Information for Shareholders Who Plan to Attend the 2010 Annual Meeting of Shareholders

 

[directions and parking]

 

Proxy Statement

 

This proxy statement is provided on behalf of the board of directors of Huntington Bancshares Incorporated to solicit proxies to be voted at the annual meeting of Huntington shareholders to be held on April 22, 2010, and at any adjournment. Huntington is making this proxy statement, together with a proxy card, available on the Internet, or by mailing them, starting on February 26, 2010, to Huntington’s shareholders entitled to vote at the annual meeting.

 

Voting Procedures

Common stock shareholders of record at the close of business on February 17, 2010, are entitled to vote at the annual meeting. Huntington had ______ shares of common stock outstanding and entitled to vote on the record date. Holders of the company’s Series A Preferred Stock and Series B Preferred Stock are not entitled to vote these shares.

 

Shareholders will have one vote on each matter submitted at the annual meeting for each share of common stock owned on the record date. The shares represented by a properly submitted proxy will be voted as directed provided the proxy is received by Huntington prior to the meeting. A properly executed proxy without specific voting instructions will be voted FOR the nominees for director named in this proxy statement, FOR the approval of the Second Amended and Restated 2007 Stock and Long-Term Incentive Plan, FOR the approval of the charter amendment to increase the authorized common stock, FOR the ratification of the appointment of Deloitte & Touche LLP as the independent registered public accounting firm for 2010, and FOR the approval of the advisory vote on executive compensation. A properly submitted proxy will also confer discretionary authority to vote on any other matter which may properly come before the meeting or any adjournment or postponement thereof.

 

A shareholder may vote by proxy by using the telephone, via the Internet, or by properly signing and submitting a proxy card. A shareholder has the power to revoke his or her proxy at any time before it is exercised by filing a written notice with Huntington’s Secretary prior to the meeting. Shareholders who attend the meeting may vote in person and their proxies will not be used.

 

Huntington will pay the expenses of soliciting proxies, including the reasonable charges and expenses of brokerage firms and others for forwarding solicitation material to beneficial owners of stock. Huntington representatives may solicit proxies by mail, telephone, electronic or facsimile transmission, or personal interview. Huntington has contracted with Morrow & Co., Inc. to assist in the solicitation of proxies for a fee of $9,000 plus out-of-pocket expenses.

 

Vote Required

The presence, in person or by proxy, of the holders of a majority of the outstanding shares of Huntington common stock will constitute a quorum at the meeting. Under the laws of Maryland, Huntington’s state of incorporation, abstentions and broker non-votes are counted for purposes of determining the presence or absence of a quorum, but are not counted as votes cast at the meeting. Broker non-votes occur when brokers who hold their customers’ shares in street name submit proxies for such shares on some matters, but not others. Generally, this would occur when brokers have not received any instructions from their customers. In these cases, the brokers, as the holders of record, are permitted to vote on “routine” matters, which typically include the ratification of the independent registered public accounting firm, but not on non-routine matters. Effective January 1, 2010, brokers are no longer permitted to vote on the election of directors without instructions from their customers.

 

The election of each nominee for director, approval of the Second Amended and Restated 2007 Stock and Long-Term Incentive Plan, approval of the ratification of the appointment of Deloitte & Touche LLP, and approval of the advisory vote on executive compensation will require the affirmative vote of a majority of all votes cast by the holders of common stock at a meeting at which a quorum is present. Broker non-votes and abstentions will have no effect on these matters since they are not counted as votes cast at the meeting. The approval of the amendment to Huntington’s charter requires the affirmative vote of two-thirds of all of the votes entitled to be cast on the matter. Broker non-votes and abstentions will have the same effect as votes cast against the approval of the amendment of Huntington’s charter.

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Election of Directors

Huntington’s charter was amended in 2008, as recommended by the board of directors and approved by the shareholders, to eliminate the classified board structure and provide for annual election of all directors commencing with the 2011 annual meeting of shareholders. The Class III Directors elected at the 2008 annual meeting were elected to serve a three-year term expiring in 2011. The Class I Directors elected at the 2009 annual meeting were elected to serve a two-year term expiring in 2011. The terms of the Class II Directors expire at this year’s annual meeting. Directors at this year’s annual meeting will each be elected to serve a one-year term expiring in 2011.

 

Huntington’s board of directors currently consists of fifteen members, divided into three classes (three classes of five members each). Two new directors have been appointed since the 2009 annual meeting of shareholders. On September 8, 2009, the board of directors appointed William R. Robertson to serve as a Class II member of the board and on January 7, 2010, the board of directors appointed Richard W. Neu to serve as a Class I member of the board.

 

Upon consultation with the Nominating and Corporate Governance Committee, the board of directors proposes the election of five Class II Directors at this meeting. The nominees for Class II Directors are David P. Lauer, Gerard P. Mastroianni, Kathleen H. Ransier, and William R. Robertson, each currently serving as Class II Directors, and Richard W. Neu, currently serving as a Class I Director. It is proposed that Mr. Neu, currently serving as a Class I director, be elected as a Class II Director. The nominees for Class II Directors, if elected, will each serve a one-year term expiring at the 2011 annual meeting of shareholders and until their successors are elected. Consistent with Huntington’s Corporate Governance Guidelines and bylaws, Marylouise Fennell, who has served as a Class II Director since July 2007, is not being nominated for reelection due to the age limitation. The size of the board will be reduced to fourteen members effective as of this meeting.

 

In January 2009, the board of directors amended Huntington’s bylaws to provide for a majority vote standard for election of directors rather than a plurality vote standard. A nominee for election to the board of directors at a meeting of stockholders shall be elected only if the number of votes cast “for” such nominee’s election exceeds the number of votes cast “against” or affirmatively “withheld” as to such nominee’s election; provided, however, that if, on either the date of the company’s proxy statement for the meeting or on the date of the meeting, the number of nominees exceeds the number of directors to be elected, the directors shall be elected by a plurality of all the votes cast at the meeting.

 

It is intended that, unless otherwise directed, the shares represented by a properly submitted proxy will be voted FOR the election of Messrs. Lauer, Mastroianni, Neu and Robertson and Ms. Ransier as Class II Directors. Huntington has no reason to believe that any nominee will be unable or unwilling to serve as a director if elected. However, in the event that any of these nominees should become unavailable, the number of directors may be decreased pursuant to the bylaws, or the board of directors may designate a substitute nominee, for whom shares represented by a properly submitted proxy would be voted.

