DEF 14A
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

 

 

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  Definitive Proxy Statement
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Stifel Financial Corp.

(Name of Registrant as Specified In Its Charter)

 

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Table of Contents

 

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LETTER FROM OUR CHAIRMAN & CEO

 

 

 

 

LOGO         

  

501 North Broadway

St. Louis, Missouri 63102

(314) 342-2000

 

April 25, 2019

Fellow Shareholders:

We cordially invite you to attend the 2019 Annual Meeting of Shareholders of Stifel Financial Corp., which will be held on June 5, 2019 at 9:30 a.m., local time, at our corporate headquarters, located at 501 North Broadway, St. Louis, Missouri 63102. We hope that you will be able to attend.

Enclosed you will find a notice setting forth the business expected to come before the meeting and instructions for accessing this proxy statement and our Annual Report for the year ended December 31, 2018 on the Internet and for submitting proxy votes online. The notice also contains instructions on how to request a printed set of proxy materials.

Your vote is very important to us. Whether or not you plan to attend the meeting in person, we hope that your shares are represented and voted.

I expand on our Company’s performance, strategy, and outlook in the 2019 Annual Report Shareholder Letter, which I hope you will read.

Thank you for your investment in Stifel. I look forward to welcoming our shareholders to the Annual Meeting.

 

   

Sincerely,

 

LOGO

 

Ronald J. Kruszewski

Chairman of the Board and Chief Executive

Officer

 

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Proxy Statement for the 2019 Annual Meeting of Shareholders

 

  

 

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TABLE OF CONTENTS

 

 

 

Letter from our Chairman & CEO

     1  

Table of Contents

     2  

Notice of 2019 Annual Meeting of Shareholders

     3  

Executive Summary

     4  

Performance Highlights

     5  

Compensation Highlights

     8  

Shareholders’ Say on Pay: Outreach and

  

Shareholder Input

     10  

Corporate Governance Highlights

     11  

Diversity Is an Important Factor in Consideration of Potential and Incumbent Directors

     13  

Item 1. Election of Directors

     14  

Our Directors

     14  

Our Director Nominees

     15  

Board of Directors – Leadership, Risk Oversight and Meetings

     20  

Board of Directors – Committees

     21  

Compensation Discussion & Analysis

     25  

2018 CEO Compensation Determinations

     25  

Committee Process and 2018 Determinations

     33  

2018 Firm Performance

     36  

Key Pay Practices

     40  

What We Do and Don’t Do

     40  

The Committee’s Commitments and Principles

     41  

Benefits of Discretionary Elements within our Compensation Program

     42  

Key Executive Compensation Program Elements

     44  

How the Compensation Committee Structures Pay and Mitigates Risk

     47  

How our Executive Structure Appears in the Summary Compensation Tables

     52  

Use of Non-GAAP Measures

     53  

2018 Summary Compensation Table

     54  

2018 Grants of Plan-Based Awards

     55  

Stock Unit Awards and Grant Date Fair Value under ASC 718

     56  

Additional Information about the Compensation Paid to the Named Executive Officers

     56  

2018 Outstanding Equity Awards at Fiscal Year-End

     56  

2018 CEO Pay Ratio

     57  

2018 Option Exercises and Stock Units Vested/Converted

     57  

Discussion of Post-Employment Payments

     58  

Non-Employee Director Compensation

     58  

Additional Information about Non-Employee Director Compensation

     59  

Certain Relationships and Related Transactions

     59  
Compensation Committee Report On Executive Compensation      61  
Item 2. An Advisory Vote to Approve Executive Compensation (Say on Pay)      61  
Item 3. Ratification of Appointment of Independent Registered Public Accounting Firm      62  

Beneficial Ownership

     64  

Ownership of Directors, Nominees, and Executive Officers

     64  

Ownership of Certain Beneficial Owners

     65  

Section 16(a) Beneficial Ownership Reporting Compliance

     65  
Questions & Answers about the Annual Meeting and Voting     

66

 

Other Matters

     69  
 

 

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NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS

 

 

 

 

  TIME AND DATE:

 

 

 

Wednesday, June 5, 2019 at 9:30 a.m., local time

  PLACE:  

 

Stifel Financial Corp. offices located at One Financial Plaza,

2nd Floor, 501 North Broadway, St. Louis, Missouri 63102

 

 

 

         

  

 

Election of Directors, each as nominated by the Board of Directors (the “Board”)

 

 

 

        

  

 

An advisory vote to approve executive compensation (Say on Pay)

 

 

  ITEMS OF

  BUSINESS:        

 

 

        

  

 

Ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2019

 

   

 

        

  

 

Transaction of such other business as may properly come before our 2019 Annual Meeting of Shareholders

 

 

  RECORD DATE:

 

 

You are entitled to vote only if you were a Company shareholder at the close of business on April 8, 2019

 

  VOTING BY PROXY:  

 

Your vote is very important. By April 25, 2019, we will have sent to certain of our shareholders a Notice of Internet Availability of Proxy Materials (Notice). The Notice includes instructions on how to access our Proxy Statement and 2018 Annual Report to Shareholders and vote online or by telephone, no later than close of business on June 4, 2019. If you received a paper copy of the proxy card, you may mail your proxy vote in the provided envelope.

 

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting to be held on June 5, 2019:

Our proxy statement and 2018 annual report are available at: www.investorvote.com/sf

 

By Order of the Board of Directors,
LOGO
Mark P. Fisher, Corporate Secretary
April 25, 2019

 

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EXECUTIVE SUMMARY

 

 

This summary highlights certain information contained elsewhere in our Proxy Statement. You should read the entire Proxy Statement carefully before voting.

2019 Annual Meeting Information

 

 

  WHEN:

 

 

 

WHERE:

 

 

RECORD DATE:

Wednesday, June 5, 2019 at 9:30 a.m., local time  

 

Stifel Financial Corp. offices,

One Financial Plaza, 2nd Floor,
501 North Broadway,
St. Louis, Missouri 63102

 

  April 8, 2019

For additional information about our Annual Meeting, see the Questions & Answers about the Annual Meeting and Voting, beginning on page 66.

Matters to be voted on at our 2019 Annual Meeting

 

               

 

Board
Recommendation        

 

  

 

Page
Reference        

 

 

        1.  

 

 

Election of Directors

 

  

 

FOR each director

 

  

 

14

 

        2.  

 

 

Advisory vote to approve executive compensation
(say on pay)

 

  

 

FOR

  

 

61

 

        3.  

 

 

Ratification of Ernst & Young LLP as our independent registered public accounting firm for 2019

 

  

 

FOR

  

 

61

 

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PERFORMANCE HIGHLIGHTS

 

 

We encourage you to read the following Performance Highlights as background to this Proxy Statement.

 

 
       Continued Strong Performance in 2018
     

 

  ·  

Record annual net revenues of $3.0 billion, an increase of 3.3% over 2017.

  ·  

23rd consecutive annual increase in net revenues.

  ·  

Record net revenues and pre-tax operating income in Global Wealth Management.

  ·  

Record non-GAAP net income available to common shareholders of $429.4 million, or $5.28 per diluted common share.

  ·  

Non-GAAP ROCE of 14.9% and ROTCE of 24.4%.

  ·  

Returned $215 million to shareholders through dividends and share repurchases.

  ·  

Increased book value per common share by $4.78 to $43.04.

 

 

  A History of Growth – Net Revenues, in Millions

 

 

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  A History of Growth – Increased Depth and Breadth through Acquisitions

 

 

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*Announced

 

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  A History of Growth – Assets, in Millions

 

 

 

LOGO

 

 

  Extending our History of Growth – Stifel Financial Corp. 2018 GAAP Net Revenue of over $3 billion

 

   
  Global Wealth Management (GWM)   Institutional Group (IG)
  Net Revenue - $2.0 billion   Net Revenue - $1.1 billion
     
    ·       Private Client       ·       Equity & Fixed Income Capital Raising
    ·       Stifel Bank & Trust       ·       M&A Advisory / Restructuring
    ·       Margin and Securities-based Lending       ·       Institutional Equity and Fixed Income Brokerage

    ·       Asset Management

 

      ·       Independent Research

 

             
$2.9bn   30  %   7,500   LOGO   2,300   1,300   LOGO
             

Low 7.7x

leverage,(1) $3.2 billion shareholders’ equity and $2.9

billion market

capitalization(2)

 

Insider

ownership

aligns

employees’ interests with

other

shareholders (3)

 

Over 7,500

associates

 

Balanced

business mix

 

·      65% GWM  

 

·      35% IG

 

From 2018 net revenues

 

National

presence with

over 2,300 financial

advisors

 

Largest U.S.

equity research

platform with

approximately 1,300 stocks

under coverage

 

Broad

investment

banking and

institutional

sales and

trading

capabilities –

domestic and

international

 

 

 

  (1)

Assets over equity

  (2)

As of December 31, 2018

  (3)

Insider ownership percentage includes all fully diluted shares, units outstanding and options outstanding, as of March 11, 2019

 

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  A Stable Track Record through Multiple Business Cycles

 

 

 

  Non-GAAP Net Revenues, in millions

 

   

 

 Total Equity, in millions

 

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  Total Client Assets, in billions

 

   

 

 Book Value per Common Share

 

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Notes:

Non-GAAP Net Revenues reflect operating results from continuing operations;

Excludes impact of sale of Sterne Agee Independent Contractor & Correspondent Clearing businesses;

Book Value Per Share adjusted for April 2011 three-for-two stock split (2006-2010) and represents common equity per shares outstanding

 

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COMPENSATION HIGHLIGHTS

 

 

We provide highlights of our compensation program below. It is important that you review our CD&A, beginning on page 25, and summary compensation-related tables, beginning on page 54, in this Proxy Statement for an understanding of our compensation program.

 

  2018 Named Executive Officer Compensation Determinations

 

This table summarizes our Compensation Committee’s compensation decisions for 2018 for our Named Executive Officers. This table does not substitute for the Summary Compensation Table required by SEC rules. The Summary Compensation Tables begin on page 54. 2018 was the first year for which Mr. Marischen was a named executive officer.

 

    

 

Fixed Compensation

     Annual Incentive Compensation, Variable   Subtotal   2018 Total
  Named                         At-Risk   Comp.
  Executive              

Stock-Based

Salary

 

                    

  Officer

  and Position

 

Base Salary

 

 

 

Cash Bonus

 

 

RSUs,          
Debentures

and RSAs(1)

 

 

PRSUs

 

 

Percent

At-Risk

 

 

Change

from 2017

 

  

Ronald J.

Kruszewski

  $200,000   $100,000   $4,020,761   $3,679,239   $1,000,000   $4,679,239   $9,000,000

    Chairman and CEO

 

      52.0%   LOGO 12.5%

James M.

Zemlyak

  $250,000   $62,750   $1,895,065   $2,592,185   $500,000   $3,092,185   $5,300,000

    Co-President and Head of Global Wealth Management

 

      58.3%   LOGO 12.5%
Victor J. Nesi   $250,000   $65,000   $2,785,000   $2,600,000   $500,000   $3,100,000   $6,200,000

    Co-President and Director of the Institutional Group

 

      50.0%   LOGO 12.7%

Thomas B.

Michaud

  $250,000   $55,000   $2,775,000   $917,500   $207,500   $1,125,000   $4,205,000

    President and CEO of Keefe, Bruyette & Woods

 

      26.8%   LOGO 2.3%

Thomas W.

Weisel

  $200,000   $70,000   $1,340,000   $260,000   $0   $260,000   $1,870,000

    Senior Managing Director

 

      13.9%   0%

James M.

Marischen

  $200,000   $135,000   $900,000   $300,000   $0   $300,000   $1,535,000

    Chief Financial Officer

 

      19.5%   n/a
   

 

Realized Compensation

 

 

At-Risk Compensation

 

   

 

(1)

Reflects shares previously granted to executive in December 2017 and restricted stock units granted in March 2019. The restricted shares and restricted stock units are reflected in this table at a price of $50.28. The restricted share award (“RSA”) was granted in connection with the Company’s 2017 tax planning as described further on page 51.

 

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  Compensation Committee Rationale for 2018 CEO Compensation

 

The Compensation Committee (the “Committee”) determined the pay of the named executive officers utilizing the Committee’s process for decision making and assessments as outlined beginning on page 34. The Committee took into consideration 2018 firm performance as outlined beginning on page 36, individual named executive officer performance relative to their unique goals as well as their individual contribution to overall company achievements, leadership, and other factors, as outlined beginning on page 31, and input from the CEO.

The Committee determined that, for 2018, CEO compensation should be increased in line with performance, but with downward adjustments to moderate changes over multiple years. This is consistent with the Committee’s past practices. Historically, CEO compensation has broadly tracked the performance of the three primary performance goals established by the Committee: non-GAAP Return on Equity, non-GAAP pre-tax net income and non-GAAP Earnings per Share. In 2018, for the year, non-GAAP Return on Equity was up 3.1%, non-GAAP pre-tax net income was up 18.2% and non-GAAP Earnings per Share were up 32.3%, or approximately 17.9% on average. The Committee also continued to recognize that the CEO’s existing shareholding, which is significant, powerfully and directly aligns the CEO with the interests of all shareholders.

See “2018 Compensation Determinations for Named Executive Officers Other than the CEO” on page 28 for a description of the Committee’s determinations for named executive officers other than the CEO. See “Use of Non-GAAP Measures” on page 53 for a description of how and why these measures differ from GAAP measures.

Primary Performance Goal Results and CEO Compensation Relative to Primary Performance Goal Results

 

One-Year Relative Performance

   Performance Over 5 Years Relative to 2013
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SHAREHOLDERS’ SAY ON PAY: OUTREACH AND SHAREHOLDER INPUT

 

Last year, our compensation program received support from 94% of shareholders voting. This is consistent with the strong support our pay decisions have received in recent years, and reflects the continuing commitment of senior management and the Committee to maintain a high level of shareholder outreach and respond more directly to shareholder input. We have continued to build on that strength. We believe that our outreach to shareholders concerning our executive compensation in recent years has enabled us both to obtain fuller shareholder input and also to communicate and to build on the enhancements we have made to the program. In addition to our ongoing dialogue with shareholders throughout the year, our outreach regarding our named executive officer compensation encompassed 16 of our top 20 institutional shareholders representing over 50% of outstanding shares. We also communicate regularly with our employees, who hold approximately 17% of outstanding shares. Our employees also hold restricted stock units that, if presently vested, would represent an additional 14% of outstanding shares, approximately. Our Committee has responded with commitment and action to shareholder feedback received through direct interactions and previous years’ “say on pay” advisory votes. These actions have included but are not limited to: greater utilization of performance-based awards, clearly articulated goals, and fuller disclosure. In addition to implementing “Say on Pay” feedback we have received from shareholders, we have also implemented additional feedback such as declassifying our Board and improving its diversity. Our Board also responded with a decision in 2017 to reduce the Board’s size and increase its independence.

A number of our institutional shareholders publish proxy voting guidelines. Below are some typical guidelines on executive compensation, our corresponding response, and a cross reference to the section of this CD&A in which we provide additional information.

 

  Institutional Shareholder
  Guidelines

 

   Stifel Response    Cross-Reference

Incentive plans should reflect strategy and incorporate long-term shareholder value drivers, including metrics and timeframes.

  

Our Committee has developed a facts-based, performance-focused framework by which it assesses Executive Officer performance and sets compensation against clearly stated and measured company and business goals.

 

Our Performance-Based Restricted Stock Units (PRSUs) are primarily based on measuring objective, clearly stated performance goals.

 

  

Page 35, 2018 Incentive Assessment Framework Results

 

Page 47, Performance-Based Restricted Stock Units, PRSUs

Performance results should generally be achieved over a 3-5 year time horizon.

 

   PRSUs are measured over a 4-year period and vest over a 5-year period.    Page 47, Performance-Based Restricted Stock Units, PRSUs

Peer group evaluation should be used to maintain awareness of pay levels and practices.

  

Our peer group was identified by Compensation Advisory Partners LLC (CAP), our independent compensation consultant.

CAP provided the Committee with market data on executive compensation trends and Executive Officer compensation levels, and assisted the Committee with evaluation of pay-for-performance alignment.

 

  

Page 43, Compensation Committee Consultant

Page 43, Identification of Peer Group

Disclose the rationale behind the selection of pay vehicles and how these fit with intended incentives.

   Our key executive compensation program elements include fixed and variable compensation, and we have disclosed the rationale behind the selection of pay vehicles and how they fit with intended incentives in detail in the sections referenced to the right.   

Page 44, Key Executive Compensation Program Elements

 

Page 50, Committee’s Perspective on Compensation Elements

 

Page 26, Committee Determinations of 2018 Annual Incentive Compensation

 

 

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CORPORATE GOVERNANCE HIGHLIGHTS

 

 

  Key Facts about our Board

 

We strive to maintain a well-rounded and diverse Board that balances financial industry expertise with independence, and that balances the institutional knowledge of longer-tenured directors with the fresh perspectives brought by newer directors. As summarized below, our directors bring to our Board a variety of skills and experiences developed across a broad range of industries, both in established and growth markets, and in each of the public, private and not-for-profit sectors.

 

  Continuing Board Members’ Skills & Experiences

 

 

 

9

 

 

 

6

 

 

 

8

 

 

 

7

 

 

 

8

 

 

 

10

 

 

 

7

 

 

 

7

 

Financial

Services

Industry

 

 

Other Complex & Regulated Industries

 

 

 

Risk Management

 

 

 

Talent Development

 

 

Technology

 

 

 

Public Company Governance

 

 

 

Audit, Tax & Accounting

 

 

 

Global

 

 

  Key Board Statistics

 

     
    

 

Number of Continuing Directors

 

  

 

Independence of Continuing Directors

 

 

Board

 

   10    8 of 10

 

Executive Committee

 

   6    4 of 6

 

Audit Committee

 

   3    All

 

Compensation Committee

 

   3    All

 

Risk Management / Corporate

Governance Committee

   3    All

 

    

 

         

 

9

 

  

 

8

 

  

 

8

 

  

 

4

 

  

 

4

 

 

Board Meetings
in 2018

 

  

 

Audit Committee
Meetings in 2018

 

  

 

Compensation
Committee
Meetings in 2018

 

  

 

Risk Management /
Corporate Governance
Committee
Meetings in 2018

 

  

 

Meetings of
Independent
Directors without
Insiders Present

 

 

 

80%

 

  

 

10 years

 

  

 

67

 

  

 

20%

 

  

 

30%

 

 

Continuing

Independent
Directors

 

  

 

Average Tenure of
Continuing Directors

 

  

 

Average Age of
Continuing Directors

 

  

 

Continuing Independent
Directors Diverse by
Race, Gender, or
Sexual Orientation

 

  

 

Continuing Independent
Directors with Fewer
than 5 Years’ Tenure

 

 

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  Directors of Stifel Financial Corp.

