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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
MELLON BANK CORPORATION
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(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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[LOGO OF MELLON BANK CORP]
MELLON BANK CORPORATION Mellon Bank Corporation
One Mellon Bank Center
Pittsburgh, PA 15258-0001
March 4, 1997
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
Mellon Bank Corporation in Pittsburgh on Tuesday, April 15, 1997, at 10:00 A.M.
Further information about the meeting and the matters to be considered is
contained in the formal Notice of Annual Meeting and Proxy Statement on the
following pages.
It is important that your shares be represented at this meeting. Whether or not
you plan to attend, we hope that you will sign, date and return your Proxy
promptly in the enclosed envelope. Completing and returning the enclosed Proxy
will not limit your right to vote in person or to attend the meeting.
Sincerely,
/s/ Frank V. Cahouet
Frank V. Cahouet
Chairman, President and Chief Executive Officer
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[LOGO OF MELLON BANK CORP]
MELLON BANK CORPORATION
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258-0001
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders:
Notice is hereby given that the Annual Meeting of Shareholders of Mellon Bank
Corporation (the "Corporation") will be held on the 10th Floor of the Union
Trust Building, 501 Grant Street, Pittsburgh, Pennsylvania, on Tuesday, April
15, 1997, at 10:00 A.M., for the purpose of considering and acting upon the
following:
1. the election of directors;
2. a proposal to amend the Corporation's Restated Articles of Incorporation to
increase the authorized number of shares of Common Stock;
3. the ratification of the appointment of KPMG Peat Marwick LLP as independent
public accountants of the Corporation for the year 1997; and
4. such other matters as may properly come before the meeting.
The Board of Directors has fixed the close of business on Friday, February 14,
1997, as the record date for the determination of shareholders entitled to
notice of and to vote at the meeting or any adjournment thereof.
Enclosed are a Proxy Statement, a form of Proxy, an addressed return envelope
and the Corporation's 1996 Annual Report. All shareholders, whether or not they
expect to be present at the meeting, are requested to sign and date the Proxy
and to return it in the addressed envelope promptly. Shareholders who plan to
attend the meeting in person are also requested to complete and return the
reservation form which appears at the end of the Proxy Statement. Shareholders
who attend the meeting may, if they wish, vote in person even though they have
previously submitted a Proxy.
By Order of the Board of Directors
/s/ Carl Krasik
Carl Krasik
Secretary
March 4, 1997
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[LOGO OF MELLON BANK CORP]
MELLON BANK CORPORATION
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258-0001
PROXY STATEMENT
March 4, 1997
The accompanying Proxy is solicited by the Board of Directors of Mellon Bank
Corporation (the "Corporation") for use at the Annual Meeting of Shareholders
of the Corporation scheduled to be held on Tuesday, April 15, 1997. Proxies are
being solicited from holders of the Corporation's common stock, par value $0.50
per share (the "Common Stock"). If the Proxy is properly executed and returned,
the shares represented thereby will be voted and, where specification is made
by the shareholder as provided therein, will be voted in accordance with such
specification, subject to limitations applicable to certain shares of Common
Stock, as described below. The Proxy may, nevertheless, be revoked by written
notice to the Secretary of the Corporation at any time prior to the voting
thereof. In addition, shareholders who attend the annual meeting may, if they
wish, vote in person even though they have submitted a Proxy, in which event,
their Proxy will be deemed to have been revoked.
Subject to the limitations described below, unless a Proxy is revoked or
contains other instructions, the shares represented thereby will be voted at
the meeting FOR the election as directors of the nominees of the Board of
Directors set forth below (Proxy Item 1), FOR the proposal to amend the
Corporation's Restated Articles of Incorporation to increase the authorized
number of shares of Common Stock (Proxy Item 2) and FOR ratification of the
appointment of KPMG Peat Marwick LLP as independent public accountants of the
Corporation for the year 1997 (Proxy Item 3). However, if a broker or nominee
limits on the proxy card the number of shares voted on a proposal or indicates
that the shares represented by a proxy card are not voted on the proposal, such
"non-votes" will not be voted on the proposal and will not be counted in
determining the number of affirmative votes required for approval. The Proxy
also provides that the persons authorized thereunder may, in the absence of
instructions to the contrary, vote or act in accordance with their judgment on
any other matter properly presented for action at the meeting.
At the annual meeting, holders of Common Stock will be entitled to one vote for
each share held and will not be entitled to cumulative voting. Pursuant to the
terms of the agreement under which the Corporation's Series D Junior Preferred
Stock, par value $1.00 per share (the "Series D Stock"), was issued and
subsequently converted into Common Stock, those shares of Common Stock held by
Warburg, Pincus Capital Company, L.P. will be voted FOR the election of the
nominees named below and will be voted as directed by the holder on all other
matters; provided, however, that such shares will be voted on such other
matters in a manner that is no less favorable to the position recommended by
the Board of Directors than the allocation of the votes cast by all other
shareholders of the Corporation voting on such other matters.
The close of business on Friday, February 14, 1997, has been fixed by the Board
of Directors as the record date for the determination of shareholders entitled
to notice of and to vote at the annual meeting or any adjournment thereof. As
of that date, the Corporation had outstanding [129,078,378] shares of Common
Stock. Proxies, ballots and voting tabulations that identify individual holders
of Common Stock will be held in confidence by the Corporation's transfer agent.
The vote of any holder of Common Stock will not be disclosed except as may be
necessary to meet legal requirements, in the case of a contested proxy
solicitation or as may be requested by the particular shareholder. The
distribution of these proxy materials, consisting of the Notice of Annual
Meeting, the Proxy Statement and the form of Proxy, together with the
Corporation's 1996 Annual Report, is expected to commence on or about March 4,
1997.
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ELECTION OF DIRECTORS (PROXY ITEM 1)
The By-Laws of the Corporation provide that the directors of the Corporation
shall be classified into three classes, as nearly equal in number as possible,
with such classes of directors serving staggered, three-year terms of office.
Accordingly, at each annual meeting of shareholders, a class consisting of
approximately one-third of the Corporation's directors is elected to hold
office for a term expiring at the annual meeting of shareholders to be held in
the third year following the year of their election and until their successors
have been duly elected and qualified. The By-Laws further provide that the
Corporation's Board of Directors shall consist of such number of directors as
shall be fixed from time to time by a majority vote of the full Board of
Directors. The Board of Directors has fixed the number of directors at 20, and
at this year's annual meeting of shareholders seven directors will be elected
to the class of directors whose terms end in 2000. Burton C. Borgelt, Carol R.
Brown, Frank V. Cahouet, C. Frederick Fetterolf, George W. Johnstone, Andrew W.
Mathieson and Seward Prosser Mellon, all of whom are presently serving as
directors of the Corporation, have been nominated for election at this year's
annual meeting to the term ending in 2000.
Any vacancies in the Board of Directors resulting from death, retirement,
resignation, disqualification, removal from office or other cause, as well as
any vacancy resulting from an increase in the number of directors that occurs
between annual meetings of shareholders, will be filled by a majority vote of
the remaining directors then in office. Directors so chosen to fill vacancies
will hold office until the expiration of the term of the class to which they
have been elected.
It is intended that the shares of Common Stock represented by the enclosed
Proxy will be voted FOR the election of the nominees named below, unless such
authority to vote for one or more of the nominees is withheld. Pursuant to the
terms of the agreements mentioned above, Proxies submitted representing shares
of Common Stock received by Warburg, Pincus Capital Company, L.P. upon
conversion of its Series D Stock will be voted FOR the election of the nominees
named below. In the event that one or more of the nominees is unable or
unwilling to serve as a director, the persons named in the Proxy will vote for
the election of such substitute nominee, if any, as shall be named by the
Nominating Committee of the Board of Directors. The Board of Directors has no
reason to believe that any of the nominees will be unable or unwilling to serve
as a director, as each of the nominees has expressed a willingness to serve if
elected.
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BIOGRAPHICAL SUMMARIES OF NOMINEES AND CONTINUING DIRECTORS
Certain information regarding the nominees for election at this year's annual
meeting, as well as information regarding the continuing directors whose terms
expire in 1998 and 1999, is set forth below. Each of the nominees other than
Mr. Johnstone was previously elected by the shareholders at the Corporation's
1994 annual meeting of shareholders. Mr. Johnstone was elected by the Board of
Directors in 1996.
NOMINEES FOR DIRECTOR--TERM EXPIRES 2000
Burton C. Borgelt Director Since 1991 Age
64
[Picture] Retired (1996) Chairman and Chief Executive
Officer, Dentsply International, Inc.
(manufacturer of artificial teeth and
consumable dental products). Mr. Borgelt is
also a director of Dentsply International,
Inc. and DeVlieg-Bullard, Inc. He serves on
the Corporation's Trust and Investment
Committee and Community Responsibility
Committee.
Carol R. Brown Director Since 1992 Age
63
[Picture] President, The Pittsburgh Cultural Trust
(cultural and economic growth organization).
Mrs. Brown serves on the Corporation's Audit
Committee and Community Responsibility
Committee.
Frank V. Cahouet Director Since 1987 Age
64
[Picture] Chairman, President and Chief Executive
Officer of the Corporation and of Mellon Bank,
N.A. ("Mellon Bank"). Mr. Cahouet is also a
director of Avery Dennison Corporation, Saint-
Gobain Corporation and Allegheny Teledyne
Incorporated. He serves as Chairman of the
Corporation's Executive Committee.
C. Frederick Fetterolf Director Since 1984 Age
68
[Picture] Retired President and Chief Operating Officer,
Aluminum Company of America (aluminum and
chemicals). Mr. Fetterolf is also a director
of Allegheny Teledyne Incorporated,
Commonwealth Aluminum Company, Dentsply
International, Inc., Praxair, Quaker State
Corporation and Union Carbide Corporation. He
serves on the Corporation's Executive
Committee, Audit Committee (Chairman), Trust
and Investment Committee and Community
Responsibility Committee (Vice Chairman).
George W. Johnstone Director Since 1996 Age
58
[Picture] President, Chief Executive Officer and
director, American Water Works Company, Inc.
(water services company).
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Andrew W. Mathieson Director Since 1981 Age
68
[Picture] Executive Vice President, Richard K. Mellon
and Sons (investments) and Vice Chairman,
Richard King Mellon Foundation (philanthropy).
Mr. Mathieson is also a director of General Re
Corporation. He serves on the Corporation's
Executive Committee, Nominating Committee
(Vice Chairman) and Human Resources Committee
(Chairman).
Seward Prosser Mellon Director Since 1972 Age
54
[Picture] President and Chief Executive Officer, Richard
K. Mellon and Sons (investments) and Richard
King Mellon Foundation (philanthropy).
CONTINUING DIRECTORS--TERM EXPIRES 1998
Ira J. Gumberg Director Since 1989 Age
43
[Picture] President, Chief Executive Officer and
director, J.J. Gumberg Co. (real estate
management and development). Mr. Gumberg is
also a director of Fabri-Centers of America.