 

The board of directors recommends a vote FOR the election of each of the nominees for director.

 

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The following tables set forth certain information concerning each nominee and each continuing director of Huntington.

 

 

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(CLASS III DIRECTORS)

 

 

 

 

Corporate Governance

 

Transactions with Directors and Executive Officers

Indebtedness of Management

Many of Huntington’s directors and executive officers and their immediate family members are customers of Huntington’s affiliated financial and lending institutions in the ordinary course of business. In addition, directors and executive officers of Huntington also may be affiliated with entities which are customers of Huntington’s affiliated financial and lending institutions in the ordinary course of business. Loan transactions with directors, executive officers and their immediate family members and affiliates have been made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other customers otherwise not affiliated with Huntington. Such loans also have not involved more than the normal risk of collectibility or presented other unfavorable features.

 

Certain Other Transactions

The Huntington National Bank leases office space in Columbus, Ohio from a partnership of which the mother of director D. James Hilliker and her revocable trust are the partners. The current lease term runs through April 30, 2011 and the monthly rental is $4,500. As of January 1, 2010, the aggregate rental amount payable through the end of the current lease term is $72,000. Huntington has an option to renew the lease through April 30, 2016 at a monthly rental of $4,750.

 

The Huntington National Bank leases a banking office in Alliance, Ohio from a limited liability company owned by director Gerard P. Mastroianni, his siblings and a family trust. The current term of this lease ends September 30, 2012. The Huntington

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National Bank currently pays $4,650 per month for rent including parking. As of January 1, 2010, the aggregate rental amount payable through the end of the current lease term is $153,450. Huntington has options to renew this lease for three additional five-year terms through September 30, 2027. The rental amount for each renewal period will be adjusted for increases in the Consumer Price Index with a cap of 10%.

 

Huntington Mezzanine Opportunities Inc., a wholly-owned subsidiary of Huntington, established a private corporate mezzanine investment fund in 2002 which provides financing in transaction amounts of up to $10 million to assist middle market companies primarily in the Midwest with growth or acquisition strategies. Stonehenge Mezzanine Partners LLC, as its sole purpose, serves as the asset manager of the fund. Under the investment management agreement with Huntington Mezzanine Opportunities Inc., Stonehenge Mezzanine Partners LLC receives a quarterly management fee equal to the greater of a fixed amount or a set percentage of the mezzanine loan balances. Following the origination period under the agreement (which ended in 2008) , the minimum quarterly management fee is equal to $62,500. Stonehenge Mezzanine Partners LLC is also eligible to receive a percentage of profits based on the performance of the investments. In 2008 Huntington Mezzanine Opportunities Inc. established a second private corporate mezzanine investment fund which operates substantially the same as the initial fund described above. Stonehenge Mezzanine Partners II LLC, an affiliate of Stonehenge Mezzanine Partners LLC, serves as the asset manager of the second fund and is currently entitled to quarterly management fees of $125,000, through 2010. During 2009, Stonehenge Mezzanine Partners LLC and Stonehenge Mezzanine Partners II LLC collectively received management fees from Huntington Mezzanine Opportunities, Inc. of $1,408,629 and collectively earned $108,254 as a percentage of profits. Michael J. Endres, a director of Huntington, has a 12.56667% equity interest in Stonehenge Mezzanine Partners LLC and a 12.5% equity interest in Stonehenge Mezzanine Partners II LLC.

 

The Huntington National Bank has a $10 million commitment for an equity investment in the Stonehenge Opportunity Fund II, LP, a $150 million investment fund and referred to as the Fund, which was organized on September 30, 2004. The Fund operates as a “Small Business Investment Company” licensed by the Small Business Administration. The Fund seeks to generate long-term capital appreciation by investing in equity and, in certain cases, mezzanine securities of a diverse portfolio of companies across a variety of industries. Management of Huntington and The Huntington National Bank determined that the investment would provide a cost effective means to participate in financing small businesses, provide a means of obtaining lending or investment credits under the Community Reinvestment Act and generally be favorable to Huntington. The Fund is managed by Stonehenge Partners, Inc., an investment firm of which Michael J. Endres is a principal and holds a 9.8% equity interest. The Fund pays to Stonehenge Partners, Inc. management fees not to exceed on an annual basis 2.00% of the aggregate of private capital commitments and Small Business Administration debentures of the Fund. In addition, Stonehenge Partners, Inc. is the controlling entity of Stonehenge Equity Partners, LLC, which serves as managing member of the Fund.

 

In December 2009, The Huntington National Bank purchased Mark E. Thompson’s personal residence in Pennsylvania for $1.225 million. The purchase and the purchase price were in accordance with the relocation provisions contained in Mr. Thompson’s offer of employment. Mr. Thompson is currently leasing the residence from The Huntington National Bank for his family’s use through June 30, 2010 at a monthly rent of $5,000. Mr. Thompson is an executive officer of Huntington and was employed in April 2009 as Director of Strategy and Segment Performance.

 

Review, Approval or Ratification of Transactions with Related Persons

The Nominating and Corporate Governance Committee of the board of directors oversees Huntington’s Related Party Transactions Review and Approval Policy, referred to as the Policy. This written Policy covers “related party transactions”, including any financial transaction, arrangement or relationship or any series of similar transactions, arrangements or relationships, either currently proposed or since the beginning of the last fiscal year in which Huntington was or is to be a participant, involves an amount exceeding $120,000

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and in which a director, nominee for director, executive officer or immediate family member of such person has or will have a direct or indirect material interest. The Policy requires Huntington’s senior management and directors to notify the general counsel of any existing or potential “related party transactions.” The general counsel reviews each reported transaction, arrangement or relationship that constitutes a “related party transaction” with the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee determines whether or not “related party transactions” are fair and reasonable to Huntington. The Nominating and Corporate Governance Committee also determines whether any “related party transaction” in which a director has an interest impairs the director’s independence. Approved “related party transactions” are subject to on-going review by Huntington’s management on at least an annual basis. Loans to directors and executive officers and their related interests made and approved pursuant to the terms of Federal Reserve Board Regulation O are deemed approved under this Policy. Any such loans that become subject to specific disclosure in Huntington’s annual proxy statement will be reviewed by the Nominating and Corporate Governance Committee at that time. The Nominating and Corporate Governance Committee would also consider and review any transactions with a shareholder having beneficial ownership of more than 5% of Huntington’s voting securities in accordance with the Related Party Transaction Review and Approval Policy. The transaction with Mark Thompson reported above was approved by the Compensation Committee in connection with Mr. Thompson’s offer of employment rather than by the Nominating and Corporate Governance Committee.

