8-KLeadership ChangesExhibits & Filings

STATE STREET CORP 8-K Report, Executive Changes (Mar 31, 2014)

Filed March 31, 2014For Securities:STTSTT-PG

Summary

State Street Corporation (STT) announced a significant change to its executive compensation structure on March 31, 2014, concerning change-of-control agreements. Specifically, the company has eliminated the "gross-up" provisions for excise taxes related to "golden parachute" payments. This means that in the event of a change of control that triggers these excise taxes, executives will now be responsible for paying those taxes themselves, rather than the company covering them. This move was initiated by the executive officers themselves, who offered to amend their agreements. The amendments adjust how potential excess compensation in a change-of-control scenario is handled. Previously, a gross-up payment would cover excise taxes if benefits exceeded a certain threshold. Now, if benefits exceed this threshold, the company will either reduce the benefits to avoid the tax or allow the executive to receive the full benefits and pay the tax, whichever results in the greatest after-tax benefit for the executive. This change aligns executive compensation more closely with after-tax outcomes and potentially reduces corporate liabilities associated with such events.

Key Highlights

  • 1Elimination of Change-of-Control Excise Tax Gross-Up Provisions: State Street executives will no longer receive company-paid "gross-ups" to cover excise taxes on "golden parachute" payments.
  • 2Executive-Initiated Amendments: The amendments to change-of-control agreements were proposed by the company's executive officers.
  • 3Shift in Tax Responsibility: Executives are now personally responsible for any excise taxes incurred on change-of-control benefits exceeding IRS limits.
  • 4Revised Benefit Calculation: In scenarios where change-of-control benefits exceed 110% of the 2.99x base amount threshold, executives will choose between a benefit "cutback" or paying the tax themselves for the greatest after-tax benefit.
  • 5Application to Key Executives: The amendments apply to named senior executives including the CEO, CFO, and other Vice Chairmen and Presidents.
  • 6Alignment with Shareholder Interests: This change can be viewed positively by investors as it reduces potential company expenses and aligns executive financial outcomes more directly with the tax implications of "golden parachute" provisions.

Frequently Asked Questions

A change-of-control excise tax gross-up is an additional payment made by a company to its executive officers to cover the excise taxes imposed by Section 280G and 4999 of the Internal Revenue Code on "golden parachute" payments. These taxes are triggered if change-of-control benefits exceed a certain threshold (typically 2.99 times an executive's base compensation).

State Street eliminated these gross-ups because the executive officers themselves proposed the amendments. This suggests a proactive move by leadership to adjust compensation structures and align with potential shareholder interests by reducing company-borne tax liabilities in change-of-control scenarios.

Previously, if benefits exceeded the threshold, the company would pay an additional amount to cover the executive's excise tax. Now, if benefits exceed the threshold, the executive will either have their benefits reduced (a "cutback") or receive the full benefits and pay the excise taxes themselves, choosing whichever option provides them the greatest net after-tax amount. This places the tax burden on the executive in certain situations.

This specific change is not expected to have a direct, immediate impact on State Street's financial performance in terms of revenue or profit. However, it does reduce a potential future financial obligation of the company related to change-of-control events, which can be seen as a positive for financial stability and a more prudent approach to executive compensation liabilities.