the Compensation Committee have full authority to provide equity-based or other incentive awards to non-employee Directors. Equity-based awards shown in the table below were granted under the 2011 Incentive Compensation Plan. The Company has a stock ownership guideline for its Directors of shares having a value equal to at least $250,000.

Pursuant to a Deferred Compensation Plan, Directors may annually defer from one-half to all of their compensation as Directors. The deferred funds bear interest until paid at an annually adjusted rate equal to 1% over the U.S. Treasury bill rate or Directors may elect to receive a return on deferred funds at a rate equal to the rate of return on the Company’s common stock.

 

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The following table summarizes the compensation earned by or awarded to each non-employee Director who served on the Board of Directors during 2012. The Stock Awards and Option Awards columns in the table display the grant date fair value associated with the equity awards. The amounts listed in the Stock Awards column represent the restricted stock award that vests four years after the grant date. The award relates to the fiscal year in which it was granted. Directors did not receive any Option Awards or Non-Equity Incentive Plan Compensation in 2012.

 

2012 Director Compensation   

Name

  Fees
Earned or
Paid in
Cash ($)
    Stock
Awards(2)(4)(5)
($)
    Option
Awards(3)
($)
    Non-Equity
Incentive Plan
Compensation
($)
    Change in
Pension Value
& Nonqualified
Deferred
Compensation
Earnings

($)
    All Other
Compensation(6)
($)
    Total
($)
 

Darryl F. Allen

  $ 103,500      $ 75,006        —          —          —        $ 8,540      $ 187,046   

B. Evan Bayh

  $ 97,500 (1)    $ 75,006        —          —          —        $ 2,382      $ 174,888   

Ulysses L. Bridgeman, Jr.

  $ 78,500      $ 75,006        —          —          —        $ 8,540      $ 162,046   

Emerson L. Brumback

  $ 107,000      $ 75,006        —          —          —        $ 4,580      $ 186,586   

James P. Hackett

  $ 95,500      $ 75,006        —          —          —        $ 8,540      $ 179,046   

Gary R. Heminger

  $ 104,000      $ 75,006        —          —          —        $ 8,540      $ 187,546   

Jewell D. Hoover

  $ 90,500      $ 75,006        —          —          —        $ 4,580      $ 170,086   

William Isaac

  $ 175,000      $ 250,007        —          —          —        $ 15,850      $ 440,857   

Mitchel D. Livingston, Ph.D.

  $ 84,000      $ 75,006        —          —          —        $ 8,540      $ 167,546   

Michael B. McCallister

  $ 75,500      $ 75,006        —          —          —        $ 949      $ 151,455   

Hendrik G. Meijer

  $ 86,000      $ 75,006        —          —          —        $ 8,540      $ 169,546   

John J. Schiff, Jr.

  $ 62,000      $ 75,006        —          —          —        $ 8,540      $ 145,546   

Marsha C. Williams

  $ 114,500      $ 75,006        —          —          —        $ 7,980      $ 197,486   

 

(1) $25,000 of this amount was paid in 2012 but was related to service as a board member in 2011.

 

(2) Outstanding Stock Awards for Directors totaled 362,142 shares as of December 31, 2012.

 

(3) There were no options awarded to Directors in 2012. Outstanding Option Awards for Directors totaled 53,000 shares as of December 31, 2012.

 

Director

   Number of
Option Awards:
 

Darryl F. Allen

     10,000   

B. Evan Bayh

     —     

Ulysses L. Bridgeman, Jr.

     1,500   

Emerson L. Brumback

     —     

James P. Hackett

     10,000   

Gary R. Heminger

     1,000   

Jewell D. Hoover

     500   

William Isaac

     —     

Mitchel D. Livingston, Ph.D.

     10,000   

Michael B. McCallister

     —     

Hendrik G. Meijer

     10,000   

John J. Schiff, Jr.