He serves on the Corporation's Executive
Committee, Audit Committee and Trust and
Investment Committee (Chairman).
Edward J. McAniff Director Since 1994 Age
62
[Picture] Partner, O'Melveny & Myers (full service law
firm). Mr. McAniff serves on the Corporation's
Community Responsibility Committee and Trust
and Investment Committee.
David S. Shapira Director Since 1986 Age
55
[Picture] Chairman, Chief Executive Officer and
director, Giant Eagle, Inc. (retail grocery
store chain). Mr. Shapira is also a director
of Action Industries, Inc. and Equitable
Resources, Inc. He serves on the Corporation's
Executive Committee, Audit Committee (Vice
Chairman), Trust and Investment Committee and
Technology Committee.
[Picture] W. Keith Smith Director Since 1987 Age
62
Vice Chairman of the Corporation and Mellon
Bank. Mr. Smith is also a director of Dentsply
International, Inc. He serves on the
Corporation's Executive Committee.
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Joab L. Thomas Director Since 1993 Age
64
[Picture] President Emeritus (1995), The Pennsylvania
State University (major public research
university). Dr. Thomas is also a director of
Blount, Inc. and Lukens, Inc. He serves on the
Corporation's Human Resources Committee and
Technology Committee.
William J. Young Director Since 1964* Age
68
[Picture] Retired President, Portland Cement Association
(trade association for the Portland Cement
Industry). He serves on the Corporation's
Human Resources Committee, Trust and
Investment Committee (Vice Chairman) and
Community Responsibility Committee.
CONTINUING DIRECTORS--TERM EXPIRES 1999
Dwight L. Allison, Jr. Director Since 1996** Age
67
[Picture] Retired Chairman, President and Chief
Executive Officer, The Boston Company. Mr.
Allison is also a director of Avery Dennison
Corporation.
J. W. Connolly Director Since 1989 Age
63
[Picture] Retired (1993) Senior Vice President, H. J.
Heinz Company (food manufacturer). Mr.
Connolly is also a director of Consolidated
Natural Gas Company. He serves on the
Corporation's Executive Committee, Audit
Committee and Human Resources Committee (Vice
Chairman).
Charles A. Corry Director Since 1991 Age
65
[Picture] Retired (1995) Chairman and Chief Executive
Officer, USX Corporation (energy and steel).
Mr. Corry is also a director of USX
Corporation and GenCorp. He serves on the
Corporation's Executive Committee, Audit
Committee, Nominating Committee (Chairman) and
Human Resources Committee.
* Served as a director of The Girard Company from the date indicated until its
merger with the Corporation in 1983.
** Has served as a director of The Boston Company since 1972.
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Pemberton Hutchinson Age 65
Director Since 1989
[Picture] Retired (1993) Chief Executive Officer,
Westmoreland Coal Company (coal mining
company). Mr. Hutchinson is also a director of
Westmoreland Coal Company, The Pep Boys--
Manny, Moe and Jack and Teleflex Incorporated.
He serves on the Corporation's Nominating
Committee, Trust and Investment Committee and
Community Responsibility Committee.
Rotan E. Lee, Esquire Age 47
Director Since 1993
[Picture] Partner, Sherr, Joffe & Zuckerman, P.C. (full
service law firm). From 1994 to 1996, Mr. Lee
served as Chief Operating Officer of RMS
Technologies, Inc. (information technology).
Prior to 1994, he was a partner with Fox,
Rothschild, O'Brien & Frankel (full service
law firm). Mr. Lee serves on the Corporation's
Trust and Investment Committee and Community
Responsibility Committee.
Robert Mehrabian Age 55
Director Since 1994
[Picture] President, Carnegie Mellon University (private
co-educational research institution). Dr.
Mehrabian is also a director of Allegheny
Teledyne Incorporated, DQE, Duquesne Light
Company and PPG Industries, Inc. He serves on
the Corporation's Executive Committee, Audit
Committee and Technology Committee (Chairman).
Wesley W. von Schack Age 52
Director Since 1989
[Picture] Chairman, President, Chief Executive Officer
and director, New York State Electric and Gas
Corporation (energy services company). Prior
to 1996, Mr. von Schack served as Chairman,
President and Chief Executive Officer of DQE
(energy services company). Mr. von Schack is
also a director of RMI Titanium Company. He
serves on the Corporation's Executive
Committee, Nominating Committee, Human
Resources Committee, Technology Committee and
Community Responsibility Committee (Chairman).
ACTION BY SHAREHOLDERS
The seven nominees receiving the highest number of votes cast at the annual
meeting by all holders of shares of Common Stock will be elected as directors
for terms expiring in 2000. A vote indicated as withheld from a nominee will
not be cast for such nominee but will be counted in determining the presence of
a quorum.
WITH RESPECT TO THE ELECTION OF DIRECTORS (PROXY ITEM 1), THE BOARD OF
DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF ALL NOMINEES.
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THE BOARD AND ITS COMMITTEES; DIRECTORS' COMPENSATION
The Board of Directors held 12 regular meetings during 1996. Each incumbent
director attended at least 75 percent of the aggregate number of meetings of
the Board and of the committees of which he or she was a member during the
period served in 1996. With the exception of the Executive Committee, all
committees of the Board of Directors are composed of directors who are not
officers of the Corporation.
The committees of the Board of Directors and a general description of their
respective duties follow:
EXECUTIVE COMMITTEE
The Executive Committee has the power and authority of the Board of Directors
to manage the affairs of the Corporation between meetings of the Board of
Directors. The Committee also regularly reviews significant corporate matters
and recommends action as appropriate to the Board. The Executive Committee met
14 times during 1996.
AUDIT COMMITTEE
The Audit Committee oversees the credit policies, accounting practices,
auditing policies, controls and other material financial matters of the
Corporation and its subsidiaries. The Committee meets monthly with the head of
the Auditing Department of the Corporation and with representatives of the
Corporation's independent public accountants at least quarterly, with and
without representatives of management present, to review accounting, auditing
and financial reporting matters, including the review of audit plans.
Appointment of the independent public accountants is made by the Board of
Directors upon the recommendation of the Audit Committee and is ratified by the
shareholders. The Audit Committee met 11 times during 1996.
NOMINATING COMMITTEE
The Nominating Committee considers and recommends to the Board of Directors of
the Corporation and to the Boards of Directors of its various significant
subsidiaries such as Mellon Bank, Mellon Bank (DE) National Association, Mellon
Bank (MD), Boston Safe Deposit and Trust Company, Mellon Bank, F.S.B. (together
referred to as the "Banks"), The Boston Company and The Dreyfus Corporation,
candidates for nomination for election as directors of those respective
entities.
The Committee also considers nominees recommended by shareholders for election
as directors of the Corporation. To make such a recommendation, a shareholder
should submit in writing the name, address and qualifications of the proposed
nominee to the Secretary of the Corporation, One Mellon Bank Center, Room 1820,
Pittsburgh, Pennsylvania 15258-0001. In addition, the By-Laws of the
Corporation set forth specific procedures that, if followed, enable any
shareholder entitled to vote in the election of directors to make nominations
directly at a meeting of shareholders. The procedures set forth in the By-Laws
include a requirement for written notice to the Corporation at least 90 days
prior to the anniversary date of the previous year's annual meeting of
shareholders.
The Committee also reviews and recommends to the Board of Directors of the
Corporation and the Boards of Directors of its various significant subsidiaries
policies relating to practices and responsibilities of the Boards of Directors
and their various committees and the components of the directors' compensation.
The Nominating Committee met two times during 1996.
HUMAN RESOURCES COMMITTEE
The Human Resources Committee establishes the compensation and benefits of the
Chairman and Chief Executive Officer and reviews the performance of such senior
officers of the Corporation and its subsidiaries as the Committee designates.
The Committee also generally advises and assists management in implementing
programs designed to assure the selection and development of key personnel and
receives and reviews reports on other significant matters and actions taken in
connection with the operation and administration of the Corporation's employee
benefits plans. The Committee administers the Corporation's Profit Bonus Plan,
Long-Term Profit Incentive Plan (1996) and Phantom Stock Unit Plan (1995),
including the making of awards thereunder. The Committee met eight times during
1996.
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TRUST AND INVESTMENT COMMITTEE
The Trust and Investment Committee has general oversight of the trust and
investment activities of the Corporation's subsidiaries. It ensures that assets
held in a fiduciary capacity are being administered in accordance with
applicable law and regulations. It also acts as a channel independent of
management through which auditing and bank examination reports regarding trust
and investment activities are presented to the Banks' Boards of Directors. The
Committee is also responsible for overseeing the administration of fiduciary
responsibilities for the non-bank subsidiaries of the Corporation and has
general oversight responsibilities for the trust departments of the Banks. The
Committee met eight times during 1996.
COMMUNITY RESPONSIBILITY COMMITTEE
The Community Responsibility Committee has general oversight responsibility
for, and may take such action as the Committee deems necessary or desirable in
connection with, the Corporation's policy concerning overall compliance with
the Community Reinvestment Act ("CRA") and Fair Lending laws. In addition to
these oversight responsibilities, the Committee also has specific
responsibilities for reviewing the Corporation's overall policy and goals
concerning CRA and Fair Lending activities, monitoring each Bank's compliance
and reviewing the report of the Corporation's contributions program. The
Committee also reviews the examination reports of the Corporation and the Banks
by regulatory authorities concerning CRA and Fair Lending compliance and
renders a report to the Board with respect thereto. The Committee met four
times during 1996.
TECHNOLOGY COMMITTEE
The Technology Committee has general oversight responsibility for, and may take
such action as the Committee deems necessary or desirable in connection with,
the overall role of technology and its use throughout the Corporation. It
advises and assists management in the formulation and implementation of
operating and strategic plans designed to take full advantage of existing and
emerging technology. It also monitors the performance of technology throughout
the Corporation. The Committee met six times during 1996.
DIRECTORS' COMPENSATION
Each director of the Corporation who does not receive a salary from the
Corporation or one of its subsidiaries currently receives a monthly retainer of
$2,083 and, in addition, a per meeting fee of $900 for each meeting at which
such director renders services to the Corporation, including meetings of
shareholders, the Board of Directors or any committee of the Board of Directors
on which such director serves, and separate meetings (if any) with senior
management of the Corporation at which services are rendered. In addition, each
director who serves as a Committee chairman receives a quarterly retainer
ranging from $500 to $625, according to the Committee on which he serves.
Effective in April 1997, the monthly retainer for directors will be increased
to $2,292, the per meeting fee will be increased to $1,000 and the quarterly
retainer for Committee chairmen will range from $750 to $875. The retainers
were last increased in 1992, and the per meeting fee was last increased in
1994. The directors also serve as the Board of Directors of Mellon Bank and are
paid a per meeting fee of $700 for attending any meeting of such Board on a day
when the Corporation's Board of Directors does not meet. Non-employee directors
may defer all or a portion of their fees pursuant to the terms of the
Corporation's 1990 Elective Deferred Compensation Plan for Directors and
Members of the Advisory Board, which pays interest at a rate based on the 120
month moving average rates on 10-year Treasury Notes, plus a premium based on
service which is credited upon termination of service.