 

Independence of Directors

The board of directors and the Nominating and Corporate Governance Committee have reviewed and evaluated transactions and relationships with board members to determine the independence of each of the members. The board and the Nominating and Corporate Governance Committee have determined that a majority of the board’s members are “independent directors” as the term is defined in the Nasdaq Stock Market Marketplace Rules. The directors determined to be independent under such definition are: Don M. Casto III, Marylouise Fennell, John B. Gerlach, Jr., D. James Hilliker, David. P. Lauer, Jonathan A. Levy, Wm. J. Lhota, Gene E. Little, Gerard P. Mastroianni, Richard W. Neu, David L. Porteous, Kathleen H. Ransier, and William R. Robertson. The board of directors has determined that each member of the Audit, Compensation, and Nominating and Corporate Governance Committees is independent under such definition and that the members of the Audit Committee are independent under the additional, more stringent requirements of the Nasdaq Stock Market applicable to audit committee members. The board of directors does not believe that any of its non-employee members has relationships with Huntington that would interfere with the exercise of independent judgment in carrying out his or her responsibilities as director.

 

In making the independence determinations for each of the directors under such definition, the board of directors took into consideration the transactions disclosed above. In addition, the board of directors considered that the directors and their family members are customers of Huntington’s affiliated financial and lending institutions. Many of the directors have one or more transactions, relationships or arrangements where Huntington’s affiliated financial and lending institutions, in the ordinary course of business, act as depository of funds, lender or trustee, or provide similar services. In addition, directors may also be affiliated with entities which are customers of Huntington’s affiliated financial and lending institutions and which enter into transactions with such affiliates in the ordinary course of business.

 

Board Meetings and Committees, Lead Director

The board of directors has separate standing Audit, Compensation, Nominating & Corporate Governance, Capital Planning, Community Development, Executive, and Risk Oversight Committees. The Community Development Committee was newly established in January 2010. Also in January 2010, the Pension Review Committee was combined with the Compensation Committee. From time to time the board of directors may appoint ad hoc committees. Each standing committee has a separate written charter. Current copies of the committee charters are posted on the Investor Relations pages of Huntington’s website at

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www.huntington.com. The board of directors appointed David L. Porteous as Lead Director in November 2007. The responsibilities of the Lead Director shall include: (i) presiding at all meetings of the Board at which the Chairman is not present, including executive session of the independent Directors; (ii) serving as liaison between the Chairman of the Board and the independent Directors; (iii) consulting with the Chairman of the Board on information sent to the Board; (iv) reviewing and providing input to the Chairman of the Board on meeting agendas for the Board; (v) consulting with the Chairman of the Board on meeting schedules to assure that there is sufficient time for discussion of all agenda items; (vi) having the authority to call meetings of the independent Directors; and (vii) if requested by major shareholders, ensuring that he or she is available for consultation and direct communication.

 

In addition, the board of directors has a corporate governance program which includes Corporate Governance Guidelines and a Code of Business Conduct and Ethics. The Corporate Governance Guidelines are attached as Exhibit A to the charter for the Nominating & Corporate Governance Committee. The Code of Business Conduct and Ethics applies to all employees and, where applicable, to directors of Huntington and its affiliates. Huntington’s officers serving as chief executive officer, chief financial officer, corporate controller, and principal accounting officer are also bound by a Financial Code of Ethics for Chief Executive Officer and Senior Financial Officers. The Code of Business Conduct and Ethics and the Financial Code of Ethics for Chief Executive Officer and Senior Financial Officers are posted on the Investor Relations pages of Huntington’s website at www.huntington.com.

 

The Corporate Governance Guidelines provide that attendance at board of directors and committee meetings is of utmost importance. Directors are expected to attend the annual shareholders meetings and at least 75% of all regularly scheduled meetings of the board of directors and committees on which they serve. During 2009, the board of directors held a total of 24 regular and special meetings. Each director attended greater than 75% of the meetings of the full board of directors and the committees on which he or she served. All directors who were then serving attended the 2009 annual meeting of shareholders.

 

Shareholders who wish to send communications to the board of directors may do so by following the procedure set forth on the Investor Relations pages of Huntington’s website at www.huntington.com.

 

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Collectively, the board of directors and the standing committees of the board met 98 times in 2009. The table below indicates the standing committees of the board in 2009 and the number of times these committees met in 2009.

 

 

Audit Committee.   A primary responsibility of the Audit Committee is to oversee the integrity of Huntington’s consolidated financial statements, including policies, procedures, and practices regarding the preparation of financial statements, the financial reporting process, disclosures, and the internal control over financial reporting. The Audit Committee also provides assistance to the board of directors in overseeing the internal audit division and the independent registered public accounting firm’s qualifications and independence; compliance with Huntington’s Financial Code of Ethics for the chief executive officer and senior financial officers; and compliance with corporate securities trading policies.

 

The board of directors has determined that David P. Lauer, Chairman of the Audit Committee, Gene E. Little, Richard W. Neu and William R. Robertson each qualifies as an “audit committee financial expert” as the term is defined in the SEC rules. Designation of Messrs. Lauer, Little Neu and Robertson as audit committee financial experts by the board of directors does not impose any duties, obligations or liabilities on them that are greater than the duties, obligations and liabilities imposed on the other members of the Audit Committee. The SEC has determined that a person who is identified as an “audit committee financial expert” will not be deemed an expert for any purpose as a result of such designation. Each member of the Audit Committee qualifies as an “independent director” as the term is defined in the Nasdaq Stock Market Marketplace Rules.

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Report of the Audit Committee

 

The following Audit Committee Report should not be deemed filed or incorporated by reference into any other document, including Huntington’s filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent Huntington specifically incorporates the Audit Committee Report into any such filing by reference.

 

In carrying out its duties, the Audit Committee has reviewed and discussed the audited consolidated financial statements for the year ended December 31, 2009 with Huntington management and with Huntington’s independent registered public accounting firm, Deloitte & Touche LLP. This discussion included the selection, application and disclosure of critical accounting policies. The Audit Committee has also reviewed with Deloitte & Touche LLP its judgment as to the quality, not just the acceptability, of Huntington’s accounting principles and such other matters required to be discussed under auditing standards generally accepted in the United States, including the Statement on Auditing Standards No. 61, as amended, Communication with Audit Committees (AICPA, Professional Standards, Vol. 1. AU section 380 ) as adopted by the Public Company Accounting Oversight Board in Rule 3200T.

