2018 Guide to Effective Proxies

2.17.4 Compensation mix | 333 6 TH EDITION | GUIDE TO EFFECTIVE PROXIES Compensation Discussion and Analysis What We Do: What We Don’t Do: ✓ Subject All Incentives to a Risk-Adjustment Process that begins before grant and extends beyond payment. We reserve the right to adjust funding and/or awards to reflect risks that may be realized, and we subject all performance-based incentives to forfeiture, reduction, offset, and clawback. ✓ Subject All Incentives to Clawback, which allows us to recover cash and equity incentive compensation paid to any Named Executive Officer, including deferred annual and long-term incentives, if based on financial results that are subsequently restated, and to cancel outstanding equity awards and recover realized gains if the executive engages in certain “harmful activity.” Elements of Our Pay Program We manage to “total pay” opportunity, rather than make separate decisions on each element of pay. We define total pay opportunity for our Named Executive Officers as the sum of base salary and incentive targets, which are established as described below. Actual total pay for each Named Executive Officer is the sum of actual base salary for the year, the annual incentive earned for the prior performance year, and the long-term incentive granted for the performance year. We consider the long-term incentive as part of the compensation for the prior year even though it is granted early in the following year. Consistent with our pay philosophy, we provide our executive officers with a target total pay opportunity comprised of the following elements of pay, and the average weighting of those elements for our Named Executive Officers (including our Chief Executive Officer) for 2017 is quantified in the chart below: Average NEO Pay Mix Base Salary 14% Base Salary Deferred Compensation - 50% of target total pay is delivered as “deferred” compensation subject to a multi-year risk-adjusted vesting schedule - Performance shares have payout opportunity of 0% to 150% dependent upon our long-term financial performance - 14% of target total pay is salary and represents their only source of fixed pay - 86% of NEO target total pay is variable, or “at risk” - Annual Incentives represent pay for achievement of short-term financial performance - 100% of incentives are subject to reduction or clawback Incentives (Variable Compensation) Annual Incentive 36% Options 5% RSUs 20% Performance Shares 25% The target total pay opportunity for each Named Executive Officer is established after considering a number of factors including the level of pay for similar roles in our industry and among our peers, the executive’s tenure and experience, the complexity of the executive’s role, insights from consultants about market practices and trends, as well as regulatory expectations of our pay practices. The Compensation Committee reviews and approves the target total pay of each executive officer each year. For additional information on how we establish target pay for our Named Executive officers, see the discussion under How We Make Pay Decisions beginning on page 36 of this proxy statement. Base Salary Base salaries represent the sole fixed portion of our Named Executive Officers’ pay. Base salaries are reviewed and approved by the Compensation Committee on a competitive basis each year based on salaries paid to comparable 27 KEYCORP