BREAD FINANCIAL HOLDINGS INC
For the period ended May 13, 2025. Filed Apr 2, 2025.
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May 13, 2025 · Filed Apr 2, 2025
Contents
Compensation Programs
Overview of 2024 NEO Compensation Program Elements
The following is an overview of the 2024 compensation program elements for our NEOs. We use each component of compensation to satisfy one or more of our compensation objectives. The CHCC places a significant portion of the overall target compensation for our executive officers “at risk,” without encouraging excessive or unnecessary risk-taking.
| Form of Payment | Performance Period | Performance Criteria | Objectives | For More Information | |||||||
| Base Salary | Cash; Fixed | Ongoing | Alignment of salary with performance is evaluated on an annual basis | • Compensates for day-to-day performance • Attracts, retains and rewards NEOs with competitive fixed pay • Reflects experience and job scope | Page 63 | ||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Annual Incentive Compensation (AIC) | Cash; Performance-Based | One Year | Based on results of balanced scorecard for the year | • Incentivizes performance on a range of financial and non-financial metrics in the following categories: Stockholder, Customer and Associate • Rewards successful execution of key annual strategic goals | Page 63 | ||||||
| Long-Term Equity Incentive Compensation (LTIC) | 60% PBRSUs | Three-Year Cliff Vesting | ROE | • Aligns incentives with stockholder interests and long-term financial objectives • Focuses our executives on delivering exceptional performance | Page 72 | ||||||
| 40% TBRSUs | Vests Ratably Over Three-Year Period | Time-based | • Increases retention • Promotes direct alignment with stockholder interests • Rewards creation of long-term value | Page 72 | |||||||
| 62 | Bread Financial | 2025 Proxy Statement |
Base Salary
While the majority of our NEOs’ compensation is contingent upon meeting specified performance targets, we pay our NEOs a competitive base salary as fixed compensation for their time, efforts and commitments throughout the year. To aid in attracting and retaining qualified executive officers, the CHCC seeks to keep base salary competitive by considering, among other factors, the nature and responsibility of the position; experience of the individual; market data; internal pay equity; and the other factors set forth under “Compensation Determination Process” below. The CHCC reviews base salaries at least annually.
In January 2024, the CHCC, together with its independent compensation consultant, reviewed the base salaries of our NEOs for fiscal year 2024. The CHCC considered the various factors set forth above, including a competitive assessment of the Company’s executive compensation against the Company’s peers and other industry data prepared by the independent compensation consultant. Based on these considerations, the CHCC approved the following base salary adjustments for 2024: Mr. Andretta’s 2024 base salary was unchanged from 2023; and the other NEOs’ 2024 base salaries were increased by 2.3% over 2023.
BASE SALARY (ANNUALIZED RATE)
| Named Executive Officer | 2024 | 2023 | %Change |
|---|---|---|---|
| Ralph J. Andretta | 1,155,000 | 1,155,000 | –% |
| Perry S. Beberman | 665,000 | 650,000 | 2.3% |
| Allegra S. Driscoll | 625,000 | N/A | N/A |
| Valerie E. Greer | 665,000 | 650,000 | 2.3% |
| Joseph L. Motes III | 660,000 | 645,000 | 2.3% |
Annual Incentive Compensation
AIC is the annual cash-denominated performance-based component of our executive compensation program designed to provide an incentive to our NEOs and other executive officers to contribute to our annual objectives, including key strategic priorities for the year. The CHCC focuses on matching rewards with results and encourages executive officers to make significant contributions toward our financial results and other objectives by providing a basic reward for reaching threshold expectations, plus an upside for reaching our aspirational goals. Our formulaic AIC program is structured to reflect specific and measurable financial andnon-financial goals, which are approved by the CHCC at the beginning of the year and set forth on the Company’s annual balanced scorecard.
| Bread Financial | 2025 Proxy Statement | 63 |
HOW AIC AWARDS ARE CALCULATED
During fiscal year 2024, each of our NEOs was eligible to earn an AIC award. Each NEO’s target AIC award (Target Award) was expressed as a percentage of his or her base salary, reflecting peer and industry data and practice, internal equity among executive officers, the intended value and mix of target total direct compensation and the other factors set forth under “Compensation Determination Process” below. After the end of the fiscal year, the CHCC determined the amount of each NEO’s AIC award based upon the Company’s achievement againstpre-determined goals, as set forth in the Company’s 2024 core scorecard and as modified by the modifiers that were adopted as part of the 2024 AIC program.
Core Scorecard Payout Opportunities. For the 2024 AIC core scorecard metrics, the CHCC established threshold, target and maximum goal levels for each metric, with threshold equating to a payout of 50% of the Target Award, target generally equating to a payout of 100% of the Target Award, and maximum equating to a payout of 200% of the Target Award. The only exception to the foregoing is that, for 2024, the Financial metrics in the core scorecard (i.e., Average Loans, NCLs, PPNR and Operating Leverage) had a target range, rather than a discrete number as the target. Within the target range for the Financial metrics, thelow-end of the range equated to a score of 95% of the Target Award and thehigh-end of the range equated to a score of 105% of the Target Award, with results between thelow-end and thehigh-end of the target range interpolated on a straight line basis. At the time the 2024 scorecard was approved, there was significant macroeconomic uncertainty and it was unclear whether, and to what extent, those conditions would improve or worsen throughout the year. Accordingly, the rationale for using the target range was to avoid unfairly penalizing or rewarding NEOs for macroeconomic volatility that was outside of their control. Beginning in 2024, the CHCC also incorporated a new provision into the AIC program, which provides that the core scorecard would be capped at 100% unless the Company scored at least 85% on the Financial metrics (i.e., Average Loans, NCLs, PPNR and Operating Leverage), in aggregate.