 

In addition, the Audit Committee has reviewed the written disclosures and the letter from Deloitte & Touche LLP required by the Public Company Accounting Oversight Board in Rule 3526 regarding Deloitte & Touche LLP’s communications with the Audit Committee concerning independence and has discussed with Deloitte & Touche LLP its independence from Huntington. Based on this review and discussion, and a review of the services provided by Deloitte & Touche LLP during 2009, the Audit Committee believes that the services provided by Deloitte & Touche LLP in 2009 are compatible with and do not impair Deloitte & Touche LLP’s independence.

 

Based on the reviews and discussions described above, the Audit Committee recommended to the board of directors that the audited consolidated financial statements be included in Huntington’s Annual Report on Form 10-K for the year 2009 for filing with the SEC.

 

Audit Committee

David P. Lauer, Chairman

D. James Hilliker

Gene E. Little

Richard W. Neu

William R. Robertson

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Compensation Committee.   The Compensation Committee periodically reviews and approves Huntington’s goals and objectives with respect to the compensation of the chief executive officer and other executive management. The Compensation Committee evaluates the performance of the chief executive officer and other executive management in light of such goals and objectives, and sets their compensation levels based on such evaluation. The Compensation Committee advises the board of directors with respect to compensation for service by non-employee directors on the board of directors and its committees. The Compensation Committee also makes recommendations to the board of directors with respect to Huntington’s incentive compensation plans and equity-based plans, oversees the activities of the individuals and committees responsible for administering these plans, and discharges any responsibility imposed on the Compensation Committee by any of these plans. Since January 2010, the Compensation Committee has taken on the duties of the Pension Review Committee, which include providing recommendations to the board of directors in connection with actions taken by the board in fulfillment of the duties and responsibilities delegated to Huntington and/or the board pursuant to the provisions of Huntington’s retirement plans.

 

Huntington designs its executive and director compensation programs through a combined effort among Huntington management, the Compensation Committee and a third-party compensation consultant. Huntington’s management, including the chief executive officer, may make recommendations to the Compensation Committee with respect to the amount and form of executive and director compensation. Huntington’s chief executive officer and chief financial officer make recommendations to the Compensation Committee when it sets specific financial measures and goals for determining incentive compensation. The chief executive officer also makes recommendations to the Compensation Committee regarding the performance and compensation of his direct reports, which include the executive officers.

 

Huntington has retained the services of a third-party consultant through Watson Wyatt & Company to provide consulting services to the Compensation Committee. The Compensation Committee has direct access to the consultant and may engage the consultant on an as needed basis for advice with respect to the amount and form of executive and director compensation. In addition, from time to time, the consultant provides information and analysis to Huntington’s management at its request for use by the Compensation Committee.

 

The Compensation Committee has the resources and authority appropriate to discharge its duties and responsibilities, including the authority to select, retain, terminate and approve fees and other retention terms of advisors, including an outside compensation consultant. The Compensation Committee may delegate all or a portion of its duties and responsibilities to a subcommittee of the Compensation Committee, or in accordance with the terms of a particular compensation plan. The Compensation Committee may not however delegate the determination of compensation for executive officers. The Compensation Committee may obtain the approval of the board of directors for equity incentive awards in order to qualify such awards under Rule 16b-3 of the Securities and Exchange Commission.

 

Compensation Committee Interlocks and Insider Participation

Huntington has no Compensation Committee interlocks. In addition, no member of the Compensation Committee has been an officer or employee of Huntington.

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Compensation Committee Report

 

The following Compensation Committee Report should not be deemed filed or incorporated by reference into any other document, including Huntington’s filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent Huntington specifically incorporates this Report into any such filing by reference.

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis contained in this proxy statement with management. Based on this review and discussion, the Compensation Committee recommended to the board of directors that the Compensation Discussion and Analysis be included in Huntington’s proxy statement for its 2010 annual meeting of shareholders.

 

In addition, the Compensation Committee certifies that:

 

 

This certification above and the narrative below are being provided in accordance with the requirement of the Interim Final Rule of the United States Treasury, TARP Standards for Compensation and Corporate Governance, issued June 15, 2009.

 

Discussion of Risk Review and Assessment

 

Overview

 

Huntington’s Chief Risk Officer (senior risk officer) has conducted three assessments of the Company’s compensation programs since February 2009 and has reviewed and discussed the assessments and the compensation plans with the Compensation Committee. The most recent assessment with the Compensation Committee occurred on February 4, 2010 and covered all compensation plans, including the SEO compensation plans. The Compensation Committee adopted the approach recommended by the Chief Risk Officer and focused its review on incentive based compensation plans and the controls around these plans and the administration of them. Incentive plans received a closer review based on a “risk-adjusted approach” that took into consideration: products and services incented, average length of transactions, incentives paid as a percentage of total revenue, earnings based on mark to market valuations, incentives paid as a percentage of the participant’s total compensation, and average incentives paid per employee in 2008 and 2009. The Chief Risk Officer also considered compensation plans providing for deferral of compensation and/or retirement benefits, and plans providing for de minimis payouts and determined that these plans did not present opportunities for employees to take unnecessary and excessive risks that threaten the value of Huntington, or to manipulate earnings to enhance the compensation of any employee. The Chief Risk officer also determined to exclude from review broad-based welfare and benefit plans that do not discriminate in scope and terms of operation.

 

The Compensation Committee believes that Huntington’s overall compensation practices for SEOs, which include the following elements, limit the ability of executive officers to benefit from taking unnecessary or excessive risks:

 

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In addition, the Compensation Committee believes that there are controls around incentive plans for all employees as described below that effectively discourage unnecessary and excessive risk taking.

 

Risk Policy Framework

 

Huntington’s board of directors has established an overall risk tolerance of low to moderate levels of risk in connection with the operating of the Company’s business. Every business segment within Huntington aligns with the Company’s risk policy framework. Adherence to the risk tolerances is ensured by the Company’s system of internal processes and validated by independent groups, including Internal Audit, Risk Management, Credit Administration and to some extent, the external auditors. During 2009, segment risk officers have been hired for every business segment. All material business plans must be reviewed against the risk policy framework and approved. Incentive compensation plans and performance goals are tied to the risk-assessed business plans.