 

 

 

            Name

 

      Age  

 

  

Independent
(Yes/No)

 

Director
Commencing    

   Occupation &
Career Highlights
 

Committee
Membership,

Lead Directorship

   Other
Public      
Boards

 

LOGO

 

  

Kathleen Brown

 

73

  

Yes

 

2016

  

Partner,

Manatt, Phelps and Phillips, LLP

  Risk/Governance    2

 

LOGO

 

  

Michael W. Brown

 

73

  

Yes

 

2010

  

Retired, Vice President & CFO,

 

Microsoft Corporation

 

Audit (Chair),

Executive

   1

 

LOGO

 

  

John P. Dubinsky

 

75

  

Yes

 

2003

  

Chairman, Stifel Bank & Trust;

President & CEO,

Westmoreland Associates, LLC

 

Compensation,

Executive

   1

 

LOGO

 

  

Robert E. Grady

 

61

  

Yes

 

2010

  

Partner, Gryphon Investors

Former Partner, The Carlyle Group

  Lead Director, Executive, Risk/ Governance (Chair)    1

 

LOGO

 

  

Ronald J. Kruszewski

 

60, Chairman

  

No

 

1997

  

Chairman & CEO,

Stifel Financial Corp.

  Executive (Chair)    0

 

LOGO

 

  

Maura A. Markus

 

61

  

Yes

 

2016

  

Retired, President, COO &
Board Director,

Bank of the West

  Audit    1

 

LOGO

 

  

James M. Oates

 

72

  

Yes

 

1996

  

Managing Director,

The Wydown Group

 

Compensation (Chair),

Executive

   0

 

LOGO

 

  

David A. Peacock

 

50

  

Yes

 

2017

   President and COO, Schnucks Markets, Inc., Former President, Anheuser-Busch   Compensation, Risk/Governance    0

 

LOGO

 

  

Thomas W. Weisel

 

78

  

No

 

2010

  

Sr. Managing Director, Stifel Financial Corp.; Chairman & CEO,

Thomas Weisel Partners Group, Inc.

  Executive    0

 

LOGO

 

  

Michael J. Zimmerman

 

68

  

Yes

 

2013

  

Vice Chairman,

Continental Grain Company

  Audit    0

 

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  A Foundation of Sound Governance and Shareholder Outreach

 

 

  ·

Independent Lead Director

 

  ·

Executive sessions of independent, non-employee directors

 

  ·

Annual CEO evaluation by our all-independent Compensation Committee

 

  ·

Ongoing shareholder engagement and demonstrated responsiveness to shareholder input

 

  ·

The Board and its committees may engage independent advisors in their discretion

 

  ·

Annual election of directors

 

  ·

Substantial shareholding by each our named executive officers well in excess of our share ownership requirements

 

  ·

Robust risk control, led by the Board and senior executives, buttressed by processes and committees, embraced throughout the firm

 

  Board Tenure of Directors

 

 

LOGO

 

    

 

Diversity Is an Important Factor in Consideration of Potential and Incumbent Directors

 

Our Governance Committee considers a number of demographics including race, gender, ethnicity, sexual orientation, culture and nationality, seeking to develop a Board that, as a whole, reflects diverse viewpoints, backgrounds, skills, experiences and expertise.

 

Among the factors the Governance Committee considers in identifying and evaluating a potential director candidate is the extent to which the candidate would add to the diversity of our Board. The Committee considers the same factors in determining whether to re-nominate an incumbent director.

 

Diversity is also considered as a part of the annual Board evaluation.

 

 

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ITEM 1. ELECTION OF DIRECTORS

 

 

 

   

 

What is being voted on: Election to the Board of our director nominees, each for a one-year term. Board recommendation: FOR each of our director nominees, based on a review of individual qualifications and experience and contributions to our Board.

 

OUR DIRECTORS

 

 

Board of Director Nominees’ Qualifications and Experience

Our director nominees have a great diversity of experience and bring to our Board a wide variety of skills, qualifications and viewpoints that strengthen their ability to carry out their oversight role on behalf of shareholders.

 

 

    Core Qualifications and Experience

 

    

 

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Integrity, business judgment and commitment

 

Demonstrated management ability

 

Extensive experience in the public, private or not-for-profit sectors

 

  

 

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Leadership and expertise in their respective fields

 

Financial literacy

 

Strategic thinking

 

Reputational focus

 

 

    Diversity of Skills and Experiences

 

    

 

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Financial services industry

 

Complex & regulated industries

 

Risk management

 

Public company / corporate governance

 

Global experience

 

Technology

 

Audit, tax, accounting and financial statements

 

  

 

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Compliance

 

Operations

 

Established & growth markets

 

Credit evaluation

 

Talent Development

 

Government, public policy & regulatory affairs

 

 

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Proxy Statement for the 2019 Annual Meeting of Shareholders

 

  

 

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OUR DIRECTOR NOMINEES

 

 

    Kathleen Brown

 

 

LOGO

 

Director since 2016, age 73

 

Committee Service

Risk Management / Corporate Governance

 

Other Public Company Directorships Within the Past 5 Years: Sempra Energy (NYSE: SRE), Five Points Holdings, LLC (NYSE: FPH)

 

Career Highlights

      Partner, Manatt, Phelps and Phillips, LLP, focused on business counseling, government and regulatory affairs, particularly as they relate to the healthcare, energy, real estate and financial services industries (2013 – present).

      Five Points Holdings, LLC, Director and member of Audit and Conflicts Committees (2016 – present).

      Sempra Enercy, Director and member Nominating and Governance Committee and Environmental, Health, Technology and Safety Committee (2013 – present).

      Goldman Sachs, Inc. (2001 – 2013): Chairman, Midwest Investment Banking (2010 – 2013) Managing Director and Head, Western Region Public-Sector and Infrastructure Group (2003 – 2010).

      Bank of America (1995 – 2000), numerous positions, including National Co-President, Private Bank and President, Southern California, Private Bank.

      State of California, State Treasurer (1990 – 1994)

 

Other Professional Experience and Community Involvement

 

      Renew Financial, Director (2016 – present)

      Forestar Group, Director (2007 – 2016)

      National Park Foundation, Board Member (2012 – 2018)

      Presidential Commission on Capital Budgeting, Co-Chair (1996 – 1997)

      CALPERS, Trustee and CALSTRS, Trustee (1990 – 1995)

      Los Angeles Board of Public Works, Commissioner (1987 – 1989)

      Los Angeles Board of Education, Member (1975 – 1980)

      J.D., Fordham University Law School

      B.A., Stanford University

 

Experience and Qualifications: Ms. Brown brings 18 years of experience as a senior executive in the banking and financial services industry and 16 years of public-sector experience to the Board. Through her public service and service as an executive and director of leading financial service companies, Ms. Brown brings substantial knowledge and expertise to the Board of Director’s deliberations.

 

    Michael W. Brown

 

 

 

LOGO

 

Director since 2010, age 73

 

Committee Service

Audit (Chair)

Executive

 

Other Public Company Directorships Within the Past

5 Years: VMWare, Inc. (VMW)

 

 

 

Career Highlights

 

      Microsoft Corporation, a global software company (NASDAQ: MSFT)

       Vice President and Chief Financial Officer (August 1994 – July 1997)

       Vice President – Finance and Treasurer (1989 – August 1994)

      Deloitte & Touche LLP, a provider of assurance, tax, and business consulting services (1971 – 1989)

 

Other Professional Experience and Community Involvement

 

      Former Chairman, NASDAQ Stock Market Board of Directors

      Former Governor, National Association of Securities Dealers

 

Experience and Qualifications: Mr. Brown is a retired executive with considerable financial and accounting expertise, including eight years of financial leadership with a leading technology company and directorships at other publicly held companies. Mr. Brown has considerable experience as a director and governor of self-regulatory organizations in the financial services industry. Mr. Brown’s deep technology experience provides the Board and senior management with keen insight and guidance concerning the Company’s cybersecurity and other technology efforts.

 

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Proxy Statement for the 2019 Annual Meeting of Shareholders

 

  

 

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    John P. Dubinsky

 

 

 

LOGO

Director since 2003, age 75

 

Committee Service

Compensation

Executive

 

 

 

Career Highlights

 

      Chairman, Stifel Bank & Trust, (April 2007 – present)

      President and Chief Executive Officer, Westmoreland Associates, LLC, a financial consulting company (1995 – present)

      CORTEX (Center of Research, Technology, and Entrepreneurial Expertise), Board Member
(2008 – present), Chairman (2008 – 2016), President and Chief Executive Officer (2003 – 2008)

      President Emeritus, Firstar Bank (1999 – 2001), Chairman, President, and Chief Executive Officer, Mercantile Bank (1997 – 1999) (until the merger with U.S. Bank N.A., formerly, Firstar Bank, N.A.)

      President and Chief Executive Officer, Mark Twain Bancshares, Inc.

      Board Member, Drury Hotels

 

Other Professional Experience and Community Involvement

 

      Trustee Emeritus, Barnes-Jewish Hospital

      Trustee Emeritus, Washington University

      Trustee and Former Chairman, St. Louis Public Library

      Former Trustee, National Public Radio Foundation, Washington, D.C.

      Vice Chairman, Arch to Park

 

Experience and Qualifications: Mr. Dubinsky is a leader in the financial consulting industry and has extensive experience in managing financial institutions. Mr. Dubinsky also has strong experience as a director of other publicly held and large private companies as well as not-for-profit entities.

 

    Robert E. Grady

 

 

 

LOGO

 

Director since 2010, age 61

 

Lead Director

 

Committee Service

Executive

Risk Management/Corporate Governance (Chair)

 

Other Public Company

Directorships Within the Past 5 Years: AuthenTec, Inc.

(NASDAQ: AUTH), and

Blackboard, Inc. (NASDAQ:

BBBB)

 

 

 

Career Highlights

 

      Partner, Gryphon Investors, a private equity investment firm (2015 – present)

      Partner and Managing Director, Cheyenne Capital Fund, a private equity investment firm (2009 – 2014)

      Partner and Managing Director, Carlyle Group, a global alternative asset management firm (2000 – 2009)

      Member, Management Committee

      Chairman and Fund Head, Carlyle Venture Partners

      Partner and Managing Director, Robertson Stephens & Co. (1993 – 2000)

 

Other Professional Experience and Community Involvement

 

      Director, Jackson Hole Mountain Resort

      Chair, St. John’s Hospital (Jackson, WY) Foundation

      Steering Committee Member, Wyoming Business Alliance

      Former Chairman, New Jersey State Investment Council, which oversees the state’s $78 billion pension system

      Former Chair, National Venture Capital Association

      Former Deputy Assistant to President George H.W. Bush, The White House

      Former Executive Associate Director, Office of Management and Budget (“OMB”), Executive Office of the President

      Former Lecturer in Public Management, Stanford Graduate School of Business

      M.B.A., Stanford Graduate School of Business

      A.B., Harvard College

 

Experience and Qualifications: Mr. Grady has extensive leadership experience in the private equity investment and the broker-dealer segments of the financial services industry. Mr. Grady also has substantial federal and state governmental experience as well as strong academic experience. Finally, Mr. Grady has considerable experience as a director of other publicly and privately held companies.

 

 

 

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    Ronald J. Kruszewski

 

 

 

LOGO

Director since 1997, age 60

 

Chairman of the Board and

Chief Executive Officer of Stifel

Financial Corp.

 

Committee Service

Executive (Chair)

 

 

Career Highlights

 

      Stifel Financial Corp.

      Chairman (2001 – present)

      Chief Executive Officer (September 1997 – present)

      President (September 1997 – June 2014)

      Stifel, Nicolaus & Company, Incorporated

      Chairman (2001 – present)

      President (2011 – present)

      Chief Executive Officer (1997 – present)

 

Other Professional Experience and Community Involvement

 

      Chairman, American Securities Association

      Member, Board of Directors, Securities Industry and Financial Markets Association (SIFMA)

      Member, Federal Advisory Council, St. Louis Federal Reserve Board of Directors

      Member, U.S. Ski and Snowboard Team Foundation Board

      Chairman of Downtown Now!; Former Chairman, Downtown St. Louis Partnership, Inc.

      Member, Board of Directors, St. Louis Regional Chamber

      Member, Regional Business Council in St. Louis

      Member, World Presidents’ Organization – St. Louis Chapter

 

Experience and Qualifications: Mr. Kruszewski has extensive managerial and leadership experience in the financial services industry in addition to a comprehensive understanding and knowledge of the Company’s day-to-day operations and strategy.

 

    Maura A. Markus

 

 

 

LOGO

Director since 2016, age 61

 

Committee Service

Audit

 

Other Public Company

Directorships Within the Past 5

Years: Broadridge Financial

Solutions, Inc. (NYSE: BR)

 

 

Career Highlights

 

     Bank of the West, President, Chief Operating Officer and Board Director (2010 – 2014)

     Broadridge Financial Solutions, Inc., Director, Member, Audit and Comp. Committees (2013 – present)

     Citigroup (1987 – 2009)

      Executive Vice President, Head of International Retail Banking (2007 – 2009)

      President, Citibank N.A. (2000 – 2007)

      President, Citibank Greece (1997 – 2000)

      European Sales and Marketing Director (1994 – 1997)

 

Other Professional Experience and Community Involvement

 

      College of Mount St. Vincent in New York, Trustee

      Catholic Charities San Francisco, Board Member

      Year Up San Francisco Bay Area Talent and Opportunity Board, Member

      Financial Services Roundtable, Former Member

      M.B.A., Harvard Business School

      B.A., Boston College, summa cum laude

 

Experience and Qualifications: Ms. Markus is a retired executive who brings over twenty-five years of experience in banking to the Board, including as a senior executive. Ms. Markus has been named one of American Banker’s Most Powerful Women in Banking multiple times. Through her proven service as an executive and director of leading financial service companies, Ms. Markus brings substantial knowledge and expertise to the Board of Director’s deliberations.

 

 

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Proxy Statement for the 2019 Annual Meeting of Shareholders

 

  

 

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    James M. Oates

 

 

 

LOGO

Director since 1996, age 72

 

Committee Service

Compensation (Chair)

Executive

 

Other Public Company Directorships Within the Past 5 Years: Duff & Phelps Select Energy MLP Fund Inc. (NYSE:DSE)

 

 

 

Career Highlights

 

      Managing Director, The Wydown Group, a financial consulting firm (1994 – present)

      Chairman, Hudson Castle Group, Inc. (formerly IBEX Capital Markets, Inc.), a financial services company (1997 – 2011)

      Chief Executive Officer, Neworld Bank Corp. (1985 – 1994)

 

Other Professional Experience and Community Involvement

 

      Board Member, Virtus Funds

      Board Member and former Chairman, John Hancock Funds

      Chairman of the Board, Emerson Investment Management, Inc. (1995– 2016)

      Trustee Emeritus of Middlesex School, Concord, Massachusetts

      Chairman, Connecticut River Bank (2000 – 2014)

      Board Member, New Hampshire Trust Company (2000 – 2014)

      Board member, Connecticut River Bancorp (2000 – 2014) (PK: CORB.PK)

      M.B.A., Harvard Business School

      B.A., Harvard College

 

Experience and Qualifications: Mr. Oates has led several financial services and consulting firms and has substantial investment experience serving on public company, mutual fund, and private investment boards and committees.

    David A. Peacock

 

 

 

LOGO

Director since 2017, Age 50

 

Committee Service

Compensation

Risk Management/Corporate Governance Committee

 

 

 

Career Highlights

 

      Schnucks Markets, Inc., President and COO (2017 – present)

      Anheuser-Busch (1992-2012), President (2008 – 2012)

      Chairman, Vitaligent, LLC (Jamba Juice Corp.’s largest franchisee in California, Kansas, Missouri and Washington State) (2015 – present)

      Investor and Board Member, Ronnoco Coffee, LLC (2013 – 2017)

 

Other Professional Experience and Community Involvement

 

      Board of Directors, St. Louis Sports Commission

      Board of Trustees, Pro Football Hall of Fame

      Board of Trustees, Gateway Arch Park Foundation

 

Experience and Qualifications: Mr. Peacock brings entrepreneurial, corporate, manufacturing, and marketing expertise to the Board. In addition, through his service as president of a global consumer brand, Mr. Peacock brings an in-depth knowledge and expertise in corporate governance, branding, marketing and market presence.

 

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Proxy Statement for the 2019 Annual Meeting of Shareholders

 

  

 

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    Thomas W. Weisel

 

 

 

LOGO

Director since 2010, age 78

 

Committee Service

Executive Committee

 

 

Career Highlights

 

      Senior Managing Director, Stifel Financial Corp. (2011 – present)

      Chairman and Chief Executive Officer, Thomas Weisel Partners Group, Inc. (NASDAQ: TWPG) (1999 – 2010)

      Founder, Chairman, and Chief Executive Officer, Montgomery Securities (1971 – 1997)

      Lifetime Achievement Award, National Venture Capital Association (2006)

      George Steinbrenner Sport Leadership Award, US Olympic Foundation (2011)

      Inducted into the U.S. Ski and Snowboard Hall of Fame (Class of 2017)

 

Other Professional Experience and Community Involvement

 

      Member and former Chairman, U.S. Ski and Snowboarding Team Foundation (1977 – present)

      Chairman, USA Cycling Foundation Board (2000 – present)

      Member, Board of Trustees, San Francisco Museum of Modern Art (1982 – present)

      Chairman and Board Member, Empower America (1994 – 2002)

      Chairman, Capital Campaign for California School of Arts & Crafts (1996 – 1997)

      Member, Board of Directors, Stanford Endowment Management Board (2001 – 2009)

      Member, Advisory Board, Harvard Business School (2007 – 2009)

      Board Member, NASDAQ (2002 – 2006)

      Trustee, Museum of Modern Art in New York (1996 – 2011)

      M.B.A., Harvard Business School

      B.A., Stanford University

 

Experience and Qualifications: Mr. Weisel has extensive entrepreneurial and operational experience in the financial services industry, as evidenced by his founding and development of the investment firms of Thomas Weisel Partners Group, Inc. (“TWPG”) and Montgomery Securities prior to joining the Company.

 

    Michael J. Zimmerman

 

 

LOGO

Director since 2013, age 68

 

Committee Service

Audit Committee

 

Other Public Company Directorships Within the Past 5 Years: Financial Federal Corporation (NYSE: FIF), Overseas Shipholding Group, Inc. (FINRA OTC: OSGIQ), Smithfield Foods, Inc. (NYSE: SFD)

 

 

 

Career Highlights

 

      Continental Grain Company, a diversified international agribusiness and investment firm

      Vice Chairman (2012 – present)

      Executive Vice President and Chief Financial Officer (1999 – 2012)

      Senior Vice President, Investments and Strategy (1996 – 1999)

      Managing Director, Salomon Brothers, Inc. (1976 – 1996)

 

Other Professional Experience and Community Involvement

 

      Investment Committee Member, Arlon Group LLC, an investment subsidiary of Continental Grain Company

      Board Member and Chairman, Audit Committee, of Castleton Commodities, Inc., a leading merchant energy company

      Trustee, Mount Sinai Health System, a non-profit health care organization

      Chairman, FOJP Service Corporation, a non-profit insurance company

      Chairman, Investment Committee, U.S. Holocaust Memorial Museum

 

Experience and Qualifications: Mr. Zimmerman’s experience within the financial services industry and his understanding of investment banking provide valuable judgment and insights. This background, together with perspectives applied as an independent director and audit committee member of a publicly held company, brings knowledge and a skill set integral to our Board.

