The three principal components of our executive compensation program, which is intended to enable the Company to attract and retain the best leadership talent available, to motivate performance against a range of key objectives and to align our executives’ interests with those of our shareholders, include:
| ● | Annual cash incentive compensation; and |
| ● | Long-term equity compensation, delivered via both performance- and service-based equity awards. |
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| 52 | OLD NATIONAL BANCORP 2024 PROXY STATEMENT |
At-risk compensation represented approximately 79% of our CEO’s target total direct compensation in 2023 and approximately 70% of our other NEOs’ target total direct compensation in 2023, as shown in the following charts:
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| CEO | | ALL OTHER NEOs (Average) |
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In general, we strive to set the proportions of each component in a way that aligns with similar roles at companies in our peer group or other market comparable companies (assuming the achievement of target performance levels). For 2023, Mr. Ryan’s total direct compensation (at target) was $5.6 million. Median total direct compensation (at target) for the CEOs in our peer group was $5.5 million at the time Mr. Ryan’s 2023 compensation was set.
In 2023, the only elements of our executive officers’ compensation that we paid in cash were base salary and a portion of each executive officer’s annual incentive compensation. In structuring our long-term incentive opportunities for our CEO and the other NEOs in 2023, we emphasized the use of performance-based equity awards with at least 50% of the grant date value of long-term incentives delivered in performance share units.
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| OLD NATIONAL BANCORP 2024 PROXY STATEMENT | 53 |
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Detailed in the following table are the three core elements of our 2023 executive compensation program:
| · COMPONENT · KEY FEATURES |
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| FIXED · Base SalaryFixed compensation for performing the responsibilities associated with an executive’s position · · · ●Set with reference to scope of role, individual skills and experience and demonstrated performance●Informed by peer and market data for similar positions, generally targeted at median●Reviewed annually with changes effective in March of each year · |
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| AT-RISK COMPENSATION · Annual Incentive CompensationRewards short-term financial and operational performance · · · ●Variable, at-risk incentive compensation●Target value aligned to peer and market data for similar positions●No award for performance below threshold; 50% of target value is paid for threshold performance; maximum award is capped at 200% of target●Target opportunities expressed as a percentage of base salary: · |
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| · 2023 NEOs · 2023 Target |
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| | CEO | 125% | |
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| | Executive Chairman1 | 90% of CEO Target | |
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| | President and COO | 85% | |
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| | CEO, Commercial Banking | 85% | |
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| | CFO | 80% | |
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| | Chief Administrative Officer | 65% | |
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| | ●2023 awards were based on adjusted EPS with pre-determined formulaic modifiers for relative deposit cost and deposit growth versus banks in the KRX Index | |
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| Long-Term Equity CompensationAligns executive interests with those of our shareholders over the long-term, motivates sustained shareholder returns and shareholder value, as well as retention of critical talent | | | ●Awarded as a combination of performance share units and service-based restricted stock awards●Used peer group and market data when considering mix of performance and service-based awards: | |
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| | | | 2023 Equity Mix | |
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| | 2023 NEOs | Performance-Based | Service-Based | |
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| | CEO and ExecutiveChairman1 | 60% | 40% | |
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| | All Other NEOs | 50% | 50% | |
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| | ●Target value based on peer and market data for similar positions●For performance share units, no shares are earned for performance below threshold; 50% of shares are paid for threshold performance; maximum award is capped at 200% of target●Target opportunities expressed as a percentage of base salary: | |
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| | | 2023 NEOs | 2023 Target | |
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| | CEO | 260% | |
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| | Executive Chairman1 | 90% of CEO Target | |
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| | President and COO | 130% | |
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| | CEO Commercial Banking | 110% | |
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| | CFO | 120% | |
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| | Chief Administrative Officer | 80% | |
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| | | | ●Performance share units are based on three-year TSR (50%) and ROATCE (50%), with both metrics measured relative to the performance of banks in the KRX Index●Service-based restricted stock vests in three equal installments over three years | |
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| 1. | Mr. Scudder retired from our Board and as Executive Chairman of the Company on January 31, 2024. His 2023 short- and long-term target opportunities were set at 90% of the CEO’s target opportunities in accordance with his letter agreement, as contemplated by the Merger with First Midwest. Mr. Scudder will remain with the Company as a non-executive employee and receive compensation under the letter agreement through February 15, 2025. |
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| 54 | OLD NATIONAL BANCORP 2024 PROXY STATEMENT |
The following metrics for our incentive compensation programs were selected given their alignment to short- and long-term value creation and our areas of strategic focus. We also selected these metrics because they are the foundation of what we believe is a responsible incentive program that rewards performance without encouraging excessive risks. In addition, these metrics are commonly used by shareholders and the investment community to evaluate a financial institution’s performance. The determination of whether the performance goal for each metric is achieved is based on the audited financial results of the Company.
| The metrics for our incentive compensation programs are selected given their alignment to short-term and long-term value creation and our areas of strategic focus. We also have selected these metrics because they are the foundation of what we believe are a responsible incentive program that rewards performance without encouraging excessive risks and because they are commonly used by shareholders and the investment community to evaluate a financial institution’s performance. When determining the achievement of the performance goals for each metric, we utilize the audited financial results of the Company. | |
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| ONE-YEAR PERFORMANCE MEASURE FOR ANNUAL INCENTIVE COMPENSATION | WHY IT MATTERS |
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| Adjusted EPS | Reflects the overall profitability of the Company for a given year; encourages management to continue to focus on near-term operating performance. |
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| Relative deposit cost and deposit growth (pre-determined formulaic upward or downward modifiers) | Encourages management to continue to build and maintain the Company’s high-quality, low-cost core deposit base, which is a significant driver of strong fundamental financial performance, including growth in EPS, ROATCE and tangible book value. Measurement of the Company’s deposit cost and year-over-year deposit growth on a relative basis compared to the banks in the KRX Index assesses the Company’s performance against a broad market of comparable companies. |
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| THREE-YEAR PERFORMANCE MEASURES FOR LONG-TERM EQUITY COMPENSATION | WHY IT MATTERS |
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| Relative TSR (50% weighting) | Reflects long-term shareholder value creation; measurement over a three-year period on a relative basis compared to the banks in the KRX Index assesses our success of multi-year share performance and dividend payments against a broad market of comparable companies. |
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| Relative ROATCE (50% weighting) | Aligns with long-term shareholder value creation; correlates to higher valuations for common stock of publicly traded bank holding companies; measurement over a three-year period on a relative basis compared to the performance of the banks in the KRX Index assesses our success of multi-year operational performance against the banks in a broad market of comparable companies. |
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