 

In addition to the overarching risk policy framework which limits risks, there are controls around employee incentive plans (including the SEO plans) that effectively discourage and limit unnecessary and excessive risks of the plans. All employee incentive plans allow for management discretion (or Compensation Committee discretion in the case of the SEO plans) to reduce or eliminate any award. Every incentive plan is documented using a standard template and is reviewed annually by a design team which consists of representatives from the business segment, Finance, the Compensation Department, Risk Management (commencing with 2010 plans), and any other group deemed to be appropriate, with final approval by the appropriate Executive Officer. As further described below, the Compensation Committee reviews and approves all SEO plans, award opportunities and performance goals. Further, incentive plans are audited regularly by internal auditors and periodically by Huntington’s independent registered accounting firm.

 

SEO Compensation Plans

 

The SEO compensation plans are currently operating within the constraints of the TARP limits. The Compensation Committee believes, however, that Huntington’s standard compensation programs for executives do not encourage unnecessary and excessive risk, even before application of the TARP limits. As discussed in further detail in the Compensation Discussion and Analysis below, the standard incentive compensation plans for SEOs, before the impact of TARP, consisted of: annual cash incentives under the Management Incentive Plan, long-term incentives under the Amended 2007 Stock and Long-Term Incentive Plan in the form of equity awards (stock options, restricted stock and restricted stock units), and long-term performance awards payable in stock and cash. Annual incentive awards and long-term incentive awards are closely linked to the company’s financial performance compared with Huntington’s strategic plans for each plan year or plan cycle. The opportunity to earn annual incentive awards in cash and long-term awards in a combination of cash and stock provides a mix of variable compensation that integrates the Company’s short-term and long-term goals, as well as helps to attract and retain executive officers.

 

Annual cash incentives under the Management Incentive Plan are payable only when specific pre-determined performance goals are met. All participants have some portion of their award dependent on the selected corporate performance criteria. The potential award for the CEO is typically based entirely on the selected corporate performance goals. The CEO’s direct reports have 75% of their awards tied to corporate performance. For other participants, the range of corporate performance is weighted from 40%-75%. Equity awards are a critical part of Huntington’s compensation philosophy as they encourage the alignment of senior management’s goals with those of shareholders, with the ultimate goal of increasing overall shareholder value. Long-term

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performance awards are payable in recognition of achievement of Huntington’s goals over a period of time longer than one year, typically a three year period. The Compensation Committee approves all incentive compensation paid to the executive officers, including the SEOs. The Compensation Committee confers with the Audit Committee as necessary when confirming achievement of performance goals.

 

Due to the impact of TARP, annual cash incentive awards for the SEOs under the Management Incentive Plan have been severely limited or prohibited. Equity awards to the SEOs are also restricted. During 2009 the equity awards for SEOs were limited to long-term restricted stock awards that will vest on the later of the second anniversary of the date of grant or the date Huntington repays the financial assistance it received under TARP. Combined with the Company’s stock ownership requirements for executives, the Compensation Committee believes that the Company’s current compensation practices for SEOs do not encourage unnecessary or excessive risk that threaten the value of Huntington.

 

Employee Compensation Plans

 

In addition to the incentive plans in which the SEOs participate, Huntington has 22 business unit incentive plans which reward measurable performance across Huntington’s five major business segments: Retail and Business Banking, Commercial Banking, Commercial Real Estate, Auto Finance and Dealer Services, and the Private Financial Group. The Compensation Committee believes that the features of these incentive compensation plans, alone and/or combined with the systems of controls in place, do not encourage unnecessary or excessive risk and do not encourage the manipulation of reported earnings to enhance the compensation of any employee. In particular, there are effective controls in place to review business generated by individuals who earned 75% or more of their compensation in variable pay. In addition, persons having compliance, risk, credit quality, quality assurance and finance roles are not compensated on the same results as the business teams they support. Instead, their incentives are tied to corporate goals under the Management Incentive Plan. During 2009 Huntington integrated a recoupment policy into every incentive compensation plan containing language regarding Huntington’s ability to withhold or recoup all or a portion of any incentive payment if it is determined that an unnecessary or excessive risk was taken, that, had it not, would have resulted in a smaller or no payout. Huntington has had a recoupment policy for SEO incentive plans in effect since 2007.

 

Further, in light of the significant level of oversight and controls surrounding incentive plans, and the significant amounts that would be required to impact Huntington’s reported earnings, the Compensation Committee believes that the incentive plans for employees, including SEOs, do not contain any features that would encourage the manipulation of reported earnings to enhance the compensation of any employee.

 

Compensation Committee

John B. Gerlach, Jr., Chairman

Don M. Casto III

Marylouise Fennell

David L. Porteous

Kathleen H. Ransier

William R. Robertson

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Nominating and Corporate Governance Committee.   The Nominating and Corporate Governance Committee’s primary responsibilities are to review annually the composition of the board of directors to assure that the appropriate knowledge, skills, and experience are represented, in the Nominating and Corporate Governance Committee’s judgment, and to assure that the composition of the board of directors complies with applicable laws and regulations; review the qualifications of persons recommended for board of directors membership, including persons recommended by shareholders; discuss with the board of directors standards to be applied in making determinations as to the independence of directors; and review annually the effectiveness of the board of directors, including but not limited to, considering the size of the board of directors and the performance of individual directors as well as collective performance of the board of directors. The Nominating and Corporate Governance Committee reviews and approves related party transactions. Other primary responsibilities of the Nominating and Corporate Governance Committee include reviewing and making appropriate changes to the Corporate Governance Guidelines and the Code of Business Conduct and Ethics for Huntington’s directors, officers and employees.

 

Director Nomination Process

Each person recommended by the Nominating and Corporate Governance Committee for nomination to the board of directors must be an active leader in his or her business or profession and in his or her community. Diversity is considered by the Nominating and Corporate Governance Committee when evaluating nominees because the board of directors believes that board membership should reflect the diversity of Huntington’s markets. The Nominating and Corporate Governance Committee evaluates potential nominees, including persons recommended by shareholders, in accordance with these standards which are part of the Corporate Governance Guidelines. From time to time the Nominating and Corporate Governance Committee may develop specific additional selection criteria for board membership, taking into consideration current board composition and ensuring that the appropriate knowledge, skills and experience are represented. Currently the Nominating and Corporate Governance Committee sees a need for a director with current or recent experience as a public company chief executive officer. There are no other specific additional criteria at this time. Directors Richard W. Neu and William R. Robertson are being nominated for election by the shareholders for the first time. Mr. Neu was recommended by a third party search firm and Mr. Robertson was recommended by a non-management director. Huntington utilized a third party search firm in 2009 to assist in identifying and evaluating potential board nominees.