 

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Proxy Statement for the 2019 Annual Meeting of Shareholders

 

  

 

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OUR CORPORATE GOVERNANCE PRINCIPLES

 

 

The Board has adopted Corporate Governance Guidelines (‘‘Principles’’), which are available in the corporate governance section of the Company’s web site at www.stifel.com. The Principles set forth the practices the Board follows with respect to, among other matters, the role and duties of the Board, size and composition of the Board, director responsibilities, Board committees, director access to officers, employees and independent advisors, director compensation and performance evaluation of the Board.

As described in the Principles, the role of the Board is to oversee management of the Company in its efforts to enhance shareholder value and conduct the Company’s business in accordance with its mission statement. In that connection, the Board helps management assess long-range strategies for the Company, and evaluates management performance.

It is a responsibility of the Board to regularly assess each director’s independence and to take appropriate actions in any instance in which the requisite independence has been compromised. The Board has determined that Directors K. Brown, M. Brown, Dubinsky, Grady, Markus, Oates, Peacock, and Zimmerman are independent directors under the rules of the NYSE and the SEC, including NYSE rules regarding the independence of the Compensation Committee, and reviewed information provided by the directors in questionnaires concerning the relationships that we may have with each director.

BOARD OF DIRECTORS – LEADERSHIP, RISK OVERSIGHT AND MEETINGS

 

 

Leadership: The continuing membership of our Board is composed of 8 independent directors and 2 employee directors.

The Board strategically considers the combination or separation of the Chairman and Chief Executive Officer roles as an integral part of its planning process and corporate governance philosophy. Ronald J. Kruszewski concurrently serves as both the Chairman of the Board and Chief Executive Officer. The Board believes that this structure serves the Company well because it provides consistent leadership and accountability for managing Company operations. However, our Board also holds regularly scheduled executive sessions without management, at which a non-management director presides in compliance with the NYSE Corporate Governance Standards. These sessions occurred quarterly in 2018.

Lead Director: Mr. Grady has been elected by the Board to serve as the Independent Lead Director of Stifel Financial Corp. The Board has determined that the Lead Director will: have authority to call meetings of the independent directors; chair meetings of the independent directors; liaise between management and independent directors; serve ex officio on all committees of which the lead director is not otherwise a member and, with the chair of the Compensation Committee, lead CEO performance evaluation and succession planning. The Board believes that the Lead Director role should be filled by an independent director selected by the independent directors in order to promote independence of oversight and development of the independent directors’ overall contribution to the Board.

Risk Oversight: Our Board has responsibility for the oversight of risk management. Our Board, either as a whole or through its Committees, regularly discusses with Company management our major risk exposures, their potential impact, and the steps we take to monitor and control such exposures.

While our Board is ultimately responsible for risk oversight, each of our Committees assists the full Board in fulfilling its oversight responsibilities in certain areas of risk. In particular, the Audit Committee focuses on the management of financial and accounting risk exposures. The Compensation Committee assists our Board in fulfilling its oversight responsibilities with respect to the management of risks arising from our compensation policies and programs. Finally, the Risk Management/Corporate Governance Committee focuses on the management of risks associated with Board organization, membership, and structure, and the organizational and governance structure of our Company, including cybersecurity matters.

We have an Enterprise Risk Management program under the direction of our Chief Risk Officer, who coordinates with five management committees: the Asset Liability Management Committee, the Products & Services Committee, the Conflicts of Interest Committee, the Operational Risk Committee, and the Disclosure Committee.

Meetings: During 2018, our Board met 9 times, including both regularly scheduled and special meetings. During the year, attendance by the incumbent directors of all meetings held by the Board and all Committees on which they serve exceeded 90%. It is the Company’s policy to encourage Board members to attend annual shareholders’ meetings.

 

 

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BOARD OF DIRECTORS – COMMITTEES

 

The standing committees of our Board are the Audit Committee, Compensation Committee, Executive Committee, and Risk Management/Corporate Governance Committee. The Audit Committee, Compensation Committee, and Risk Management/Corporate Governance Committee each operates pursuant to a written charter approved by the Board. The full text of each such charter and our corporate governance guidelines are available in the “Corporate Governance” section of our web site located at www.stifel.com, or may be obtained by any shareholder, without charge, upon request by contacting Mark Fisher, our Corporate Secretary, at (415) 364-2500 or by e-mail at investorrelations@stifel.com.

 

 

Audit Committee

 

 

The Audit Committee met 8 times during 2018.

 

 

Committee Chair:

 

  ·    M. Brown

 

Members:

 

  ·    Markus

  ·    Zimmerman

 

Committee members are independent directors as defined by the NYSE, the SEC, and as determined by our Board.

 

 

Committee Role & Responsibilities:

 

  

 

Committee Notes:

 

 

 

  ·

    

 

Recommending to the Board a public accounting firm to be placed in nomination for shareholder ratification as our independent auditors and compensating and terminating the auditors as deemed necessary;

 

  

 

Each member of the Audit Committee is financially literate, knowledgeable, and qualified to review financial statements. The “audit committee financial expert” designated by our Board is Mr. M. Brown.

    ·     

Meeting periodically with our independent auditors and financial management to review the scope of the proposed audit for the then-current year, the proposed audit fees, and the audit procedures to be utilized, reviewing the audit and eliciting the judgment of the independent auditors regarding the quality of the accounting principles applied to our financial statements; and

 

    ·      Evaluating on an annual basis the qualification, performance, and independence of the independent auditors, based on the Audit Committee’s review of the independent auditors’ report and the performance of the independent auditors throughout the year.
        
          
          
            

 

 

Compensation Committee

 

 

The Compensation Committee met 8 times during 2018.

 

 

Committee Chair:

 

  ·    Oates

 

 

Committee Role & Responsibilities:

 

  

 

Committee Notes:

 

Members:

 

  ·    Dubinsky

  ·    Peacock

 

Committee members are independent directors as defined by the NYSE, the SEC, and as determined by our Board.

 

 

 

  ·

    

 

Reviewing and recommending to our Board the salaries of all of our executive officers;

 

  

 

During 2018, there were no interlocks or insider participation on the part of the members of the Compensation Committee.

 

See page 60 for further description of the lack of interlocks and insider participation on the Compensation Committee.

    ·     

Reviewing market data to assess our competitive position for the components of our executive compensation;

 

    ·     

Reviewing executive performance;

 

    ·     

Reviewing and approving executive compensation plans;

 

    ·     

Making recommendations to our Board regarding the adoption, amendment, and rescission of certain employee benefit plans; and

 

    ·      Reviewing the Company’s compensation policies and practices with respect to the Company’s employees to ensure that they are not reasonably likely to have a material adverse effect on the Company.
            

 

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Risk Management / Corporate Governance Committee

 

 

The Risk Management / Corporate Governance Committee met 4 times during 2018.

 

 

Committee Chair:

 

  ·    Grady

 

Members:

 

  ·    K. Brown

  ·    Peacock

 

Committee members are independent directors as defined by the NYSE, the SEC, and as determined by our Board.

 

 

Committee Role & Responsibilities:

 

  

 

Committee Notes:

 

    

  

 

·    Regularly reviewing our aggregate risk exposures and risk management processes with management, including our Chief Executive Officer, Chief Financial Officer, Chief Risk Officer and Chief Compliance Officer;

 

·    Overseeing the Company’s Enterprise Risk Management program and the Company’s responsiveness to and discussions and compliance with the Federal Reserve Bank of St. Louis and other regulators’ input, reviews and rules;

 

·    Overseeing the Company’s response to cybersecurity risks;

 

·    Overseeing the management of risks associated with Board organization, membership, and structure;

 

·    Overseeing the search for individuals qualified to become members of our Board and selecting director nominees to be presented for election at the Annual Meeting of our shareholders;

 

·    Considering nominees for directors recommended by our shareholders; and

 

·    Reviewing our corporate governance guidelines at least annually and recommending changes to our Board as necessary.

  

 

The Committee has substantially increased its Enterprise Risk Management and cybersecurity oversight in recent years.

 

In fulfilling its new-director nomination responsibilities, the Committee considers, among other things, each candidate’s strength of character, judgment, career specialization, relevant technical skills, experience, diversity, and the extent to which the candidate would fill a need on the Board.

 

 

 

 

Executive Committee

 

 

The Executive Committee met 4 times during 2018.

 

 

Committee Chair:

 

  ·    Kruszewski

 

Members:

 

  ·    M. Brown

  ·    Dubinsky

  ·    Grady

  ·    Oates

  ·    Weisel

 

 

 

Committee Role & Responsibilities:

 

  

 

Committee Notes:

 

  

  

 

·    The Executive Committee consists of our Board and Board committee chairmen, together with the independent chairmen of affiliated boards, specifically Stifel Bank & Trust.

 

·    Except to the extent limited by law, between meetings of the full Board, the Executive Committee performs the same functions and has the same authority as the full Board.

  

 

The independent members of the executive committee met 4 times in 2018 outside the presence of the non-independent members of the committee.

 

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OTHER GOVERNANCE MATTERS

 

Director Nominations by Shareholders

In accordance with the Risk Management/Corporate Governance Committee’s charter and our corporate governance guidelines, the Risk Management/Corporate Governance Committee considers nominees recommended by shareholders and reviews the qualifications and contributions of the directors standing for election each year.

Shareholders may recommend individuals to the Risk Management/Corporate Governance Committee for consideration as potential director nominees by giving written notice to Mark Fisher, our Corporate Secretary, at least 90 days, but not more than 120 days, prior to the anniversary of our preceding year’s annual meeting, along with the specific information required by our By-Laws, including, but not limited to, the name and address of the nominee; the number of shares of our common stock beneficially owned by the shareholder (including associated persons) nominating such nominee; and a consent by the nominee to serve as a director, if elected, that would be required for a nominee under the SEC rules. If you would like to receive a copy of the provisions of our By-Laws setting forth all of these requirements, please send a written request to Stifel Financial Corp., Attention: Mark P. Fisher, Corporate Secretary, One Financial Plaza, 501 North Broadway, St. Louis, Missouri 63102-2102. The Risk Management/Corporate Governance Committee has not adopted any specific procedures for considering the recommendation of director nominees by shareholders, but will consider shareholder nominees on the same basis as other nominees. Please also see the procedures described in the section entitled “How can I make a Shareholder Proposal for the 2020 Annual Meeting?” on page 68 of this Proxy Statement.

Code of Ethics and Corporate Governance

In accordance with the requirements of the NYSE and the Sarbanes-Oxley Act of 2002, we have adopted Corporate Governance Guidelines as well as charters for the Audit Committee, Compensation Committee, and Risk Management/Corporate Governance Committee. These guidelines and charters are available for review under the “Corporate Governance” section of our web site at www.stifel.com. We have also adopted a Code of Ethics for Directors, Officers, and Associates. The Code of Ethics is also posted in the “Corporate Governance” section of our web site, located at www.stifel.com, or may be obtained by any shareholder, without charge, upon request by contacting Mark P. Fisher, our Corporate Secretary, at (415) 364-2500 or by e-mail at investorrelations@stifel.com.

We have established procedures for shareholders or other interested parties to communicate directly with our Board, including the presiding director at the executive sessions of the non-management directors or the non-management directors as a group. Such parties can contact our Board by mail at: Stifel Financial Corp., Attention: Ronald J. Kruszewski Chairman of the Board, One Financial Plaza, 501 North Broadway, St. Louis, Missouri 63102-2102. All communications made by this means will be received by the Chairmen of the Board and relayed promptly to the Board or the individual directors, as appropriate.

Relationship of Risk Management to Compensation

The Board and the Compensation Committee, with the assistance of management, has evaluated our compensation policies and practices for all employees and has concluded that such policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company. In reaching this conclusion, we undertook the following process:

 

  ·  

We conducted an analysis of our incentive compensation programs by an interdisciplinary team led by our CRO and our outside independent compensation consultant. Other members of the team consisted of employees in risk management, accounting/payroll, legal, internal audit and human resources.

 

  ·  

This team conducted an initial evaluation of our compensation programs and policies across six elements: (i) performance measures, (ii) funding, (iii) performance period and pay mix, (iv) goal setting, (v) leverage, and (vi) controls and processes, focusing on significant risk areas.

 

  ·  

The team found that formula-based funding of bonus pools is utilized consistently across the firm. These formulas varied, with most being either commission-based or total-compensation based, with respect to net revenues, taking into consideration operating profits. The team found that the allocation of bonus pools is generally aligned with the employee’s span of control and level of potential contribution. The team also determined that most bonus pools are not distributed on a purely formula basis, but instead based on subjective factors, including longer term performance and ongoing consideration by the employee of the risks involved in the business.

 

  ·  

The team also noted the risk mitigation effect of our stock bonus plan allocation formula, which imposes the requirement that a portion of bonus amounts be delivered not in present cash but in the form of restricted stock units and debentures that vest over time.

 

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In light of the above, our Board and Compensation Committee continue to conclude that our compensation policies in general, and our incentive programs in particular, remain well aligned with the interests of our shareholders and do not create risks that are reasonably likely to result in a material adverse impact on the Company.

Age

The Board has adopted a policy, on the recommendation of its Executive Committee, that each Director, shall not stand for reelection in any year if he or she shall have reached the age of 75 as of the first day of that year and shall transition responsibilities and resign no later than the date of the annual meeting. The Board may make exceptions to this policy if it determines such exception would be in the firm’s best interest. The Board has determined, in the desire for an orderly transition, that Mr. Weisel and Mr. Dubinsky should continue to serve for the 2019-20 term.

Declassification of the Board

In 2016, shareholders approved the Board’s proposal to declassify the Board. No classified Board terms will continue beyond the 2019 Annual Meeting of Shareholders. Accordingly, if elected, each of the members presently nominated will be elected to unclassified one-year terms.

Experience and Diversity

The Risk Management/Corporate Governance Committee of the Board actively seeks directors who provide the Board with a diversity of perspectives and backgrounds.

The composition of our Board reflects diversity in business and professional experience, skills, gender and ethnic background.

When considering whether directors and nominees have the experience, qualifications, attributes, and skills, taken as a whole, to enable the Board to satisfy its oversight responsibilities effectively in light of the Company’s business and structure, the Risk Management/Corporate Governance Committee and the Board focused primarily on the information discussed in each of the individual biographies set forth in this section. These biographies briefly describe the business experience during the past five years or longer, if material, of each of the nominees for election as a director and our other directors whose terms of office will continue after the Annual Meeting, including, where applicable, positions held with us or our principal subsidiary, Stifel, Nicolaus & Company, Incorporated, and information as to the other directorships held by each of them during such five-year period. These biographies also include the specific individual attributes considered by the Risk Management/Corporate Governance Committee and the Board in coming to the conclusion that each such nominee or current director should serve as a director of the Company.

 

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COMPENSATION DISCUSSION & ANALYSIS

 

 

2018 CEO COMPENSATION DETERMINATIONS

 

 

  Name

 

         

 

    Fixed Compensation    

              Annual Incentive Compensation                           
  

Year  

 

 

    Base Salary     Stock-Based
Salary
    Cash Bonus(1)     RSUs, RSAs
and
Debentures(2)
    PRSUs    

Subtotal
At-Risk

 

   

Total

  Comp.(3)  

 

 

Ronald J.

Kruszewski

    
2018
change
 
(4) 
    0%       0%       29.7%       2.2%       0%       1.7%       12.5%  
     2018       $200,000       $100,000       $4,020,761       $3,679,239       $1,000,000       $4,679,239       $9,000,000  
     2017       $200,000       $100,000       $3,100,000       $3,600,000       $1,000,000       $4,600,000       $8,000,000  
     2016       $200,000       $700,000       $2,250,000       $1,500,000       $750,000       $2,250,000       $5,400,000  
                
        

 

        Realized Compensation        

            At-Risk Compensation                
           Amount           % of Total        

    Year-over-

Year %

Change    

        % of Total           Amount      

Year-over-

Year %

Change

       
     2018       $4,320,761       48.0%       27.1%       $4,679,239       52.0%       1.7%    
     2017       $3,400,000       42.5%       7.9%       $4,600,000       57.5%       104.4%    
     2016       $3,150,000       58.3%         $2,250,000       41.7%      

 

 

 

  (1)

Does not include the 2017 special payment to mitigate tax burdens shifted from the Company to certain named executive officers, detailed on page 51, that were not incentive compensation but part of the Company’s 2017 initiatives relating to the December 2017 federal tax reforms.

  (2)

For 2018, reflects 73,175 restricted shares previously granted to executive in December 2017. For 2018, the restricted shares are reflected in this table at a price of $50.28. The restricted share award was granted in connection with the Company’s 2017 tax planning as described further on page 51.

  (3)

For differences between this table and the Summary Compensation Table, see page 53, Use of Non-GAAP Measures.

  (4)

Year-over-year percentage change.

In determining Mr. Kruszewski’s variable compensation for 2018, the Committee specifically noted that:

 

  ·  

Firm performance for 2017 was strong and Mr. Kruszewski’s specific contributions to this performance were significant.

 

  ·  

Mr. Kruszewski’s total compensation in 2017 was at the approximate median of our peer group’s CEO compensation.

 

  ·  

The Committee determined that, for 2018, the CEO’s total annual compensation should be increased approximately in line with performance. This is consistent with the Committee’s past practices.

 

  ·  

Historically, CEO compensation has broadly tracked the performance of the three primary performance goals established by the Committee: non-GAAP Return on Equity, non-GAAP pre-tax net income and non-GAAP Earnings per Share. In 2018, for the year, non-GAAP Return on Equity was up 3.1%, non-GAAP pre-tax net income was up 18.2% and non-GAAP Earnings per Share were up 32.3%, or approximately 17.9% on average. See “Use of Non-GAAP Measures” on page 53 for a description of how and why these measures differ from GAAP measures.

 

  ·  

The CEO’s existing shareholding, which is well in excess of 1 million shares and 1% of total shares outstanding, powerfully and directly aligns the CEO with the interests of all shareholders.

 

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  Ronald J. Kruszewski, Chairman and CEO

 

 

LOGO

 

 

 

Ronald J. Kruszewski is Chairman of the Board of Stifel Financial Corp. and Stifel, Nicolaus & Company, Incorporated. He joined the firm as Chief Executive Officer in September 1997. Mr. Kruszewski serves on the Board of Directors of SIFMA (Securities Industry and Financial Markets Association) and was appointed by the St. Louis Federal Reserve Board of Directors to serve on the Federal Advisory Council to the Board of Governors of the Federal Reserve System.

 

 

  Compensation Mix

 

 

LOGO

 

 

  Financial

 

 

 

Strategic Achievements

 

        

    

 

    

    

 

 

    23rd consecutive year of record net revenues.

 

     Non-GAAP EPS of $5.28, up 32%.

 

     Non-GAAP ROCE of 14.9% and ROTCE of 24.4%.

 

    Book value per share increased by $4.78 to $43.04.

         

 

    Completed Ziegler Wealth Management acquisition.

 

    Acquired Business Bancshares.

 

    Acquired Rand & Associates.

 

  Leadership

 

 

 

Risk Management

 

 

 

    Championed extension of Stifel’s Women’s Initiative Network.