Results are interpolated for performance (i) between threshold and target (or, in the case of Financial metrics, thelow-end of the target range), and (ii) between maximum and target (or, in the case of the Financial metrics, thehigh-end of the target range).
After the score for each individual metric is determined, it is then multiplied by the weighting assigned to that metric (see “—2024 Balanced Scorecard Targets and Results” below), and the weighted scores for all metrics are added together to determine the total core scorecard result.
Application of Modifiers to Payout Opportunities. The CHCC also established two strategic modifiers in 2024, each of which was based on a critical business priority for 2024. Each of these strategic modifiers had the potential to increase the total payout percentage by up to a maximum of 10%. Lastly, the CHCC incorporated a Discretionary Consideration Framework (DCF) modifier for 2024, which could either increase or decrease the total payout percentage by up to a maximum of+/-10%.
Establishing a maximum payout amount under our AIC plan deters excessive risk-taking, while having an equitable payout amount that can be earned at a defined performance threshold encourages goal attainment. No payout is made for performance below the threshold performance amount.
| 64 | Bread Financial | 2025 Proxy Statement |
2024 CORE SCORECARD DESIGN
Our 2024 core scorecard encompassed a selection of both financial andnon-financial metrics important to all stakeholders, organized under the Stockholder, Customer and Associate categories. The scorecard consists of rigorous, quantitative performance metrics that werepre-established early in 2024 in these three categories. See “Compensation Determination Process—Target Setting” below for additional detail. The CHCC then reviewed progress against each metric throughout the year and evaluated achievement of the metrics in January 2025. The Financial metrics selected for 2024 were designed to incentivize strong financial results and align our NEOs’ interests with those of our stockholders, while also prioritizingnon-financial metrics that also create value for our stockholders, including in the areas of risk, audit and controls, customer and brand partner relationships and human capital management. The goals were designed to be challenging and incentivize our NEOs to advance our strategic and operational priorities, in the face of uncertain macroeconomic and regulatory conditions. Beginning in 2024, in response to feedback we received from our stockholders, we increased the weighting of the Stockholder metrics in the core scorecard from 60% to 70%.
Below is a description of the core scorecard metrics selected by the CHCC for 2024, along with detail regarding the rationale for each metric’s inclusion in the core scorecard.
| Metric | Measurement of Metric | Why Metric is Important | ||||
| Stockholder (70%) | Average Loans | Average total amount of our credit card and other loans during 2024, including any loans classified as held-for-sale. | Important indicator of the Company’s growth and ability to win new business, retain existing brand partners, and generate new loans and accounts. | |||
|---|---|---|---|---|---|---|
| NCLs | Total net principal credit losses for 2024. | Focuses management on quality underwriting, credit risk management and successful collection and recovery efforts. | ||||
| PPNR(1) | PPNR is calculated by increasing/decreasing Income from continuing operations before income taxes by the net provision/release in Provision for credit losses. PPNR is a non-GAAP financial measure and is reconciled to the most directly comparable GAAP measure included in our consolidated audited financial statements in Appendix A. | Measures our results of operations before income taxes, excluding the volatility that can occur within Provision for credit losses. When used in concert with credit-related metrics like NCLs, PPNR provides additional clarity in understanding our results and trends. It is a key measure to track core earnings over time to demonstrate sustainable, profitable growth. Accordingly, PPNR is weighted more heavily than the other Stockholder metrics. | ||||
| Operating Leverage(1) | The calendar year-over-year percentage change in total revenue net, less the calendar year-over-year percentage change in non-interest expense. | Measures discipline around deployment of resources and expense control in relation to revenue growth, efficiency and value creation. It is an important indicator of profitable growth. | ||||
| ERM Composite Metric | A composite ERM metric based on: % of Self-Identified Issues; Timely Remediation of Issues; and % of Satisfactory Audit Results performed by Internal Global Audit. | Measures the success of our ERM program in proactively identifying and reporting potential issues impacting our risk tolerances, and efficiently remediating issues and tracking successful audits. Strong governance and proactive risk management are guiding principles of the Company’s strategy. | ||||
| Bread Financial | 2025 Proxy Statement | 65 |
| Metric | Measurement of Metric | Why Metric is Important | ||||
| Performance on Critical SLAs | Measured based on Company’s aggregate level of performance on “Critical” SLAs (and other SLAs that carry financial penalties or termination risk). Measured under contracts with Top 25 brand partners, based on loan balances. | Our industry is highly competitive, and we compete on the level of service we provide our customers. The critical SLAs correlate to stronger customer satisfaction and performance; when we fail to deliver on these standards, we risk financial penalties, our reputation, and ultimately, our ability to retain our Brand relationships. | ||||
| Customer (20%) | Digital Engagement Composite Metric | Composite Metric based on: • Active Digital User Rate (ADU)—Calculated based on digital users receiving a billing statement / active billing accounts (70% of metric) • Interactive Voice Response System (IVR) Completion Rate: Calculated based on % of calls to IVR that terminate (30% of metric) | Increasing our ADU rate is a key business initiative contributing to higher share-of-wallet, lower cost-to-serve, and enterprise paperless initiatives. Increasing our IVR completion rate is a key business initiative to reduce cost-to-serve and further limit the number of customer inquiries requiring associate assistance. | |||