     10,000   

Marsha C. Williams

     —     

 

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(4) The full fair value of stock awards granted in 2012 totaled $1,150,082:

 

Director

   Grant Date      Shares
Granted
     Grant Date Fair Value of
Restricted Stock Awards
 

Darryl F. Allen

     4/30/2012         5,271       $ 75,006   

B. Evan Bayh

     4/30/2012         5,271       $ 75,006   

Ulysses L. Bridgeman, Jr.

     4/30/2012         5,271       $ 75,006   

Emerson L. Brumback

     4/30/2012         5,271       $ 75,006   

James P. Hackett

     4/30/2012         5,271       $ 75,006   

Gary R. Heminger

     4/30/2012         5,271       $ 75,006   

Jewell D. Hoover

     4/30/2012         5,271       $ 75,006   

William Isaac

     4/30/2012         17,569       $ 250,015   

Mitchel D. Livingston, Ph.D.

     4/30/2012         5,271       $ 75,006   

Michael B. McCallister

     4/30/2012         5,271       $ 75,006   

Hendrik G. Meijer

     4/30/2012         5,271       $ 75,006   

John J. Schiff, Jr.

     4/30/2012         5,271       $ 75,006   

Marsha C. Williams

     4/30/2012         5,271       $ 75,006   

 

(5) Assumptions used in determining fair value are disclosed in footnote 23 “Stock Based Compensation” located on pages 140-143 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

 

(6) Amounts include restricted stock dividends

Beneficial Ownership

The following table sets forth certain information regarding the Named Executive Officers’ beneficial ownership of the Common Stock of the Company as of December 31, 2012:

 

Title of Class

 

Name of Officer

 

Number of Shares(1)

 

Percent of Class

Common Stock

  Kevin T. Kabat   2,429,033   .2750%

Common Stock

  Daniel T. Poston   415,728   .0471%

Common Stock

  Greg D. Carmichael   833,506   .0944%

Common Stock

  Paul L. Reynolds   564,140   .0640%

Common Stock

  Robert A. Sullivan   818,303   .0927%

 

(1) The amounts shown represent the total shares owned outright by such individuals together with shares which are issuable upon the exercise of currently exercisable (or exercisable within 60 days), but unexercised, stock options and stock appreciation rights and shares held in the name of spouses, minor children, certain relatives, trusts, estates and certain affiliated companies as to which beneficial ownership may be disclaimed. These individuals have the right to acquire the shares indicated after their names, upon the exercise of currently exercisable (or exercisable within 60 days of December 31, 2012) stock options and stock appreciation rights, respectively: Mr. Kabat, 60,000 and 1,620,684; Mr. Poston, 30,000 and 250,235; Mr. Carmichael, 20,000 and 529,878; Mr. Sullivan, 65,000 and 490,348; and Mr. Reynolds, 60,000 and 320,001. The amounts listed for Stock Appreciation Rights represent the number of rights that may be exercised; the actual number of shares delivered will vary based on the stock’s appreciation over the grant price at the time of exercise.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s Executive Officers and Directors, and persons who own more than ten percent of a registered class of the Company’s stock, to file reports of ownership and changes in ownership with the Securities and Exchange Commission (“SEC”). Executive Officers, Directors and greater than ten percent shareholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file.

 

50


Based solely on its review of the copies of such forms received by it, or written representations from certain reporting persons that no Annual Statement of Changes In Beneficial Ownership of Securities on Form 5 were required for those persons, the Company believes that, for the period January 1, 2012 through December 31, 2012, its Executive Officers and Directors complied with all filing requirements applicable to them.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

In 2012, the Human Capital and Compensation Committee members were Messrs. Heminger, Livingston, Meijer, Brumback, and Ms. Williams. No Executive Officer of the Company serves on any board of directors or compensation committee of any entity that compensates any member of the Human Capital and Compensation Committee.

COMPENSATION COMMITTEE REPORT

The following Report of the Human Capital and Compensation Committee (“the Committee”) does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other Company filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates this Report by reference therein.

