2018 Guide to Effective Proxies

2.17.9 Performance metrics | 451 6 TH EDITION | GUIDE TO EFFECTIVE PROXIES ExecutiveCompensation (continued) 2018NOTICEOFMEETINGANDPROXYSTATEMENT Other Elements of Compensation AdditionalelementsofourcompensationprogramforourNEOsincludethefollowing. RecourseMechanisms TheincentivecompensationawardstoourNEOsaresubjecttorecoursemechanisms,includingclawback,forfeitureand exante adjustment, as described below. These awards are also subject to any compensation recovery or similar requirements under applicable law and implementing regulations and related State Street policies. This approach is intended to comply with appli- cablebankingregulationsandregulatoryguidanceonincentivecompensationandwillbeinterpretedandadministeredaccord- ingly. In 2017, the Compensation Committee reviewed the terms of these recourse mechanisms in light of evolving market practices and extended the clawback and forfeiture provisions applicable to current NEOs to also apply to all employees at the ExecutiveVicePresidentlevelandbroadenedthecircumstancesthatmayresultinclawbackorforfeitureundertheseprovisions. The Committee may continue to adjust its approach for future incentive compensation awards based on market practice and regulatoryguidance. Clawback. Aftervesting(ifapplicable)anddeliverytotheexecutive,allamountsdeliveredtoourNEOsasincentivecompensation awards, including cash incentive, performance-based RSUs, DSAs, DVAs and SSGA LTIP awards, contain clawback provisions providing for therepaymentofthoseamounts,inwholeorinpart,upontheoccurrenceofspecifiedevents.TheCompensation Committee, in its discretion, determines whether clawback is appropriate, making that determination within four years (in the case of performance-based RSUs) or three years (in the case of all other forms of incentive compensation) of the date of the grantoftheaward.Theeventsforwhichclawbackmayoccurincludeeither: • iftheexecutiveengagedinfraudorwillfulmisconduct,includinginasupervisorycapacity,thatresultedinfinancialorreputa- tionalharmthatismaterialtoStateStreetandresultedinterminationoftheexecutive’semployment,or • if, as a result of the occurrence of a material financial restatement by State Street contained in a filing with the SEC or mis- calculation or inaccuracy in financial results, performance metrics, or other criteria used in determining the amount of the award,theexecutivewouldhavereceivedasmallerornoaward Forfeiture. Before vesting and delivery to the executive, all deferred incentive compensation awards to our NEOs, including performance-basedRSUs,DSAs,DVAsandSSGALTIPawards,allowreductionorcancellationoftheaward,inwholeorinpart, upontheoccurrenceofspecifiedevents.TheCompensationCommittee,initsdiscretion,determineswhetherforfeitureisappro- priate.Theeventsforwhichforfeituremayoccurinclude: • iftheexecutive’sactionsexposedStateStreettoinappropriaterisksthatresultedorcouldreasonablybeexpectedtoresultin materiallossesthatareorwouldbesubstantialinrelationtoStateStreet’sorarelevantbusinessunit’srevenue,capitaland overallrisktolerance • iftheexecutiveengagedinfraud,grossnegligenceoranymisconduct,includinginasupervisorycapacity,thatwasmaterially detrimentaltotheinterestsorbusinessreputationofStateStreetoranyofitsbusinesses • iftheexecutiveengagedinconductthatconstitutedaviolationofStateStreetpoliciesandproceduresorStandardofConduct in a manner which either caused or could have caused reputational harm that is material to State Street or either placed or couldhaveplacedStateStreetatmateriallegalorfinancialrisk • if, as a result of a material financial