CHFC 2018 Proxy Statement

Objectives and Philosophy Our executive compensation programs are fashioned on many of the same principles underlying the compensation programs for all of our employees: • Performance Differentiation - All other things being equal, high-performing executives should receive, on a relative basis, more cash compensation than their average-performing counterparts, including larger annual salary increases as a percentage of current salary and higher annual incentive payouts relative to target. • Paying for Performance - Incentive compensation should comprise the majority of an executive’s total compensation package, and payouts should scale incrementally with corporate achievement of established financial goals. • Market Competiveness - Executive wages should fall within a range that is representative of reasonable wage rates in the banking industry for the position, and should be sufficient to attract and retain the best executive talent in the industry. • Alignment with Shareholders - Annual and long-term incentive goals and payouts should be calibrated in such a way that target and above-target compensation levels are only achieved by executives when our financial and market performance results indicate that intrinsic value has been created. • Management of Risk - Compensation amounts and incentive programs should carefully avoid the inadvertent creation of an incentive to take imprudent risks, while simultaneously encouraging investment, development and innovation. In 2017, the Compensation Committee continued its efforts to effectively and appropriately align executive compensation with long-term shareholder return, attract and retain a first-rate executive team, strengthen the relationship between pay and performance and manage and minimize risk. Our executive compensation programs are specifically designed to achieve these objectives. 28 Compensation Decision-Making Process Role of Compensation and Pension Committee The Compensation Committee assists the board of directors in discharging its responsibilities relating to executive compensation and in fulfilling its responsibilities relating to our compensation and benefit programs and policies. Under the Compensation and Pension Committee Charter, the Compensation Committee is responsible for reviewing and approving total compensation, including base salary, bonus, long-term incentive awards, benefits and other compensation of our Chief Executive Officer and all other executive officers of the Corporation. The Compensation Committee also is also responsible for, among other things: • Annually reviewing and approving the corporate and individual goals and objectives relevant to the compensation of our Chief Executive Officer; • Reviewing, recommending and approving the design of retirement, stock incentive, cash incentive, welfare and other compensation and benefit plans and administering such plans as approved by the board, subject to the provisions of each plan; and • Reviewing, recommending and approving employment agreements and severance arrangements for executive officers. The Compensation Committee currently consists of five directors, all of whom are independent under NASDAQ Listing Rules. Role of Leadership The Compensation Committee, along with the entire Board of Directors, believes that an empowered leadership team is critical to our ability to respond efficiently and successfully to important business issues. As such, it has delegated limited reasonable authority for certain decisions and activities, as permitted by the Compensation Committee Charter, to the Chief Executive Officer, the Vice Chair and President and Chief Executive Officer of Chemical Bank and other members of our executive leadership team. This includes the delegation of authority to certain executive officers, by means of our Equity Grant Delegation Policy, to award a limited number of Time-Vested Restricted Stock Units (“TRSUs”) in 2018, to employees that are not otherwise executive officers as defined by Rule 3b-7 of the Securities Exchange Act of 1934. The executive leadership team is also called upon from time to time to support the Compensation Committee in the fulfillment of its duties. Executive leadership provides recommendations related to a number of matters that are subject to the Compensation