|---|---|---|---|---|---|---|
| Application Availability | Application Availability is measured as a percentage, based on seconds of uptime and downtime (excluding planned downtime) within each month. | Application Availability is critical to servicing our customers and brand partners and ensuring our business runs smoothly without disruption. This was a new metric for 2024 | ||||
| NPS | To calculate NPS, customers are surveyed “On a scale of 0-10, how likely are you to recommend this company’s product or services to a friend or colleague?” Scores of 0-6 are “Detractors,” scores of 7-8 are “Passives” and scores of 9-10 are “Promoters.” NPS = % Promoters minus % Detractors. | It is crucial that our customers have positive experiences in each of their touch points with us. Our customers (and brand partners) have many options available to them, and if we are unable to provide consistently positive experiences, we may be unable to effectively compete. NPS measures the extent to which our customers are true brand advocates. | ||||
| Associate Engagement | Measured based on the composite score on the three “Engaged Outcome” sections of the Company’s Annual Associate Survey, measuring: • Career Confidence: Overall, I believe my career goals can be met at this company. • Motivation: This company motivates me to contribute more than is required by my work. • Advocacy: I would recommend this company to people I know as a great place to work. | We take a holistic approach to our associates’ experiences, recognizing that an engaged workforce drives our long-term growth and sustainability. This metric seeks to measure associate engagement, by looking at the extent to which associates have confidence in the business, are motivated to go above and beyond in their roles, and serve as advocates for our brand. | ||||
| Associate (10%) | Core Associate Experience | Measured based on the degree of consistency among gender and racial groups having a positive work experience at Bread Financial, using the comparative results among such groups on the Associate Experience metrics in the Company’s associate surveys (i.e., Participation, Leadership, Recognition, Learning & Development, Communication, Flexibility/Balance, and Enablement + “I would recommend BFH to people I know as a great place to work”). | Designed to ensure that Bread Financial is creating an inclusive work environment, where all associate populations are having a consistently positive work experience. This was a new metric for 2024. | |||
| (1) | At the time of the CHCC’s approval of the 2024 core scorecard, the CHCC pre-approved certain adjustments that impacted the calculation of PPNR and Operating Leverage metrics. These adjustments are discussed below under “2024 Balanced Scorecard Targets and Results.” |
| 66 | Bread Financial | 2025 Proxy Statement |
2024 MODIFIERS TO CORE SCORECARD
For 2024, the CHCC approved two strategic modifiers to the core AIC scorecard, which were based on two of the Company’s business-critical focus areas for 2024—namely (i) readiness for the CFPB’s credit card late fee rule and (ii) the Company’s Operational Excellence initiative. These strategic modifiers are important not only due to theirin-year benefit for 2024, but also because of the value they generate on ago-forward basis in terms of revenue generation, efficiencies and the development of new capabilities. In addition, the CHCC approved the DCF modifier for 2024. Additional detail regarding the CHCC’s rationale for choosing each of these modifiers is set forth below:
| Measurement of Metric | Why We Chose this Modifier | |
| Strategic Modifier #1: Readiness for CFPB Late Fee Rule (0% to +10%) | Measured on a gradient, with a total impact to AIC results of 0% to +10% | • The CFPB issued a rule, which was originally scheduled to become effective in May 2024, that would reduce the safe harbor amount for late fees that credit card issuers are authorized to charge from $30 to $8. • This rule is currently subject to an injunction, but if this rule becomes effective on its current terms, it would represent a significant challenge to our Company, both financially and operationally. • In adopting this modifier, the CHCC sought to challenge and incentivize management to maximize readiness for the CFPB’s late fee rule, in terms of (i) governance infrastructure, (ii) development of mitigation measures, (iii) development of new capabilities and (iv) execution. • As noted above, “Managing the Macroeconomic and Regulatory Environment” was one of our key focus areas for 2024, and that focus is reflected in the CHCC’s choice of this strategic modifier. |
|---|---|---|
| Strategic Modifier #2: Operational Excellence (0% to +10%) | Measured on a gradient, with a total impact to AIC results of 0% to +10% | • In October 2023, we launched our Operational Excellence initiative, which is an enterprise-wide effort focused on improving the way our Company works, with the goal of driving efficiencies and value creation. • In preparing our Board-approved 2024 budget, the anticipated value from Operational Excellence initiatives was embedded into that budget. • In adopting this modifier, the CHCC sought to challenge and incentivize management to generate even greater efficiencies and value from Operational Excellence initiatives, incremental to those already in the budget. • As noted above, “Operational Excellence” was one of our key focus areas for 2024, and that focus is reflected in the CHCC’s choice of this strategic modifier. |
| Discretionary Consideration Framework (DCF) (-10% to +10%) | Measured on a gradient, with a total impact to AIC results of -10% to +10% | • For 2024, the CHCC approved a DCF modifier, which provided the full Board with discretion to increase or decrease the scorecard results by up to +/-10%, but subject to a pre-established framework for consideration. The framework permitted the full Board to consider significant issues or changes that were not contemplated in the core scorecard, including: • Unforeseen macroeconomic impacts • Technology transformation results • Balance sheet strengthening/weakening • New regulatory issues • Unplanned strategic acquisitions/capabilities • Changes in supervisory ratings |
A description of the factors that the CHCC considered in evaluating the success of each modifier, along with the Company’s final results on the modifiers, is included below under “—2024 Balanced Scorecard Targets and Results.”