restatement contained in an SEC filing, or miscalculation or inaccuracy in the determi- nation of performance metrics, financial results or other criteria used in determining the amount oftheaward,theexecutive wouldhavereceivedasmallerornoaward • iftheexecutive’semploymentisterminatedbyStateStreetforgrossmisconduct ExAnteAdjustment. Beforeplannedawardsaremadetotheexecutiveforagivencompensationyear,allincentivecompensation forourNEOs,includingbothdeferredincentivecompensationawardsandthenon-deferredcashincentive,issubjecttodown- ward adjustment, in whole or in part, upon the occurrence of specified events. The Compensation Committee, in its discretion, determineswhether exante adjustmentisappropriate.Theeventsforwhich exante adjustmentmayoccurinclude: • iftheexecutive’sactionsexposedStateStreettoinappropriaterisksthatresultedina“SignificantlyBelowExpectations”rating onanyofthefactorsonStateStreet’scorporatemulti-factorriskscorecard,whichguidesStateStreet’sriskassessmentprocess • iftheexecutiveincurredsignificantorrepeatedcomplianceorrisk-relatedviolationsofStateStreet’spolicies STATESTREETCORPORATION 45 Total of 03 pages in section ExecutiveCompensation (continued) 2018NOTICEOFMEETINGANDPROXYSTATEMENT IndividualCompensationDecisions CorporatePerformance IndividualPerformance Amount andFormof Incentive InadditiontoStateStreet’soverallperformancedescribedabove,theCommitteealsoconsideredeachNEO’sindividualperformanc indeterminingthecurrentNEO’stotalcompensation.Accordingly,theCommitteereviewedperformancescorecardsderivedfromour corporate performance goals and tailored to each current NEO in the following areas: strategic, financial, risk management, and leadershipandtalent.Performancehighlightsand2017totalcompensationdecisionsaredescribedinthetablebelow. (1) Joseph L. Hooley 2017PerformanceHighlights Strategic Financial RiskExcellence Leadership&Tale t • Advancedourmulti-yearDigital Strategy —Launchedthenextphaseof ourtechnologytransforma- tioninitiative —Achievedoperatingefficien- ciesthroughautomation, processredesignandglobal workforcestrategy —Deliveredimprovedspeedof serviceandtransparencyto clients • Strengthenedthecorebusiness —Restructuredservicedelivery and operations organizations tobettermeetclients’ strate- gicneeds —Wonkeyoutsourcingman- datesandincreasedyear-end AUCA15%from2016 year-endto$33.12trillion, supportedbystrongglobal equitymarkets • Investedindifferentiatedcapa- bilitiesandgrowth —Addednewdataandana- lyticscapabilitiestosupport ourclients’riskandportfolio managementneeds —Deliveredinnovativenew ETFsandincreasedyear-end AUM13%from2016 year-endto$2.78trillion, supportedbystrongglobal equitymarkets • Delivered1-YearTSRof 27.83%toinvestors —Returned~$2billionto shareholdersthroughdivi- dendsandsharerepur- chases • Exceededfinancialtargets (2) —IncreasedEPSonbotha GAAPandoperating(non- GAAP)basis —Grewrevenueonbotha GAAPandoperatingbasis —IncreasedROEonbotha GAAPandoperatingbasis —Maintainedastrongcapital position,improvingCommon EquityTier1Risk-Based CapitalandTier1Risk- BasedCapitalratios • AcceleratedBeaconsavings —Achieved~$150millionin 2017netpre-taxsavings • Strengthenedriskexcellence withimprovementsincontrols, cultureandgovernance —Strengthenedbusinesscon- trolsandputprogramsin placetomethodicallyaddress riskmanagementpriorities —Executedanenterprise-wide managementtrainingpro- gramtoelevateprofessional challenge —Redesignedourconduct standardsframeworkand governance • Maintainedfocusonmeeting regulatoryexpectations —CompletedtheFederal Reserve’s2017CCARproc- esswithouttheFederal Reserveobjectingtoour 