2018 Guide to Effective Proxies

6 TH EDITION | GUIDE TO EFFECTIVE PROXIES 492 Inaddition,aspartofourengagementdiscussionswith shareholders this year,we requested feedbackabout ourBy-Lawprovision regarding shareholders’ rights to calla specialmeeting.Wehearda varietyof views, including concerns somehadabout shareholder rights to calla specialmeetingwithoutadequateprocedural safeguards, including theappropriate thresholdof shareholdersneeded to request suchameeting. In light of the continued interest in this issue,and in lieuofa shareholderproposal seeking to reduce the current threshold, theBoardhas included in thisproxy statementamanagementproposal requesting that the Firm’s shareholders ratify the current specialmeeting provisions inourBy-Lawswhichgrant shareholders whoownat least20%of theFirm’s shares the right to calla specialmeeting.The resultsof this votewillbe taken intoaccount in theBoard’songoing consideration of its corporategovernancepractices.SeeProposal2, “Ratificationof specialmeetingprovisions in theFirm’s By-Laws”,onpage39. TableofContents 32 JPMORGANCHASE&CO. • 2018PROXYSTATEMENT Engagementwithemployees OurBoard is committed tomaintaininga strong corporate culture that instillsandenhancesa senseof personalaccountabilityon thepartofallof theFirm’s employees. Inaddition todiscussionsatBoardmeetingswith senior managementabout theseefforts,ourdirectors participate inmeetingswithemployees toemphasize this commitment.Thesemeetings includeemployee townhalls, linesofbusinessand leadership team events,annual senior leaders’meetings,and informal sessionswithmembersof theOperatingCommittee andother senior leaders. Engagementwith regulators OurBoardand senior leaders commit significant time meetingwith regulators from theU.S.and fromother countries.Frequent interactionhelpsus learn first- hand from regulators, including theirexpectationson effectiveBoardoversight. Italsogives theBoardand managementa forum for keepingour regulatorswell- informedabout theFirm’sperformanceandbusiness practices. Engagementwithnon-governmentalorganizations Weengagewithnumerousnon-governmental organizationsonadiverse rangeof issues thatare important to communitiesand consumersaboutour business.Forexample, through theChaseAdvisory Panelprogram, seniorexecutivesengagewithnational consumerpolicygroups todiscuss issues related to the Firm’sproducts,policies, customer-facingpractices, communicationsandpublicpolicy issues.Wealso engagewithorganizationsonenvironmentaland social issuesandmaintainphilanthropicpartnershipswitha broad rangeofgroups thatworkon issues thatare important toourFirm.Management shares feedback from theseengagementswith theBoard,providing it with valuable insight to the issues thatmatter to these stakeholders,andhelpsusunderstandhow theFirm’s productsand services canbetter serveour stakeholdersand the communities inwhichweoperate. CORPORATEGOVERNANCE Total of 02 pages in section JPMORGAN CHASE & CO. MCKESSON CORPORATION MICROSOFT CORPORATION ActiveBoardengagementwith theFirm’s stakeholders TableofContents JPMORGANCHASE&CO. • 2018PROXYSTATEMENT 31 Activeengagement TheBoard,asagrouporasa subsetofoneormore directors,meetsperiodically throughout the yearwith theFirm’s shareholders,employeesand regulators,and withnon-governmentalorganizations,andother persons interested inour strategy,businesspractices, governance, cultureand conduct,andperformance.For more information, see theCD&Aonpages45-67. Engagementand transparencywithour stakeholders helpourFirmgainuseful feedback. Information garnered from thesemeetings is shared regularlywith theFirm’sBoardofDirectorsand seniormanagement. Feedback fromour stakeholdersalsohelpsusprovide information toour shareholdersandother interested parties tobetteraddress their inquiriesand improve ourgovernanceprocesses. Stakeholders, including shareholdersand interested partieswhowish to contactourBoardofDirectors,any Boardmember, including theLead Independent Director,any committee chair,or the independent directorsasagroup,maymail their correspondence to: JPMorganChase&Co.,Attention (nameofBoard member(s)),Officeof theSecretary,270ParkAvenue, NewYork,NY10017,ore-mail theOfficeof the Secretaryat corporate.secretary@jpmchase.com. Engagementwith shareholders Wehaveanactiveandongoingapproach to engagementonawide varietyof topics (e.g., strategy, performance, competitiveenvironment) throughout the year.We receive feedback fromour shareholdersand other interestedparties, including: ▪ Institutional shareholders ▪ Retail shareholders ▪ Fixed-income investors ▪ Proxyadvisory firms ▪ ESG rating firms ▪ Industry thought leaders These interactionsand communications takea variety of forms.They includeourannual InvestorDay, quarterlyearnings calls,andpresentationsat investor conferences,aswellasourannual shareholder meeting.Theyalso include informationprovided inour SEC filings, including theAnnualReportandproxy statement,and inpress releases, informationonour website,and inourannualEnvironmental,Socialand Governance (“ESG”)andCorporateResponsibility Reports. In2017,our shareholderengagement initiatives included: ▪ Seniormanagementhostedmore than50 investor meetingsandpresentedat12 investor conf rences. ▪ Membersof seniormanagementmade trips tomajor cities throughout theU.S.andCanada,aswellas international trips toAsiaandEurope,duringwhich theymet inpersonwith shareholdersandother interestedparties. ▪ At theannual InvestorDay, seniormanagement reviewed theFirm’s strategyand financial performance. ▪ OurCEOandLead IndependentDirectorpresented to shareholdersat theFirm’s2017annualmeetingand areexpected todo soagainat this year’sannual meeting. Wealso conducta formal shareholderengagement program twicea year.Thisprogram coversawidearray of topicswithabroadgroupof shareholders.OurLead IndependentDirectorparticipates in certain discussionswithour larger shareholders. Our shareholderoutreachefforts in2017 included hostingmore than80discussions, covering shareholders representing in theaggregateover45% ofouroutstanding common stock.Topics includ d: ▪ Firm strategyandperformance ▪ Executive compensation ▪ Board composition ▪ ManagementandBoard successionplanning ▪ Environmental, socialandgovernancematters ▪ Shareholder rights ▪ Riskmanagement ▪ Cultureand conduct ▪ Publicdisclosures, includingproxy formatand content CORPORATEGOVERNANCE 3 NAMED RECIFFOEVITUCEXE COMPENSATION 4 AUDIT COMMITTEE MATTERS 5 OTHER MANAGEMENT PROPOSALS 6 INFORMATION ABOUTTHE MEETING 2 BOARDOF DIRECTORS 1 CORPORATE GOVERNANCEAT MICROSOFT 1. Corporate governance at Microsoft Corporate governance principles and practices Ourcorporategovernancecyclepromoteseffectiveshareholderengagement– Microsoftbelieveseffectivecorporate governanceincludesregular,constructiveconversationswithourshareholders.Weactivelyengagewithourshareholdersas partofourannualcorporategovernancecycle . Spring Our annual corporategovernance cyclebegins with reviewinggovernancebestpractices, regulatorydevelopments, and input we’ve received throughour shareholder outreach. This analysis informs the annualupdateofourgovernance framework,policies, and practices. Fall Wepublishourannual communications to shareholders andother stakeholders: •our annual report, •proxy statement, and • corporate social responsibility report. We speak againwithour largest investors about important topics tobe addressed atourAnnualMeeting. Winter The cycle concludeswith theBoard’s self-assessment, which includes considering feedback received from shareholders during thepreceding year. Summer We speakwithour largest shareholders about significant changes toour governancepracticesalongwithother developmentsatMicrosoft,and solicit inputon topics thatare important to them.We communicate to theBoardany feedback receivedand incorporate thoseperspectives inwhat weaddress inourproxy. Annual corporategovernance cycle Winter Fall Spring Summer Wearetransparent– Communicatinggovernancepoliciesandpracticestoallshareholdersandotherstakeholdersisan importantpartofourcommitmenttotransparency.Withover4.2millionMicrosoftshareholders,weusebothdirectdialogue and‘one-to-many’communicationstoreachallourshareholders. Weproactivelyengagewithourshareholders– Duringfiscalyear2017,ourindependentChairman,Compensation CommitteeChair,andmembersofseniormanagementengagedwithacross-sectionofshareholdersowningalmost45%of ourshares.OurCEO,SatyaNadella,remainscommittedtoinvestingtimewithourshareholderstomaintaintransparencyand betterunderstandtheirperspectives,includingbyparticipatinginourquarterlyearningscallsandotherforums. OurdirectorvideoseriesprovidesallstakeholdersinsightaboutourBoard– Werecentlyreleasedanewinstallmentof ourdirectorvideoseriesfeaturinganinterviewwithSandraPeterson.Thevideosprovideaninformalopportunityforour directorstodiscusstheirownapproachestotheirrole.Thecompleteseriescanbeviewedonourwebsiteathttps://aka.ms/ DirectorVideoSeries. MicrosoftontheIssuesblogpostsaddressourviewsonemerginggovernancetopics– Weregularlypostpolicyblogson MicrosoftontheIssues,coveringtopicsrangingfromthelatestincorporategovernanceandcorporatesocialresponsibilityto privacy,cybersecurity,onlinesafety,jobs,andeducation.WebroadcastinformationpostedontheMicrosoftontheIssuesblog viasocialmediahandles,including@MSFTIssuesand@MSFTNews. 