 

    Continued drive to reduce compensation ratios and costs firm-wide to improve operating margins.

 

    

 

    Maintained conservative leverage and risk-weighted capital ratios.

 

    Strengthened enterprise risk management, compliance and infrastructure in support of strong asset growth.

 

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2018 CEO Compensation, by Form, Type and Amount:

 

     Type    2018     

 

% of
  Comp.  

 

     2017     

 

% of
  Comp.  

 

     2016     

 

% of
    Comp.    

 

 

Base Salary

  LOGO      $200,000        2.2%          $200,000        2.5%          $200,000        3.7%    

Stock-Based Salary

     $100,000        1.1%          $100,000        1.3%          $700,000        13.0%    

Total Fixed Compensation

     $300,000        3.3%          $300,000        3.8%          $900,000        16.7%    

Cash Bonus

     $4,020,761        44.7%          $3,100,000        38.8%          $2,250,000        41.7%    

Time-Based Deferred

(RSUs, RSAs and Debentures)

     $3,679,239        40.9%          $3,600,000        45.0%          $1,500,000        27.8%    

Performance-Based Deferred (PRSUs)

     $1,000,000        11.1%          $1,000,000        12.5%          $750,000        13.9%    

Total Variable Annual Incentive Comp

     $8,700,000        96.7%          $7,700,000        96.3%          $4,500,000        83.3%    

Total Compensation

     $9,000,000        100%          $8,000,000        100%          $5,400,000        100%    

Total Realized Compensation

     $4,320,761        48.0%          $3,400,000        42.5%          $3,150,000        58.3%    

Total At-Risk Compensation

     $4,679,239        52.0%          $4,600,000        57.5%          $2,250,000        41.7%    

The CEO compensation shown below includes annual incentives (both cash and deferred components) granted for the performance years 2014-2018, together with base salary and the portion of 2017 LTIA awards automatically vesting in the year. For further description of Performance-Based Restricted Stock Units (PRSUs), see page 47.

CEO Compensation, 2014-18, by Form and Amount (thousands):

 

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  Alignment of CEO Compensation with Key Performance Measures

 

Performance Over 5 Years Relative to 2013

(Non-GAAP Net Revenue, Non-GAAP Pre-Tax Income and Non GAAP EPS):

 

LOGO

2018 Compensation Determinations for Named Executive Officers Other than the CEO

The Committee determined that, for 2018, compensation for Mr. Zemlyak and Mr. Nesi, our co-presidents, should be increased in line with performance and that compensation for Mr. Michaud should be increased in line with KBW performance, but in each case with downward adjustments to moderate changes over multiple years. The Committee further determined that, for 2018, compensation for Mr. Weisel should be increased in line with related performance and that compensation for Mr. Marischen should be increased in line with firmwide and related performance and in recognition of his promotion to CFO. This is consistent with the Committee’s past practices. Historically, named executive officer compensation has broadly tracked the performance of the three primary performance goals established by the Committee: non-GAAP Return on Equity, non-GAAP pre-tax net income and non-GAAP Earnings per Share. In 2018, for the year, non-GAAP Return on Equity was up 3.1%, non-GAAP pre-tax net income was up 18.2% and non-GAAP Earnings per Share were up 32.3%, or approximately 17.9% on average. See “Use of Non-GAAP Measures” on page 53 for a description of how and why these measures differ from GAAP measures.

 

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2018 Compensation Determinations for Named Executive Officers Other than the CEO

 

          

 

      Fixed Compensation      

 

   

 

Annual Incentive Compensation

 

   

Subtotal

At-Risk

   

Total

Compen-
sation
(3)

 

 

    Name

  

 

Year  

   

 

Base     

Salary    

 

 

 

Stock-Based
Salary

 

   

 

Cash

Bonus(1)

 

   

 

RSUs, RSAs and
   Debentures
(2)  

 

    PRSUs  
James M. Zemlyak     

2018  

change

 

(4) 

  0%     0%       5.3%       36.4%       -28.6%       18.9%       12.5%  
     2018       $250,000     $62,750       $1,895,065       $2,592,185       $500,000       $3,092,185       $5,300,000  
     2017       $250,000     $62,750       $1,800,000       $1,900,000       $700,000       $2,600,000       $4,712,750  
     2016       $250,000     $460,000       $1,380,000       $613,333       $306,667       $920,000       $3,010,000  
Victor J. Nesi     

2018  

change

 

(4) 

  0%     0%       33.6%       8.3%       -28.6%       0%       12.7%  
     2018       $250,000     $65,000       $2,785,000       $2,600,000       $500,000       $3,100,000       $6,200,000  
     2017       $250,000     $65,000       $2,085,000       $2,400,000       $700,000       $3,100,000       $5,500,000  
     2016       $250,000     $465,000       $1,620,000       $720,000       $360,000       $1,080,000       $3,415,000  
Thomas B. Michaud     
2018  
change
 
(4) 
  0%     0%       -0.9%       14.7%       -48.1%       -6.3%       -2.3%  
     2018       $250,000     $55,000       $2,775,000       $917,500       $207,500       $1,125,000       $4,205,000  
     2017       $250,000     $55,000       $2,800,000       $800,000       $400,000       $1,200,000       $4,305,000  
     2016       $250,000     $205,000       $1,320,000       $586,667       $293,333       $880,000       $2,655,000  

Thomas

W. Weisel(5)

    
2018  
change
 
(4) 
  0%     0%       -10.7%       n/a       -100.0%       160.0%       0%  
     2018       $200,000     $70,000       $1,340,000       $260,000       $0       $260,000       $1,870,000  
     2017       $200,000     $70,000       $1,500,000       $0       $100,000       $100,000       $1,870,000  
James M. Marischen(6)     
2018  
change
 
(4) 
  not applicable

 

     2018       $200,000     $135,000       $900,000       $300,000       $0       $300,000       $1,535,000  
                     
          

 

Realized Compensation

 

    At-Risk Compensation        
      Year           Amount         % of       
Total      
   

 

Year-over-

Year    

% Change     

 

    Amount       % of       
Total      
   

Year-over-

Year    

% Change     

        
James M. Zemlyak      2018       $2,207,815     41.7     4.5     $3,092,185       58.3     18.9  
     2017       $2,112,750     44.8     1.1     $2,600,000       55.2     182.6  
     2016       $2,090,000     69.4             $920,000       30.6          
Victor J. Nesi      2018       $3,100,000     50.0     29.2     $3,100,000       50.0     0.0  
     2017       $2,400,000     43.6     2.8     $3,100,000       56.4     187.0  
     2016       $2,335,000     68.4             $1,080,000       31.6          
Thomas B. Michaud      2018       $3,080,000     73.2     -0.8     $1,125,000       26.8     -6.3  
     2017       $3,105,000     72.1     74.9     $1,200,000       27.9     36.4  
     2016       $1,775,000     66.9             $880,000       33.1          

Thomas

W. Weisel (5)

     2018       $1,610,000     86.1     -9.0     $260,000       13.9     160.0  
     2017       $1,770,000     94.7             $100,000       5.3          

James M.

Marischen (6)

     2018       $1,235,000     80.5             $300,000       19.5          

 

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  (1)

Does not include the special payment to mitigate tax burdens shifted from the Company to named executive officers, detailed on page 51, that were not incentive compensation but part of the Company’s 2017 initiatives relating to the December 2017 federal tax reforms.

  (2)

Does not include grants of future stock-based salary, which are reflected under Stock-based salary. With respect to Mr. James M. Zemlyak, the 2018 amount reflects 51,555 restricted shares previously granted to executive in December 2017. With respect to Mr. Victor J. Nesi, the 2018 amount reflects 43,240 restricted shares previously granted to executive in December 2017 and 8,470 restricted stock units granted in March 2019. For 2018, the restricted shares and restricted stock units are reflected in this table at a price of $50.28. The restricted share awards were granted in connection with the Company’s tax planning as described further on page 51.

  (3)

For differences between this table and the Summary Compensation Table, see page 53, Use of Non-GAAP Measures.

  (4)

Year-over-year percentage change.

  (5)

2017 was the first year for which Mr. Weisel was a named executive officer.

  (6)

2018 was the first year for which Mr. Marischen was a named executive officer.

 

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  James M. Zemlyak, Co-President and Head of Global Wealth Management

 

 

LOGO

 

  

 

James M. Zemlyak was named Co- President in June 2014. Mr. Zemlyak served as Chief Financial Officer of Stifel Financial Corp. from February 1999 through August 2018 and was Treasurer of Stifel Financial Corp. from February 1999 to January 2012. Mr. Zemlyak has been Chief Operating Officer of Stifel, Nicolaus & Company, Incorporated since August 2002 and Executive Vice President since December 2005. In addition, he served as Chief Financial Officer of Stifel, Nicolaus & Company, Incorporated from February 1999 to October 2006.

 

Compensation Mix

 

LOGO

 

2018 Performance Highlights

 

  Net 2018 increase of 60 financial advisors.

  Record wealth management revenue of nearly $2.0 billion.

  Increased client fee-based assets by 3% to $90 billion.

  Global Wealth Management pre-tax margins of 37.1%, up 130 basis points.

  Increased number of customer accounts by 53,000.

 

 

  Victor J. Nesi, Co-President and Director of the Institutional Group

 

LOGO

 

  

 

Victor J. Nesi joined Stifel in 2009 and was named Co-President of Stifel Financial Corp. in 2014. In addition, he is Director of the firm’s Institutional Group. In his 25-year investment banking career, Mr. Nesi has worked closely with clients on strategic advisory projects totaling in excess of $200 billion, including exclusive sales, cross-industry mergers, restructurings, and domestic and cross-border acquisitions. On the financing side, Mr. Nesi has advised clients on investment-grade and non-investment-grade debt, as well as on numerous equity and equity-linked transactions, including the then largest IPO in U.S. history, the AT&T $10.6 billion carve-out of AT&T Wireless.

  

 

Compensation Mix

 

LOGO

 

2018 Performance Highlights

 

  Institutional net revenue of $1.1 billion.

  Investment banking revenue of $676 million, second strongest year ever.

  Record advisory revenue of $371 million.

  Equity underwriting revenue of $214 million, up 17%.

 

 

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  Thomas B. Michaud, Senior Vice President, President and CEO of Keefe, Bruyette & Woods

 

 

LOGO

 

   Thomas B. Michaud has been with Keefe, Bruyette & Woods (KBW) for 33 years. He was named President and CEO of KBW in 2011, having served as Vice Chairman and COO of the Holding Company since 2001 and President of the firm’s main subsidiary since 2006. KBW was acquired by Stifel in February 2013. Mr. Michaud served on our Board from 2013 until 2017 and has served as Senior Vice President of Stifel since 2013. Under his leadership, KBW has become one of the leading investment banking firms to the financial services industry. KBW is regularly recognized for its leadership in the areas of equity research, mergers and acquisitions, capital raising and equity trading. Mr. Michaud maintains strong personal relationships with industry leading executives and has been instrumental in many of KBW’s largest transactions. Mr. Michaud’s views on the financial services industry are frequently sought by corporate clients, boards and the media.
  

 

Compensation Mix

 

LOGO

 

2018 Performance Highlights

 

  KBW garnered advisory roles in 11 of the top 20 bank mergers in the country.

  KBW led the nation in bank IPOs with 6 lead left assignments.

  Second-best advisory revenue year in KBW’s 56-year history.

 

 

 

  Thomas W. Weisel

 

 

LOGO

 

   Thomas W. Weisel is Senior Managing Director of Stifel Financial Corp. Previously Mr. Weisel was Chairman and CEO of Thomas Weisel Partners Group, Inc., a firm he founded in 1999, and former chairman of Montgomery Securities. Mr. Weisel has been recognized with the Lifetime Achievement Award of National Venture Capital Association in 2006 and the George Steinbrenner Sport Leadership Award of the U.S. Olympic Foundation in 2011.
  

 

Compensation Mix

 

LOGO

 

2018 Performance Highlights

 

  Senior leadership within the Board of Directors.

  Successful development of Company’s franchises on the West Coast.

  Continued focus on attracting new business and retaining key talent within sectors previously served by TWPG.

 

 

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  James M. Marischen, Chief Financial Officer

 

 

LOGO

 

  

James M. Marischen was named Chief Financial Officer of Stifel Financial Corp. in August 2018. From 2015 to 2018, he served as the firm’s Chief Accounting Officer and Chief Risk Officer, with responsibilities including oversight of corporate accounting, financial analysis and planning, tax, treasury, and enterprise risk management. Mr. Marischen joined Stifel in 2008, serving as Chief Financial Officer and Executive Vice President of Stifel Bank & Trust from 2008 to 2015. Prior to joining Stifel, Mr. Marischen worked in public accounting at KPMG LLP.

 

Mr. Marischen earned a Bachelor of Science in Accounting and a Master of Accountancy from Truman State University.

  

 

Compensation Mix

 

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2018 Performance Highlights

 

  Promoted to Chief Financial Officer.

  Record net revenues of $3.0 billion and balance sheet growth of 15%, or $3.1 billion.

  Focus on expense discipline led to improved firm-wide margins.

  $215 million returned to shareholders through dividends and repurchase of nearly 3.4 million common shares.

  Closed on a new $250 million committed unsecured revolving credit facility.

  Management and oversight of enterprise risk management.

COMMITTEE PROCESS AND 2018 DETERMINATIONS

 

 

 

  Committee Views of Proportion and Form of Compensation

 

The Committee continued to emphasize “At-Risk” (deferred) compensation in determining the annual incentive compensation of the CEO the other named executive officers.

The Committee divides the various elements of compensation described above in “Key Executive Compensation Program Elements” into two categories: compensation that is “Realized” because it is not subject to forfeiture and compensation that is “At-Risk” because it is subject to forfeiture. As described above, the Committee considers At-Risk compensation to include grants of PRSUs, RSUs, RSAs and debentures, which are all the forms of deferred compensation granted to named executive officers. The Committee considers Realized compensation to include all fixed compensation (base salary and stock-based salary), as well as variable compensation that is not deferred (namely, cash bonuses).

The Committee believes that At-Risk compensation is valuable as a retention tool for the straightforward reason that it is subject to time vesting. By contrast, cash does not have a retention component. The Committee believes that the retention component of variable compensation is important in the case of named executive officers, and particularly with respect to the CEO. Accordingly, the Committee has determined that the allocation of variable compensation among Realized and At-Risk compensation for the CEO and other named executive officers in respect of 2018 will be as shown in the following table:

 

 

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2018 Allocation of Deferred and “At-Risk” Annual Incentive Compensation:

 

 

  Named Executive Officer

 

   Cash and Stock-Based Salary    At-Risk (Deferred) Compensation

CEO

  

 

48% of
Annual Incentive Compensation

  

 

52% of
Annual Incentive Compensation

 

Other Executive Officers, Average

  

 

59% of
Annual Incentive Compensation

  

 

41% of
Annual Incentive Compensation

  Committee Assessment:    Realized and Not Retentive    At-Risk and Retentive

All deferred compensation is valuable as a retention tool for the straightforward reason that it is subject to time vesting. RSUs and PRSUs additionally align incentives because their value ultimately reflects fluctuations in the share price of Company stock. PRSUs reinforce this alignment because their value is linked not only to share price but also to the attainment of certain performance metrics.

The Committee believes that those attributes of RSUs and PRSUs make those awards more At-Risk from the perspective of the Executive Officer, with PRSUs being the most At-Risk. By comparison, the Committee determined that debentures are, by contrast, least At-Risk from the perspective of the Executive Officer because their value is determined at the grant date and does not vary based on the future performance of the firm, although their realization is contingent on additional years of service.

 

 

 

  The Committee’s Process for Decision Making

 

 

 

  Our Roadmap for Compensation

 

 

1.

 

Identify

Key Metrics

(Quant. & Qual.)

 

 

 

2.

 

Establish Peer Group, Gather Market Pay and Shareholder Input

 

 

 

3.

 

Review of Performance
and Market

 

 

 

4.

 

Make Year-End Pay and Performance Decisions

 

 

 

5.

 

Determine Form and Allocate Awards

 

       

Financial Objectives: growth in earnings; net income and revenue

 

Long-Term Objectives: increase ROE and book value; enhance return to shareholders

 

Strategic Objectives: integration of acquisitions; organic growth

  Ongoing solicitation of shareholder input and incorporation of shareholder compensation priorities Independent consultant assisted the Committee with: identifying peer companies; gathering peer and supplemental market pay data for Committee reference.  

Periodic updates during the year from the CEO: firm performance; segment performance; individual Executive Officer performance.

 

Periodic updates from independent consultant: relative performance;
competitive pay levels;
alignment of pay and performance;
market trends.

 

 

Committee decisions based on results of the incentive framework (see below) that include an in depth review of company, CEO and other Executive Officer performance across multiple factors.

 

Pay for Executive Officers other than the CEO recommended by CEO, subject to Committee approval.

  Committee awarded 2018 incentive compensation in the form of cash, stock-based salary, and bonuses composed cash, RSU, RSA, PRSU and, (for some Executive Officers) debenture components.

 

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  Incentive Assessment Framework

 

The committee evaluates named executive officer incentive compensation based on various factors. The following is an assessment based upon primary performance goals, additional considerations, strategic goals and overall company performance. See “Use of Non-GAAP Measures” on page 53 for a description of how and why the Non-GAAP measures differ from GAAP measures.

 

 

  2018 Results of Incentive Assessment Framework

 

 

 

  Primary Performance Goals

 

 

2018 Result

 

  

Year-Over-Year Change

 

 

·      Non-GAAP Net Revenue

 

    $3.02bn

        ñ 3.3

·      Non-GAAP Pre-Tax Net Income

 

    $592M

        ñ 18.2

·      Non-GAAP EPS

 

    $5.28

        ñ 32.3
    Below              

 

  Company Performance on Primary Goals

       Meets         
               

 

Exceeds

 

 

  Additional Considerations

 

 

2018 Result

 

  

Year-Over-Year Change

 

 

·     Non-GAAP Return on Common Equity

 

    14.9%

        ñ 3.1%  

·     Total Shareholder Return (price increase + dividend)

 

    ($17.66)

        ò 27.97%  

·     Non-GAAP Pre-Tax Margin on Net Revenues

 

    19.6%

        ñ 2.5%  

·     Book Value Per Share

 

    $43.04

        ñ 12.5%  

·     Non-GAAP Comp to Revenue Ratio

 

    58.0%

        ò 3.2%  

·     Total Capitalization of Stifel Financial Corp.

 

    $2.93bn

        ò 30.6%  
    Below              

  Company Performance on Additional Considerations

       Meets         
                Exceeds  

  Performance Categories

 

 

Achievements

 

             

·     Financial Results

 

See pages 26 to 33 for a detailed description of achievements in these four categories in relation to each named executive officer.

 

·     Strategic Achievement

·     Leadership

·     Risk Management

    Below              
  Company Performance on Strategic Goals        Meets         
                  

 

Exceeds

 

 

  

  Below              
  Overall Company Performance        Meets         

  

               

 

Exceeds

 

 

Year-over-year changes to percentages are expressed as the absolute difference between the percentages. Year-over-year changes to values are expressed as relative percentages.