In addition, non-employee directors receive stock option grants under the
Corporation's Stock Option Plan for Outside Directors (1989) (the "Directors
Option Plan"), a formula plan under which options to purchase Common Stock are
granted each year on the third business day following the Corporation's annual
meeting of shareholders. Currently, the number of shares of Common Stock
covered by each grant is equal to 8.1% of the dollar value of the annual
retainer for the service year in which the grant is made. Directors (if any)
elected during the service year at a time other than the annual meeting of
shareholders receive an option grant covering a prorated number of shares but
with all other terms identical to those options granted on the regular grant
date. All options have a
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term of 10 years, are not exercisable until one year from the regular grant
date (at which time they become fully exercisable), and have an exercise price
equal to the closing price of the Common Stock on the New York Stock Exchange
on the regular grant date. Options that have not become exercisable are
forfeited as of the date the optionee ceases to serve as a director for any
reason other than the director's death, disability or completion of term of
service. Options that have become exercisable remain exercisable throughout
their 10-year term, regardless of whether the optionee is a director at the
time of exercise. In April 1996, each of the directors, except Messrs. Allison,
Cahouet, Johnstone and Smith, was granted an option covering 2,025 shares of
Common Stock at an exercise price of $54.25 per share. Upon their election to
the Board of Directors in June and December, respectively, Messrs. Allison and
Johnstone were granted options covering 1,712 and 677 shares, respectively,
representing a pro rata share of a full year's award.
Directors also participate in the Directors' Retirement Plan which is intended
to assure that compensation arrangements for directors of the Corporation are
adequate to attract and retain highly qualified individuals. Under the
Directors' Retirement Plan an eligible director will receive monthly benefits
equal to the monthly retainer in effect at his or her time of retirement from
the Board for a period equal to his or her total months of service on the Board
but no longer than 120 months. Only directors who are not officers of the
Corporation are eligible to receive this benefit, and a director must serve on
the Board for at least five years before this benefit vests. As a result of
informal life insurance funding, the program is not expected to result in any
material cost to the Corporation.
As part of its overall program to promote charitable giving, the Corporation
has also established a Directors' Charitable Giving Program to be informally
funded by Corporation-owned life insurance policies on the directors. Under the
program, upon the death of a director, the Corporation will donate up to an
aggregate of $250,000 to one or more qualifying charitable organizations
designated by the director. The donations are paid by the Corporation over a
10-year period following the director's death. A director must have served on
the Board for three years to be eligible to participate in the Charitable
Giving Program. As a result of the informal life insurance funding, the program
is not expected to result in any material cost to the Corporation.
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ADVISORY BOARD
The Corporation also enjoys the services of the Advisory Board, whose current
members are profiled below. The Advisory Board provides to the Board and
management of the Corporation, as requested, general policy advice and
assistance on various business matters. Any person who has been a member of the
Corporation's Board of Directors or who otherwise demonstrates the abilities
required on the Advisory Board, and who has not yet attained the age of 72, is
eligible for annual election by the Board of Directors to the Advisory Board.
Members of the Advisory Board have demonstrated the experience, ability and
willingness to be able to provide valuable advice and assistance to the
Corporation. They are regularly invited to participate in meetings and other
activities of the Board of Directors but are not entitled to vote or take part
in any formal action by the Board. Policies of the Board of Directors provide
that persons who have attained age 70 are not eligible for election or
reelection to the Board of Directors.
Howard O. Beaver, Jr. Advisory Board Since 1990
[Picture] Retired Chairman and Chief Executive Officer,
Carpenter Technology Corporation (wrought
specialty steel producer). Mr. Beaver served
on the Corporation's Board of Directors from
1983 through 1990. Mr. Beaver served as a
director of The Girard Company from 1971 until
its merger with the Corporation in 1983.
H. Bryce Jordan Advisory Board Since 1993
[Picture] President Emeritus, The Pennsylvania State
University. Dr. Jordan served on the
Corporation's Board of Directors from 1984
through 1993.
John C. Marous Advisory Board Since 1994
[Picture] Retired Chairman and Chief Executive Officer,
Westinghouse Electric Corporation (electronic
products and services). Mr. Marous served on
the Corporation's Board of Directors from 1987
through 1994.
Masaaki Morita Advisory Board Since 1992
[Picture] Chairman, Sony USA Foundation. Mr. Morita
served on the Corporation's Board of Directors
from 1991 through 1992.
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Nathan W. Pearson Advisory Board Since 1991
[Picture] Financial Advisor, Paul Mellon Family
Interests. Mr. Pearson served on the
Corporation's Board of Directors from 1972
through 1991. Mr. Pearson also served as
Chairman of the Board of Directors in 1987.
H. Robert Sharbaugh Advisory Board Since 1995
[Picture] Retired Chairman, Sun Company, Inc. (energy
services). Mr. Sharbaugh served on the
Corporation's Board of Directors from 1983
through 1995. Mr. Sharbaugh served as a
director of The Girard Company from 1972 until
its merger with the Corporation in 1983.
Richard M. Smith Advisory Board Since 1994
[Picture] Retired Vice Chairman, Bethlehem Steel
Corporation (integrated steel producer). Mr.
Smith served on the Corporation's Board of
Directors from 1983 through 1994. Mr. Smith
served as a director of The Girard Company
from 1974 until its merger with the
Corporation in 1983.
12
<PAGE>
- --------------------------------------------------------------------------------
BUSINESS RELATIONSHIPS AND RELATED TRANSACTIONS
Certain directors, executive officers and principal shareholders of the
Corporation and their associates were customers of and had transactions with
one or more of the Banks or other subsidiaries of the Corporation in the
ordinary course of business during 1996. Similar transactions may be expected
to take place in the future. Loans and commitments included in such
transactions were made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with other persons and did not involve more than the normal risk
of collectibility, nor did they present other unfavorable features. The Banks,
in the ordinary course of business, also engage in purchases and sales of
government and municipal securities and in other money market transactions with
certain directors, executive officers and principal shareholders of the
Corporation and their associates. In addition, the Banks act as fiduciaries
under various employee benefit plans of certain customers, the officers of
which are directors of the Corporation and of Mellon Bank.
During 1996, the purchase of goods and services, or the lease of property, by
the Corporation, the Banks or other subsidiaries of the Corporation in the
ordinary course of business included transactions with various director-related
companies and with principal shareholders of the Corporation. The amounts
involved in these transactions were in no case material in relation to the
business of the Corporation, any of the Banks or any of the other subsidiaries
of the Corporation. It is also believed that the amounts involved in such
transactions, as well as the transactions themselves, were not material in
relation to the business of any such director-related company or principal
shareholder and that no director had a material interest in any such
transaction. The law firm of O'Melveny & Myers performed legal services for the
Corporation during 1996. Edward J. McAniff, a director of the Corporation, is a
partner of O'Melveny & Myers. The amounts paid by the Corporation to O'Melveny
& Myers were not material to the Corporation or, it is believed, to O'Melveny &
Myers.
CERTAIN LEGAL PROCEEDINGS
On August 17, 1992, Phar-Mor, Inc. and a number of its related entities filed a
voluntary petition under Chapter 11 of the United States Bankruptcy Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the Northern
District of Ohio (the "Chapter 11 filing"). At the time of the Chapter 11
filing, David S. Shapira, a director of the Corporation, was the Chief
Executive Officer and a shareholder of Phar-Mor. On August 29, 1995, the plan
of reorganization was confirmed and on September 11, 1995 the plan was
consummated and Phar-Mor emerged from bankruptcy proceedings.
Westmoreland Coal Company ("Westmoreland") filed a voluntary petition under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the
District of Delaware on November 8, 1994. On December 22, 1994, the plan of
reorganization was confirmed. Pemberton Hutchinson, a director of the
Corporation, served as an executive officer of Westmoreland until his
retirement as Chief Executive Officer in June of 1993.
13
<PAGE>
- --------------------------------------------------------------------------------
BENEFICIAL OWNERSHIP OF STOCK
DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
The following table sets forth, as of February 14, 1997, the amount of the
Corporation's stock beneficially owned by each incumbent director, each nominee
and each executive officer named in the Summary Compensation Table appearing on
page 16 and by all incumbent directors, nominees and executive officers of the
Corporation as a group. Except as otherwise indicated, sole voting power and
sole investment power with respect to the shares shown in the table are held
either by the individual alone or by the individual together with their spouse.
<TABLE>
<CAPTION>
Common Stock Owned
Name Beneficially (1) (2) (3)
- -------------------------------------------------------------------------------
<S> <C>
Dwight L. Allison, Jr................................. 4,250
Burton C. Borgelt..................................... 15,905
Carol R. Brown........................................ 7,403
Frank V. Cahouet...................................... 1,046,109(4)
Christopher M. Condron................................ 54,975(5)
J.W. Connolly......................................... 19,713
Charles A. Corry...................................... 13,962(6)
Steven G. Elliott..................................... 119,440
C. Frederick Fetterolf................................ 19,037(7)
Ira J. Gumberg........................................ 57,131
Pemberton Hutchinson.................................. 5,750
George W. Johnstone................................... 100
Rotan E. Lee.......................................... 5,066
Andrew W. Mathieson................................... 28,164(8)
Edward J. McAniff..................................... 4,935
Martin G. McGuinn..................................... 139,592(9)
Robert Mehrabian...................................... 6,156
Seward Prosser Mellon................................. 115,511
Keith P. Russell...................................... 40,557
David S. Shapira...................................... 19,392
W. Keith Smith........................................ 225,814(10)
Joab L. Thomas........................................ 11,632
Wesley W. von Schack.................................. 26,181(11)
William J. Young...................................... 20,742
Directors, Nominees and Executive Officers as a group
(28 persons).......................................... 2,171,261
</TABLE>
- ------
(1) On February 14, 1997, none of the individuals named in the above table,
beneficially owned more than 1% of the Corporation's outstanding shares of
Common Stock. On that date, all the directors, nominees and executive
officers as a group owned beneficially approximately 1.7% of the
Corporation's outstanding Common Stock.
(2) The amounts shown include the following amounts of Common Stock which the
indicated individuals and group have the right to acquire within 60 days of
February 14, 1997, through the exercise of stock options granted pursuant
to the Corporation's stock option plans: Mr. Allison, -0-, Mr. Borgelt,
12,755; Ms. Brown, 4,050; Mr. Cahouet, 487,908; Mr. Condron, 25,530; Mr.
Connolly, 17,463; Mr. Corry, 11,462; Mr. Elliott, 41,841; Mr. Fetterolf,
16,242; Mr. Hutchinson, 2,025; Mr. Johnstone, -0-, Mr. Lee, 4,916; Mr.