The Human Capital and Compensation Committee has reviewed and discussed with Management the preceding Compensation Discussion and Analysis (“CD&A”) as well as the accompanying tables set forth thereafter. Based on that discussion, the Committee recommended to the Board of Directors that the CD&A be included in this proxy statement and incorporated into the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

Gary R. Heminger, Chairman

Hendrik G. Meijer

Mitchel D. Livingston, Ph.D.

Emerson Brumback

Marsha C. Williams

 

51


REPORT OF THE AUDIT COMMITTEE

The following Report of the Audit Committee does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other Company filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates this Report by reference therein.

In accordance with its written charter adopted by the Board of Directors (“Board”), which may be found in the Corporate Governance Section of the Company’s website at www.53.com, the Audit Committee of the Board assists the Board in fulfilling its responsibility for oversight of the quality and integrity of the accounting, auditing and financial reporting practices of the Company. During 2012, the Committee met twelve (12) times, and the Committee discussed the interim financial and other information contained in each quarterly earnings announcement and periodic filings to the Securities and Exchange Commission with the Chief Executive Officer, Chief Financial Officer, Controller and the independent registered public accounting firm prior to public release.

In discharging its oversight responsibility as to the audit process, the Committee obtained from the independent registered public accounting firm a formal written statement describing all relationships between the firm and the Company that might bear on the firm’s independence consistent with applicable requirements of the Public Company Accounting Oversight Board (United States) regarding the independent accountant’s communications with the audit committee concerning independence, and has discussed with the independent accountant the independent accountant’s independence and satisfied itself as to the firm’s independence. The Committee also discussed with management, the internal auditors and the independent registered public accounting firm the quality and adequacy of the Company’s internal controls and the internal audit function’s organization, responsibilities, budget and staffing. The Committee reviewed both with the independent registered public accounting firm and internal auditors, their audit plans, audit scope and identification of audit risks.

The Committee discussed and reviewed with the independent registered public accounting firm all communications required by standards of the Public Company Accounting Oversight Board, including the matters required to be discussed by PCAOB AU 380, Communication with Audit Committees, and Rule 2-07, Communication with Audit Committees, of Regulation S-X, and, with and without management present, discussed and reviewed the results of the independent registered public accounting firms’ examination of the financial statements. The Committee also discussed the results of the internal audit examinations.

The Committee reviewed and discussed the audited consolidated financial statements of the Company as of and for the year ended December 31, 2012, and management’s assertion on the design and effectiveness of the Company’s internal control over financial reporting as of December 31, 2012 with management and the independent registered public accounting firm. Management has the responsibility for the preparation of the Company’s consolidated financial statements and their assertion on the design and effectiveness of the Company’s internal control over financial reporting and the independent registered public accounting firm has the responsibility for the audits of those consolidated statements and of the effectiveness of internal control over financial reporting.

Based on the above-mentioned reviews and discussions with management and the independent registered public accounting firm, the Committee recommended to the Board that the Company’s audited consolidated financial statements and report on the effectiveness of internal control over financial reporting be included in its Annual Report on Form 10-K for the year ended December 31, 2012, for filing with the Securities and Exchange Commission. The Committee also appointed the independent registered public accounting firm for 2013.

Darryl F. Allen, Chairman

Emerson L. Brumback

Jewell D. Hoover

Michael B. McCallister

Marsha C. Williams

 

52


PRINCIPAL INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEES

The following table sets forth the aggregate fees billed to Fifth Third Bancorp for the fiscal years ended December 31, 2012 and December 31, 2011 by the Company’s independent registered public accounting firm Deloitte & Touche LLP.

 

     December 31,  
     2012      2011  

Audit Fees

   $ 3,095,550       $ 3,311,070   

Audit-Related Fees(a)

     929,050         682,619   

Tax Fees(b)

     245,258         212,185   

All Other Fees(c)

     13,419         15,300   
  

 

 

    

 

 

 
   $ 4,283,277       $ 4,221,174   
  

 

 

    

 

 

 

 

(a) Includes fees for services related to benefit plan audits, common trust fund audits, stand-alone audits of certain businesses, examinations of management’s assertion, reports pursuant to Statement on Standards for Attestation Engagements No. 16, loan servicing reports and trust compliance.