 

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2018 FIRM PERFORMANCE

 

 

 

We Continue to grow and invest in our future

 

 

23 Years

  Acquisitions   Expense Control   +15%
       

2018 was our 23rd consecutive year of record net revenues, with record non-GAAP pre-tax net income available to shareholders, record revenues in our Global Wealth Management segment and our second-best year in our Institutional segment.

 

 

During 2018, we acquired Business Bankshares, Rand & Associates and Ziegler Wealth Management.

 

We also entered into definitive agreements to acquire First Empire and MainFirst during the last quarter of 2018.

 

We successfully controlled our compensation and non-compensation expenses.

 

We grew our assets to $24.52 billion, up 15% for the year.

    See Use of Non-GAAP Measures at page 53.

 

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  2018 Segment Performance, Balance Sheet, Infrastructure and Additional Performance Indicators

 

 

 

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  (1)

Operating results are from continuing operations. Non-GAAP measures reflect adjustments for: acquisition-related charges, including duplicative expenses, certain litigation-related expenses and certain tax benefits. See Use of Non-GAAP Measures at page 53.

 

 

  Additional Performance Indicators

 

    

2018 

 

      

2017 

 

      

2016 

 

 

  Non-GAAP Return on Equity

       14.9%          11.8%          8.1%  

  Total Shareholder Return

       -$17.66          $10.31          $7.59  

  Non-GAAP Pre-Tax Margin on Net Revenues

       19.6%          17.1%          13.0%  

  Book Value Per Share

       $43.04          $38.26          $38.84  

  Non-GAAP Compensation to Revenue Ratio

       58.0%          61.2%          62.8%  

 

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  Relative Performance of Common Stock

 

5-year relative performance of SF Common Stock, Peer Group, and S&P 500 Index:

 

LOGO

The peer group reflected in the charts above is as described on page 44.

 

    

5-Year

 

 

 

  Relative Performance

 

  

Growth

 

    

CAGR

 

 

  SF Common Stock

     -13.6%        -3.6

  Peer Group(1)

     -12.8%        -3.4

  S&P 500 Index

     35.6%        7.9

 

 

  2018 Strategic Execution

 

Stifel continued in 2018 to execute on its strategy of building a premier wealth management and investment banking firm by means of organic growth and opportunistic acquisition. Each acquisition in 2018 has fit Stifel’s differentiated value proposition of growth, scale and stability that blends many of the advantages, but avoids most of the weaknesses, of larger bulge bracket and smaller boutique firms. Historically, we have executed strategic opportunities only when accretive.

Strategic Opportunity Evaluation

 

 

Accretive to our Shareholders

 

 

  

 

Accretive to our Associates

 

 

  

 

Accretive to our Clients

 

 

  

 

Accretive to our Partners

 

 

       
To our shareholders, through expected revenue and EPS growth in a reasonable timeframe.    To our associates, through additional capabilities and new geographies.    To our clients, through greater relevance and expanded product offerings.   

To our new partners, through the stability of Stifel’s size and scale, coupled with a significant retention of their own ability to direct their own businesses.

 

Our Board and the Committee understand that Stifel executes on strategic opportunities to maximize retention and tax benefits. The result is non-GAAP charges to earnings, as opposed to an increase of goodwill on our balance sheet. All of those elements of our acquisition strategy result in tangible benefits to Stifel. Conversely, we do not structure our acquisitions to improve GAAP treatment in the absence of other, compelling tangible benefits. This strategy for executing acquisitions is the most important reason we describe both GAAP and non-GAAP results: the non-GAAP results illuminate how we structure and view our strategic acquisitions.

Stifel’s acquisitions are a catalyst for organic growth. Consistent with our approach to a balanced business model, acquisitions and organic expansion of our existing businesses are roughly equal sources of our growth since 2005. We position Stifel to take advantage of opportunities to add talented professionals, services, products and capabilities, whether the vehicle is an acquisition or organic hiring.

 

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  Significant Progress in Strengthening Controls and our Culture

 

We are a firm that has grown tremendously over the past decade and anticipate continued growth through the next decade. We believe that a strong and sustainable control environment is integral to achieve this end. And we have committed the effort and resources to build a platform for growth by continually enhancing our risk and control practices.

 

  ·  

Ongoing Risk Management. Stifel continued to conservatively manage its balance sheet, capital, liquidity and overall risk in 2018. The Board’s Risk Management / Corporate Governance Committee oversees major risk exposures, including market, credit, capital & liquidity, operational, regulatory, strategic and reputational risks. Our Enterprise Risk Management program, under the direction of our Chief Risk Officer, and other members of the firm’s management have prepared a series of risk appetite statements that articulate our overall risk culture. The Board’s Risk Committee reviews and approves risk appetite statements at least annually and receives at least quarterly updates on the firm’s adherence to them. The Board’s Risk Committee also receives quarterly risk assessments that identify, measure, and monitor existing and emerging risks, in addition to any changes to internal controls. In addition, the Board’s Risk Committee reviews the potential effect of significant matters and decisions on the Company’s reputation.

 

  ·  

Cybersecurity. The Company, including its Board and senior management, devote significant time and resources to dynamic and growing cybersecurity defense. The Company’s cybersecurity architecture and layered technologies are carefully considered. Security personnel provide ongoing threat monitoring and work across technology disciplines to monitor cyber threats. The Company’s team of security architects guides and coordinates internal and external protections. Other teams focus on assurance and continually monitor and test effectiveness. Management and the Board oversee these and other measures both directly and through the Risk and Corporate Governance Committee.

 

  ·  

Investing in our infrastructure. We have continued to build out the infrastructure that enables us to continue to execute on our growth strategies, by bolstering our risk management, compliance, and internal audit functions, and ensuring that we fully comply with new and existing regulatory requirements. For example, we have made significant additions to our staff who stress-test risk exposures and monitor compliance with rules and regulations. We have also significantly augmented the tools available to this staff. Likewise, we developed a number of new oversight capabilities to carefully manage risk in select Private Client Group business areas. And in the Technology and Operations areas we developed a number of new cross team communication capabilities as well as enhanced system monitoring tools and procedures. And in the Technology and Operations areas we continue to invest in personnel and technology systems that enhance firmwide communication by providing project transparency and ongoing system monitoring. In addition, our internal audit team performed scores of internal audits in 2018.

 

  ·  

Investing in Process Improvements and Controls. We continued to enhance our overall control environment by implementing new capabilities, policies and procedures that ensure effective management of our systems. A new set of internal committees and task forces have been formed to evaluate areas for improvement across the operational platform on an ongoing basis. Similarly, a number of procedures have been implemented to periodically review existing business controls in addition to the implementation of new controls. Management supports the necessary investments required to continuously improve the Company’s systems and controls.

 

  ·  

Building on our strong relationships with regulators. Stifel recognizes the critical importance to the safety and soundness of our firm, and the value to our growth strategy, of building on the strong relationships we maintain with our regulators. Our history of growth in the heavily-regulated financial services industry, both organically and through acquisitions, is evidence of this commitment.

 

 

  Enhancing the Customer Experience to Deliver Sustained Performance

 

Stifel has invested significantly to enhance its wealth management platform through improved client reporting and digital access capabilities, as well as enhanced client reporting and financial and estate planning. These investments help our financial advisors provide transparency and deliver solutions to clients that are tailored to their particular needs. Likewise, through prudence, training and relationship building, we are bringing lending solutions to clients seeking liquidity.

 

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In 2017 the firm began work on a completely upgraded next generation client access system and mobile access tool-set. These investments are being made to enhance the client experience, further strengthen security, and deliver new functionality to clients. The firm also began implementing a new performance reporting system that will cover all client accounts across the firm. When complete, the client reporting initiative will greatly enhance the ability for financial advisors and clients to understand exactly how their portfolios are performing and what is driving performance across those portfolios.

 

 

  Investment in our People

 

The value of our franchise and brand depends on the quality and effectiveness of our team, and on our ability to continue to attract and develop the best people.

 

 

Development and Growth

 

  

 

Succession Planning

 

  

 

Diversity and Inclusion

 

     
By listening to our associates, including those who have joined us through acquisitions, Stifel integrates best practices and strengthens the firm. Many parts of our business have formal cross-training and continued education programs. Our management development programs identify and prepare leaders at Stifel for wider responsibility. In 2018–19, we provided new resources to managers to reinforce their leadership and ability to develop their teams.   

The Board has established the Office of the President and developed a succession plan. The Board discusses succession planning in its executive sessions.

 

In addition, many of our larger departments have developed management succession processes that identify employees with high potential and prepare them to lead our future.

  

We are dedicated to cultivating a diverse and inclusive Stifel. In 2018–19, our Women’s Initiative Network (WIN) grew in size and importance to our recruitment, development of talent and service to our diverse client base. We named a firm-wide diversity officer, provided improved training on avoiding unconscious bias and similar topics and publicly disclosed objective diversity data for the benefit of our shareholders, clients and employees.

 

KEY PAY PRACTICES

 

Our Committee considers the design of our executive compensation program to be integral to furthering our Compensation Principles, including paying for performance and effective risk management. The following chart summarizes certain of our key pay practices for our key pay practices.

 

 

   What We Do and Don’t Do

 

        

 

P  Emphasize annual incentive compensation tied to company and individual performance

 

P  Encourage stock ownership by deferring a portion of annual compensation in the form of RSUs and RSAs and awarding long-term incentives with multi-year vesting periods of three, five or ten years

 

P  Maintain stock ownership guidelines; currently, all executives exceed guideline

 

P  Focus Executive Officers on our long-term performance with the award of PRSUs based on ROE performance

 

P  Utilize a formal process and incentive framework to set Executive Officer compensation

 

P  “Double trigger” on equity awards

 

P  Retain an independent consultant

 

P  Conduct annual risk review

 

P  Engage with shareholders

 

         

X  No Excise tax “gross-ups”

 

X   No special CIC severance

 

X   No employment agreements

 

X   No SERPs

 

X   No hedging, short selling, or use of derivatives

 

X   Pledging by insiders requires Committee approval

 

X   No excessive perquisites

 

X   No repricing of options without shareholder approval

 

X   No option timing or pricing manipulation

 

 

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THE COMMITTEE’S COMMITMENTS AND PRINCIPLES

 

During 2018 the Committee further reviewed its process for setting goals, evaluating performance and making pay decisions, building on its significant improvements in recent years. The review and articulation of our pay purposes, commitments and process is in direct response to comments and other input from our shareholders that have asked us to provide greater transparency by describing in more detail the quantitative and qualitative factors and the evaluation process used to determine awards.

Our executive compensation practices are designed to advance Stifel’s goal of being a leading wealth management and investment banking company that is entrepreneurial and appropriately manages risk. We grow and take advantage of opportunities, whether they present themselves as organic growth prospects, as talent to attract or as businesses to acquire. To this end, our executive compensation program emphasizes annual incentive compensation that aligns our executives’ compensation to Stifel’s long-term performance. This program is overseen by the Committee. This overarching purpose of driving long-term value creation is supported by the following commitments:

 

 

  Committee Commitments

 

Transparency

 

  ·  

The Committee identifies the compensation principles that determine the compensation decision process and makes the specific decisions that result from that process.

Alignment

 

  ·  

The Committee determines the forms and proportions of compensation to align named executive officer compensation to Stifel’s long-term performance.

 

  ·  

The process by which the Committee makes its decisions includes consideration of the entire factual framework, including both:

 

  ·  

Quantitative factors, such as those used in the formula for realization of PRSUs and

 

  ·  

Non-quantitative factors such as stewardship and risk controls.

Orderly Decision-Making

 

  ·  

The Committee’s annual decision making process is structured to yield orderly, timely, individual executive compensation decisions.

 

  ·  

The Committee requires a full, enumerated factual basis satisfactory to its members to be put before it prior to making its annual compensation decisions.

 

  ·  

The Committee consults with an outside compensation consultant to provide market data in connection with its compensation determinations for our CEO and other named executive officers and for other guidance in compensation process decision making.

 

  ·  

The Committee obtains data on peer practices and uses such data as reference material to assist it in maintaining a general awareness of industry compensation standards and trends. The market data does not formulaically determine the Committee’s compensation decisions for any particular executive officer. The Committee does not target a particular percentile of the peer group with respect to total pay packages or any individual component of pay.

 

  ·  

The Committee disciplines its exercise of judgement by use of these facts, principles and process and framework, in order to set compensation in the best interest of the Company and its stakeholders.

 

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Balancing Role Relevance with Cultural Cohesion

 

  ·  

The Committee sets the mix of forms of compensation to be relevant to the role of each executive.

 

  ·  

For example, a front-line financial professional is often paid primarily on revenue produced.

 

  ·  

By contrast, senior executives must also ensure conversion of revenues to net income, which the Committee takes into account for senior executive compensation.

 

  ·  

But the Committee also strives to foster to the cohesive culture that remains essential to Stifel’s success by constraining these role-prompted differences to those essential to maintain relevance.

 

  ·  

To the extent role differences do not compel compensation differences, the mix of forms of compensation should be kept similar across the organization.

Responsibility

 

  ·  

The Committee has ultimate responsibility for compensation decisions.

 

  ·  

The Committee will not duck its responsibility, whether by excessive delegation or through simplistic weighting or excessively formulaic approaches, which can have unintended consequences, fail to capture vital non-quantitative factors, and lead to potential misalignment of interests between the firm and its executives.

 

  ·  

No single metric or formula can substitute for the Committee’s informed exercise of judgment.

 

  ·  

The Committee’s process for analyzing facts and making considered determinations, including its decision to continue using formula-based PRSUs as a component of compensation, has kept true to its responsibility to align executive pay with firm performance and foster long-term value creation, proper risk management and firm values.

Prudence

 

  ·  

The Committee expects Stifel’s executives to act prudently on behalf of shareholders and clients, regardless of day-to-day market conditions and other events.

 

  ·  

This expectation could be undermined by a strictly formulaic program, which could encourage executives to place excessive weight on achieving a narrow metric at the expense of other goals, and at the expense of balancing goals in tension.

 

  ·  

The Committee instead remains determined to set compensation informed both by quantifiable, formula-driven factors and by less quantifiable factors, such as risk management, disparities between absolute and relative performance levels and recognition of key individual achievements.

BENEFITS OF DISCRETIONARY ELEMENTS WITHIN OUR COMPENSATION PROGRAM

 

 

 

  ·  

Our business is dynamic and requires us to respond rapidly to changes in our operating environment. A rigid, formulaic program based on metrics could hinder our ability to do so and could have unintended consequences.

 

  ·  

Our program is designed to encourage executives to act prudently on behalf of both shareholders and clients, regardless of prevailing market conditions. This goal could be compromised by a strictly formulaic program, which might incentivize executives to place undue focus on achieving specific metrics at the expense of others.

 

  ·  

Strictly formulaic compensation would not permit adjustments based on less quantifiable factors such as unexpected external events or individual performance.

 

  ·  

Equity-based awards comprise a significant portion of annual variable compensation for our named executive officers and is designed to ensure long-term alignment without the disadvantages of purely formulaic compensation.

 

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  Committee Principles

 

Our executive compensation strategy is designed to advance Stifel’s goal of being a premier wealth management and investment banking company. Stifel is an entrepreneurial meritocracy that manages its risks conservatively. We take advantage of opportunities, whether they present themselves as organic growth prospects, as talent to attract or as businesses to acquire. Accordingly, the Committee’s executive compensation program emphasizes compensation that is aligned with our company’s performance.

 

Pay for

Performance   

      

 

Focus on Long-Term

Shareholder Interests

 

       Pay to Retain and Attract       

Maintain Compensation

Governance

     
         

Over 90% of named executive officer pay is based on performance and delivered through cash and equity vehicles tied to annual or multiple-year future performance that align our interests with the interests of our shareholders

 

CEO pay reflects firm performance

      

Our program encourages share ownership and includes performance measures that enhance long-term shareholder value

 

Since 1997, a significant portion of named executive officer pay is deferred and, in combination with our stock ownership guidelines, has led to significant share ownership

      

Financial services is a highly competitive industry; we work to configure and size pay prudently to attract and retain top talent

 

The Committee reviews pay among competitors, but does not target a specific percentile when approving compensation for named executive officers

      

The Committee is composed of three continuing independent directors and held 8 meetings in 2018

 

Committee utilizes the services of an independent compensation consultant

 

Independent consultant gathers competitive information on pay and performance so that the Committee is aware of current market developments and practices

 

Committee monitors and assesses named executive officer performance in making year-end pay decisions

 

In evaluating executive compensation program, the Committee annually considers shareholder advisory vote and feedback from its meetings with shareholders

 

    

Balancing Short- and Long-Term Incentives with “Realized” and “At-Risk” Compensation

The Committee recognizes the importance of striking a balance between long-term incentives linked to shareholder returns and short-term incentives linked to the annual performance of the Company. The Committee considers such factors as the level of base salary, stock-based salary, annual incentive compensation, long-term incentive compensation, and the overall equity ownership of the Company’s CEO and other named executive officers. On balance, the Committee strives to emphasize long-term incentives linked to shareholder returns while recognizing the importance of annual performance compensation. In doing so, the Committee assesses each component of compensation as to its emphasis on short-term verses long-term incentives. However, the Committee does not target any specific mix of short- and long-term incentives. In addition, when assessing the incentive of various components of compensation, the committee considers whether the compensation is “Realized” (meaning that it is not forfeitable) or “At-Risk” (meaning that it is potentially forfeitable because it is subject to time- or performance-based vesting).

The Importance of Stock Ownership

The Committee considers the overall level of equity ownership maintained by an executive officer as important indicia of the alignment of that individual with shareholders. The Committee understands the importance to shareholders of share value and total stock returns and, therefore, takes into consideration the stock ownership of the CEO and the other named executive officers when determining the compensation system. More generally, the Committee views share ownership and participation in share value as an important factor that, even before compensation decisions for a particular year are made, aligns the senior management with shareholders.

Independent Compensation Committee Consultant and Identification of Peer Group

In 2018, the Committee continued to retain Compensation Advisory Partners LLC (“CAP”) as the Committee’s independent Compensation Consultant. CAP reports directly to the Committee, attends Committee meetings, and provides executive compensation related services.

 

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These services include reviewing this compensation discussion and analysis, advising on compensation program design such as the new PRSUs and peer company selection, providing market data on executive compensation trends and named executive officer compensation levels, and assisting Committee with evaluation of pay-for-performance alignment.

For 2018, the Committee considered the conflicts-of-interest related considerations for retention of a compensation consultant set out in the NYSE’s listing standards, and determined that no such conflict of interest exists with respect to CAP.

In 2017, CAP identified and the Committee adopted a single “peer group” as a reference group for the Committee’s review of pay and performance and market practices. Our peer group is composed of companies operating in the investment banking, brokerage and asset management businesses that are of similar size, by revenue, assets, income, market cap and total shareholder return.