McAniff, 3,357; Mr. McGuinn, 55,058; Dr. Mehrabian, 4,656; Mr. Russell,
25,501; Mr. Smith, 134,184; Dr. Thomas, 5,232; all other directors 19,242
shares each; and all directors, nominees and executive officers as a group,
1,067,662 shares. Shares held in accounts under the Corporation's
Retirement Savings Plan, a 401(k) plan, as to which the holders have voting
power but not investment power, are also included as follows: Mr. Cahouet,
1,918 shares; Mr. Condron, 260 shares; Mr. Elliott, 1,501 shares; Mr.
McGuinn, 1,663 shares; Mr. Russell, 135 shares; Mr. Smith, 1,640 shares;
and all executive officers as a group, 11,044 shares.
(footnotes continued on next page)
14
<PAGE>
- --------------------------------------------------------------------------------
(3) Certain of the directors, nominees and executive officers named above also
own shares of the 9% Cumulative Non-Convertible Preferred Stock (the "9%
Preferred") of Mellon Preferred Capital Corporation, a real estate
investment trust subsidiary of the Corporation. Each of Mrs. Brown, Mr.
Gumberg, Mr. Johnstone, Dr. Mehrabian, Mr. Mellon and Mr. Shapira owns one
share of the 9% Preferred, each representing less than 1% of such
outstanding shares. Mr. Cahouet, Mr. Condron, Mr. Corry, Mr. Elliott, Mr.
Fetterolf, Mr. Hutchinson, Mr. Mathieson, Mr. McAniff, Mr. McGuinn, Mr.
Russell, Mr. Smith, Mr. von Schack and Mr. Young each owns one share and
the spouse of each of them also owns one share of the 9% Preferred. Thus,
together with their respective spouses, each of such persons may be
considered to beneficially own 1.6% of the outstanding shares of the 9%
Preferred. Such persons disclaim beneficial ownership of the shares held by
their respective spouses. All the directors, nominees and executive
officers as a group own beneficially approximately 30% of the 123
outstanding shares of 9% Preferred.
(4) Of these shares, 240,282 are held in trust for Mr. Cahouet's wife and
29,150 are held in the Cahouet Charitable Trust. Mellon Bank is the sole
trustee for Mrs. Cahouet's trust, and Mr. Cahouet has no voting or
investment control over such shares. Mr. Cahouet is a co-trustee with
others and shares voting and investment control over the shares held by the
Cahouet Charitable Trust. Mr. Cahouet disclaims beneficial ownership of all
such shares.
(5) Of these shares, 569 are held by Mr. Condron's wife. Mr. Condron disclaims
beneficial ownership of such shares.
(6) Mr. Corry also holds 6,200 shares of Series K Preferred Stock of the
Corporation. These holdings represent less than 1% of the Corporation's
outstanding shares of Series K Preferred Stock.
(7) Of these shares, 600 are held by the Fetterolf Family Foundation, as to
which Mr. Fetterolf shares voting and investment power. Mr. Fetterolf
disclaims beneficial ownership of such shares.
(8) Mr. Mathieson is a co-trustee with others, including Mellon Bank, and
shares voting and investment control for trusts which hold an aggregate of
240,269 shares of Common Stock, not shown in the table. Mr. Mathieson
disclaims beneficial ownership of all such shares.
(9) Of these shares, 7,000 are held by Mr. McGuinn's wife. Mr. McGuinn
disclaims beneficial ownership of such shares.
(10) Of these shares, 18,000 are held by Mr. Smith's wife. Mr. Smith disclaims
beneficial ownership of such shares.
(11) Of these shares, 289 are held by Mr. von Schack's wife. Mr. von Schack
disclaims beneficial ownership of such shares.
PRINCIPAL SHAREHOLDERS
The following table sets forth, to the knowledge of the Corporation, the
beneficial owners, as of February 14, 1997, of more than 5% of the outstanding
shares of the Corporation's Common Stock.
<TABLE>
<CAPTION>
Common Stock Owned
Beneficially
---------------------
Number Percent of
Name Address of Shares Class
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Warburg, Pincus 466 Lexington Avenue
Capital Company, L.P. (1) New York, NY 10017 11,015,266 8.53%
</TABLE>
- ------
(1) The sole general partner of Warburg, Pincus Capital Company, L.P. ("WPCC")
is Warburg, Pincus & Co., a New York general partnership ("WP"). E.M.
Warburg, Pincus & Co., L.L.C., a New York limited liability company ("EMW
LLC") manages WPCC. The members of EMW LLC are substantially the same as
the partners of WP. Lionel I. Pincus is the managing partner of WP and the
managing member of EMW LLC and may be deemed to control both WP and EMW
LLC. WP, as the sole general partner of WPCC, has a 20% interest in the
profits of WPCC. Pursuant to a Purchase Agreement, dated as of July 25,
1988, between the Corporation and WPCC (the "Purchase Agreement"), under
which shares of the Corporation's Series D Stock were originally acquired
(which shares were converted into Common Stock, pursuant to their terms),
WPCC is entitled to have a representative attend every meeting of the Board
of Directors of the Corporation and each committee of the Board of
Directors of the Corporation in an observer capacity. Such representative
does not vote or receive any retainer or fee for such attendance.
15
<PAGE>
- --------------------------------------------------------------------------------
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table shows the compensation for the past three years of each of
the Corporation's six most highly compensated officers, including the chief
executive officer (the "named executive officers").
<TABLE>
<CAPTION>
Long Term Compensation
-----------------------------------
Annual Compensation Awards Payouts
------------------------------------------ ------------------------ ----------
Other Annual Restricted Securities LTIP All Other
Name and Compensation Stock Awards Underlying Payouts Compensation
Principal Position Year Salary ($) Bonus (1) ($) ($) ($) (1) (2) Options (#) ($) (3) ($) (4)
- ------------------ ---- ---------- ------------- ------------ ------------ ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Frank V. Cahouet........ 1996 $926,667 $1,080,000 $16,900 $452,163 247,614 $1,944,377 $272,650
Chairman, President 1995 860,000 645,000 11,100 268,650 173,446 1,613,127 244,905
and Chief Executive 1994 826,667 322,500 6,400 136,063 300,402 -0- 284,527
Officer
W. Keith Smith.......... 1996 500,000 310,000 9,500 129,719 34,000 704,818 32,579
Vice Chairman 1995 408,333 240,000 15,000 99,500 -0- 493,126 36,149
1994 400,000 105,000 8,400 44,706 163,996 -0- 27,450
Christopher M. Condron.. 1996 500,000 375,000 5,200 159,369 25,697 312,516 17,721
Vice Chairman 1995 313,750 588,000 5,300 134,325 52,350 123,008 19,852
1994 275,000 72,225 -0- 31,100 54,950 -0- 818,792(5)
Steven G. Elliott....... 1996 358,333 350,000 2,500 114,894 41,444 554,989 18,108
Vice Chairman and 1995 285,833 183,750 5,300 77,113 14,707 334,330 11,495
Chief Financial Officer 1994 270,000 147,000 2,100 62,200 96,177 -0- 9,285
Martin G. McGuinn....... 1996 358,333 350,000 1,500 114,894 34,969 434,016 25,557
Vice Chairman 1995 285,833 168,000 3,600 69,650 15,176 304,000 20,858
1994 270,250 147,000 1,500 62,200 83,313 -0- 27,120
Keith P. Russell........ 1996 358,333 350,000 2,400 114,894 34,000 637,688 6,230
Vice Chairman 1995 285,833 183,750 6,000 77,113 -0- 330,375 6,746
1994 266,250 98,250 2,100 42,763 59,501 -0- 4,124
</TABLE>
- ------
(1) Bonus awards are generally payable 75% in cash and 25% in restricted shares
of the Corporation's Common Stock or phantom stock units equivalent to
restricted shares. In calculating the number of restricted shares or
phantom stock units to be awarded as the non-cash portion of the bonus
awards, the value of the non-cash portion of the award was divided by the
per share fair market value of the Common Stock on the grant date with the
result multiplied by 125% to take into account the financial impact of the
restrictions placed on the stock or phantom stock units. The restrictions
generally prevent transfer or sale of the stock for a three year period and
subject the shares to forfeiture in the event the executive terminates his
employment with the Corporation during that three year period. Similarly,
phantom stock units would become payable in cash at the end of three years
and are subject to forfeiture upon earlier termination of employment.
During the restriction period, the executive has full voting rights with
respect to restricted shares and receives dividends, or dividend
equivalents with respect to phantom stock units, at the same rate as other
holders of the Corporation's Common Stock. The aggregate market value of
such restricted stock or phantom stock units on the award date is disclosed
as Long Term Compensation under "Restricted Stock Awards". No phantom stock
units were granted for 1996. Also included under "Bonus" are additional
cash bonus amounts paid for 1995 and 1996 in recognition of the assumption
of additional responsibility and for outstanding service.
(2) The number and value of the aggregate restricted stock and phantom stock
unit holdings of each of the named officers at the end of 1996 were as
follows: Mr. Cahouet-8,900/$631,900; Mr. Smith-3,150/$223,650; Mr. Condron-
3,500/$248,500; Mr. Elliott-3,150/$223,650; Mr. McGuinn-3,000/$213,000; Mr.
Russell-2,650/$188,150. The preceding restricted stock and phantom stock
units were valued using the Common Stock's December 31, 1996 closing price
of $71.00 per share on the New York Stock Exchange.
(3) LTIP Payouts, in the form of deferred cash incentive awards were also paid
in January of 1997 in connection with the exercise of accelerated stock
options, including payments to Messrs. Cahouet, Smith, Condron, Elliott,
McGuinn and Russell, of $1,944,377, $783,094, $486,203, $482,219,
(footnotes continued on next page)
16
<PAGE>
- --------------------------------------------------------------------------------
$453,532 and $482,219, respectively. These January, 1997 payments will be
recorded as 1997 LTIP Payouts in the Summary Compensation Table included in
next year's Proxy Statement.
(4) Includes for 1996 for Messrs. Cahouet, Smith, Condron, Elliott, McGuinn and
Russell, respectively, the following compensation amounts: (i) the portion
of interest accrued (but not currently paid or payable) on deferred
compensation above 120% of the applicable federal long-term rate at the
maximum rate payable under the Corporation's Elective Deferred Compensation
Plan for Senior Officers, $149,351, $928, $4,117, $10,114, $19,133, $-0-;
(ii) matching contributions under the Corporation's Retirement Savings
Plan, a 401(k) plan, $3,000, $3,000, $3,000, $3,000, $3,000, $3,000; (iii)
the present value of the economic benefit to the executive from corporate
premiums paid to purchase split dollar life insurance contracts under the
Mellon Bank Senior Executive and Optional Life Insurance Plans, $112,918,
$25,373, $9,426, $4,136, $2,345, $2,320; and (iv) cash paid to the
executive equal to his imputed income under the Mellon Bank Senior
Executive Life Insurance Plan, $7,381, $3,278, $1,178, $858, $1,079, $910.
(5) In 1994, Mr. Condron was paid $800,000 to remain with the Corporation
pending completion of the Corporation's acquisition of The Boston Company.