 

Shareholders who wish to recommend director candidates for consideration by the Nominating and Corporate Governance Committee may send a written notice to the Secretary at Huntington’s principal executive offices. The notice should indicate the name, age, and address of the person recommended, the person’s principal occupation or employment for the last five years, other public company boards on which the person serves, whether the person would qualify as independent as the term is defined under the Marketplace Rules of the Nasdaq Stock Market, and the class and number of shares of Huntington securities owned by the person. The Nominating and Corporate Governance Committee may require additional information to determine the qualifications of the person recommended. The notice should also state the name and address of, and the class and number of shares of Huntington securities owned by, the person or persons making the recommendation. There have been no material changes to the shareholder recommendation process since the last disclosure of this item.

 

Other Standing Committees.   The Capital Planning Committee oversees the company’s capital management and planning processes, reviews strategies for achieving financial objectives, and reviews financial performance results as they relate to capital management and planning. The Community Development Committee’s principal role is to promote Huntington’s mission of local involvement and leadership in the communities where Huntington is located and were its employees work. This Committee will consider matters relating to community development and involvement, philanthropy, government affairs and diversity. This Committee also has responsibility for monitoring the Corporation’s commitments pursuant to the Community Reinvestment Act (“CRA”).The Executive Committee considers matters brought before it by the chief executive officer. This

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Committee also considers matters and takes action that may require the attention of the board of directors or the exercise of the powers or authority of the board of directors in the intervals between meetings of the board of directors. The Risk Oversight Committee assists the board of directors in overseeing Huntington’s enterprise-wide risks, including credit, market, operational, compliance and fiduciary risks. Towards this end, the Risk Oversight Committee monitors the level and trend of key risks, management’s compliance with board-established risk tolerances and Huntington’s risk policy framework. The Risk Oversight Committee also monitors whether material new initiatives have been appropriately analyzed and approved, and reviews all regulatory findings directed to the attention of the board of directors and the adequacy of management’s response.

 

 

 

 

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(footnotes continued from previous page)

 

 

As of December 31, 2009, no person was known by Huntington to be the beneficial owner of more than 5% of the outstanding shares of Huntington common stock, except as follows:

 

 

 

 

Huntington also has issued and outstanding 8.50% Series A non-voting perpetual convertible preferred stock (“Series A Preferred Stock”). As of December 31, 2009, Mr. Casto owned 300 shares, Mr. Endres owned 500 shares and Mr. Lauer owned 100 shares of Series A Preferred Stock, which collectively was less than 1% of the Series A Preferred Stock outstanding. In addition, as of December 31, 2009, Mr. Benhase owned, and Huntington’s executive officers as a group owned, 800 and 900 shares, respectively, of Class C Preferred Stock, $25.00 par value, issued by Huntington Preferred Capital, Inc., a subsidiary of Huntington, which collectively was less than 1% of the Class C Preferred Stock outstanding.

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Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires Huntington’s officers, directors, and persons who are beneficial owners of more than ten percent of Huntington common stock to file reports of ownership and changes in ownership with the SEC. Reporting persons are required by SEC regulations to furnish Huntington with copies of all Section 16(a) forms filed by them. Due to administrative error, one transaction for Donald R. Kimble pursuant to a deferred compensation plan was filed late. To the best of its knowledge, and following a review of the copies of Section 16(a) forms received by it, Huntington believes that during 2009 all other filing requirements applicable for reporting persons were met.

 

Compensation Discussion & Analysis

This Compensation Discussion and Analysis discusses the compensation awarded to, earned by, or paid to the named executive officers whose compensation is detailed in this proxy statement. These named executive officers are the two persons who served as chief executive officer in 2009, the chief financial officer and the other three most highly compensated executive officers serving as of December 31, 2009, as listed in the Summary Compensation Table.

 

Overview of 2009

 

Huntington is in the midst of a significant effort to reposition itself for growth and improved financial performance, while facing one of the most challenging economic environments in many decades, and it is critical that Huntington retain and attract experienced and critical talent. At the same time the U.S. Department of the Treasury’s TARP (“Troubled Asset Relief Program under the Emergency Economic Stabilization Act of 2008”) rules have limited Huntington’s alternatives for providing market competitive compensation opportunities to key TARP Covered Employees.

 

As a participant in the Capital Purchase Program, a component of TARP, Huntington is subject to certain corporate governance and executive compensation standards applicable to all TARP recipients as required by the American Recovery and Relief Act of 2009 (the “ARRA”). The U.S. Department of the Treasury (the “Treasury”) issued final interim rules on June 15, 2009 to implement the ARRA standards (the “TARP Rules”). The TARP Rules restrict compensation for Huntington’s senior executive officers (“SEOs”, generally the five “named executive officers” identified in the proxy statement) and Huntington’s 20 next most highly compensated employees. We refer to these employees as the “TARP Covered Employees”. All of the named executive officers in this proxy statement were TARP Covered Employees in 2009 with the exception of Mark E. Thompson. All of the named executive officers are TARP Covered Employees in 2010. The TARP Rules apply during the period in which Huntington has any outstanding obligations arising from financial assistance under TARP.

 

The TARP Rules prohibit bonus payments to TARP Covered Employees during the TARP period. There are exceptions for “long-term restricted stock” awards and amounts required to be paid under valid employment contracts that were in effect as of February 11, 2009. Any bonuses that are paid during the TARP period are subject to a “clawback” provision if the bonus payment was based on materially inaccurate financial statements or any other materially inaccurate performance metric criteria. Other restrictions that apply are prohibitions on “golden parachute” payments (to the named executive officers and the top 5 other most highly compensated employees) and tax “gross-ups” on compensation (for all TARP Covered Employees). In addition, Huntington adopted an “excessive or luxury expenditures” policy applicable to all employees. Huntington also agreed, as a condition to participate in the Capital Purchase Program, that it would be subject to a $500,000 annual deduction limit under IRC Section 162(m), which limits annual tax deduction for non-performance-based compensation.