 

Peer Group

 

  Affiliated Managers Group Inc.    Invesco Ltd.    Northern Trust Corp.
  Ameriprise Financial, Inc.    Jefferies Financial Group Inc.    Piper Jaffray Companies
  E*TRADE Financial Corp.    Lazard Ltd.    Raymond James Financial, Inc.
  Evercore Inc.    Legg Mason, Inc.    T. Rowe Price Group, Inc.
  Greenhill & Co., Inc.    LPL Financial Holdings Inc.    TD Ameritrade Holding Corp.
  Houlihan Lokey, Inc.    Moelis & Company     

KEY EXECUTIVE COMPENSATION PROGRAM ELEMENTS

 

 

The Committee seeks to utilize a balanced mix of compensation elements to achieve its goals, with total compensation for our executive officers heavily weighted towards variable elements that reward performance. The following table describes each component of our executive compensation program, how it is determined, and the purpose or purposes we believe it accomplishes. “Realized” compensation is paid (or vests) to the Executive Officer either during or on account of the year and is of fixed realizable value and ordinarily available to the Executive Officer. “At-Risk” compensation, by contrast, is delayed and subject to future conditions. An executive officer risks losing this compensation on account of these conditions not being met.

 

 

  Fixed Compensation & Benefits

 

        
               

Base Salary

 

       Stock-Based Salary        Retirement Plans        Other Benefits    
         

Provides a base level of fixed pay.

 

Consistent with our compensation principles, Stifel maintains modest salary levels and provides most of its compensation in the form of variable incentive compensation.

 

Base salary for CEO and most Executive Officers has not increased in recent years.

 

  

 

  

Stock-based salary is the annually vesting portion of certain periodically-granted awards that are considered as part of an executive officer’s salary.

 

Vesting for LTIAs may accelerate to 5 years based on predetermined EPS goals, furthering alignment with shareholder interests.

 

  

 

  

401(k) facilitates tax-advantaged retirement savings

 

Named executive officers participate in the same retirement plans available to employees generally.

 

Profit sharing plan with a match of up to 50% of the first $2,000 in employee contribution to 401(k) plan.

 

  

 

  

Maintains alignment between named executive officers and other employees by limiting additional perquisites.

 

Benefits provided to named executive officers are generally in line with those available to other employees.

 

Limited Executive Officer perquisites.

    

 

 

  

 

 

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  Annual Variable Compensation

 

   
               

Cash Bonus

 

       Debentures        RSUs and RSAs        PRSUs    
         

Provides a competitive annual incentive.

 

Aligns executive with shareholder interests in annual performance.

      

Aligns executive with shareholder interests in annual performance.

 

Encourages retention by vesting over 5 years.

      

Aligns executive with shareholder interests in both annual performance and share value growth.

 

RSUs encourage retention by vesting over 5 years. RSAs encourage retention by becoming unrestricted over 5 years, on equivalent terms to RSUs.

      

Aligns executive with shareholder interests in both annual performance and share value growth.

 

Encourages retention by vesting over 5 years.

 

Value depends on achievement of objective, multi-year goals.

   

 

Varies annually based on Company and individual performance.

 

Structured to better align total pay with overall Company performance.

 

Tied to incentive framework, which includes key corporate, strategic and individual performance indications.

 

Decisions also based on individual goals and performance of business segment.

 

Capped by the shareholder approved Executive Incentive Performance Plan (“EIPP”).

 

      

 

Performance based: directly tied to achievement of specific goals over a 4-year period.

 

Metrics are TSR, Non-GAAP ROE, Non-GAAP Pre-Tax Income and Non-GAAP EPS.

 

   

 

 

  The Committee’s Perspective on the Compensation Elements

 

The following section describes the Committee’s views on how each element of compensation fits within the Committee’s perspective on short-term vs. long-term incentives and within the Committee’s framework of “Realized” vs. “At-risk” compensation.

Base Salary

The Committee views base salary as a short-term incentive and a component of Realized annual compensation. As such, we pay relatively low levels of base salary compared to the market due to our variable pay-for-performance philosophy. The Committee does not emphasize base salary; base salary for most Executive Officers has not increased in recent years except to align amounts and the base salary for our CEO has not increased in the more than 21 years since he joined Stifel as Chief Executive Officer in 1997.

Stock-Based Salary

Stock-Based Salary consists of the annually vesting amount of the Long Term Incentive Awards (LTIAs). The Committee views stock-based salary as a long-term incentive that is both “Realized” (in the sense that it is not subject to further vesting in the year it is counted as stock-based salary) and “At-Risk” (in the sense that it is forfeitable between the date it is granted and the date on which it vests). Furthermore, the value of stock-based salary is tied to the performance of Stifel stock between the grant date and the vesting date, which serves the purpose of further aligning named executive officers’ incentives with shareholders’ interests. As such, this component of compensation is designed to balance the objectives of both short-term and long-term incentives.

Annual Incentive Compensation

The Committee has established an annual incentive compensation program for the named executive officers that provide a significant portion of the total annual compensation paid to each of the named executive officers. The objective of the annual incentive compensation portion of the executive compensation program is to provide cash and deferred compensation (RSUs, RSAs and debentures) that is variable based upon (i) the financial performance for our Company and the business units in which the executive officer serves and (ii) a qualitative evaluation of the individual executive officer’s performance for the year.

 

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  Components of Annual Incentive Compensation

 

 
  Cash       

 

Time-based deferred compensation

 

       Performance-based deferred compensation      
       
  Cash, which the Committee views as a short-term incentive and a component of Realized annual compensation.        

Time-based deferred compensation, which the Committee views as a long-term incentive and a component of At-Risk annual compensation. Generally, time-based deferred compensation has been a combination of restricted stock units and debentures.

 

        Performance-based deferred compensation, which the Committee views as a long-term incentive and a component of At-Risk annual compensation. Generally, performance-based deferred compensation has been in the form of PRSUs.       

Collectively, the above three compensation elements comprise Annual Incentive Compensation, which is the most important part of Compensation determined by the Committee each year. In making that annual determination, the Committee has developed a facts-based, performance-focused framework by which it assesses named executive officer performance and sets compensation against clearly stated and measured company and business goals. At the beginning of each year, the Committee identifies key objectives and goals that will be used to determine overall company performance as well as individual goals for our named executive officers.

For 2018, these objectives include the quantitative and qualitative criteria identified in the table on page 35 in the section “2018 Results of Incentive Assessment Framework”, which reflect financial performance, operating performance and strategic achievements. These criteria were informed by the Committee’s review of overall progress for the firm periodically during the past year. The Committee made its final determinations at year-end when information for each factor was available. Individual performance for each named executive officer was also reviewed in this context of overall performance.

Primary performance goals – achievement of revenue, pre-tax income, and EPS goals – are generally more heavily weighted in the Committee’s decisions. Taking into consideration all factors, the Committee then evaluated each major category – primary, other considerations, strategic – and assigned an overall evaluation to company performance in making final awards. The Committee understands the importance to shareholders of total stock returns and, therefore, takes into consideration the stock ownership of the CEO and the other named executive officers when determining the compensation system because the Committee views share ownership as an important factor that already aligns the senior management with shareholders. The Committee has also made total shareholder returns an express part of the formula that determines PRSUs awarded. Otherwise, the Committee has determined that it is unnecessary to make total stock return one of the primary performance goals, because the Committee wants to strike the appropriate balance between short-term and long-term shareholder value.

The Committee determined that, for 2018, compensation for Mr. Kruszewski, our chairman and CEO, and Mr. Zemlyak and Mr. Nesi, our co-presidents, should be increased in line with performance and that compensation for Mr. Michaud should be increased in line with KBW performance, but in each case with downward adjustments to moderate changes over multiple years. The Committee further determined that, for 2018, compensation for Mr. Weisel should be increased in line with related performance and that compensation for Mr. Marischen should be increased in line with firmwide and related performance and in recognition of his promotion to CFO. This is consistent with the Committee’s past practices. Historically, named executive officer compensation has broadly tracked the performance of the three primary performance goals established by the Committee: non-GAAP Return on Equity, non-GAAP pre-tax net income and non-GAAP Earnings per Share. In 2018, for the year, non-GAAP Return on Equity was up 3.1%, non-GAAP pre-tax net income was up 18.2% and non-GAAP Earnings per Share were up 32.3%, or approximately 17.9% on average. See “Use of Non-GAAP Measures” on page 53 for a description of how and why these measures differ from GAAP measures. The Committee also continued to recognize the aligning power of direct shareholding by our senior executives.     

Benefits

The Committee provides executives with only limited perquisites and other personal benefits. The Committee periodically reviews the dollar amount of perquisites provided and may make adjustments as it deems necessary. Other benefits, including retirement plans and health and welfare plans, are made available to the CEO and other named executive officers on the same basis as they are made available to other employees.

 

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HOW THE COMPENSATION COMMITTEE STRUCTURES PAY AND MITIGATES RISK

 

 

 

 

    Named Executive Officer Compensation is linked to risk management and other controls.

 

 

Our emphasis on deferred compensation links named executive officer pay directly to share price and shareholder value over time.

  

 

Our PRSUs link named executive officer compensation to future TSR, non-GAAP pre-tax net income, EPS and ROE performance metrics.

 

  

 

We evaluate each named executive officer’s contribution to Company risk control in setting annual pay.

  

 

We maintain control over pay through ownership requirements, anti-hedging rules and double triggers.

 

 

  Performance-Based Restricted Stock Units, PRSUs

 

Performance-based Restricted Stock Units (PRSUs), the company’s metrics-based equity vehicle, are awarded periodically. PRSUs are earned over a four-year performance period based on achieving pre-determined performance objectives. Any resulting delivery of shares for PRSUs granted as part of 2018 compensation will occur in early 2023 for 80% of the earned award, and in early 2024 for the remaining 20% of the earned award. Similar to ordinary RSUs, PRSUs are granted based on the share price on the date of grant.

For the 2019-2022 performance cycle used for the 2019 awards of PRSUs as part of our named executive officers’ 2018 compensation, the Committee selected the following performance criteria for all Executive Officers:

 

  ·  

Total Shareholder Return, Relative to Peers’ total shareholder returns (“Relative TSR”)

 

  ·  

Non-GAAP EPS and

 

  ·  

Non-GAAP Return on Common Equity.

For additional discussion on non-GAAP measures, see the discussion of “Use of Non-GAAP Measures” on page 53. The Committee uses non-GAAP results as described in that discussion because the Committee intends PRSUs to measure relative performance over time and the Committee concluded non-GAAP results are the better relative measure. To illustrate, if the baseline performance for a PRSU were a GAAP measure, in the absence of future acquisitions, that measure would likely show improvement over time based simply on the merger related charges of previous acquisitions rolling off. Accordingly, the Committee determined that these non-GAAP measures were a more appropriate measurement tool for measuring relative improvement of the underlying business results and, more specifically, the Committee determined that the above criteria would best align management incentives with long-term shareholder objectives and accord with how the market assesses long-term performance of similar financial service firms. The Committee further determined that the use of multiple metrics would reinforce those objectives and discourage excessive focus on any single metric to the detriment of long-term shareholder objectives, long-term performance of the company or achievement of the company’s stated objectives.

The Non-GAAP performance criteria are equally weighted. These measures will be fixed, for purposes of calculating any PRSU awards, for the duration of the performance period, except to neutralize the effect of intervening changes in accounting or other applicable rules and subject to the Committee’s final authority to confirm the appropriate calculation of any of the non-GAAP measures for purposes of determining any PRSU award received. The final performance criterion, Relative TSR, represents the positive or negative difference between the firm’s TSR and the average TSR of its peer group, as described on page 44, between the end of 2019 and the end of 2022.

For each criterion, there is a “Target”, approximately equal to the corresponding 2018 performance level. Associated with each Target are a lower “Threshold” and a higher “Maximum”, noted below. Relative TSR is measured once directly. Performance under each other criterion is evaluated by constructing the arithmetic average of four years of the relevant annual performance results (the “realized performance”). For each year for these other criterion, the result is taken over (measured from beginning to end of) the calendar year. The realized performance is then compared to the Threshold, Target and Maximum associated with that criterion and scored as follows:

 

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  ·  

Realized performance equal to or below the Threshold is scored as 13 (except Relative TSR, scored as 0.8).

 

  ·  

Realized performance between the Target and the Threshold is interpolated on a straight line basis between the Target score and the Threshold score.

 

  ·  

Realized performance equal to the Target is scored as 1.

 

  ·  

Realized performance between the Target and the Maximum is interpolated on a straight line basis between the Target score and the Maximum score.

 

  ·  

Realized performance equal to or above the Maximum is scored as 123 (except Relative TSR, scored as 1.2).

The Non-GAAP measured scores for the criteria for each Executive Officer are averaged, with equal weighting, to produce a single, preliminary score, which is then multiplied by the Relative TSR score. This final score, when expressed as a percentage determines the final award where “1” corresponds to 100% of the target award and higher or lower factors increase or decrease the award. The maximum award is 200% of the target.

This description of PRSU calculations is a summary. PRSU results are determined in accordance with Stifel’s policy governing calculation of Non-GAAP measures, and are reviewed by the Committee on a quarterly basis.

2018 PRSU Performance Measures and Scoring:

 

  Measures

 

  

      Threshold    

 

    

        Target      

 

   

      Maximum          

 

  Relative TSR   

80% of

Peer TSR

    

100% of

Peer TSR

   

120% of    

Peer TSR    

 

  4-Year Average Annual Non-GAAP EPS (“EPS”)

 

  

 

 

 

 

$3.33

 

 

 

 

  

 

 

 

 

$5.00

 

 

 

 

 

 

 

 

 

$6.67    

 

 

 

 

 

  4-Year Average Annual Non-GAAP Return on Common Equity

  (“ROE”)

     11.0%        13.0%       15.0%      

In designing the PRSUs, the Committee uses the word “Target” to express the base case and to simplify understanding of the midpoint award, but is not setting a limit to the goals for which PRSU recipients should reach.

2018 PRSU Awards:

 

                                                     

  Named Executive

  Officer

 

  

 

    PRSU
    Award

 

    

        PRSUs
      Awarded
(1)

 

 

Ronald J. Kruszewski

     $1,000,000        19,889  

James M. Zemlyak

     $500,000        9,944  

Victor J. Nesi

     $500,000        9,944  

Thomas B. Michaud

     $207,500        4,127  

Thomas W. Weisel

     $0        0  

James M. Marischen

     $0        0  

Amounts included represent the February 2019 grant date fair value.

 

 

 

  RSUs, RSAs, Debentures, LTIAs, Restricted Stock Awards and Stock-Based Salary

 

RSUs granted as part of the annual incentive vest ratably over 5 years on an annual basis. RSAs granted as part of the annual incentive become unrestricted ratably over 5 years on an annual basis. Debentures also vest ratably over 5 years on an annual basis and, for debentures awarded in respect of 2018, accumulate interest at a rate of 3.25%. RSUs are eligible to receive dividend equivalents at the same time and amount as shareholders if Stifel pays dividends.

PRSUs vest ratably over 5 years on an annual basis, but are not calculated or delivered until the 4th year, when 80% of total earned shares, if any, are delivered, with the remaining 20% delivered after 5 years, in each case measuring from the initial grant date. Accordingly, this vesting results in no value to the Executive Officer except through the described calculation and delivery that occurs in the fourth and fifth year.

Stock-Based Salary does not include awards of units such as RSUs and PRSUs. Stock-Based Salary consists of the annually vesting amount of the Long Term Incentive Awards (LTIAs) from 2014 and following years and the portion of the restricted stock awarded in late 2018 that

 

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vests in the relevant year (2019-23). LTIAs take the form of restricted stock units and have been made periodically to the CEO and other Executive Officers to recognize strong performance, provide opportunities for executives to accumulate stock ownership, to further align their interests with shareholders’ interests, and to provide retention in this highly competitive industry. Assuming the stock-based salary awards are not forfeited, the Committee will count any stock-based compensation awards as part of compensation for the individual receiving the benefits of such vesting in the year that the stock-based salary vests. Importantly, the Committee will consider the value of that consideration equal to the grant date value (not the then vesting date value) when evaluating a particular individual’s mix of total compensation.

RSUs, RSAs and debentures received as part of annual incentive compensation vest ratably on an annual basis over 5 years of continued employment but vest upon death or disability or one year after retirement if the participant meets certain non-competition, non-solicitation and other requirements. PRSUs, to the extent of total shares earned, if any, vest immediately upon death, disability or termination not for cause, but do not continue to vest following retirement.

 

 

  Employee Ownership Requirements

 

We maintain stock ownership guidelines for our officers. This powerfully and directly aligns their interests with the interests of all shareholders. For example, our CEO’s exposure to the change in our share price during 2018 resulted in his experiencing changes in value that are more than double the magnitude of his total compensation for the year:

Change in Value over 2018 of the CEO’s Shares Beneficially Owned and Unvested Units:

 

  Year(1)   Price(2)   Shares
Beneficially
Owned
(3)
  Unvested Units(4)   Total    2018 Change(5)

2018

  $41.42   $42,567,458   $10,048,658   $52,616,116    –29.4%    –$21,908,810

2017

  $59.56   $58,812,820   $15,712,107   $74,524,926

 

  (1)

All figures are as of market close on December 31.

  (2)

All figures based on common share price.

  (3)

Includes units converting to shares within 60 days. See notes 1, 2 and 5 to the beneficial ownership chart on page 64 for additional description of share attributes.

  (4)

Consists of RSUs and PRSUs

  (5)

Year-over-year percentage and absolute dollar change.

All of our named executive officers substantially exceed their target ownership levels. These levels are set at multiples of base salary. All of our named executive officers would exceed their target ownership levels even if their base salaries were set at the substantially higher levels often paid by our peers to their senior most executives.

Our guidelines restrict future sales of shares if ownership is below the required levels, but there is no minimum time period required to achieve the target ownership level. Exceptions to the guidelines may be granted on a case-by-case basis if a hardship situation exists.

 

 

  Other Compensation Policies

 

Clawback and Recoupment Policies

The Company’s undelivered restricted stock units, debentures and share grants are subject to provisions that could result in forfeiture as a result of engaging in conduct detrimental to Stifel, which includes any action that results in a restatement of the financial statements of Stifel.

 

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Risk Input to Named Executive Officer Pay Decisions

The Committee solicits input from the CFO and the Company’s Enterprise Risk Management group in the course of making its pay decisions. We believe that this input enables the Committee, when appropriate, to hold executives accountable for material actions or items that harm current or future performance, or put performance at undue risk.

The Company’s Enterprise Risk Management group conducts wide-ranging risk identification, mitigation, monitoring and management functions within the Company, and helps to inform the Committee as to the relevance of Executive Officer actions to the risk profile of the business lines of the Company.

At-Will Employment of Executive Officers

None of our executive officers, including our chief executive officer and our chief financial officer, currently has a written employment agreement with the company, and each is thus employed by us on an ‘‘at will’’ basis.

Treatment of Dividends

Employee-owned common shares receive dividends in the same manner as any other common shares. RSAs also received dividends, which are paid in cash in the same manner as common shares. In 2018, RSUs and PRSUs received dividend-equivalents in the form of additional units with the same vesting, delivery, timing and other attributes as the underlying units. Beginning in 2019, RSUs and PRSUs may alternatively receive dividend-equivalents in the form of cash with the same vesting, delivery, timing and other attributes as the underlying units.