 

(b) Includes fees for services related to tax compliance and tax consulting and planning. Of these amounts, for 2012 $95,791 represents fees for tax compliance services and $149,467 represents fees for tax consulting and planning services and for 2011 $92,535 represents fees for tax compliance services and $119,650 represents fees for tax consulting and planning services.

 

(c) Includes fees for subscription services in 2012 and for certain agreed-upon procedures in 2011. The Audit Committee has concluded that the provision of these services is compatible with maintaining the principal accountant’s independence.

The Audit Committee is responsible for pre-approving all auditing services and permitted non-audit services to be performed by the independent registered public accounting firm, except as described below.

The Audit Committee will establish general guidelines for the permissible scope and nature of any permitted non-audit services in connection with its annual review of the audit plan and will review such guidelines with the Board of Directors. Pre-approval may be granted by action of the full Audit Committee or, in the absence of such Audit Committee action, by the Audit Committee Chair whose action shall be considered to be that of the entire Committee. Pre-approval shall not be required for the provision of non-audit services if (1) the aggregate amount of all such non-audit services constitute no more than 5% of the total amount of fees paid by the Company to the auditors during the fiscal year in which the non-audit services are provided, (2) such services were not recognized by the Company at the time of engagement to be non-audit services, and (3) such services are promptly brought to the attention of the Audit Committee and approved prior to the completion of the audit. No services were provided by Deloitte & Touche LLP during 2012 or 2011 pursuant to this exception.

 

53


CERTAIN TRANSACTIONS

The Charter of the Company’s Human Capital & Compensation Committee requires that the Human Capital & Compensation Committee pre-approve all related party or affiliate transactions between the Corporation and any of its affiliates, directors, officers and/or employees or in which any of such persons directly or indirectly is interested or benefited, other than for extensions of credit otherwise covered by policies and procedures governed by Federal Reserve Regulation O.

Fifth Third Bancorp has engaged and intends to continue to engage in the lending of money through its subsidiary banks to various of its Directors, Executive Officers and corporations or other entities in which they may own a controlling interest. The loans to such persons (i) were made in the ordinary course of business, (ii) were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with persons not related to the lender, and (iii) did not involve more than a normal risk of collectibility or did not present other features unfavorable to the Company.

 

54


COMPANY PROPOSAL 1:

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

(Item 2 on Proxy Card)

The Audit Committee of the Board of Directors proposes and recommends that the shareholders approve the selection by the Committee of the firm of Deloitte & Touche LLP to serve as its independent registered public accounting firm for the Company for the year 2013. The firm has served as independent auditors for the Bank since 1970 and the Company since 1975. Representatives of Deloitte & Touche LLP will be present at the Annual Meeting to make such comments as they desire and to respond to questions from shareholders of the Company. Action by the shareholders is not required by law in the appointment of an independent registered public accounting firm, but their appointment is submitted by the Audit Committee of the Board of Directors in order to give the shareholders a voice in the designation of auditors. If the resolution approving Deloitte & Touche LLP as the Company’s independent registered public accounting firm is rejected by the shareholders then the Committee will reconsider its choice of independent auditors. Even if the resolution is approved, the Audit Committee at its discretion may direct the appointment of different independent auditors at any time during the year if it determines that such a change would be in the best interests of the Company and its shareholders.

Proxies in the form solicited hereby which are returned to the Company will be voted in favor of the resolution unless otherwise instructed by the shareholder. Pursuant to the Company’s Code of Regulations, the affirmative vote of a majority of the votes entitled to be cast by the holders of the Company’s Common Stock present or represented at the Annual Meeting and entitled to vote is required to approve the appointment of Deloitte & Touche LLP. Abstentions will have the same effect as a vote cast against the proposal. Shares not voted by brokers and other entities holding shares on behalf of beneficial owners will have no effect on the outcome.

THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS RECOMMENDS THE ADOPTION OF THE RESOLUTION.