2017capitalplan —TheFederalReserveand FDICreportedthattheydid notidentifyanyshortcomings ordeficienciesinour2017 ResolutionPlan • Strengthenedou workforceand leadershipteam —Increaseddiversity,internal mobility,andprofessional developmentacrossthe workforce —Executedonleadership successionplan —ExpandedtheManagement Committeetoenrichper- spectiveanddiversity • Transformedtalentmanage- ment —Redesignedouremployee performancemanagement processes —ImplementednewHuman CapitalManagementplat- formasabasis orintroduc- ingnewtalentmanagement capabilities 2017Compensation • Mr. Hooley was awarded total compensation of $15,750,000 for 2017, up from $13,500,000 in 2016, which includes annual incentives at 158% of target and long-term incentives at 100% of target. Overall incentive compensation was awarded at 113% of target Base Salary 6% Immediate Cash 20% DeferredCash 11% DeferredStock Awards 25% Performance- BasedRSUs 38% D e f e r r e d C o m p e n s a t i o n 7 4 % 2017TotalCompensationMix DeferredCompensation:74% Non-DeferredCompensation:26% TotalEquity-BasedCompensation:63% TotalCash-BasedCompensation:37% S u b j e c t t o F u t u r e F i n a n c i a l / S t o c k P e r f o r m a n c e 6 3 % (1) Mr.BellceasedservingasourChiefFinancialOfficerinMarch2017anddidnotreceiveincentivecompensationfor2017performance. (2) Comparedtoyear-end2016,asappropriate.See“OtherElementsofourProcess—Non-GAAPInformation”belowforanexplanationofouroperating(non-GAAP)basis financialpresentation. STATESTREETCORPORATION 37 Section3:CoreCompensationProgram ACHIEVEMENT OF OPERATIONAL METRICS 120% CompletedEarly 100% CompletedOnTime KEYOBJECTIVEAREAS OPERATIONALPERFORMANCEMETRICS RESULTS Establishmentof NewPricing Newstrategyandpolicycompleted,documentedandapproved, includingforkeynewofferings 120% Developedandimplementednewtrainingandfieldpricingtools 100% Completedpricingassessmentandrecommendationsfor2018 adjustments 120% TeradataEverywhere TeradataManagedCloudservicesonIntelliFlex1.1,IntelliBase1.0 andAWSavailableforsaletocustomers 100% IntelliFlex1.1andIntelliBase1.0availableforsaletocustomers 100% IntelliFlex2.0availableforsaletocustomers 120% Teradata16.10availableforsaletocustomers 120% Developedintegratedservicemanagementmodelforcloud 120% KeyAccount MarketAnalysis Completed2018go-to-marketplanningandreporting 120% Completedplanningforaccountresourcinganddevelopmentof prospectlistfor2018 120% ServicesIntellectual PropertyRepository IPrepositoryavailableforallservicesteamswithdocumented processandtraining 120% Developedandenhancedbusinessvalueframeworkscovering specifiedindustrieswithspecifiedincreaseinuseofassets 120% Systematictrackingofassetsre-usedinengagements 120% Useofconsulting-developedassetsinspecifiednumberofprojects 120% 2018SalesIncentivePlan Updatedconsultantcompensationmodeltosupportintellectual propertycaptureandreuse 100% Analysisof2017compensationmodelcriteriaandperformance usedtodevelop2018compensationmodeldesign 100% Developednew2018salescompensationplanbasedoncross- functionalteaminput,withappropriateincentivestosupport performancebeyondtargetedobjectives 100% 2018salescompensationplancompleted,approvedand communicatedtosalesteam 100% Basedonactualperformanceresultsdescribedabove,ournamedexecutiveofficers(otherthanMr.Culhane)earned apayoutequalto100.3%oftheirtarget2017performance-basedRSUs.Theunitsearnedbyourcurrentnamed executiveofficersgenerallyvestone-thirdonthedatetheCommitteecertifiedperformanceresults,one-thirdonthe firstanniversaryofthecertificationdate,andtheremainingthirdonthesecondanniversaryofthecertificationdate, subjecttocontinuedemploymentwithTeradataandotherstandardtermsandconditions.However,asnotedin Section5ofthisCD&A,the2017performance-basedRSUsearnedbyMr.Dinningvestedinfulluponhisdeparture fromtheCompanyinFebruary2018.Also,pursuanttothetermsofhisawardagreement,thenumberof2017 performance-basedRSUsearnedbyMr.LundarefullyvestedeffectiveasofDecember31,2017,butpaymentofhis 2017performance-basedRSUsgenerallyisdeferreduntilthevestingdatesapplicabletothe2017performance-based RSUawardsheldbyourothercurrentnamedexecutiveofficers. 