OPTION GRANTS IN 1996
Shown below is information on grants of stock options pursuant to the
Corporation's Long-Term Profit Incentive Plan (1996) (the "Option Plan") during
the year ended December 31, 1996. The Option Plan is administered by the Human
Resources Committee of the Board of Directors, which has authority to determine
the individuals to whom options are granted and the terms of all grants
thereunder. No stock appreciation rights were granted under the Option Plan in
1996. In the event of a change of control of the Corporation, as defined in the
Option Plan, all the option grants shown below would become immediately
exercisable.
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------
Number of Percent of
Securities Total Options
Underlying Granted to Exercise Grant Date
Options Employees Price (per Expiration Present
Name Granted in 1996 share) ($) Date Value ($) (5)
- ---- ---------- ------------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Frank V. Cahouet........ 7,975(1) 0.39% $49.75 1/15/06 $ 93,737
10,445(2) 0.51% 50.50 3/14/04 113,759
9,194(2) 0.45% 62.75 3/14/04 109,984
110,000(3) 5.34% 62.75 10/17/06 1,463,400
110,000(4) 5.34% 62.75 10/17/06 1,267,220
W. Keith Smith.......... 17,000(3) 0.83% 62.75 10/17/06 226,162
17,000(4) 0.83% 62.75 10/17/06 195,843
Christopher Condron..... 421(1) 0.02% 49.75 1/15/06 4,948
2,512(2) 0.12% 62.75 5/23/03 29,100
8,500(3) 0.41% 62.75 10/17/06 113,085
8,500(4) 0.41% 62.75 10/17/06 97,925
5,764(2) 0.28% 63.00 10/20/04 70,550
Steven G. Elliott....... 1,274(1) 0.06% 49.75 1/15/06 14,974
17,000(3) 0.83% 62.75 10/17/06 226,162
17,000(4) 0.83% 62.75 10/17/06 195,843
6,170(2) 0.30% 62.875 10/20/04 75,376
Martin G. McGuinn....... 969(1) 0.05% 49.75 1/15/06 11,389
17,000(3) 0.83% 62.75 10/17/06 226,162
17,000(4) 0.83% 62.75 10/17/06 195,843
Keith P. Russell........ 17,000(3) 0.83% 62.75 10/17/06 226,162
17,000(4) 0.83% 62.75 10/17/06 195,843
</TABLE>
- ------
(1) Option becomes exercisable annually in thirds beginning on 1/15/97.
(footnotes continued on next page)
17
<PAGE>
- --------------------------------------------------------------------------------
(2) Reload options granted in 1996 become exercisable three years after their
grant date; provided, however, that if the option holder sells any of the
shares acquired on exercise of the underlying option before such date, the
entire reload option will expire. The reload option grants shown above
would become exercisable as follows: Mr. Cahouet-1/18/99, 10/18/99, Mr.
Condron-10/18/99, 10/22/99; Mr. Elliott-10/21/99.
(3) Option becomes exercisable annually in thirds beginning on 1/18/97. Reload
option rights are attached to each option and reload options will be
automatically granted on exercise when the exercise price is paid by
delivering or withholding shares of Common Stock; provided the closing
price of the Common Stock on the New York Stock Exchange on the date of
exercise exceeds the exercise price by at least 25 percent. Reload options
have an exercise price equal to the closing price of the Common Stock on
their grant date and the same expiration date as the underlying option.
(4) Option becomes exercisable in full on 8/19/06. Exercisability may be
accelerated to an earlier date at the discretion of the Human Resources
Committee based on the Committee's review of the option holder's individual
performance. In determining the number of options, if any, to be
accelerated in any year, the executive officer's performance is reviewed by
the Human Resources Committee. In past years, such performance has been
evaluated on the basis of several factors, including the trends indicated
by financial performance and the progress made toward the achievement of
the longer term goals for the lines of business for which such executive is
responsible. A deferred cash incentive award was granted with each option
in the amount of the option exercise price. In the event the exercisability
of the option is accelerated (except in the event of a change of control),
the deferred cash incentive award becomes operative and must be used by the
officer to pay the option's exercise price upon exercise; provided however,
that such award will only be payable if the Corporation achieves certain
pre-established performance goals. The deferred cash incentive award is
disclosed in the Long-Term Incentive Plans Table below.
(5) Based on the Black-Scholes model adapted for use in valuing executive stock
options. There is no assurance the value realized by an executive will be
at or near the value estimated by the Black-Scholes model. The actual
value, if any, an executive may realize will depend on the excess of the
stock price over the exercise price on the date the option is exercised. In
determining the Black-Scholes value, the following underlying assumptions
were used: (i) stock price volatility represents the standard deviation of
the Common Stock over the three year period prior to grant of the option
(i.e., from 21.34% to 21.91%); (ii) dividend yield represents the
cumulative dividends per share for the 12-month period prior to grant of
the option, divided by the average monthly price of the Common Stock over
the same period (i.e., from 3.84% to 4.24%); (iii) the risk-free rate of
return represents the average weekly yield on 10-year Treasury Bills over
the 52 week period prior to grant of the option as derived from the Value-
Line Investment Survey--Selection & Opinion (i.e., from 6.28% to 6.47%);
(iv) option term represents the period from the date of grant of each
option to the expiration of the term of the option; (v) vesting
restrictions are reflected by reducing the value of the option determined
by the Black-Scholes model by 4% for each full year of vesting restrictions
(i.e., by 12% for each of the options being valued), assuming that the
option described in footnote (4) accelerates at a rate of 75% after 3.5
years and that the remaining 25% does not accelerate; (vi) reload options
are valued assuming that the option holder does not sell any of the shares
acquired on exercise of the underlying option before the vesting date of
the reload option.
18
<PAGE>
- --------------------------------------------------------------------------------
AGGREGATED OPTION/SAR EXERCISES IN 1996 AND YEAR-END OPTION VALUES
The following table shows information with respect to the exercise of stock
options and stock appreciation rights ("SARs") during 1996 by each of the named
executive officers and the value of unexercised options on December 31, 1996.
No SARs are currently outstanding under the Option Plan.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Value Options at Year-End at Year-End ($)(2)
Acquired on Realized ------------------------- -------------------------
Name Exercise ($)(1) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Frank V. Cahouet........ 88,750 $1,766,248 450,274 541,194 $15,094,665 $11,718,752
W. Keith Smith.......... 21,601 396,833 80,502 198,636 3,012,691 6,007,295
Christopher M. Condron.. 31,040 624,303 8,630 92,967 183,757 1,800,700
Steven G. Elliott....... 27,848 619,785 28,619 128,182 987,122 3,138,858
Martin G. McGuinn....... 16,163 279,797 18,075 134,009 610,031 3,507,671
Keith P. Russell........ 20,250 415,312 14,876 70,125 502,065 1,562,281
</TABLE>
- ------
(1) The "Value Realized" is equal to the difference between the option exercise
price and the fair market value of the Common Stock on the New York Stock
Exchange on the date of exercise.
(2) The "Value of Unexercised In-the-Money Options at Year-End" is equal to the
difference between the option exercise price and the Common Stock's
December 31, 1996 closing price of $71.00 per share on the New York Stock
Exchange.
LONG-TERM INCENTIVE PLANS-AWARDS IN 1996
The following table shows the deferred cash incentive awards granted to the
named executive officers during the year ended December 31, 1996 under the
Option Plan. Deferred cash incentive awards are granted only in connection with
the grant of certain stock options and become payable only upon the Human
Resources Committee's acceleration of the exercisability of the related stock
option prior to a date 60 days before its expiration. (See footnote (4) on page
18.) The deferred cash, when paid to the executive, must be used by the
executive to pay the exercise price of the related option. Upon acceleration of
the option and actual payment of the deferred cash to the executive, such
payment is reported in the Summary Compensation Table under LTIP Payouts.
<TABLE>
<CAPTION>
Estimated
Maximum Future
Number of Performance Payouts
Shares, Units Period Until ----------
or Other Maturation Maximum
Name Rights or Payout Payout(1)
- ---- ------------- ------------ ----------
<S> <C> <C> <C>
Frank V. Cahouet.......................... 110,000 8/19/06 $6,902,500
W. Keith Smith............................ 17,000 8/19/06 1,066,750
Christopher M. Condron.................... 8,500 8/19/06 533,375
Steven G. Elliott......................... 17,000 8/19/06 1,066,750
Martin G. McGuinn......................... 17,000 8/19/06 1,066,750
Keith P. Russell.......................... 17,000 8/19/06 1,066,750
</TABLE>
- ------
(1) The amount shown represents the aggregate exercise price of the related
options granted to each named executive officer. The Human Resources
Committee can choose in its discretion to accelerate all, part or none of
the stock options related to such award. If such option is not accelerated,
no payout of the award is made. Deferred cash incentive awards become
payable only if the Corporation achieves performance goals which are
established for a calendar year or longer period by the Human Resources
Committee. Performance goals are based on maintenance of or changes in one
or more of the following objective business criteria (earnings or earnings
per share, return on equity, assets or investment, revenues, expenses,
stock price, market share, charge-offs or non-performing assets) as
established by the Committee. The Committee retains the discretion to
reduce (but not to increase) the portion of any deferred cash incentive
award which would otherwise be payable for any calendar year based on
achieving such performance goals.
19
<PAGE>
- --------------------------------------------------------------------------------
PENSION PLAN TABLE
The following table sets forth the estimated annual benefits payable on a
single-life annuity basis on retirement at age 65 pursuant to the retirement
plans of the Corporation and Mellon Bank to participating employees, including
officers, in specified compensation and years-of-service classifications. The
credited years of service for Messrs. Cahouet, Smith, Condron, Elliott, McGuinn
and Russell are, 10, 10, 19, 10, 16 and 5, respectively. Benefits are
determined based upon average base salary for the five years of highest
compensation during the 10 years preceding retirement.
<TABLE>
<CAPTION>
Estimated Annual Pension for Representative Years of Credited Service
Average Annual -----------------------------------------------------------------------
Base Salary 10 15 20 25 30 35
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 200,000 $ 28,500 $ 43,000 $ 57,000 $ 71,500 $ 85,500 $100,000
300,000 43,500 65,500 87,000 109,000 130,500 152,500
400,000 58,500 88,000 117,000 146,500 175,500 205,000
500,000 73,500 110,500 147,000 184,000 220,500 257,500
600,000 88,500 133,000 177,000 221,500 265,500 310,000
700,000 103,500 155,500 207,000 259,000 310,500 362,500
800,000 118,500 178,000 237,000 296,500 355,500 415,000
900,000 133,500 200,500 267,000 334,000 400,500 467,500
1,000,000 148,500 223,000 297,000 371,500 445,500 520,000
1,100,000 163,500 245,500 327,000 409,000 490,500 572,500
</TABLE>
Payment of the amounts shown in the table is subject to annual limitations
imposed by the Internal Revenue Code on tax-qualified plans. To the extent the
benefits set forth above exceed these limitations, benefits will be paid
pursuant to nonqualified supplemental plans maintained by the Corporation and
Mellon Bank.