2017PROXYSTATEMENT 7 EXECUTIVECOMPENSATION Addressing the 2017 Say-on-Pay Vote Our annual say-on-pay vote is one of our opportunities to receive feedback from shareholders regarding our executive compensationprogram.Weweredisappointedtoreceivelowsupportforouradvisorysay-on-payproposalatthe2017Annual Meeting of Stockholders. We actively sought feedback from shareholders to better understand what motivated their votes and what actions we could take to address their concerns about our executive compensation program. Our Compensation Committee considered the vote result and the feedback we received as it evaluated the compensation opportunities provided toourexecutiveofficers. Since our last Annual Meeting of Stockholders, we reached out to shareholders representing over 80% of our outstanding common stock. We met with shareholders representing more than 40% of our outstanding common stock, and we specifically requestedfeedbackregardingourexecutivecompensationprogramgivenourlowsay-on-paysupportin2017. In our meetings with shareholders, we heard strong support for our CEO and senior management team and recognition of executive retention as an issue for the Company. Generally, shareholders reacted positively to the increase in the overall weighting of our Performance Stock Unit (“PSU”) awards to 50% of target long-term incentive (“LTI”) value for FY 2018, reducingourrelianceonstockoptionsfrom40%to30%oftargetLTIvalue,whichfurthertiesourNEOs’paytoperformance. We also heard concerns relating to our executive compensation program. We summarize below what we heard and how we respondedtothoseconcerns. WhatWeHeard HowWeResponded IntendedOutcomeand WhenEffective OverallmagnitudeofCEO payremainshigh. Committee reducedCEO’stotaltargetLTIby $4.7million,a32%decreaseintotaltarget LTI comparedtoFY2018.Thisisinadditionto the30%decreaseinreportedCEOpayoverthe pastfivefiscalyears. (SeetablebelowfortargetLTIvaluesbeginning effectiveFY2019.) AlignsCEOTotalDirectCompensationmore closelywiththatofpeercompanies. EffectiveforFY2019 Individualmodifierinannual cashincentiveplan (ManagementIncentive Plan,or“MIP”)doesnot reflectapay-for-performance philosophy. Committee eliminatedtheindividualmodifier forexecutiveofficers. Committee reducedMIPmaximumpayoutto 200%oftarget forexecutiveofficers. Enhancesalignmentofannualcashincentives withCompany’sfinancialresults. EffectiveforFY2018 WeightingofrelativeTSR (“rTSR”)inPSUprogram meansthatpayisnot sufficientlyalignedto performance. (PSUswereformerlycalled TSRUnits.) Committee increasedPSUsto50%(from 40%)oftotaltargetLTIforexecutive officers. rTSRisoneofthemetricsincludedin thecalculationofawardsearnedattheendof themeasurementperiod. Committee increasedweightingofrTSRin CEO’sPSUawardto75% (from25%;PSUis 50%oftotaltargetLTI). Furtherincentivizeslong-termperformanceand tiesexecutivecompensationmorecloselyto rTSRandcumulativeadjustedEPSmetrics. EffectiveforFY2018 Furtherincentivizeslong-termperformanceand tiesCEO’scompensationmorecloselytostock priceperformance. EffectiveforFY2019 Compensationplansshould addresscompliancerisk relatedtoopioiddistribution. InMay2018,thecommitteereinforcedand codifieditslongstandingpracticeofconsidering theimpactofregulatory,complianceandlegal issueswhenmakingexecutivecompensation decisions,byincorporatingthisitemintoits annualgovernancechecklist.Thecommittee discussedandconsideredlegal,complianceand regulatorymatterswhenmakingcompensation decisionsatitsMay2018meeting. (Seepages6-7ofthisproxystatementfor furtherdiscussionoftheCompany’sresponse totheopioidcrisis.) Committeewillcontinuetoconsidertheimpact ofregulatory,complianceandlegalissueson executivecompensationprograms. 32 -2018ProxyStatement