41 Total of 03 pages in section Section 3: Core Compensation Program FinancialMeasures ThefollowingchartsetsforththeGAAPrevenueandnon-GAAPoperatingincometargetsfor2017andtherelated achievementlevelsonaperpetualequivalentvaluebasisandtheapplicationofotheradjustmentsdescribedabove. FINANCIALMEASURE (INMILLIONS) 0% (THRESHOLD) 100% (TARGET) 200% (MAXIMUM) ACTUAL PERFORMANCE (1)(2) ACHIEVEMENT LEVEL GAAPRevenue (1) $2,195 $2,307 $2,664 $2,364 116% Non-GAAPOperatingIncome (1) $ 353 $ 379 $ 621 $ 393 106% Total 111% (1) Theperformancegoalsforthefinancialmeasureswereestablishedonaperpetualequivalentbasis.Likewise,theactualperformanceofGAAP revenueandnon-GAAPoperatingincomewasdeterminedbytheCommitteeonaperpetualequivalentvaluebasis,whichresultedina $255millionadjustmenttoactualGAAPrevenueanda$164millionadjustmenttonon-GAAPoperatingincome. (2) Whenitestablishedtheperformancegoals,theCommitteeauthorizedanadjustmenttoactualperformancetoexcludetheimpactofforeign currencyexchangeratesfrompre-establishedplanratelevels,whichresultedina$47millionadjustmenttoactualnon-GAAPoperatingincome resultsonaperpetualequivalentbasis. PayoutsofAnnualBonuses Eachofthenamedexecutiveofficerswasentitledtoapayoutunderour2017annualbonusprogramequalto111%of histargetannualincentiveopportunity,whichreflecteda111%achievementlevelforthefinancialmeasures,although the2017annualbonuspaymentstoeachofMessrs.CulhaneandScheppmannwereproratedtoreflecttheir respectiveperiodofserviceduring2017asEVPandCFO.The2017annualbonuspaymentamountsaresetforthin theNon-EquityIncentivePlanCompensationcolumnoftheSummaryCompensationTableofthisproxystatement onpage48.Formoreinformationonthe2017annualbonusprogramforournamedexecutiveofficers,pleaserefer tothe“GrantsofPlan-BasedAwards”sectiononpage50ofthisproxystatement. Long-Term Incentives (Equity Awards) Thetotaldirectcompensationlevelsforournamedexecutiveofficersareheavilyweightedtolong-termincentive opportunities,whichvestoveraperiodofthreeyears.Thisstructureisintendedtoalignexecutiv s’interestswi h thoseofourstockholders,enhanceourretentionincentivesandfocusourexecutivesondeliveringsustainable performanceoverthelonger-term. AnnualGrants(2017-2018awardcycle) Ourexecutivesaregenerallyawardedannualequitygrantsattheendofeachyear,includingperformance-based restrictedshareunitawardsthatarebasedonperformanceperiodsthatcommenceatthestartofthefollowingfiscal year.Asdescribedundertheheading“2017TargetCompensation”onpage49ofthisproxystatement,the performance-basedrestrictedshareunitawardsapprovedbytheCommitteeonNovember27,2017,aspartofour 2017-2018long-termincentiveprogramaretreatedforfinancialaccountingpurposesasgrantedinFebruary2018, whentheCommitteeestablishedperformancegoalsforthoseawards.Asaresult,thoseperformance-based restrictedshareunitawardsarenotreportedinthe2017SummaryCompensationTableorGrantsofPlan-Based AwardsTable,andwillinsteadbereportedinthosetablesinnextyear’sproxystatement,asawardsgrantedduring 2018. WhentheCommitteeestablishedthelong-termincentiveopportunitiesforourcurrentnamedexecutiveofficersas