SUPPLEMENTAL RETIREMENT AGREEMENTS WITH NAMED EXECUTIVE OFFICERS
In order to attract and motivate senior executives and to encourage such
executives to remain with the Corporation and its affiliates, the Corporation
has provided certain of the named executive officers with retirement and/or
death benefits, as described below, supplementing those available under the
retirement plans described above.
Mr. Cahouet
Under the terms of his employment agreement with Mellon Bank (discussed below),
Mr. Cahouet will be entitled to receive an unfunded supplemental retirement
benefit. The supplemental benefit is calculated on an unreduced 50% joint and
survivor basis and would be a monthly amount equal to Mr. Cahouet's Final
Average Compensation (as defined below) multiplied by a Compensation Percentage
(defined below) and reduced by the total monthly amount of benefits provided to
him under all retirement plans maintained by the Corporation and Mellon Bank.
"Final Average Compensation" means the average monthly amount of Mr. Cahouet's
base salary and any bonus award for the 36 consecutive months within the term
of his employment agreements that produce the highest average amount.
"Compensation Percentage" means 50% plus 2.5% for each full year of employment
which Mr. Cahouet has completed under his current employment agreement
(discussed below). If Mr. Cahouet's termination of employment with the
Corporation were due to his death prior to the commencement of the payment of
the supplemental benefits under his employment agreement, his spouse would be
entitled to a pre-retirement death benefit, payable in the form of a lifetime
annuity, equal to the benefit that would have been payable had he retired
immediately prior to death assuming election of an unreduced 50% joint and
survivor annuity. If Mr. Cahouet retires after age 65, he will be entitled for
the period after he attains age 65 until his actual retirement date to receive
both (A) an actuarial increase in the gross supplemental retirement benefit
which would have been payable to him if he had retired when he attained age 65
and (B) an additional incremental gross supplemental retirement benefit,
without actuarial increase, based on his additional service and increase, if
any, in his Final Average Compensation subsequent to attaining age 65. For
purposes of determining the benefit described in clause (A), Final Average
Compensation may be determined based on Base Salary for the 36 consecutive
months from June 1, 1994 to May 31, 1997 and bonus awards paid to Mr. Cahouet
for work performed in the 36-month period from January 1, 1995 to December 31,
1997, if such base salary and bonus awards result in a higher Final Average
20
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Compensation. Based on his 1996 compensation, and assuming (i) retirement at
age 65 or (ii) at the end of the term of his employment agreement, supplemental
retirement benefits payable to Mr. Cahouet under the agreement are estimated at
approximately $1,213,000 or $1,684,000 respectively, per year.
Mr. Smith
Under the terms of his employment agreement with Mellon Bank (discussed below),
Mr. Smith is entitled to receive an unfunded supplemental retirement benefit
equal to the difference between the amounts to which he is entitled under the
retirement plans included in the above Pension Table (the "Corporation
Retirement Benefits") and the amount of Corporation Retirement Benefits he
would receive if he were credited with 8 years of additional service to the
Corporation and his final average compensation under the retirement plans were
to include base salary and any bonuses awarded to him by the Corporation in the
relevant years. Mr. Smith's employment agreement also provides that he may earn
additional credit for up to five years of service based on, and in addition to,
his actual service with the Corporation and its subsidiaries after August 1,
1994 through his retirement date. Currently, Mr. Smith is deemed to have 20
years of service for purposes of calculating his benefits under the retirement
plans and his supplemental retirement agreement.
EMPLOYMENT AGREEMENTS WITH NAMED EXECUTIVE OFFICERS
Mr. Cahouet
In connection with Mr. Cahouet's appointment in June 1987 as the Chairman and
Chief Executive Officer and a director of the Corporation and Mellon Bank, Mr.
Cahouet entered into an employment agreement with Mellon Bank which had a term
lasting until July 25, 1993. In July of 1993, Mr. Cahouet entered into a new
employment agreement with Mellon Bank with a termination date of May 31, 1997,
and in 1995 this termination date was extended to December 31, 1998. The
current employment agreement provides, among other things, for an annual base
salary of $760,000, subject to periodic increases which must take into
consideration the salaries of the chief executive officers of the 10 largest
bank holding companies in the United States, life insurance in the amount of
twice his annual salary, perquisites appropriate to his position, including
club memberships, physical examinations and personal financial planning
services, and the supplemental retirement benefits described above. The
employment agreement was amended in 1995 to provide Mr. Cahouet with certain
additional supplemental retirement benefits, described above, which become
payable if he retires after age 65. The bank holding companies against whose
chief executive officers Mr. Cahouet's salary is measured are included in both
the Standard & Poor's 500 Stock Index and the KBW 50 Index used to prepare the
Corporation's Performance Graph shown on page 23. The agreement also provides
that, if Mr. Cahouet's employment is terminated other than for cause, he will
receive full salary and benefits until the expiration of its term and a pro-
rated portion of any bonuses for the year of termination. If Mr. Cahouet's
employment is terminated for cause or Mr. Cahouet terminates his employment for
reasons other than a constructive discharge, permanent disability or
retirement, he will receive any benefits that may have vested prior to such
termination under the supplemental retirement provisions of his employment
agreement or under the terms of the Corporation's generally applicable employee
benefit plans.
Mr. Smith
In connection with Mr. Smith's appointment in July 1987 as Vice Chairman and
Chief Financial Officer and a director of the Corporation and Mellon Bank, Mr.
Smith entered into an employment agreement with Mellon Bank which had a term
lasting until July 25, 1993. In July of 1993, Mr. Smith entered into a new
employment agreement with Mellon Bank with a termination date of July 31, 1996.
It provided, among other things, for an annual base salary of $400,000, subject
to periodic increases, perquisites appropriate to Mr. Smith's position,
including club memberships, physical examinations and personal financial
planning services, and the supplemental retirement benefits described above.
OTHER COMPENSATION
Displacement Policy
Under the Corporation's Employee Displacement Program, employees of the
Corporation may receive certain benefits if their employment with the
Corporation is terminated due to technological
21
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changes or other business reasons not related to individual performance. Such
benefits may include temporary assignments, placement assistance, benefits
continuation and/or severance payments based upon years of service. The program
is subject to revision or termination at the Corporation's discretion at any
time.
Change in Control Arrangements
In addition to the benefits available to employees under the Employee
Displacement Program, all employees are entitled to 12 months of base salary
and benefit continuation if they are terminated, other than for good cause,
within three years after a change in control of the Corporation. In addition,
if a change in control of the Corporation occurs, employees will have a
nonforfeitable right to their accrued benefits under Mellon Bank's tax-
qualified retirement plan and will be entitled to certain increased retirement
benefits if the retirement plan's assets exceed its liabilities at the time the
change in control occurs. These rights to salary and benefit continuation and
increased retirement benefits may not be amended after the occurrence of such a
change in control.
Change in Control Severance Agreements--Senior Officers
The Corporation has entered into change in control severance agreements (the
"Agreements") with the Chairman, each of the other named executive officers and
certain other senior officers of the Corporation. The purpose of the Agreements
is to secure the continued service and dedication of the executives in the
event of an actual or threatened Change in Control (as defined in the
Agreements). Each Agreement becomes operative only upon both a Change in
Control and the subsequent termination of employment of the executive in
accordance with the terms of the Agreement. Payments under the Agreements are
in full settlement of all other severance payments which may otherwise be
payable to the executive under any other severance plan or agreement of the
Corporation, including the programs mentioned above. The following discussion
summarizes the key provisions of the Agreements covering the Chairman and each
other named executive officer. If the employment of any of the named executive
officers is terminated during the three-year period following a Change in
Control of the Corporation, either by the Corporation other than for Cause (as
defined in the Agreements) or by the executive for Good Reason (as defined in
the Agreements, including the termination of employment by the executive for
any reason during the 30-day period commencing one year after the date of such
Change in Control), the executive will be entitled to receive: (a) a lump sum
cash amount equal to such executive's unpaid salary and bonus amounts which
have become payable and have not been deferred, plus a pro-rata portion of such
executive's annual bonus for the fiscal year of termination of employment; (b)
severance pay in a lump sum cash amount equal to three times the sum of (i) the
executive's highest annual rate of base salary during the 12-month period
immediately prior to his termination of employment and (ii) the executive's
highest annual incentive bonus earned during the last three completed fiscal
years of the Corporation; (c) continuation of medical, dental, accident,
disability and life insurance benefits for the executive and his dependents for
a period of three years following the executive's date of termination of
employment; and (d) three additional years of service credit under all non-
qualified retirement plans and excess benefit plans in which the executive
participated as of his date of termination. If the executive's date of
termination is within three years of the earliest date on which such
termination could be considered a Retirement (as defined in the Agreements),
the benefits described in (b), (c) and (d) in the preceding sentence will be
reduced accordingly. Payments to the Chairman will also be reduced by the
amount of severance payments made pursuant to his employment agreement with
Mellon Bank (discussed above). In the event that payments related to a Change
in Control of the Corporation to any executive under the Agreements or
otherwise are subject to the excise tax under Section 4999 of the Internal
Revenue Code, the Corporation will generally provide the executive with an
additional amount sufficient to enable the executive to retain the full amount
of his Change in Control benefits as if the excise tax had not applied, unless
a reduction in such Change in Control related payments by less than 5% would
result in the excise tax not being imposed on such executive, in which case
payments under the Agreement shall be reduced (but not below zero) to the
amount that could be paid to such executive without giving rise to such excise
tax.
22
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PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total shareholder
return on the Corporation's Common Stock, based on the market price of the
Common Stock and assuming reinvestment of dividends, with the cumulative total
return of companies on the Standard & Poor's 500 Stock Index and the KBW 50
Index. The KBW 50 Index, available from Keefe, Bruyette & Woods, Inc., is a
market-capitalization-weighted bank-stock index made up of 50 of the nation's
most important banking companies including all money-center and most major
regional banks. The Corporation is included in the KBW 50 Index.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
Among S&P 500 Index, KBW 50 Index and Mellon Bank Corporation.
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
December 31,
-----------------------------
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Mellon Bank Corporation........................... 100 157 162 146 269 371
S&P 500 Index..................................... 100 108 118 120 165 203
KBW 50 Index...................................... 100 128 135 128 206 290
</TABLE>
* Assumes that the value of the investment in the Corporation's Common Stock
and each index was $100 on December 31, 1991 and that all dividends were
reinvested.
23
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COMPENSATION COMMITTEE REPORT
INTRODUCTION
The Corporation's Human Resources Committee (the "Committee") is composed
entirely of independent outside directors. The Committee has among its duties
the responsibility for establishing and reviewing the compensation and benefits
of the senior managers of the Corporation and its subsidiaries, including the
compensation of the Chairman and the other named executive officers. The
Committee actively advises and assists management in formulating and
implementing policies designed to assure the selection, development and
retention of key personnel.