| Bread Financial | 2025 Proxy Statement | 67 |
2024 BALANCED SCORECARD TARGETS AND RESULTS
Below is detail regarding the threshold, target and maximum performance goals for each metric in our 2024 AIC core scorecard, as well as the Company’s results on each metric, the weighted scoring for each metric, and the final total balanced scorecard result:
| Measure · Threshold · Target · Maximum · Annual Results · Score · AssignedScorecard Weight · FinalWeightedScore | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Stockholder (70%) | Average Loans ($mm)(1) | $17,007 | $18,007 - $18,226 | $19,226 | $17,713 | 81.75% | 10% | 8.18% | |||||||||
| NCLs ($mm)(1) | $1,626 | $1,448 - $ 1,431 | $1,253 | $1,489 | 84.67% | 10% | 8.47% | ||||||||||
| PPNR ($mm)(1)(2) | $1,734 | $1,892 - $1,986 | $2,114 | $1,899 | 95.70% | 30% | 28.71% | ||||||||||
| Operating Leverage(1)(2) | (3.00)% | .21% - 3.03% | 6.00% | 1.99% | 101.32% | 10% | 10.13% | ||||||||||
| ERM Composite Metric | (3) | (3) | (3) | (3) | 97.49% | 10% | 9.75% | ||||||||||
| Customer (20%) | Performance on Critical SLAs | 97% | 98% | 99% | 98.29% | 129.00% | 5% | 6.45% | |||||||||
| Digital Engagement Composite Metric | 61.75% (ADU) & 73.84% (IVR) | 63.00% (ADU) & 75.00% (IVR) | 64.25% (ADU) & 76.34%(IVR) | 63.76% (ADU) & 76.37% (IVR) | 160.8%/ 200% | 5% | 8.63% | ||||||||||
| Application Availability | 99.85% | 99.90% | 99.95% | 99.91% | 120.00% | 5% | 6.00% | ||||||||||
| NPS | 45.10% | 47.60% | 50.10% | 47.20% | 92.00% | 5% | 4.60% | ||||||||||
| Associate (10%) | Associate Engagement | 70% | 77% | 84% | 79.60% | 137.14% | 5% | 6.86% | |||||||||
| Core Associate Experience | 4% Δ | 3-2.0% Δ | 1% Δ | 0.79% | 200.00% | 5% | 10.00% | ||||||||||
| (1) Financial metrics use a target zone: low-end of target scores at 95%; high-end of target scores at 105%; results between low- and high-end are interpolated. Financial metrics, in aggregate, must achieve ≥85% or core scorecard result is capped at 100% funding. Final result on Financial metrics, in aggregate, was 92.47%. (2) Results of PPNR and Operating Leverage were impacted by certain pre-approved adjustments; see discussion below for additional details. (3) Targets not disclosed for the ERM Composite Metric due to composite nature of the metric and potential sensitivity of the underlying targets. | CoreScorecard Result | 107.77% | |||||||||||||||
| Modifiers | ||
|---|---|---|
| Modifier Description · PotentialScore · Score and Impact to AIC Funding · Core Scorecard Result + Modifiers = 130% Total Result | ||
| Readiness for CFPB Late Fee Rule | 0-10% | +9.25% |
| Operational Excellence | 0-10% | +10.00% |
| DCF | -10% to +10% | +2.98% |
| Total: 22.23% | ||
| 68 | Bread Financial | 2025 Proxy Statement |
As shown above, the Company’s results on the 2024 core scorecard (before applying the modifiers) yielded a payout percentage of 107.77%.