partofour2017-2018annualawardcycle(awardsapprovedin2017thatincludeperformance-basedawardswith performanceperiodsstartingJanuary1,2018),itconsideredanumberoffactors.Asnotedabove,theCommittee increasedMr.Lund’slong-termincentiveopportunityslightly(approximately1%)overhistargetopportunityforthe 2016-2017awardcycle.Mr.Culhane’starget2017-2018long-termincentiveawardopportunitywasnegotiatedatthe timeofhishireasourEVPandCFObasedoncompetitivemarketdata,takingintoconsiderationhissignific nt experienceandnewhireincentiveconsiderations.Inlightofthechangingscopeandimpactofcertainexecu ive’s responsibilities,theCommitteemadethefollowingchangestothe2017-2018long-termincentiveopportuni ie for someofournamedexecutiveofficers:(i)toreflecthisperformanceandstrategicimportancetotheCompany, Mr.Ratzesberger’sopportunitywasincreasedbyapproximately24%overtheprioryeartakingintoaccount competitivemarketdataforexecutivesatthechiefoperatingofficerlevel;and(ii)theopportunitiesofMessrs. HarringtonandDinningdeclined.Mr.Scheppmannwasnotgrantedalong-termincentiveopportunityforthe 2017-2018awardcyclebecauseheisonmedicalleave. 37 STATE STREET CORPORATION TERADATA ExecutiveCompensation (continued) 2018NOTICEOFMEETINGANDPROXYSTATEMENT Abriefdescriptionofeachofthethreeperformancescorecardsfollows: PerformanceScorecard KeyAreasReviewed 2017PerformanceHighlights 2017Committee Evaluation FinancialPerformance • Revenue • EPS • ROE • TSR • Overallrevenueaswellastotalfeerevenueandnet interestrevenueincreasedfrom2016onbotha GAAPandoperating(non-GAAP)basis (1) ;EPSand ROEalsoincreasedfrom2016onbothaGAAPand operatingbasis • Selected2017GAAP-basisperformancemetrics, comparedtothemedianofour12-firm compensationpeergroup. (2) Resultsasfollows: AboveExpectations 2017PerformanceMetric 12-FirmCompensation PeerGroup (2) Revenuegrowth Topquartile EPSgrowth Abovemedian ROE Abovemedian TSR(1-Year) Topquartile StrategicObjectives Performance • Strengthenour foundation • Deliverhighlyvalued servicesandsolutionsto ourclients • Engageourpeople • Driveourstrategy • Grewourassetservicingandassetmanagement businesses,includingincreasingyear-endAUCAby 15%to$33.12trillionandAUMby13%to$2.78 trillion,eachcomparedtoyear-end2016 • MademajorstridesintheimplementationofState StreetBeacon,ourmulti-yearstrategytodigitizeour business,deliversignificantvalueandinnovationfor ourclientsandlowerexpensesacrossthe organization,including • deliveredindustry-leadingimprovementsin speedofserviceandtransparencyforourclients • Achieved~$150millionofnetpre-taxprogram savingstargetfor2017,~$10millionmorethan projected,supportedbystrongglobalequity markets • Developednewsolutionstomeetourclients’needs, includinglaunching • asuiteof15ultra-low-costSPDR ® PortfolioETFs thatprovideinvestorsaccesstoawiderangeof equityandfixedincomeassetclasses • ESGX SM ,ananalyticstooldesignedtoidentifyand highlightpotentialsourcesofenvironmental, socialandgovernanceriskthatmaybe overlookedbytraditionalfinancialanalysis • Continuedtoadvanceriskexcellenceasatop organizationalpriority,makingconsiderableprogress instrengtheningourcontrolsandoperating environmentandreinforcingastrongculture AboveExpectations RiskManagement Performance • Financialrisk • Non-financialrisk • Businessunitrisks • Capital/stresstesting • Regulatoryposture • Performanceacrosstopriskexposureswasinline withthefirm’srisktolerance • Continuedachievementagainstexpectationsforthe firm’sriskexcellenceinitiativesaimedat strengtheningtheriskandcontrolframework • CompletedtheFederalReserve’s2017CCAR processwithouttheFederalReserveobjectingtoour 2017capitalplan • TheFederalReserveandFDICreportedthattheydid notidentifyanyshortcomingsordeficienciesinState Street’s2017ResolutionPlan AtExpectation OverallPerformance • Financialperformance • Strategicobjectives performance • Riskmanagement performance • Reflectsanoverallassessmentofallthree summariesofcorporateperformance AboveExpectations (1) See“OtherElementsofourProcess—Non-GAAPInformation”belowforanexplanationofouroperating(non-GAAP)basisfinancialpresentation. (2) Our12-firmcompensationpeergroupisdescribedbelowundertheheading,“OtherElementsofOurProcess—PeerGroupandBenchmarking.” 