 

Compensation Objectives

 

Huntington must retain and attract key talent in order to generate value for the shareholders. Huntington’s executive compensation programs are designed to: ensure a strong linkage between corporate, business unit and individual performance and pay; integrate with Huntington’s annual and long-term strategic goals and tie awards to the levels of performance achieved, with opportunities to earn maximum awards for maximum performance; and

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encourage the alignment of senior management’s goals with those of shareholders with the ultimate goal of increasing overall shareholder value. In addition, as further described in the Compensation Committee Report above, Huntington’s compensation programs are consistent with Huntington’s risk management program and levels of risk tolerance.

 

The company strives to provide an overall compensation package that is commensurate with the executive’s responsibilities, experience and demonstrated performance and to align the total compensation opportunity with those of peer organizations. Huntington’s compensation policies and programs are generally consistent for all executive officers except to the extent compensation of certain executives was impacted by the TARP Rules. Amounts paid and potential incentive opportunities will vary depending upon the executive’s role and scope of responsibility. For example, Mr. Steinour had a higher base salary and higher potential award opportunities due to his responsibilities as chief executive officer. In addition, because of his leadership role, the chief executive officer’s annual cash incentive compensation is typically tied to overall corporate performance, whereas other named executive officers have components of their award tied to personal performance. The chief executive officer is also held to a higher stock ownership guideline reflecting his increased stake in the company’s performance.

 

Huntington has worked to balance its compensation philosophy with the goal of achieving maximum deductibility under Internal Revenue Code Section 162(m). Huntington’s Management Incentive Plan and 2007 Stock and Long-Term Incentive Plan have been structured so that awards under these plans may qualify as performance-based compensation deductible for federal income tax purposes under Internal Revenue Code Section 162(m). However, Huntington’s ability to take a deduction for executive compensation under the Internal Revenue Code is currently limited due to Huntington’s participation in the U.S. Treasury’s Capital Purchase Program under the Troubled Asset Relief Program. Huntington also takes into consideration Internal Revenue Code Section 409A with respect to non-qualified deferred compensation programs, and has revised a number of compensation and benefit plans, including the Executive Deferred Compensation Plan, to be Internal Revenue Code Section 409A compliant. In addition, Huntington also considers Financial Accounting Standards Board Statement No. 123(R), Share-Based Payment (FAS 123(R)) in administering its equity compensation program.

 

Compensation Components

Huntington’s executive compensation philosophy and objectives are reflected in the structure of Huntington’s compensation programs for senior management which consist of the following principal components:

 

 

Increases in base salary, annual incentive awards, and long-term incentive awards are dependent on individual and/or company performance and competitive pay within the market. Annual incentive awards and long-term incentive awards are closely linked to the company’s financial performance compared with Huntington’s strategic plans for each plan year or plan cycle. The opportunity to earn annual incentive awards in cash and long-term awards in a combination of cash and stock provides a mix of variable compensation that integrates the Company’s short-term and long-term goals, as well as helps to attract and retain executive officers. Huntington does not currently have a set policy for dividing the aggregate amount of an executive’s compensation between cash and non-cash compensation or between short-term and long-term awards except as reflected in market competitive practices. Huntington’s focus is on total compensation.

 

Executive officers participate in the same benefit programs generally available to all employees. In addition, Huntington has a supplemental defined contribution plan and a supplemental defined benefit pension plan for eligible officers whose income exceeds the limits established by the Internal Revenue Service. Huntington also offers additional fringe benefits to certain senior officers including a tax and financial planning quarterly allowance and paid parking. For Mr. Steinour, Huntington provides security monitoring for his personal residence. Huntington has access to a private airplane which may be used by executives on a very limited basis. All of

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the named executive officers are eligible to defer certain compensation under Huntington’s Executive Deferred Compensation Plan. In addition, all named executive officers have an Executive Agreement which provides income continuation security and benefit protection in the event of any change in control of Huntington.

 

These principal compensation components are further discussed below.

 

Recoupment Policies

Huntington’s board of directors has had a formal recoupment policy in place since 2007. The policy applies if the board determines that gross negligence, intentional misconduct or fraud by a current or former executive officer caused or partially caused the company to restate its financial statements. Under the policy, the board may require repayment of a portion or all of any incentive-based compensation paid and/or cancellation of any unvested restricted stock if the amount or vesting of the incentive compensation was calculated or contingent upon the achievement of financial or operating results that were affected by the restatement and the amount or vesting of the incentive-based compensation would have been less had the financial statements been correct. Any recoupment would be at the board’s discretion and would be to the extent permitted by law and the company’s benefit plans, policies and agreements. There are also forfeiture and recoupment provisions contained in the Amended 2007 Stock and Long-Term Incentive Plan specific to awards under that plan.

 

The TARP Rules provide for recovery of any bonus payment, retention award, or incentive compensation paid to the TARP Covered Employees based on materially inaccurate financial statements (which includes but is not limited to, statements of earnings, revenues, or gains), or any other materially inaccurate performance metric criteria.

 

Employment Agreement

Huntington and Stephen D. Steinour, Chairman, President and Chief Executive Officer are parties to an employment agreement with an initial term ending on December 31, 2013, subject to automatic three-year renewal periods upon expiration of the initial term and each renewal term. Pursuant to the agreement, Mr. Steinour has a minimum annual base salary of $1,000,000, is eligible for an annual target incentive award opportunity equal to 110% of annual base salary (and a guaranteed minimum bonus of no less than 50% of the target incentive payment for 2009), is eligible for long-term incentive awards with a target award opportunity of 31.25% of annual base salary for each performance cycle, and is generally entitled to employee benefits, fringe benefits, perquisites and annual equity awards on terms and conditions no less favorable than those provided to other senior executives of the company. In connection with entry into the employment agreement, Huntington awarded Mr. Steinour an inducement option to purchase 1,000,000 shares of Huntington’s common stock, with a per share exercise price equal to the closing price of Huntington’s common stock on January 14, 2009 ($4.95).

 

Thomas E. Hoaglin, Huntington’s former Chairman, President and Chief Executive Officer preceding Mr. Steinour, had an employment agreement with Huntington that entitled him to certain payments and benefits including upon termination of employment.

 

Stock Ownership Guidelines

Consistent with the objective to align senior management’s goals with those of shareholders, the Compensation Committee has adopted stock ownership guidelines for key Huntington executives who are viewed as critical to the Company’s success. Increased stock ownership also reinforces, for both the investing public and employees, senior management’s commitment to the Company. Each executive generally has five years to reach a specified minimum ownership level of common stock derived from a multiple of his or her base salary. The multiple for the chief executive officer is 5 times base salary. The requirement is 2 times base salary for the other named executive officers. To determine the individual ownership guidelines, the product of the multiple and base salary on the date the executive becomes subject to the guidelines is divided by the fair market value of Huntington’s common stock, as defined in Huntington’s equity

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compensation plans, on that date. The guidelines for the named executive officers are set forth below.

