FINANCIAL INSTITUTIONS INC

The MD&C Committee

The MD&C Committee is a standing committee of the Board that operates pursuant to a charter that has been approved by our Board of Directors. Each member of the MD&C Committee is independent as defined under applicable Nasdaq rules. While we rely on input from our CEO and other executives for certain information and data, the MD&C Committee is fully responsible for all aspects of compensation decisions for our CEO and members of our EMC. The MD&C Committee annual work plan:

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The MD&C Committee conducts an annual evaluation of our CEO and delivers the results of that review to our CEO. Additionally, the MD&C receives a report concerning the CEO’s evaluation of the job performance and leadership of the other members of the EMC as well as the CEO’s compensation-related recommendations based on this annual evaluation and other factors noted above. The MD&C Committee evaluates the performance of our CEO with input from the Board. The MD&C Committee has final discretion over all compensation decisions regarding our CEO and each member of the EMC.

The MD&C Committee has delegated authority to our CEO to approve the adoption, amendment, or termination of our benefit plans if the action is expected to have an estimated annual impact on our Statement of Income of $500,000 or less.

In 2024, our CEO, Chief Legal Officer and Corporate Secretary, Chief Financial Officer, Chief Human Resources Officer, and Director of Total Rewards and Analytics regularly attended MD&C Committee meetings and assisted with the collection and presentation of required materials. Non-members of the Committee were excused as appropriate during the meeting. The MD&C Committee also has access to independent legal counsel and other professional advisors as needed.

Management Succession Planning

The MD&C Committee actively governed our succession planning and supported management in actions taken during the year to support the plan. The plan provides the organization alternatives in the event of both planned and unplanned succession of the CEO. The MD&C Committee believes that we are prepared for succession events and will continue to review succession preparation.

The MD&C Committee Independent Compensation Consultant

The MD&C Committee completed a Request for Proposal process and completed interviews with three finalists in December 2023. After careful consideration the Committee selected Aon’s Human Capital Solution practice, a division of Aon plc (“Aon”) to serve as its independent compensation consultant commencing in February 2024.

Aon reported directly to the Chair of the MD&C Committee, and regularly attended committee meetings. Aon does not have a personal or business relationship with any member of the MD&C Committee.

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The MD&C Committee assessed the independence of Aon considering SEC rules regarding compensation consultant independence. As part of this assessment, the MD&C Committee reviewed Aon’s compensation consultant independence letter and concluded that the services provided by Aon to the MD&C Committee do not raise any conflict-of-interest issues.

The MD&C Committee currently retains Aon to:

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Provide analysis on compensation levels, programs, practices and reported pay for both executives and directors within certain peer groups and the broader market; and

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Provide the MD&C Committee with a report on compensation trends among our peers and the broader market.

While Aon provided reports and recommendations to the MD&C Committee regarding our executive compensation programs, the MD&C Committee is solely responsible for determining the form of compensation, the final amount, and the level of performance targets used in our executive compensation plans.

During 2024, the MD&C Committee requested Aon to provide the following assistance:

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Review and update our peer group based on parameters determined by the MD&C Committee;

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Review the CD&A for the proxy statement;

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Analyze and present competitive market data of total executive compensation including base pay, annual cash incentive awards, long-term equity-based incentive awards and elements of other compensation;

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Assist in the review and design of annual and long-term incentives;

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Analyze and present competitive market data on director compensation;

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Provide a regulatory update report; and

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Provide a study and benchmark report on Executive and Director Share Ownership requirements.

Assessment of Compensation Risk

We review our incentive compensation arrangements for all employees, including our CEO and other members of the EMC, for the purpose of determining whether such programs might encourage inappropriate risk-taking by participants that would be reasonably likely to have a material adverse effect on us. Each year, our Chief Risk Officer evaluates the design and operation of all incentive compensation plans and delivers an annual certification to the MD&C Committee that the Bank’s incentive compensation plans do not encourage excessive risk taking, are consistent with the safety and soundness of the organization, and materially comply with applicable regulatory requirements.

We have designed our compensation programs to avoid excessive risk-taking and related financial consequences. To this end, we:

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Use both short- and long-term compensation and performance measures to balance the time horizon of decision- making;

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Use a variety of performance measures that ensure a balanced focus on performance;

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Define maximum potential award levels for performance-based awards;

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Have a recoupment (“clawback”) policy in place, which is described on page 6; and

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Use discretion in determining performance results as needed to adjust for either positive or negative performance variables to ensure results appropriately reflect actual performance.

In 2024, our CRO and the MD&C Committee concluded that our compensation plans, programs and policies, considered as a whole, including applicable risk-mitigation features, are not reasonably likely to have a material adverse effect on us.

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Peer Group for 2024 Compensation Decisions

To attract, retain and motivate qualified executives, we periodically complete a market analysis of the total compensation package we offer members of the EMC against a peer group of comparable institutions in our industry whose executives manage similarly sized balance sheets and constituencies. We believe that our peer group fairly represents the market for executive talent in which we compete and includes institutions that share our business and market challenges. We use survey and peer group information as a point of reference, but we do not benchmark or target our compensation levels against this competitive information. The peer group that we used for 2024 compensation decisions includes publicly traded financial institutions that generally adhere to the following criteria:

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Commercial banks listed on a national exchange;

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Headquarters in New England, Mid-Atlantic and select Midwest U.S. states, excluding major metropolitan areas;

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Asset sizes ranging from $4.0 billion to $11.1 billion; and

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Additional refinement to exclude banks due to merger and acquisition activity or other considerations the MD&C Committee determines relevant.

In determining the peer group, we considered whether the peers identified by proxy advisory firm Institutional Shareholder Services adhered to our criteria and included them if we believed they fit the criteria for our peers. We considered competitive market data from 2023 from the following peer group when determining 2024 compensation for the members of the EMC. The 2024 peer group contained the same peers as the 2023 peer group:

Peer Group for 2025 Compensation Decisions

We review peer group criteria annually to ensure continued proper market alignment with our executive talent. In July 2024, in consultation with Aon, the MD&C Committee determined that five peers in the 2024 group be replaced. Accordingly, the following peer group will be used when determining 2025 compensation for the members of the EMC:

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