Beginning in 2024, the CHCC incorporated a new provision into the AIC program, which provides that the core scorecard would be capped at 100% unless the Company scored at least 85% on the Financial metrics (i.e., Average Loans, NCLs, PPNR and Operating Leverage), in aggregate. With an aggregate score of 92.47% on the Financial metrics, the Company exceeded this threshold and, therefore, payouts were not capped under the core scorecard. Average Loans for 2024 were $17.7 billion, which was between threshold and target, due primarily to higher losses throughout the year, resulting in a score of 81.75% on that metric. Similarly, the Company’s result on NCLs was between threshold and target, resulting in a score of 84.67% on that metric. PPNR for the year ($1.9 billion) was solid, although slightly below target, resulting in a score of 95.70%. Lastly among the Financial metrics, Operating Leverage was strong in 2024 and above the midpoint of the target range, resulting in a score of 101.32%. The ERM Composite Metric resulted in a score of 97.49%, with ERM—% of Self-Identified Issues and % of Satisfactory Audits both exceeding target. The ERM—Timely Remediation component of ERM Composite Metric fell short of threshold, which we believe was due to the heightened focus on resolving high/critical issues, which resulted in delays in remediating lower-priority issues.
Among the Customer metrics, the Company scored between target and maximum on the SLA metric, yielding a payout of 129% on that metric. On the Digital Engagement Composite Metric, the Company performed very well in 2024, with the ADU rate portion of the metric scoring 160.8% and the IVR portion scoring a perfect 200%. We were also pleased with the Company’s result on the Application Availability metric (120%), which we believe was reflective of the enhanced resiliency of the Company’s systems. On the NPS metric, the Company once again had a solid performance, resulting in a score of 92% on that metric.
Among the Associate metrics on the core scorecard, the Company’s performance was strong on the Associate Engagement and Associate Experience metrics, significantly exceeding target, which we believe is reflective of our NEOs’ commitment to promoting an engaged workforce and inclusive work environment that drives our long-term growth and sustainability. Additional detail regarding our human capital strategies, as well as our broader sustainability efforts, can be found in the “Commitment to Sustainability” section included elsewhere in this proxy statement.
As referenced above, PPNR and Operating Leverage were impacted by certain adjustments that were approved by the CHCC. When the core scorecard was adopted in early 2024, the CHCCpre-approved certain adjustments, including: (i) unplanned gain/loss from portfolio sales; (ii) unplanned impacts from legacy businesses, including amounts associated with the Company’s former Epsilon and LoyaltyOne segments; and (iii) unplanned debt retirement/issuance costs.
| Bread Financial | 2025 Proxy Statement | 69 |
Certain of thesepre-approved adjustments did result in impacts to the Company’s results on the PPNR and Operating Leverage metrics, some of which were favorable to the Company’s results while others were unfavorable. A summary of the impact of these adjustments is below:
| Metric | PPNR | OperatingLeverage |
|---|---|---|
| Actual Results (unadjusted) | 1,778.8 | -8.95% |
| Adjustments | ||
| Exclude Gain on Sale (including 2023 Gain on Sale for calculating Operating Leverage) | (6.4) | 4.91% |
| Adjustment to AIC Achievement Accrual | 3.7 | 0.18% |
| Legacy Business Costs | 5.7 | 0.27% |
| Debt Retirement Costs | 116.7 | 5.57% |
| Subtotal of Adjustments | 119.7 | 10.94% |
| Final Results (adjusted) | 1,898.5 | 1.99% |
With respect to the modifiers, below is a summary of the criteria and accomplishments that the CHCC and Board considered in evaluating the modifiers, along with the Company’s final results:
| Modifier | Criteria for Measuring Success | Outcome | Score |
|---|---|---|---|
| Strategic Modifier #1: Readiness for CFPB Late Fee Rule | • Success measured on a score of 1-5 on the Company’s CFPB readiness within the following 4 key areas: • Governance Infrastructure • Development of Mitigation Measures • Development of New Capabilities • Execution | • Governance Infrastructure: 5.0 out of 5.0 • Successfully implemented cross-functional workstreams with rigorous, routine reporting, including to senior management and the Board and its committees • Development of Mitigation Measures: 4.5 out of 5.0 • Successfully developed mitigation strategies and worked collaboratively with brand partners to communicate these strategies and amend or re-negotiate contractual arrangements as appropriate • Development of New Capabilities: 4.0 out of 5.0 • Successfully developed new capabilities to ensure that planned mitigation actions could be implemented on-demand • Certain technology interdependencies were slightly behind schedule which negatively impacted the score • Execution: 5.0 out of 5.0 • Successfully executed multiple waves of changes-in-terms • Completed technology updates for certain brand partners • Established rigorous framework for tracking actual results | +9.25% |
| 70 | Bread Financial | 2025 Proxy Statement |
| Modifier | Criteria for Measuring Success | Outcome | Score |
|---|---|---|---|
| Strategic Modifier #2: Operational Excellence | • Success measured based on the amount of incremental value (revenue and savings) created by the Company’s 2024 Operational Excellence initiatives, beyond the amounts already embedded within the Company’s 2024 budget • Credit given for both 2024 in-year value and run-rate value in 2025 | • Result on modifier determined by reference to formulaic matrix, with the levels of incremental value achieved through Operational Excellence efforts tied to corresponding scores on modifier • Company generated more than $20 million of in-year incremental value (and of run-rate value in 2025), which corresponded to a 10% payout on the matrix | +10% |
| DCF Modifier | • In considering the DCF modifier, the Board was authorized to consider significant issues or changes, not contemplated in the scorecard, in the following areas: • Unforeseen macroeconomic impacts • Technology transformation results • Balance sheet strengthening/weakening • New regulatory issues • Unplanned strategic acquisitions/capabilities • Changes in supervisory ratings | • In January 2025, the CHCC and full Board considered the framework for the DCF modifier and the Company’s 2024 results and achievements • Following that review, the CHCC recommended, and the full Board approved, a result of +2.98% on the DCF modifier • In making this determination, factors that the CHCC and the Board considered included: • Significant progress in building and executing on key technology transformation initiatives, resulting in significant run-rate savings • Success in strengthening our balance sheet, including through(i) retiring $306 million of the Company’s outstanding convertible notes, (ii) achieving 105% double leverage (well below <115% target), (iii) increasing TBVPS to $46.97 and (iv) improving CET1 capital ratio to 12.4% • Significant enhancements to the ERM program | +2.98% |
| TOTAL | +22.23% | ||
In aggregate, the Company’s scores on the modifiers increased the total scorecard payout percentage by 22.23%, which when added to the Company’s score on the core scorecard (107.77%), resulted in a final score of 130.00% on the 2024 AIC balanced scorecard.