Under the guidance of the Committee, the Corporation's compensation policies
are designed to accomplish the larger goal of managing the Corporation towards
increased profitability and shareholder value. Accordingly, two principles
underlying the Corporation's compensation policy for all senior managers,
including the Chairman and the other named executive officers, are (i) aligning
the financial interests of senior managers with those of the Corporation's
shareholders and (ii) paying for corporate and individual performance. These
principles are reflected in the structure of the Corporation's compensation
program for senior managers which consists of three basic components: base
salary, annual awards under the Profit Bonus Plan (the "Bonus Plan") and awards
under the Long-Term Profit Incentive Plan (1996) (the "Option Plan"). Through
this structure, the Committee places emphasis on the "at risk" elements of
compensation for senior managers. Base salaries are generally set somewhat
below the market and the incentive components of the Bonus Plan and the Option
Plan are relied on to achieve a competitive compensation package. There was no
change in 1996 in the Corporation's overall compensation policy for senior
managers. In 1996, additional stock options were awarded to senior managers on
the basis of a review of comparative compensation data. No phantom stock units
were awarded in connection with the Bonus Plan awards for 1996.
Awards under the Corporation's incentive plans are tied to corporate, business
unit and individual performance. The accomplishment of the goals and objectives
of the Corporation's operating and strategic plans are the basis for making
awards under the Bonus Plan and the Option Plan and, except where performance
goals have been set under the Option Plan, there is no formal weighting of
various factors. Together, the plans provide the Committee with the flexibility
to grant awards in a manner that is believed by the Committee to encourage
managers to continually focus on building high quality profitability and long-
term shareholder value. Under the Option Plan, deferred cash incentive awards
may only be paid if certain preestablished performance goals set by the
Committee have been achieved. Performance goals are based on maintenance of or
changes in one or more of the following objective business criteria: earnings
or earnings per share; return on equity, assets or investment; revenues;
expenses; stock price; market share; charge-offs; or non-performing assets. The
Committee may apply its discretion, where the goals have been met, only to
decrease the preestablished amount of the award. These requirements have been
imposed so that the amounts paid to executive officers under such awards will
qualify for the "performance based compensation" exception to the cap on
deductibilty of executive compensation set forth in the regulations adopted
under Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code").
BASE SALARY
In 1996, base salaries were increased for a number of the Corporation's senior
managers, including the Chairman. In considering recommendations for increases
in the base salaries of these senior managers the Committee reviewed the
performance of each officer against various objectives, including performance
against the business plans to date for 1996 for those lines of business for
which he was responsible. The Corporation's business plans and the elements
thereof applicable to its various lines of business include financial
performance targets such as: income, expenses, asset quality, operating margin,
return on assets and return on capital, as well as strategic development
imperatives. In addition to such evaluations, the Committee compared the
recommended increases to compensation data based on an independent survey of
comparable executive officers of 16 other financial institutions similar to the
Corporation in terms of size, and/or the mix of its lines of business. These
comparative financial institutions are included within the KBW 50 Index used
for the Performance Graph on page 23.
The Chairman's base salary is established pursuant to his employment contract.
(See "Employment Agreements with Named Executive Officers" on page 21). The
contract requires that the Committee must consider the salaries of the chief
executive officers of the ten largest bank holding companies
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in the United States when setting the Chairman's salary. These institutions are
included within the KBW 50 Index. Accordingly, the Committee considered the
Corporation's performance against its business plan for 1995 and 1996 to date,
the Corporation's achievement of strategic goals and the Corporation's total
returns to its shareholders in terms of share price appreciation and dividends.
The Committee then reviewed 1995 base salary and total compensation data for
the relevant chief executive officer peer group. Based upon the results of such
evaluation and review, the Chairman's base salary was set at $960,000, slightly
below the seventy-fifth percentile of the base salaries of the relevant peer
group of chief executive officers.
OPTION PLAN AWARDS
In 1996, the Committee reviewed the long-term incentive component of total
compensation for the Corporation's senior managers, including the Chairman and
the other named executive officers, and awarded additional options. In
conducting its review the Committee considered the comparative compensation
data mentioned above. Based on the comparative compensation data reviewed by
the Committee, the value of the "at risk" component of compensation represented
by options, coupled with the Corporation's somewhat below market annual cash
compensation (measured in terms of base salary and cash bonus), will achieve
the needed competitive positioning of the Corporation's senior manager
compensation package while creating a significant incentive for the managers
and aligning their financial interests with those of the Corporation's
shareholders. The number of options previously granted to each officer was
considered in determining the number of shares covered by each award.
The Committee reviews the performance of senior managers annually and within
its discretion considers whether the exercise date for certain previously
granted options should be accelerated. As provided for in the Option Plan, the
exercise of these accelerated options is intended to include the payout of a
deferred cash incentive award to the optionee in an amount equal to the
exercise price for such options. The optionee must use the cash award to pay
the option exercise price of such accelerated options. Such acceleration, and
payment of the attendant deferred cash incentive awards, are a significant
element of the incentive component of total compensation for the Corporation's
senior managers. As discussed above, the payment of deferred cash incentive
awards is tied to the achievement of preestablished corporate level performance
goals. Accordingly, in February of 1995, the Committee adopted performance
goals applicable to the calendar year 1995 which must have been achieved in
order for a set percentage of the outstanding deferred cash incentive award to
be earned. The performance goals required the achievement of certain levels of
core net income available to Common Stock, earnings per share of Common Stock
or core return on common equity. The required levels were achieved for 1995
and, accordingly, in January of 1996 the Committee certified the achievement of
the performance goals and the payment of the deferred cash incentive awards in
the amount of one-fourth of any such outstanding award granted to the Chairman
and the other named executive officers. These awards are disclosed in the LTIP
Payouts column on the "Summary Compensation Table" on page 16. Similarly, in
February of 1996, the Committee adopted performance goals applicable to the
calendar year 1996 which required the achievement of certain levels of core net
income available to Common Stock, earnings per share of Common Stock or core
return on common equity. In January of 1997, the Committee certified the
performance goals for 1996 to have been achieved, and the deferred cash
incentive awards were paid in amounts of up to one-fourth of the outstanding
awards granted to the Chairman and the other named executive officers.
BONUS PLAN AWARDS
The Committee considered and approved bonus awards for 1996 for the
Corporation's senior managers, including the Chairman and the other named
executive officers, which were generally payable 75% with cash and 25% with
restricted shares of the Corporation's Common Stock. In connection with making
awards under the Corporation's Bonus Plan for 1996, the Committee again
examined the performance of its senior managers. This review focused on the
individual performance of each officer for full year 1996 and on the
Corporation's overall performance in achieving the objectives of its 1996
operating plan and taking significant steps in the execution of its strategic
plan. Each officer was evaluated based in significant measure upon the
performance against the 1996 business plan for the lines of business for which
he was responsible including the achievement of financial targets such as
income, expenses, asset growth, operating margin and return on capital. In
determining the Chairman's Bonus Plan award for 1996, the Committee evaluated
the Chairman
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within the context of the year experienced by the Corporation in terms of
achieving the objectives of its 1996 operating plan, as well as the Chairman's
leadership in the planning and implementation of the strategic and operating
initiatives to position the Corporation to increase further the long-term value
of the Corporation's franchise. The results of each officer's evaluation was
then applied to a matrix correlating the numerical rating from his performance
evaluation and his office or position to yield a Bonus Plan award ranging from
zero percent to 90% of base salary for the Vice Chairmen and 150% of base
salary for the Chairman. Bonuses in excess of the maximum Bonus Plan award were
granted to certain named officers in recognition of the assumption of
additional duties and outstanding contribution to the profitability of the
Corporation in 1996. In recognition of the Chairman's leadership during 1996, a
year that saw the Corporation report record earnings, the Chairman received the
maximum Bonus Plan award of 150% of his base salary.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
As part of the Omnibus Budget Reconciliation Act of 1993 (the "Act"), Section
162(m) limiting the deductibility of executive compensation for officers of
public companies was added to the Code. In December 1995, the Internal Revenue
Service issued final regulations defining the "performance-based compensation"
exception to Section 162(m)'s general disallowance of the ordinary business
expense deduction for compensation in excess of $1 million paid to a company's
chief executive officer and each of the next four most highly compensated
executive officers. As mentioned above, the Option Plan has been designed to
allow the Committee, in its discretion, to grant incentive compensation awards
that comply with the final regulations.
The Corporation and the Committee will continue to examine the issue of
deductibility of executive compensation within the context of the overall
operation of the Corporation's compensation plans and will consider what
additional actions should be taken, if any, to operate the compensation plans
in a tax effective manner. The Committee will examine particularly carefully
any compensation proposal or program if there is a reasonable likelihood that
the Corporation would lose a deduction as a consequence of its adoption.
The foregoing report is presented by the Human Resources Committee of the Board
of Directors.
Andrew W. Mathieson, Chairman Joab L. Thomas
J. W. Connolly, Vice Chairman Wesley W. von Schack
Charles A. Corry William J. Young
PROPOSAL TO AMEND THE CORPORATION'S RESTATED ARTICLES OF INCORPORATION TO
INCREASE THE AUTHORIZED COMMON STOCK (PROXY ITEM 2)
PROPOSED AMENDMENT
The Board of Directors proposes that the shareholders consider and adopt an
amendment to Article Fifth of the Corporation's Restated Articles of
Incorporation (the "Restated Articles") to (i) increase the total authorized
number of shares from 250 million to 450 million and (ii) increase the
authorized number of shares of Common Stock from 200 million to 400 million.
For the wording of the proposed amendment, see Annex A attached hereto.
REASONS FOR AMENDMENT
Pursuant to Article Fifth of the Restated Articles, the Board of Directors is
authorized to issue Common Stock and Preferred Stock from time to time. As of
February 14, 1997, approximately 163.5 million shares of Common Stock had been
issued or reserved or designated for specific issuance. This leaves
approximately 36.5 million shares of Common Stock available for future
issuance. Approval of the proposed increase would give the Corporation
approximately 236.5 million shares of Common Stock available for future
issuance.
The Corporation also has 50 million shares of authorized preferred stock, par
value $1.00 per share (the "Preferred Stock"), of which 12,000,000 shares were
outstanding on February 14, 1997. That number decreased to 8,000,000 on
February 18, 1997 as the Corporation's Series J Preferred Stock was redeemed
effective that date. No increase in the authorized number of shares of
Preferred Stock is requested.
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The proposed additional shares of Common Stock could be issued for any proper
corporate purpose, including the acquisition of other businesses, the raising
of additional capital for use in the Corporation's business, stock splits, the
payment of stock dividends or other distributions in shares of stock, or in
connection with employee stock incentive programs. While no definitive decision
has yet been made, in light of the recent substantial increase in the market
price of the Common Stock, management is considering recommending to the Board
of Directors using a portion of the additional shares to effect a two for one
stock split in the second quarter of 1997. While the Corporation currently has
no other plans, arrangements, understandings or commitments with respect to the
issuance of the additional shares of Common Stock, it is considered advisable
to have the authorization to issue such shares in order to enable the
Corporation, as the need may arise, to move promptly to take advantage of
market conditions and the availability of other favorable opportunities without
the delay and expense involved in calling a special shareholders meeting for
such purpose.