Use of Compensation Consultants

The Committee retains an independent compensation consultant, which reports directly to the Committee, attends Committee meetings, and provides executive compensation related services. The compensation consultant’s services include reviewing this compensation discussion and analysis, advising on compensation program and peer company selection, providing market data on executive compensation trends and Executive Officer compensation levels, and assisting Committee with evaluation of pay-for-performance alignment.

Deferred Compensation Grids

The Committee used the following grid as a basis for setting deferrals for employees receiving incentive compensation, other than commission-based employees and Executive Officers, in 2018. These employees are predominantly in our institutional and administrative groups, for which deferred is 5 year, ratable annual vesting, and consists of 35% restricted stock units and 65% deferred cash.

 

 

  Value

 

  

 

    Percentage    
Deferred

 

$0 - $249,999

   0%

$250,000 - $499,999

   10%

$500,000 - $749,999

   15%

$750,000 - $999,999

   20%

$1,000,000 - $1,999,999

   25%

$2,000,000 and more

   30%

Incentive compensation deferrals for our commission-based employees are generally 5% of production over $300,000 in our private client group and, in our institutional group, 15% of production over tiered thresholds, which vary by product.

Historically, the Company has permitted elective deferrals and limited Company matches of these deferrals: the Company intends to discontinue this arrangement in 2020.

Anti-Hedging and Anti-Pledging Policies

Our insider trading policy prohibits our executive officers from short selling or dealing in publicly-traded options in our common stock. Additionally, the Company maintains a policy under which any new pledging of our common stock by such persons will require the

 

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approval of the Committee. Our directors and executive officers hold no shares held in margin accounts have pledged no shares to third parties.

Double Triggers

Our award agreements with Executive Officers for deferred compensation issued since 2010 maintain the requirement of “double triggers” on the accelerated vesting of awards in the event of a change in control, meaning that an Executive Officer must actually be terminated following the change in control before vesting will be accelerated unless the Committee grants exceptions in individual cases. None of our Executive Officer deferred compensation vests automatically upon a change in control, nor does any Executive Officer have an agreement providing for guaranteed payments, severance, or “golden parachute” payments.

Perquisites and Personal Benefits

Our named executive officers have the perquisites and other personal benefits described in more detail in the Summary Compensation Tables beginning on page Summary Compensation Tables begin on page 54. The Company intends in 2020 to discontinue non-accountable expense reimbursement.

Retirement Plans and Health and Welfare Plans

We sponsor a profit sharing plan, the 401(k) Plan, in which all eligible employees, including the named executive officers, may participate. We currently match up to 50% of the first $2,000 of each employee’s contribution to the 401(k) Plan. In addition, employees, including the named executive officers, may also participate in our employee stock ownership plan and trust. Employee stock ownership contributions for a particular year are based upon each individual’s calendar year earnings up to a maximum prescribed by the Internal Revenue Code.

Full-time employees, including the named executive officers, participate in the same broad-based, market-competitive health and welfare plans (including medical, prescription drug, dental, vision, life, and disability insurance). These benefits are available to the named executive officers on the same basis as they are made available to all other full-time employees.

Deductibility of Executive Compensation

Section 162(m) of the Internal Revenue Code provides that compensation in excess of $1 million paid in a taxable year to the chief executive officer, chief financial officer, and the other three most highly compensated executive officers (other than the chief executive officer and the chief financial officer) of a public company serving in such capacity at any time during the taxable year (and any other individual who was a “covered employee” within the meaning of Section 162(m) of the Code for any taxable year beginning after December 31, 2016) will generally be non-deductible for federal income tax purposes. The Committee recognizes the impact of this non-deductibility on the compensation that it intends to award, but structures compensation in a manner appropriate and consistent with the Company’s executive compensation program.

Allocation of Previously Granted Awards to 2018 Executive Compensation

As described in the Company’s 2018 Proxy, the Company took a number of steps to benefit the Company in connection with the Federal tax reform in the United States enacted on December 22, 2017.

The primary tax reforms relevant to executive compensation took effect on January 1, 2018 and were:

 

  ·  

Reduction of the federal corporate tax rate from 35% to 21%; and

  ·  

Elimination of deductibility under Section 162(m) of qualifying executive compensation over $1 million.

Broadly speaking, these reforms made it beneficial to the Company to incur named executive officer compensation expenses prior to January 1, 2018. Accordingly, the Company granted, on December 29, 2017, approximately 300,000 shares of restricted stock to three of our named executive officers. These grants were special awards of 5-year ratable vesting restricted stock pursuant to the existing authorization under the Executive Incentive Performance Plan, with the requirement that the recipient make a corresponding 83(b) tax election.

As a consequence of the three executives making an 83(b) tax election with respect to those special awards, the three executives, in aggregate, paid ordinary income taxes on $18,000.000 of income and the Company received a corresponding deduction of $18,000,000, which was a benefit to the company of more than $7,000,000 when compared against the alternative of granting those shares on or after January 1, 2018.

 

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The special awards were granted with the understanding that their allocation to subsequent performance-based compensation would be made as part of the regular compensation decision making of the Committee. The Committee subsequently determined to allocate the special awards entirely to the 2017 and 2018 performance-based compensation of the three executives as described in the table below. The Committee’s decision to allocate all remaining shares of the special awards to 2018 performance-based compensation was a result of the Committee’s assessment of the Company’s strong performance during 2018 and the Committee’s determination to use a common price for all 2018 performance-based compensation.

 

  Named Executive   Allocation of Restricted Stock Award to Performance-Based Comp.
  Officer   2017 (1)         2018 (2)         Total (3)             

  Ronald J. Kruszewski

          59,870                     73,175                     133,045                
  45%             55%             100%                

  James M. Zemlyak

  31,598             51,555             83,153                
  38%             62%             100%                

  Victor J. Nesi

  39,913             43,240             83,153                
    48%             52%             100%                

 

  (1)

Reflected in the 2017 Compensation Discussion and Analysis, as described in the 2018 Proxy. The dollar values associated with these awards allocated to the 2017 Compensation Discussion and Analysis for Ronald J. Kruszewski, James M. Zemlyak and Victor J. Nesi were $3,600,000, $1,900,000 and $2,400,000, respectively.

  (2)

Reflected in the 2018 Compensation Discussion and Analysis beginning on page 25, above. The dollar values associated with these awards allocated to the 2018 Compensation Discussion and Analysis for Ronald J. Kruszewski, James M. Zemlyak and Victor J. Nesi were $3,679,239, $2,592,185 and $2,174,085, respectively.

  (3)

Reflected in the 2017 Summary Compensation Tables, as described in the 2018 Proxy. The dollar values associated with these awards reported in the 2017 Summary Compensation Tables for Ronald J. Kruszewski, James M. Zemlyak and Victor J. Nesi were $8,000,000, $5,000,000 and $5,000,000, respectively.

HOW OUR EXECUTIVE STRUCTURE APPEARS IN THE SUMMARY COMPENSATION TABLES

 

 

Pursuant to SEC rules, the SCT must account for equity-based awards during the year of grant, even if awarded for services in the prior year. But SEC rules require the SCT to include other incentive compensation to be included in the year earned, even if granted during the next year. By contrast, the Committee, as reflected in this CD&A, considers all performance-based executive compensation to be compensation for the year of performance.

Generally, we grant equity-based awards and debentures, and pay any cash incentive compensation for a particular year shortly after that year’s end. As a result, annual equity-based awards, debentures and cash incentive compensation are disclosed in each row of the Summary Compensation Table as follows:

2018

 

  ·  

“Salary” displays the Base Salaries of our named executive officers for 2018.

  ·  

“Bonus” displays the Cash Bonuses and Debentures of our named executive officers for 2018.

  ·  

“Stock Awards” displays the PRSUs, RSUs and RSAs of our named executive officers for 2017.

2017

 

  ·  

“Salary” displays the Base Salaries of our named executive officers for 2017.

  ·  

“Bonus” displays the Cash Bonuses and Debentures of our named executive officers for 2017.

  ·  

“Stock Awards” displays the PRSUs and RSUs of our named executive officers for 2016.

2016

 

  ·  

“Salary” displays the Base Salaries of our named executive officers for 2016.

  ·  

“Bonus” displays the Cash Bonuses of our named executive officers for 2016.

  ·  

“Stock Awards” displays the PRSUs and RSUs of our named executive officers for 2015.

The table in the section “Alignment of CEO Compensation with Key Performance Measures” on page 28, above, displays the changes in total annual compensation amounts for our CEO, as described in the CD&A.

 

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USE OF NON-GAAP MEASURES

 

 

The Company utilizes non-GAAP calculations of presented net revenues, income before income taxes, net income, and diluted earnings per share as additional measures to aid in understanding and analyzing the Company’s financial results, as well as calculating PRSUs. Additionally, the Committee utilizes certain non-GAAP calculations in considering named executive officer performance and setting named executive officer compensation. The Company believes that the non-GAAP measures provide useful information by excluding certain items that may not be indicative of the Company’s core operating results. The Company believes that these non-GAAP measures will allow for a better evaluation of the operating performance of the business and facilitate a meaningful comparison of the Company’s results in the current period to those in prior and future periods. Reference to these non-GAAP measures should not be considered as a substitute for results that are presented in a manner consistent with GAAP. These non-GAAP measures are provided to enhance investors’ overall understanding of the Committee’s decision making related to named executive officer compensation and the Company’s current financial performance.

These non-GAAP amounts exclude compensation and non-compensation operating expenses associated with the actions taken by the Company in response to the Federal tax reform that was enacted on December 22, 2017 to minimize tax savings; litigation-related expenses associated with previously disclosed legal matters; certain compensation and non-compensation operating expenses associated with acquisitions; the revaluation of the Company’s deferred tax assets as a result of the Federal tax reform; and the favorable impact of the adoption of new accounting guidance during 2017 associated with stock-based compensation.

A limitation of utilizing the non-GAAP measures described above is that the GAAP accounting effects of these merger-related charges do in fact reflect the underlying financial results of the Company’s business and these effects should not be ignored in evaluating and analyzing its financial results. Therefore, the Company believes that GAAP measures of net revenues, income before income taxes, net income, compensation expense ratios, pre-tax margin and diluted earnings per share and the same respective non-GAAP measures of the Company’s financial performance should be considered together.

 

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2018 SUMMARY COMPENSATION TABLE

 

 

The following table presents summary information concerning compensation earned in the 2018, 2017, and 2016 fiscal years by our CEO, each person serving as our CFO in 2018, and each of our other three most highly compensated executive officers employed at the end of 2018 for services rendered to us and our subsidiaries, except that summary information for Mr. Marischen, who became a named executive officer in 2018, is limited to 2018, and summary information for Mr. Weisel, who became a named executive officer in 2017, is limited to 2018 and 2017.

Pursuant to SEC rules, the 2018 Summary Compensation Table is required to include for a particular year only those equity-based awards granted during that year, rather than awards granted after that year’s end, even if awarded for services in that year. SEC rules require disclosure of cash incentive compensation to be included in the year earned, even if payment is made after year-end.

A summary of the Committee’s decisions on the compensation awarded to our named executive officers for 2018 performance (which, in accordance with SEC rules, are in large part not reflected in the 2018 Summary Compensation Table) can be found in the “Compensation Discussion and Analysis” beginning on page 25, above. A summary of the steps the Company took in response to federal tax reform in 2017 can be found in the discussion beginning on page 51, above.

 

   Name and Principal Position    Year          Salary ($)         

Bonus        

($) (1)

     Stock Awards        
($)
(2)
     All Other    
Compen-
sation
(3)
     Total ($)            

 

  Ronald J. Kruszewski

  Chairman and

  Chief Executive Officer

  

 

 

 

 

2018

 

 

 

 

     200,000        4,020,761        1,000,000        66,544        5,287,305    
  

 

 

 

 

2017

 

 

 

 

     200,000        3,419,687        9,500,000        108,391        13,228,078    
  

 

 

 

 

2016

 

 

 

 

     200,000        3,000,000        6,000,000        113,235        9,313,235    

  James M. Zemlyak

  Co-President and Head of

  Global Wealth Management

  

 

 

 

 

2018

 

 

 

 

     250,000        1,895,065        700,000        14,897        2,859,962    
  

 

 

 

 

2017

 

 

 

 

     250,000        2,224,639        5,613,333        28,075        8,116,047    
  

 

 

 

 

2016

 

 

 

 

     250,000        1,686,667        2,827,500        21,500        4,785,667    

  Victor J. Nesi

  Co-President and Director of

  the Institutional Group

  

 

 

 

 

2018

 

 

 

 

     250,000        2,785,000        700,000        37,225        3,772,225    
  

 

 

 

 

2017

 

 

 

 

     250,000        2,552,116        5,720,000        31,363        8,553,479    
  

 

 

 

 

2016

 

 

 

 

     250,000        1,980,000        3,300,000        23,750        5,553,750    

  Thomas B. Michaud

  Senior Vice President

  

 

 

 

 

2018

 

 

 

 

     250,000        2,942,500        1,500,000        17,425        4,709,925    
  

 

 

 

2017

 

 

     250,000        3,369,928        586,667        16,438        4,223,033    
  

 

 

 

 

2016

 

 

 

 

     250,000        1,613,333        2,650,000        9,850        4,523,183    

  Thomas W. Weisel

  Co-Chairman

  

 

 

 

 

2018

 

 

 

 

     200,000        1,600,000        100,000        325,405        2,225,405    
  

 

 

 

 

2017

 

 

 

 

     200,000        1,633,353        200,000        327,813        2,361,166    

  James M. Marischen,

  Chief Financial Officer

  

 

 

 

 

2018

 

 

 

 

     200,000        1,095,000        340,000        1,900        1,636,900    

 

  (1)

For the year ended December 31, 2018, Messrs. Kruszewski, Zemlyak, Nesi, Michaud, Weisel and Marischen received $4,020,761, $1,895,065, $2,785,000, $2,775,000, $1,340,000 and $900,000 in cash and $0, $0, $0, $167,500, $260,000, and $195,000 in debentures, respectively. For the year ended December 31, 2017, Messrs. Kruszewski, Zemlyak, Nesi, Michaud and Weisel received $3,419,687, $2,224,639, $2,552,116, $2,969,928 and $1,633,353 in cash and $0, $0, $0, $400,000 and $0 in debentures, respectively. For the year ended December 31, 2016, Messrs. Kruszewski, Zemlyak, Nesi, and Michaud received $2,250,000, $1,380,000, $1,620,000, and $1,320,000 in cash and $750,000, $306,667, $360,000, and $293,333 in debentures, respectively. For more information regarding the material terms of the debentures, see “Additional Information about the Compensation Paid to the Named Executive Officers” on page 56. Interest earned on debentures is reflected in the “All Other Compensation” column and in the table accompanying note 3, below.

  (2)

Amounts included for 2018 represent the grant date fair value of RSUs and PRSUs, granted in March 2018 for services in 2017. Amounts included for 2017 represent the grant date fair value of RSUs and PRSUs granted in March 2017 for services in 2016, and the special restricted stock awards (RSAs) granted in December 2017 in connection with the new tax reform laws. Amounts included for 2016 represent the grant date fair value of PRSUs and RSUs granted in March 2016 for services in 2015. The grant date fair value of these awards, for all years presented, were determined in accordance with the Financial Accounting Standards Board’s Accounting Standards Codification 718, Compensation – Stock Compensation (“ASC 718”), excluding, in respect of PRSUs, the effect of estimated forfeitures. The awards were granted under our 2001 Incentive Stock Plan (2011 or 2018 Restatement, as applicable), discussed in further detail in the section entitled “Compensation Discussion and Analysis,” including units granted as long-term incentive awards. The grant date fair values of the PRSUs granted in 2018, 2017 and 2016

 

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assuming the highest level of performance is achieved is, respectively: for Mr. Kruszewski, $2,000,000, $1,500,000 and $6,000,000; for Mr. Zemlyak, $1,400,000, $613,333 and $2,640,000; for Mr. Nesi, $1,400,000, $720,000 and $3,180,000; for Mr. Michaud, $800,000, $586,667 and $2,520,000; for Mr. Weisel, $200,000 in each of 2018 and 2017; and, for Mr. Marischen in 2018, $180,000; The awards are valued at the closing price of our common stock on the date of grant. The grant date fair values of the PRSUs granted in 2018 are further detailed in the description of “2018 Grants of Plan-Based Awards”, below.

  (3)

All Other Compensation for 2018 includes the following:

 

  Name   

Non-

Accountable
Expense
Allowance ($)

    

Company’s

Matching

Contribution to

Profit Sharing

401(k) Plan ($)

    

 

Personal
and Family
Trans-
portation
($)
(1)

 

    

Interest Earned

on Debentures

($) (2)

     Life
Insurance ($)
     Total
Benefits ($)  
 

 

  Ronald J. Kruszewski

 

     25,000        1,000        8,769        10,500        21,275        66,544    

 

  James M. Zemlyak

 

     10,000        1,000        3,897                      14,897    

 

  Victor J. Nesi

 

     10,000        1,000        26,225                      37,225    

 

  Thomas B. Michaud

 

            1,000               16,425               17,425    

 

  Thomas W. Weisel

 

     25,000               298,530        1,875               325,405    

 

  James M. Marischen

 

            1,000               900               1,900    

 

  (1)

Reflects the value of personal use of Company-owned aircraft by Messrs. Kruszewski, Zemlyak and Mr. Nesi, in accord with the policy described on page 60, below. The aircraft allowance for Mr. Weisel is described on page 60.

  (2)

Dividends and dividend equivalents are reported in the Bonus column above.

2018 GRANTS OF PLAN-BASED AWARDS

 

The following table sets forth information concerning grants of plan-based awards received during the fiscal year ended December 31, 2018, for the named executive officers.

 

           

Potential Future Payouts Under Equity  Incentive

Plan Awards (1)

    All Other Awards:  

Grant Date  

Fair Value ($)  (1)  

 

 

Name

   Grant Date           

 

Threshold (#)

 

 

   

 

Target (#)

 

 

   

 

Maximum (#)

 

 

  Number of Units or
Shares of Stock 
(2)

 

Ronald J. Kruszewski

  

March 2, 2018

  

 

4,445

 

 

 

16,667

 

 

 

33,334

 

 

    —

 

 

1,000,000  

 

James M. Zemlyak

  

March 2, 2018

  

 

3,112

 

 

 

11,667

 

 

 

23,334

 

 

    —

 

 

700,000  

 

Victor J. Nesi

  

March 2, 2018

  

 

3,112

 

 

 

11,667

 

 

 

23,334

 

 

    —

 

 

700,000  

 

Thomas B. Michaud

  

March 2, 2018

  

 

1,778

 

 

 

6,667

 

 

 

13,334

 

 

18,334

 

 

1,500,000  

 

Thomas W. Weisel

  

March 2, 2018

  

 

445

 

 

 

1,667

 

 

 

3,334

 

 

    —

 

 

100,000  

 

James M. Marischen

  

March 2, 2018

  

 

400

 

 

 

1,500

 

 

 

3,000

 

 

4,167

 

 

340,000  

 

  (1)

The grant date fair values are calculated in accordance with ASC 718, and, with respect to PRSUs, based upon the probable outcome of the applicable performance conditions without regard to the effect of estimated forfeitures. The minimum actual award relating to PRSUs is approximately 26.7% of the grant date fair value amount and the maximum actual award is 200% of the grant date fair value amount. For Mr. Kruszewski, this figure is composed of $1,000,000 in PRSUs. For Mr. Zemlyak, this figure is composed of $700,000 in PRSUs. For Mr. Nesi, this figure is composed of $700,000 in PRSUs. For Mr. Michaud, this figure is composed of $400,000 in PRSUs and $1,100,000 in RSUs. For Mr. Weisel, this figure is composed of $100,000 in PRSUs. For Mr. Marischen, this figure is composed of $90,000 in PRSUs and $250,000 in RSUs.