| Bread Financial | 2025 Proxy Statement | 71 |
SUMMARY OF 2024 PERFORMANCE-BASED AIC PAYMENTS
The following table sets forth a summary of the AIC payments for the 2024 performance year, calculated using the final payout percentage of 130.00% from the 2024 balanced scorecard. These AIC payments are also included in the“Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table below. The target AIC percentages reflected below were unchanged from 2023, with the exception of Ralph Andretta, whose target AIC percentage was increased by the Board from 180% to 190% for 2024, to put additional emphasis on performance-based components of Mr. Andretta’s compensation.
| Annual Base Salary ($) · x · Target AIC (%) · = · Target AIC ($) · x · Final Payout Percentage · = · AIC Payment ($) | |||||
|---|---|---|---|---|---|
| Ralph J. Andretta | 1,155,000 | 190% | 2,194,500 | 130% | 2,852,850 |
| Perry S. Beberman | 665,000 | 150% | 997,500 | 130% | 1,296,750 |
| Allegra S. Driscoll | 625,000 | 140% | 875,000 | 130% | 1,137,500 |
| Valerie E. Greer | 665,000 | 150% | 997,500 | 130% | 1,296,750 |
| Joseph L. Motes III | 660,000 | 150% | 990,000 | 130% | 1,287,000 |
Long-Term Equity Incentive Compensation
We grant long-term equity incentive awards to align the interests of our NEOs and other executive officers with those of our stockholders and foster a focus on long-term results, as well as to encourage retention. Awards of performance-based LTIC pay out solely upon attainment of a threshold level ofpre-determined performance targets.
In determining the target size of LTIC awards, the CHCC generally considers the following factors: (i) the value of total direct compensation for comparable positions at our proxy peer group and other market data; (ii) Company and individual performance against strategic plans; (iii) the number and value of LTIC awards previously granted; (iv) the allocation of overall equity awards attributed to our executive officers relative to all equity awards; and (v) the relative proportion of long-term incentives within the total direct compensation mix.
In 2024, we granted LTIC awards to our senior management and executive officers, including our NEOs, pursuant to our 2022 Omnibus Incentive Plan. Subsequent to those grants, at our 2024 Annual Meeting of Stockholders in May 2024, our stockholders approved our 2024 Omnibus Incentive Plan, under which our 2025 LTIC awards were made. Under each of the plans, the Board of Directors has delegated its authority under such plan to the CHCC, except for purposes of awards to the CEO.
2024 LTIC PLAN DESIGN, AND LOOKING AHEAD TO 2025
In 2024, for the fourth consecutive fiscal year, the CHCC structured our LTIC plan for our NEOs to consist of 60% PBRSUs and 40% TBRSUs, the features of which are summarized in the table below:
| Element | Key Metrics | Features |
|---|---|---|
| Performance-Based Restricted Stock Units (60% of Award) | • Pre-determined annual ROE targets over 3-year period (0-150% achievement) • Annual ROE achievement averaged at end of 3-year period | • 3-year cliff vesting period (2024-2026) • Payout tied to performance • Annual ROE targets, established at the time of grant by the CHCC |
| Time-Based Restricted Stock Units (40% of Award) | • Vest ratably over 3-year period | • Units encourage long-term retention and align NEOs interests with stockholders |
| 72 | Bread Financial | 2025 Proxy Statement |
After taking into consideration the long-term incentive practices in the marketplace, we believe that a mix of PBRSUs and TBRSUs provides a market-competitive and balanced approach. The portion granted in PBRSUs, with vesting criteria tied to our financial performance, is intended to focus and incentivize our executives to deliver exceptional performance and further align incentives with stockholder interests. The portion granted in TBRSUs is intended to increase retention, while also promoting direct alignment with stockholder interests and rewarding the creation of long-term value.