The authorization of additional shares of Common Stock will not, by itself,
have any effect on the rights of holders of existing Preferred Stock and Common
Stock. Depending on the circumstances, any issuance of additional shares of
Common Stock may dilute the present equity ownership of current shareholders.
Holders of Preferred Stock and Common Stock have no preemptive rights to
participate in any such issuance.
If the proposed amendment to the Restated Articles is approved, the Board of
Directors will have the authority to issue the additional authorized shares or
any part thereof to such persons and for such consideration as it may determine
without further action by the shareholders except as required by law, the
Restated Articles or the rules of any stock exchange on which the Corporation's
securities may then be listed. The New York Stock Exchange, on which the issued
shares of Common Stock and Preferred Stock are listed, currently requires
specific shareholder approval as a prerequisite to listing shares in certain
limited circumstances.
Although the proposed amendment is not intended to be an anti-takeover measure,
shareholders should note that, under certain circumstances, the additional
shares of Common Stock could be used to make any attempt to gain control of the
Corporation or the Board of Directors more difficult or time-consuming. Any of
the additional shares of Common Stock could be privately placed with purchasers
who might side with the Board in opposing a hostile takeover bid. It is
possible that such shares could be sold with or without an option, on the part
of the Corporation, to repurchase such shares, or on the part of the purchaser,
to put such shares to the Corporation.
The amendment to increase the authorized Common Stock might be considered to
have the effect of discouraging an attempt by another person or entity, through
the acquisition of a substantial number of shares of the Corporation's stock,
to acquire control of the Corporation, since the issuance of the additional
shares of Common Stock could be used to dilute the stock ownership of a person
or entity seeking to obtain control and to increase the cost to a person or
entity seeking to acquire a majority of the voting power of the Corporation. If
so used, the effect of the additional authorized shares of Common Stock might
be (i) to deprive shareholders of an opportunity to sell their stock at a
temporarily higher price as a result of a tender offer or the purchase of
shares by a person seeking to obtain control of the Corporation or (ii) to
assist incumbent management in retaining its present position.
ACTION BY SHAREHOLDERS
The Board of Directors believes that adoption of the proposed Amendment to
Article Fifth of the Corporation's Restated Articles is in the best interests
of the Corporation and its shareholders. Approval of this proposal requires a
favorable vote of the holders of a majority of the votes cast by all holders of
the outstanding shares of Common Stock. The Pennsylvania Business Corporation
Law provides that an abstention is not a vote cast. Therefore, in a case like
this where a favorable vote of the holders of a majority of the votes cast at
the annual meeting is required, an abstention will not have the effect of a
vote for or against the proposal and will not be counted in determining the
number of votes required for approval, though it will be counted in determining
the presence of a quorum.
WITH RESPECT TO PROXY ITEM 2, THE BOARD OF DIRECTORS RECOMMENDS THAT THE
SHAREHOLDERS VOTE FOR THE PROPOSED AMENDMENT TO ARTICLE FIFTH OF THE
CORPORATION'S RESTATED ARTICLES TO (I) INCREASE THE TOTAL AUTHORIZED NUMBER OF
SHARES FROM 250 MILLION TO 450 MILLION AND (II) INCREASE THE AUTHORIZED NUMBER
OF SHARES OF COMMON STOCK FROM 200 MILLION TO 400 MILLION.
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RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS (PROXY ITEM 3)
The Board of Directors, at its February 18, 1997 meeting, appointed KPMG Peat
Marwick LLP as independent public accountants of the Corporation for the year
ending December 31, 1997. KPMG Peat Marwick LLP served as the Corporation's
independent public accountants for the year ended December 31, 1996. Although
the appointment of independent public accountants is not required to be
approved by shareholders, the Board of Directors believes shareholders should
participate in such selection through ratification. If the shareholders fail to
ratify KPMG Peat Marwick LLP as the independent public accountants, the Board
of Directors will reconsider its selection. Representatives of KPMG Peat
Marwick LLP will be present at the annual meeting with an opportunity to make a
statement if they so desire and will be available to respond to appropriate
questions.
ACTION BY SHAREHOLDERS
Adoption of the proposal requires the approval of a majority of the votes cast
at the annual meeting by all holders of Common Stock. The Pennsylvania Business
Corporation Law provides that an abstention is not a vote cast. Therefore, in a
case like this where the favorable vote of the holders of a majority of the
votes cast at the annual meeting is required, an abstention will not have the
effect of a vote for or against the proposal and will not be counted in
determining the number of votes required for approval, though it will be
counted in determining the presence of a quorum.
WITH RESPECT TO THE RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS (PROXY ITEM
3), THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE
APPOINTMENT OF KPMG PEAT MARWICK LLP AS INDEPENDENT PUBLIC ACCOUNTANTS OF THE
CORPORATION FOR THE YEAR ENDING DECEMBER 31, 1997.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Corporation's executive officers and directors, and persons who own more than
10% of a registered class of the Corporation's equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission (the "SEC") and the New York Stock Exchange. Executive officers,
directors and greater than 10% shareholders are required by SEC regulation to
furnish the Corporation with copies of all Section 16(a) forms they file. Based
solely on its review of the copies of such forms received by the Corporation,
or written representations from certain reporting persons that no Form 5's were
required for those persons, the Corporation believes that, for 1996, all such
filing requirements were complied with.
ADDITIONAL INFORMATION; SHAREHOLDER PROPOSALS
As of the date of this Proxy Statement, no matters which are proper subjects
for shareholder action, other than those set forth in the Notice of Annual
Meeting accompanying this Proxy Statement, are expected to be presented to
shareholders for action at the annual meeting. However, if other matters are
presented which are proper subjects for action by shareholders, it is the
intention of those named in the accompanying Proxy to vote such Proxy in
accordance with their judgment upon such matters. Proposals of shareholders
intended to be presented at the Corporation's annual meeting to be held in 1998
must be received by the Corporation no later than November 4, 1997 to be
considered for inclusion in the Proxy Statement and form of Proxy relating to
the 1998 annual meeting.
The cost of solicitation of proxies for the 1997 annual meeting will be borne
by the Corporation. In addition to solicitation by mail, regular employees of
the Corporation may solicit proxies by telephone, telegraph or personal
interview. Brokerage houses and other custodians, nominees and fiduciaries will
be requested to forward soliciting material to the beneficial owners of Common
Stock held of record by such persons and will be reimbursed by the Corporation
for their expenses. In addition, the Corporation has retained D. F. King & Co.,
Inc., 77 Water Street, New York, New York 10005 to aid in the solicitation of
proxies from brokers, banks, other nominees and institutional holders at an
estimated fee of $7,000 plus expenses.
By Order of the Board of Directors
Carl Krasik
Secretary
March 4, 1997
28
<PAGE>
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ANNEX A
The first paragraph of Article Fifth of Mellon Bank Corporation's Restated
Articles of Incorporation shall be amended as follows:
Fifth: The aggregate number of shares which the Corporation shall have
authority to issue is 450,000,000 [250,000,000] of which 50,000,000 shares
shall be Preferred Stock, par value $1.00 per share, issuable in one or more
series, and 400,000,000 [200,000,000] shares shall be Common Stock, par value
$0.50 per share.
(Language to be inserted is underlined and language to be deleted is enclosed
in brackets.)
A-1
<PAGE>
- --------------------------------------------------------------------------------
- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
-- -- -- --
RESERVATION FORM FOR MELLON BANK CORPORATION ANNUAL MEETING OF SHAREHOLDERS
Admission cards will be forwarded to shareholders whose reservation forms are
received by April 1, 1997. All other admission cards will be provided at the
check-in desk at the meeting.
I expect to attend the Annual Meeting at 10:00 A.M., on April 15, 1997, in
Pittsburgh, PA.
Name ............................
(Please Print)
Address
............................
(Please Print)
..................................
(PLEASE COMPLETE AND RETURN IN THE ENCLOSED ENVELOPE IF YOU PLAN TO ATTEND THE
ANNUAL MEETING)
<PAGE>
[LOGO OF MELLON BANK CORPORATION]
This Proxy is solicited on behalf of the Board of Directors of the Corporation.
The undersigned hereby appoints Carl Krasik, William E. Marquis and Ann M.
Sawchuck, or any of them, each with full power of substitution as attorneys
and proxies of the undersigned to vote all Mellon Bank Corporation Common
Stock of the undersigned at the Annual Meeting of Shareholders of the
Corporation to be held on Tuesday, April 15, 1997, at 10:00 A.M., on the
10th floor of the Union Trust Building, 501 Grant Street, Pittsburgh,
Pennsylvania, and at any adjournment of such meeting, as fully and effectually
as the undersigned could do if personally present, and hereby revokes all
previous proxies for said meeting. Where a vote is not specified, the proxies
will vote the shares represented by this Proxy FOR the election of all nominees
for director, FOR Proxy Item 2 and FOR Proxy Item 3 and will vote in their
discretion on such other matters that may properly come before the meeting.
This Proxy is solicited on behalf of the Board of Directors of the Corporation,
and may be revoked prior to its exercise. The Board of Directors recommends
votes FOR the election of all nominees for director, FOR Proxy Item 2 and
FOR Proxy Item 3.
(Continued and to be signed and dated, on reverse side)
FOLD AND DETACH HERE
<PAGE>
Where a vote is not specified, the proxies will vote shares represented
by this Proxy FOR the election of directors, FOR Proxy Item 2 and FOR Proxy
Item 3 and will vote in their discretion on such other matters that may
properly come before the meeting.
Please mark
your votes as [X]
indicated in
this example.
Proxy Item 1--
The election of directors
FOR WITHHOLD
all nominees AUTHORITY
listed herein to vote for all
(except as withheld nominees
in space provided) listed herein
[ ] [ ]
Proxy Item 2--Proposal to amend the Corporation's Restated Articles of
Incorporation to increase the authorized number of shares of Common Stock.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Proxy Item 3--Ratification of appointment of KPMG
Peat Marwick LLP as independent public accountants.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Nominees: Burton C. Borgelt, Carol R. Brown, Frank V. Cahouet, C. Frederick
Fetterolf, George W. Johnstone, Andrew W. Mathieson and Seward Prosser Mellon.
(Instructions: To withhold authority to vote for any individual nominee,
write that nominee's name in the space provided below.)
___________________________________________________________________________
Note: A vote FOR the election of directors includes discretionary authority
to vote for a substitute if any nominee is unable to serve or for good cause
will not serve.
Please date and sign exactly as name appears hereon. When signing as attorney,
executor, administrator, trustee, guardian, etc., full title as such should be
shown. For joint accounts, each joint owner should sign. If more than one
trustee is listed, all trustees should sign, unless one trustee has power to
sign for all.
___________________________________________________________________________
(Signature of Shareholder)
___________________________________________________________________________
(Signature of Shareholder)
Dated:_______________________________________________________________, 1977
FOLD AND DETACH HERE