  (2)

Represents the total number of stock units (other than equity incentive plan awards) granted to each named executive officer during the 2018 fiscal year. The stock units were part of the named executive officers’ annual and long-term incentive compensation. The components of the total stock unit awards and associated fair values are set forth below.

 

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STOCK UNIT AWARDS AND GRANT DATE FAIR VALUE UNDER ASC 718

 

 

  Name    Asset Category    Vesting Period
(1)
   Units (#)           

 

Grant Date
Fair Value ($)      

(2)          

 

 

Ronald J. Kruszewski

  

Mandatory Deferral (PRSUs)

   5 years      16,667        1,000,000      

James M. Zemlyak

  

Mandatory Deferral (PRSUs)

   5 years      11,667        700,000      

Victor J. Nesi

  

Mandatory Deferral (PRSUs)

   5 years      11,667        700,000      
  

Mandatory Deferral (RSUs and PRSUs(3))

   5 years      13,334        800,000      

Thomas B. Michaud

  

Annual Incentive Compensation (RSUs)

   5 years      11,667        70,000      
  

Total

        25,001        1,500,000      

Thomas W. Weisel

  

Mandatory Deferral (PRSUs)

   5 years      1,667        100,000      
  

Mandatory Deferral (RSUs and PRSUs(3))

   5 years      4,000        240,000      

James M. Marischen

  

Annual Incentive Compensation (RSUs)

   10 years      1,667        100,000      
  

Total

          5,667        340,000      
  (1)

The Mandatory Deferrals and the Annual Incentive Compensation RSUs each vest ratably on an annual basis over the period indicated.

  (2)

The grant date fair values are calculated in accordance with ASC 718.

  (3)

Composition detailed in note 2 to the Grants of Plan-Based Awards chart on page 55.

ADDITIONAL INFORMATION ABOUT THE COMPENSATION PAID TO THE NAMED EXECUTIVE OFFICERS

 

Pursuant to the SWAP, participants in the plan receive and are required to defer a portion of their annual incentive compensation. The mandatory deferral varies by income, production levels, and other factors. Stock units are issued to participants based upon the fair market value of our common stock on the date of issuance. Stock units received on a mandatory basis after 2011 vest ratably on an annual basis over a 5-year period of continued employment following the date of issuance. Vesting based on continued employment may be eliminated, however, upon a termination without cause if the holder of the award refrains from engaging in a competitive activity or a soliciting activity prior to the relevant vesting date of such award. Stock units that the participant elects to receive are fully vested on the date of issuance. The deferred portion of annual incentive compensation was in the form of restricted stock units and debentures. The debentures granted with respect to 2018 vest ratably on an annual basis over a 5-year period of continued employment after the grant and accumulate interest at a rate of 3.25% per annum. The debentures are shown in the Bonus column in the 2018 Summary Compensation Table.

2018 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

 

The following table sets forth information concerning the number of exercisable and unexercisable stock options and stock awards at December 31, 2018, held by the individuals named in the 2018 Summary Compensation Table.

 

  Name    Stock Units That Have Not Vested (1, 2)         Restricted Shares That Have Not Vested(2)
   Units (#)    Market Value ($)        Shares (#)    Market Value ($)    

Ronald J. Kruszewski

   242,604    10,048,658      77,071    3,192,281    

James M. Zemlyak

   94,895    3,930,551      47,343    1,960,947    

Victor J. Nesi

   103,898    4,303,455      43,707    1,810,344    

Thomas B. Michaud

   88,313    3,657,924      9,144    378,744    

Thomas W. Weisel

   18,872    781,678      6,420    265,916    

James M. Marischen

   31,805    1,317,363        4,390    181,834    
  (1)

These units vest over a three-to ten-year period and were granted under our 2001 Incentive Stock Plan (2011 or 2018 Restatement, as applicable). In addition to the amounts listed, as of December 31, 2018, based on our common stock closing stock price at year-end of $41.42, Mr. Kruszewski held 71,858 fully vested shares valued at $2,976,358; Mr. Zemlyak held 29,520 fully vested shares valued at $1,222,718; Mr. Nesi held 24,986 fully vested shares valued at $1,034,920; Mr. Michaud held 15,436 fully vested shares valued at $639,359; Mr. Weisel held 7,181 fully vested shares valued at $297,437 and Mr. Marischen held 3,258 fully vested shares valued at $134,947. The grant date fair values are calculated in accordance with ASC 718.

  (2)

Based on the closing price of $41.42 per share of our common stock on December 31, 2018.

 

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2018 CEO PAY RATIO

 

The following table sets forth the median of the 2018 total compensation of all employees of Stifel other than the CEO, the 2018 total compensation of the CEO, and the ratio of these two amounts, each as determined in accordance with Item 402(c) of SEC Regulation S-K.

 

          Year                Salary                  Bonus                  Stock Awards              All Other
    Compensation    
         Total          

Ronald J. Kruszewski

     2018        $200,000        $4,020,761        $1,000,000        66,544        5,287,305  

Median Employee

 

    

 

2018

 

 

 

    

 

$70,977

 

 

 

    

 

$19,653

 

 

 

    

 

 

 

 

    

 

$1,000

 

 

 

    

 

$91,630

 

 

 

CEO Pay Ratio: 58 to 1

 

The median employee was determined as of December 31, 2018 and by utilizing the gross wages as reported on each employee’s IRS Form W-2. In determining the median employee, we excluded 347 employees who operated in jurisdictions outside of the U.S. and made up less than 5% of our total employees, consisting of 330 employees in England, 8 in Hong Kong, 6 in China and 2 in Spain. The total number of employees that operated within the U.S. at the end of 2017 was 7,566. The total number of employees used for our de minimis calculation was 8,856 employees. The compensation figures shown here are calculated in accordance with applicable regulatory guidance and do not reflect the Committee’s perspective on compensation, which is described in the discussion beginning on page 25. A discussion of the key differences between calculations made according to applicable regulatory guidance and the Committee’s perspective on compensation begins on page 53.

2018 OPTION EXERCISES AND STOCK UNITS VESTED/CONVERTED

 

The following table sets forth certain information concerning stock vested/converted during the year ended December 31, 2018. None of the named executive officers held stock options at any time in 2018.

 

  Name

 

  

 

Number of Shares Acquired on    

Vesting/Conversion (#)    

 

    

Value Realized on                          

Vesting/Conversion ($)  (1)            

 

 

Ronald J. Kruszewski

     —                —              

James M. Zemlyak

     —                —              

Victor J. Nesi

     —                —              

Thomas B. Michaud

     3,933                247,126              

Thomas W. Weisel

     —                —              

James M. Marischen

     —                —              

 

  (1)

These figures represent the dollar value of gross units settled in our common stock by the named executive officers. Executives realize ordinary income and have a resulting tax liability equal to the current market price value of the shares received when vested stock units are settled in common stock. As a result, executives are given the ability to surrender shares in order to pay tax liabilities. During 2018, Mr. Michaud surrendered 1,373 shares as payment for tax liabilities. Shares surrendered are valued at fair market value on the date of conversion.

 

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2018 Post-Retirement Benefits

Nonqualified Deferred Compensation. The following table sets forth information concerning contributions, earnings, and balances under nonqualified deferred contribution plans for the named executive officers:

 

    Name   

Aggregate
Balance at
Beginning of   
Year ($)

 

  

Executive
Contribution in

Last FY ($) (1)

 

  

Registrant
Contribution in
Last FY ($)
(2)

 

    

 

Aggregate
Earnings /
(Losses) in Last

FY ($) (3)

 

 

Aggregate
Withdrawals/
Distributions  ($)
(4)

 

    

Aggregate
Balance at End       

of Year ($)

 

  Ronald J.

  Kruszewski

   23,009,994    1,000,000           (7,792,697)          16,217,297

  James M.

  Zemlyak

   10,000,958      700,000           (3,586,742)            7,114,216

  Victor J.

  Nesi

     9,952,000      700,000           (3,503,281)            7,148,719

  Thomas B.

  Michaud

     5,421,508      800,000      700,000      (1,998,355)     (247,126      4,676,027

  Thomas W.

  Weisel

     2,508,339      100,000           (1,263,308)            1,345,031

  James M.

  Marischen

     1,996,411      240,000      100,000        (702,268)            1,634,143

 

  (1)

The amounts listed in this column represent the annual incentive compensation paid to our named executive officers, which are mandatorily deferred under the SWAP and are included within the “Stock Awards” column of the Company’s 2018 Summary Compensation Table.

  (2)

The amounts listed in this column represent long-term incentive awards granted to our named executive officers, the value of which has been included within the “Stock Awards” column of the Company’s 2018 Summary Compensation Table.

  (3)

The amounts in this column represent, as applicable, (a) the change in market value of the Company’s common stock during the last fiscal year and (b) the difference between closing price of our common stock on December 31, 2018 and the fair value of incentive stock awards on the date of conversion.

  (4)

The amounts in this column represent the fair value of incentive stock awards on the date of conversion.

DISCUSSION OF POST-EMPLOYMENT PAYMENTS

 

Annual and Long-Term Incentive Awards. The annual and long-term incentive awards made to the named executive officers vest upon the death, disability, or retirement of the executive officer. Assuming any of these events had occurred at December 31, 2018, each named executive officer would have received full vesting of some or all of their outstanding units and RSAs. The following table describes the amounts each named executive officer would have received in that circumstance.

 

  Name    Number of Shares
Acquired if Vesting    
Upon a Change in
Control (#)
  

Value Realized if

Vesting Upon a Change

in Control ($)    

   Number of Shares
Acquired if Vesting    
Upon Death, Disability,  
or Retirement (#) 
(1)
   Value Realized if
Vesting Upon Death,      
Disability,  or
Retirement ($)
(2)

Ronald J. Kruszewski

           —            —    351,285    14,550,225           

James M. Zemlyak

           —            —      87,432    3,621,433         

Victor J. Nesi

           —            —      79,680    3,300,346         

Thomas B. Michaud

           —            —      42,119    1,744,569         

Thomas W. Weisel

           —            —      27,131    1,123,766         

James M. Marischen

           —            —      25,902    1,072,861         
  (1)

Includes the following number of shares that vest upon death or disability, but not upon retirement: Mr. Kruszewski, 230,716; Mr. Zemlyak, 78,925; Mr. Nesi, 90,147; Mr. Michaud, 59,910; Mr. Weisel, 1,371; and Mr. Marischen, 12,873. Includes RSUs and RSAs.

  (2)

Based on the closing price of $41.42 per share of our common stock on December 31, 2018. Includes RSUs and RSAs.

NON-EMPLOYEE DIRECTOR COMPENSATION

 

The following table sets forth information concerning compensation earned by our non-employee directors in fiscal year 2018. Directors who also serve as our employees, inside directors, do not receive additional compensation for their service as directors of either the Company or any of its subsidiaries, although we do reimburse them for their travel and similar expenses incurred to attend Board meetings.

 

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This policy applies to Messrs. Kruszewski and Marischen, who have served as both directors and executive officers of the Company. Non-employee directors are also reimbursed for their travel and similar expenses incurred to attend Board meetings. Information about the 2018 compensation earned or paid to Mr. Kruszewski in his capacity as an executive officer of the Company is disclosed in the 2018 Summary Compensation Table because he is a named executive officer for purposes of this proxy statement.

 

  Name   Fees Earned or
Paid in Cash ($) 
(1)
     Stock Unit
Awards ($) 
(2)        
     Total ($)       Total Stock Units    
Outstanding on    
December 31, 2018    
 

Kathleen Brown

    85,000        102,619                187,619        5,650          

Michael W. Brown

    110,000        102,619                212,619        16,901          

John P. Dubinsky

    149,250        102,619                251,869        16,907          

Robert E. Grady

    135,000        102,619                237,619        18,346          

Maura A. Markus

    85,000        102,619                187,619        5,650          

James M. Oates

    110,000        102,619                212,619        26,851          

David A. Peacock

    85,000        102,619                187,619        1,900          

Michael J. Zimmerman

    85,000        102,619                187,619        16,900          

 

  (1)

Stated amounts include cash compensation paid to Mr. Dubinsky in fiscal 2018 for his service as the non-executive Chairman, of the Board of Directors of Stifel Bank & Trust during 2018. In addition to an annual cash retainer of $85,000 for serving as a director, the various committee chairs and the lead independent director were awarded additional cash retainers as follows: Lead Independent Director, $25,000; Audit Committee, $25,000; Compensation Committee, $25,000; and Risk Management/Corporate Governance Committee, $25,000.

  (2)

In addition to an annual cash retainer of $85,000, each non-employee director was issued 1,900 stock units on September 25, 2018. The units vest on a quarterly basis over a one-year period. Amounts stated reflect the aggregate grant date fair value computed in accordance with ASC 718.

ADDITIONAL INFORMATION ABOUT NON-EMPLOYEE DIRECTOR COMPENSATION

 

Non-employee directors of the Company are required to defer all director fees into stock units pursuant to the Incentive Share Plan (2018 Restatement). These stock units are generally granted annually in May and vest on a quarterly basis over a one-year period.

As approved by the Board, the annual stock retainer payable to each non-employee director includes an award of 1,900 stock units and $85,000 cash. The chair of each of the Audit Committee, Compensation Committee, and Risk Management/Corporate Governance Committee, and the Lead Independent Director, each receive $25,000 in cash, for services in each such capacity. Each non-employee director also receives reimbursement of travel and similar expenses incurred to attend Board meetings.

Additionally, non-employee directors who also serve on the Board of Directors of Stifel Bank & Trust receive cash compensation as approved by the Stifel Bank & Trust Board of Directors. See footnote 1 to the director compensation chart above.

Directors who are also our employees do not receive any compensation for their service as directors of the Company or its subsidiaries, but we pay their expenses for attendance at meetings of the Board.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

The Sarbanes-Oxley Act of 2002 generally prohibits loans by an issuer and its subsidiaries to its executive officers and directors. However, the Sarbanes-Oxley Act contains a specific exemption from such prohibition for loans to its executive officers and directors in compliance with federal banking regulations. Federal regulations require that all loans or extensions of credit to executive officers and directors of insured financial institutions must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and must not involve more than the normal risk of repayment or present other unfavorable features.

From time to time, Stifel Bank & Trust makes loans and extensions of credit to our directors and executive officers. Outstanding loans made to our directors and executive officers, and members of their immediate families, were made in the ordinary course of business, were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with persons not related to the Company and its subsidiaries, and did not involve more than the normal risk of collectability or present other unfavorable features. As of December 31, 2018, all such loans were performing to their original terms.

Certain of our officers and directors maintain margin accounts with Stifel, Nicolaus & Company, Incorporated pursuant to which Stifel, Nicolaus & Company, Incorporated may make loans for the purchase of securities. All margin loans are made in the ordinary course of

 

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business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and do not involve more than normal risk of collectability or present other unfavorable features.

On August 7, 2018, Stifel and an entity controlled by Mr. Kruszewski, Stifel’s CEO and Chairman, entered into an agreement by which Stifel agreed to charter a vessel owned by the entity for twelve weeks per calendar year, in exchange for an annual rental fee of $275,000. In addition, Stifel is responsible for the incremental costs associated with its use of the vessel. The agreement may be terminated by either party at any time. The agreement constitutes a related party transaction. Accordingly, the Board reviewed and approved the transaction prior to its execution. Mr. Kruszewski recused himself from the Board’s deliberations with respect to the transaction. In 2018, in accordance with the terms of the charter agreement, Stifel paid the entity controlled by Mr. Kruszewski a $275,000 rental fee and Stifel incurred other incremental costs of $150,936 associated with Company use of the vessel, which were primarily fuel, dockage and crew expenses.

On February 22, 2019 and on March 20, 2019, Mr. Kruszewski surrendered 60,000 and 90,000 shares of our common stock to the Company. These dispositions were made at the closing prices for the day, which were $55.26 and $56.42, respectively. These surrenders constituted related party transactions. Accordingly, the Compensation Committee reviewed and approved these surrenders, with notice and opportunity to comment also given to the chair of the Audit Committee.

These and all other related party transactions are approved by the Board on a case-by-case basis.

We maintain various policies and procedures relating to the review, approval, or ratification of transactions in which our Company is a participant and in which any of our directors and executive officers or their family members have a direct or indirect material interest. Our Company Code of Ethics, which is available on our website at www.stifel.com, prohibits our directors and employees, including our executive officers and, in some cases, their family members, from engaging in certain activities without the prior written consent of management or our General Counsel, as applicable. These activities typically relate to situations where a director, executive officer, or other employee and, in some cases, an immediate family member, may have significant financial or business interests in another company competing with or doing business with our Company, or who stands to benefit in some way from such a relationship or activity. Specifically, our Code of Ethics includes prohibitions against engaging in outside business or other activities that might create a conflict of interest with or compete against the Company’s interests, including ownership of privately held stock or partnership interests without prior written approval, using Company property, information, or positions for improper personal gain or benefit, and receiving bonuses, fees, gifts, frequent or excessive entertainment, or any similar form of consideration above a nominal value from any person or entity with which the Company does, or seeks to do, business. It is also against Company policy to give certain gifts or gratuities without receiving specific approval.

Each year, we require our directors and executive officers to complete a questionnaire which identifies, among other things, any transactions or potential transactions with the Company in which a director or an executive officer or one of their family members or associated entities has an interest. We also require that directors and executive officers notify our Company of any changes during the course of the year to the information provided in the annual questionnaire as soon as possible.

We believe that the foregoing policies and procedures collectively ensure that all related party transactions requiring disclosure under applicable SEC rules are appropriately reviewed.

Aircraft and Personal Property Usage and Allowance Policy. Messrs. Kruszewski, Zemlyak and Nesi make limited personal and family use of Company-owned aircraft, in accordance with Company policy. This usage is reflected as part of their compensation in the amount of the incremental cost of personal travel for the year, including: landing, parking, and flight planning expenses; crew travel expenses; supplies and catering; aircraft fuel and oil expenses per hour of flight; maintenance, parts, and external labor per hour of flight; and customs, foreign permits, and similar fees. The fixed costs of owning or operating the aircraft is not included. In addition, in May 2011, the Committee approved the use by Mr. Weisel and certain of our other employees from time to time, of an airplane owned by Thomas Weisel Investment Management, Inc., an entity wholly owned by Mr. Weisel, for business and other travel. In connection with the airplane usage, the Company approved an airplane allowance payable to Thomas Weisel Investment Management, Inc. in an amount of up to $300,000 covering the calendar year 2018. This usage by Mr. Weisel is reflected as part of his compensation. Based on historical and anticipated usage of the airplane by Mr