The PBRSUs granted in 2024 were based solely on ROE performance. However, in response to feedback received from our stockholders and proxy advisory firms throughout the year, the CHCCre-designed our PBRSU grants for 2025, such that:
| • | ROTCE: 75% of the PBRSU award is tied to ROTCE; |
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| • | EPS: 25% of the PBRSU award is tied to EPS; and |
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| • | rTSR: We have added a +/- 10% rTSR modifier measured against a defined peer group. |
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As with 2024 and prior years: (i) 60% of our NEOs’ LTIC awards are in the form of PBRSUs, with the remaining 40% in TBRSUs, emphasizing the performance component of our NEOs’ long-term equity incentive compensation; (ii) the payout remains at 50% for threshold performance and 150% for maximum performance; and (iii) the PBRSUs will be measured over a three-year period. For additional information about this design change and other feedback we received from our stockholders throughout the year, please see“—Say-On-Pay and Stockholder Engagement” above.
LTIC AWARDS GRANTED DURING 2024
In February 2024, the following LTIC grants were made to our NEOs, with 60% of the total target award in the form of PBRSUs and the remaining 40% in TBRSUs:
| Name | Target GrantValue ($) | PBRSUs Granted (in shares)(1) | TBRSUs Granted (in shares)(1) |
|---|---|---|---|
| Ralph J. Andretta | 6,000,000 | 101,153 | 67,435 |
| Perry S. Beberman | 1,730,000 | 29,166 | 19,444 |
| Allegra S. Driscoll | 1,100,000 | 18,545 | 12,364 |
| Valerie E. Greer | 1,730,000 | 29,166 | 19,444 |
| Joseph L. Motes III | 1,330,000 | 22,423 | 14,949 |
| (1) | The target numbers of RSUs were determined by dividing the total grant value of the award by the 10-day average fair market value of the Company’s common stock as quoted on the NYSE as of the date of grant. |
PBRSU DESIGN FOR AWARDS GRANTED IN 2024
The PBRSUs granted in 2024 are subject to an annual ROE metric with threshold, target and maximum goals for each of 2024, 2025 and 2026. For the ROE metric, threshold, target and maximum goals ranging from 50% to 150% achievement are calculated on a scale interpolated between the threshold, target and maximum goal amounts, with a maximum payout of 150% of target.
After consideration of market practices and consultation with our independent compensation consultant, the CHCC continued the use of ROE as the performance metric for our PBRSU grants in 2024. ROE is a valuable performance metric because:
| • | it directly reflects the return generated by the Company on our stockholders’ investment |
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| • | it encompasses profitability, efficiency, balance sheet management and financial leverage, and is among the most widely used indicators of financial performance in our industry and among our peers |
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| • | achieving a high ROE requires prudent management of the tradeoffs between risk and return, requiring an appropriate balance between achieving the highest return on invested capital and managing risk |
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| • | using ROE as a performance metric aligns the interests of our NEOs with those of our stockholders, because sustaining a high ROE is a primary driver of strong earnings growth and long-term value |
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The annual ROE results are averaged at the end of the three-year performance period so that ROE results relative to the goals are not disproportionately impacted by unforeseeable market factors outside the NEOs’ control over a multi-year period. This approach provides a performance and retention incentive over the long term with three-year cliff vesting.
In the event threshold performance is not achieved in one or more fiscal years, the total payout could be less than 50%, and as low as 0%. To the extent earned, these PBRSUs will vest in February 2027. The CHCC believes the combined annual ROE over three years for the PBRSUs can be characterized as challenging to achieve, but attainable with the application of significant skill and effort on the part of our executive officers.
For additional detail regarding the process by which the CHCC sets our ROE targets, see “Compensation Determination Process—Target Setting” below.
The payout for the PBRSUs will be determined when the full measurement can occur, after December 31, 2026. For all grants, the recipient must be employed by us at the time of vesting to receive the stock, subject to certain exceptions including death, disability and certain qualifying retirements.
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PBRSU TARGETS AND RESULTS
In February 2025, the CHCC met to certify 2024 ROE results and determine final payouts under the PBRSUs granted in February 2022. The 2024 ROE results, as adjusted, are included in the table below, along with an overview of the targets and results for the PBRSUs granted in each of the past three fiscal years. In response to stockholder feedback, we continue to include the forward-looking ROE targets for 2025 and 2026 in the table below. For additional detail regarding the process by which the CHCC sets our ROE targets, see “Compensation Determination Process—Target Setting” below.
The Company’s unadjusted ROE performance for 2024 was 9.0%. When each annual grant of PBRSUs was made, the CHCCpre-approved certain adjustments to the ROE results for: (i) provision build/release impacts; (ii) unplanned gain/loss from portfolio sales; (iii) unplanned impacts from legacy businesses, including amounts associated with the Company’s former Epsilon and LoyaltyOne segments; (iv) unplanned debt retirement/issuance costs; (v) unplanned costs due to regulatory changes (costs to implement, legal, etc.); (vi) unplanned material macroeconomic impacts (e.g., stress losses, rapid decline in interest rates, etc.); (vii) impacts to ROE due to AIC scorecard results being above target; and (viii) a normalizing adjustment assuming a constant 9% TCE/TA ratio had been in place.