36 STATESTREETCORPORATION Section 3: Core Compensation Program “Perpetual Equivalent Value” –Rationale and Calculation Whenestablishingtheperformanceobjectivesunderour2017annualbonusprograminFebruary2017, theCommitteeformulatedthetargetsforthefinancialmeasuresontheCompany’sguidanceto investorswithrespecttoitsprojectedrevenueandoperatingincomeplanfortheyear.Inaddition,as explainedbelow,thefinancialgoalsbasedonthesemeasureswereestablishedona“perpetual equivalentvalue”basistoaccountfortheCompany’sshifttosubscription-basedlicenserevenuefrom upfrontrevenuebasedonperpetuallicenses.Asaresultofourchangingbusinessmodel,thetarget levelsofrevenueandnon-GAAPoperatingincomeweresetsomewhatbelow2016actualresults. Nevertheless,theCommitteebelievesthatthegoalssetfor2017wereappropriatelyinlinewith guidanceprovidedtoinvestorsfortheyearandarerigorousbecausetheytakeintoaccountthe impactoftheCompany’sbusinesstransformation–especially(i)theshiftfromperpetualto subscription-basedpricing,inwhichrevenueisrecognizedoverthemulti-yearlifeofthecustomer agreementratherthanupfront,and(ii)theCompany’ssignificantinvestmentsin2017insupportofour ongoingstrategictechnologydevelopmentandgo-to-marketefforts,whichinvestmentswere expectedtoimpactoperatingincomefor2017. “Perpetual Equivalent Value” representstheestimatedvaluetheCompanywouldhave recognizedasrevenueifthecustomerhadpurchasedsubscriptionlicenses,rentalorcloudunder historicalpurchasingpractices( i.e. ,underperpetuallicensepurchasingoptions)andiscalculatedas follows: • Thevalueisbasedonlyonnewincrementalcontractswithaminimum1-yearcommitmentthatwere executedduring2017. • Forsoftwaresubscriptionlicenseandrentalagreements,weappliedthecalculateddiscountforeach transactiontotheperpetuallistpricesforsoftwareandhardware. • Forcloudofferings,weappliedthecalculateddiscountforthetransactiontotheperpetuallistprices forsuchorders.* • Foralltransactions,weexcludedmaintenance,softwareupgradesandrecognizedrevenuein2017. • Inallinstances,theperpetualequivalentvaluecouldnotexceedthecontractvalueoftheapplicable transaction. * Forexternalreportingpurposesinour2017periodicreports,weappliedamoreconservativeapproachincalculatingthePerpetual EquivalentBasisinthatweonlyappliedthismethodologyforsoftwaresoldinconnectionwithcloudtransactionsandexcludedthe valueofanychargesforhosting,infrastructureandsupportservicesfromthetotalvalueofourcloudofferings.Asaresult,our executiveswereincentedtodrivetotalrevenueinconnectionwithcloudtransactions. Whenestablishingtheperformanceobjectivesunderthe2017annualbonusplaninFebruary2017,theCommittee alsoapprovedtheuseofthefollowingadjustmentstotherevenueandoperatingincomefinancialmetricsand results:(i)thespecifiedfinancialmetricswouldautomaticallyincreasetotakeintoconsiderationthecontributionsof anysignificantacquisitiontransaction;(ii)thefinancialresultswouldbeadjustedtoexcludetheimpactofforeign currencyexchangeratesfrompre-established2017planlevels;and(iii)thefinancialresultswouldbeadjustedto excludethecumulativeeffectofchangesinfederalaccountingstandards/GAAP. 36 2018PROXYSTATEMENT