 

55


COMPANY PROPOSAL 2:

ADVISORY VOTE ON EXECUTIVE COMPENSATION

(Item 3 on Proxy Card)

As required by Section 14A of the Securities Exchange Act, we are seeking advisory shareholder approval of the compensation of the Named Executive Officers as disclosed in this Proxy Statement. This proposal, commonly known as a “Say-on-Pay” proposal, gives you as a shareholder the opportunity to endorse or not endorse our executive pay program through the following resolution:

RESOLVED, that the shareholders advise that they approve the compensation of the Company’s Named Executive Officers, as disclosed pursuant to the disclosure rules of the Securities and Exchange Commission (which disclosure shall include the “Compensation Discussion and Analysis” section and the compensation tables and any related material in the “Compensation of Named Executive Officers and Directors” section of this Proxy Statement for its 2013 Annual Meeting).

Because your vote is advisory, it will not be binding upon the Board. However, the Human Capital and Compensation Committee will take into account the outcome of the vote when considering future executive compensation arrangements.

As discussed in “Compensation Discussion and Analysis — The Company’s Human Capital and Compensation Committee — The Committee’s Considerations,” the Human Capital and Compensation Committee has determined that the compensation structure for Executive Officers is effective and appropriate and has determined that the Company’s aggregate 2012 Total Rewards package (and potential payouts in the severance and change-in-control scenarios) for its Named Executive Officers are reasonable and appropriate. Shareholders are encouraged to read the section of this Proxy Statement titled “Compensation Discussion and Analysis” as well as the tabular disclosure regarding Named Executive Officer compensation together with the accompanying narrative disclosure.

The Company is currently conducting “Say-on-Pay” advisory votes on an annual basis. The next “Say-on-Pay” vote is currently scheduled for the 2014 Annual Meeting. However, please see Company Proposal 3 regarding an advisory vote on the frequency of these “Say-on-Pay” votes.

Vote Required

Pursuant to the Company’s Code of Regulations, the affirmative vote of a majority of the votes entitled to be cast by the holders of the Company’s Common Stock present or represented at the Annual Meeting and entitled to vote is required to approve this advisory proposal. Proxies received by the Company and not revoked prior to or at the Annual Meeting will be voted in favor of this non-binding advisory proposal unless otherwise instructed by the shareholder. Abstentions, and shares not voted by shareholders of record present or represented at the Annual Meeting and entitled to vote, will have the same effect as a vote cast against the advisory proposal. Shares not voted by brokers and other entities holding shares on behalf of beneficial owners will have no effect on the outcome.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” ADVISORY APPROVAL OF THE COMPENSATION OF THE NAMED EXECUTIVE OFFICERS AS DISCLOSED PURSUANT TO THE DISCLOSURE RULES OF THE SECURITIES AND EXCHANGE COMMISSION

 

56


COMPANY PROPOSAL 3:

ADVISORY VOTE ON FREQUENCY OF VOTES ON EXECUTIVE COMPENSATION

(Item 4 on Proxy Card)

As required by Section 14A of the Securities Exchange Act, we are seeking advisory shareholder approval of the frequency of advisory shareholder votes on compensation of the named executive officers through the following resolution:

RESOLVED, that the shareholders advise that an advisory resolution with respect to executive compensation should be presented to the shareholders every one, two or three years as reflected by their votes for each of these alternatives in connection with this resolution.

In voting on this resolution, you should mark your proxy for one, two or three years based on your preference as to the frequency with which an advisory vote on executive compensation should be held. If you have no preference you should abstain.

The Board believes that emerging corporate practices and governance trends favor an annual advisory vote and has determined to hold an annual advisory vote. This would give shareholders the opportunity to react promptly to emerging trends in compensation, and the Board and the Human Capital and Compensation Committee the opportunity to evaluate compensation decisions in light of yearly feedback from shareholders.

Because your vote is advisory, it will not be binding upon the Board. However, the Board will take into account the outcome of the vote when considering the frequency of advisory shareholder approval of the compensation of named executive officers.

Although we are only required to conduct an advisory vote on the frequency of votes on executive compen