Among the adjustments set forth in detail in the table below, the 2024 ROE results (for the PBRSUs granted in 2022 and 2023, but not the PBRSUs granted in 2024) were adjusted due to material unplanned changes in the macroeconomic outlook. In making this adjustment to the ROE results for the PBRSUs granted in 2022 and 2023, the CHCC compared forecasted macroeconomic data (including Federal funds rate data, inflation data, price levels and personal savings rates) that existed at the time the grants were made versus the actual macroeconomic data during 2024. At the time the 2022 and 2023 grants were made, the macroeconomic data suggested that conditions would be significantly improved or improving by 2024, with a corresponding impact on the Company’s net loss rate and other key data, including reversals of interest and fees from gross credit losses, which correlates with net loss rates. Notably, at the time the Company granted the 2022 PBRSUs, the forecasted net loss rate for 2024 was 5.5%, and at the time the Company granted the 2023 PBRSUs, the forecasted net loss rate for 2024 was 7.0%. In fact, high inflation and other challenging macroeconomic conditions persisted throughout 2024, and the actual net loss rate for 2024 was 8.2%, well above these forecasts, correspondingly also driving higher reversals of interest and fees due to higher gross credit losses. Net loss rates have a dramatic impact on ROE, such that the 2024 ROE results for the PBRSUs granted in 2022 and 2023 would have been materially impacted but for this difference between forecasted and actual net loss rates, along with other
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macroeconomic factors outside of the control of management. Accordingly, in certifying the 2024 ROE results, the CHCC made adjustments to the ROE results for the PBRSUs granted in 2022 and 2023 for these unplanned material macroeconomic impacts, as well as to a lesser extent unplanned impacts due to regulatory changes; the CHCC did not make any similar adjustment for the 2024 PBRSUs.
Below is a summary of the adjustments made in calculating the final 2024 ROE results for the PBRSUs granted in each of 2022, 2023 and 2024.
| 2022 PBRSU Grant - Tranche 3 ($mm) | 2023 PBRSU Grant - Tranche 2 ($mm) | 2024 PBRSU Grant - Tranche 1 ($mm) | |
|---|---|---|---|
| Income from Continuing Operations before Income Taxes | $381.43 | $381.43 | $381.43 |
| Gain on Portfolio Sale | $(6.43) | $(6.43) | $(6.43) |
| Provision for Credit Losses Release | $(91.47) | $(91.47) | $(91.47) |
| Legacy Business Costs | $7.91 | $7.91 | $7.91 |
| Debt Retirement Costs | $116.74 | $116.74 | $116.74 |
| Impact from AIC Scorecard Above Target | $21.02 | $21.02 | $21.02 |
| Adjusted Income Before Income Taxes | $429.20 | $429.20 | $429.20 |
| Adjusted Provision for Income Taxes | $114.47 | $114.47 | $114.47 |
| Adjusted Net Income | $314.73 | $314.73 | $314.73 |
| Base Adj. Avg. ROE | 10.2% | 10.2% | 10.2% |
| 9% Capital Adjustment | 1.4% | 1.4% | 1.4% |
| Capital Adjusted ROE | 11.5% | 11.5% | 11.5% |
| Unplanned Impacts - Regulatory Changes | (1.7)% | (1.7)% | — |
| Unplanned Impacts - Material Macroeconomic Changes | 17.0% | 15.2% | — |
| Final Adjusted ROE | 26.8% | 25.0% | 11.5% |
FINAL PAYOUT OF PBRSUS GRANTED IN 2022
As described above under “PBRSU Targets and Results,” the PBRSUs awarded to our NEOs in February 2022 completed their three-year performance period at the end of fiscal year 2024. In February 2025, the CHCC determined and certified the Company’s final results of these PBRSUs over the three-year period, which determined the final number of shares earned pursuant to those awards. As illustrated below, based on the annual ROE results for fiscal years 2022, 2023 and 2024, the shares earned on account of these PBRSUs equated to 120.2% of the target award established in February 2022.
| Primary Metric | Threshold (%) | Target (%) | Maximum (%) | Result (%) | ROE Resultas a % of Target |
|---|---|---|---|---|---|
| Fiscal Year 2022 ROE | 20.0% | 24% - 26% | 30.0% | 30.7% | 150.0% |
| Fiscal Year 2023 ROE | 20.0% | 24% - 26% | 30.0% | 24.7% | 100.0% |
| Fiscal Year 2024 ROE | 20.0% | 24% - 26% | 30.0% | 26.8% | 110.5% |
| Average Result | 120.2% | ||||
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Based on this final payout result of 120.2%, on February 15, 2025, our NEOs (other than Ms. Driscoll, who joined the Company in January 2024) earned a number of shares equal to 120.2% of the target number of shares granted to each of them under their respective PBRSU in February 2022. Accordingly, Mr. Andretta earned 48,207 shares versus his target of 40,105 shares, Mr. Beberman earned 15,914 shares versus his target of 13,239 shares, Ms. Greer earned 12,053 shares versus her target of 10,027 shares, and Mr. Motes earned 12,053 shares versus his target of 10,027 shares, in each case before giving effect to any shares withheld for federal tax withholding purposes. Each of these awards vested on February 15, 2025.
The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.