 

 

The Compensation Committee has suspended compliance for executive officers while Huntington remains a participant in the Capital Purchase Program of TARP. For officers who were subject to guidelines before January 2009, the deadline is 3 years from the date Huntington repays TARP funds. For officers who become subject to the guidelines after January 2009, the deadline is 5 years from the date Huntington repays TARP funds. If guidelines are not met by the applicable date, the affected officer will be required to defer at least 50% of any annual bonus earned and invest the deferral in Huntington stock. Shares held in Huntington’s benefits programs, including deferred compensation, and shares owned outside these plans will be counted for purposes of meeting ownership guidelines.

 

In 2009, the Compensation Committee added stock ownership guidelines for directors. The minimum ownership level for directors is based on five times the annual retainer fee (excluding committee chairmanship retainers). Based on the fair market value of Huntington’s common stock on October 21, 2009, the guideline for directors is 40,603 shares. Directors have five years to meet the minimum guidelines (until October 21, 2014) and new directors will have five years from the date of election to the board.

 

The Compensation Committee retains the right to modify or adjust the ownership targets and time frames established for compliance under the stock ownership guidelines, on an individual or aggregate basis, as may be necessary or desirable in the Compensation Committee’s discretion based on events or circumstances. The Compensation Committee has not currently adopted a policy regarding an officer’s hedging of the economic risk associated with the ownership of employer stock.

 

Determination of Compensation

Benchmarking

In determining compensation, Huntington regularly utilizes information on peer banks for comparative analysis relative to levels of compensation, financial performance, stock usage metrics and other key data. The peer banks used for comparative analysis are determined annually by Huntington management with guidance from the Watson Wyatt compensation consultant, and approved by the Compensation Committee. The peer banks are typically determined in July and data collected is from the most recent proxy statement filings. Two categories of peer banks are determined.

 

“Primary Peers” are those banks that represent the best market comparators for Huntington in terms of size (as an indicator for scope of responsibility) and mix of businesses. The process for determining the 2009 peers began with the selection of U.S. based publicly traded banks with assets as of December 31, 2008, ranging from approximately one-half of Huntington’s assets to approximately twice the amount of Huntington’s assets. This initial group of banks was then reviewed based upon business compatibility. Banks with a significantly different business mix and those under foreign ownership were eliminated from the group. The resulting group consisted of 10 reasonably comparable banks with assets ranging from $23 billion to $120 billion. “Reference Peers” were the three banks that were larger than $120 billion in assets as of December 31, 2008, and were used to provide a frame of reference particularly with respect to compensation practices, the relationship of variable pay to base pay, share usage and performance.

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Huntington also relies on third party published survey data, and in 2009 utilized the 2008 Hewitt Financial Services Executive Total Compensation Survey and the 2008 Towers Perrin Financial Services Executive Database - U.S. Commercial Banks Report and the Long-Term Incentive Plan Report.

 

The Hewitt report provided data classified by industry and Huntington utilized the data representing the banking industry. The banking industry portion of the data consisted of 23 banks excluding Huntington. The data was provided primarily in two asset sizes: $40 - $74.9 billion and greater than $75 billion. For some positions, regional data was also used. Five of Huntington’s Primary Peers and two Reference Peer banks were included in the survey along with 16 other participants considered part of the banking industry for this survey which were: Bank of America, Bank of Montreal, Colonial Bank, Compass Bank, Cullen/Frost Bankers, Inc., Downey Savings & Loan Assoc., Federal Home Loan Bank of Atlanta, HSBC Bank USA, Navy Federal Credit Union, Peoples Bank, PNC Financial Services Group, Inc., U.S. Bancorp, UnionBanCal Corporation, Wachovia, Washington Mutual, Inc., and Wells Fargo and Company.

 

The Towers Perrin Survey of U.S. Commercial Banks Report represented 30 banks excluding Huntington. Banks were grouped into two asset sizes as follows: less than $50 billion, which included 9 banks, and greater than $50 billion, which included 21 banks. Five Primary Peers and three Reference Peers were included in the survey and the remaining 22 banks participating were as follows: Associated Banc-Corp, Bank of America, Bank of the West, Citigroup, Citizens Bank, Compass Bancshares, Cullen/Frost Bankers, Guaranty Bank, Harris Bank, HSBC North America, IndyMac, Irwin Financial, People’s Bank, PNC Financial Services, Sovereign Bancorp, SVB Financial, TD Banknorth, Union Bank of California, U.S. Bancorp, Wachovia, Webster Bank and Wells Fargo.

 

The Towers Perrin Long-Term Incentive Report represented all of the banks listed above in the Towers Perrin U.S. Commercial Banks Report including Huntington’s ten Peers with the exception of IndyMac. In addition, the following financial institutions were included in the report: Capital One Financial, Commerce Bancorp, Federal Home Loan Bank of San Francisco, First Horizon National, First Midwest Bancorp, Mellon Financial, and Sterling Bancshares. Data from the banks and financial institutions in the less than $50 billion asset range was reviewed along with data for the greater than $50 billion asset size for reference purposes.

 

When using data, data that fell closest to Huntington’s asset size was used when available. If data was not available for the asset size closest to Huntington, data representing the average of all participating companies was used. Data for the larger asset groups was reviewed as reference information. Where third party published surveys are mentioned in the following discussion, the reference is to these surveys described above.

 

Base Salary

Base salary is significant because it serves as the basis for determining eligible levels for certain benefits, and for certain executive programs, awards are determined as a multiple or percentage of base salary. Huntington also views base salary as an important factor in attracting and retaining key personnel. Huntington does not have a set policy to target compensation at a specific level of compensation in the market. Huntington has typically positioned base salaries for executive officers to fall between the 50th and 75th market percentile. Huntington’s current goal is to set salaries closer to the 75th market percentile for higher performing executives occupying critical positions.

 

The Compensation Committee reviews salaries for the executive officers on an annual basis and as needed. The review of the chief executive officer’s salary is typically later in the year so that the proxy

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statement data for current Reference Peers and Primary Peers can be compiled and considered. While reviewing salaries each year, Huntington also reviews the total compensation package for each executive officer. Huntington takes into consideration how adjustments in base salary affect other key compensation elements; a base salary that is too low or too high disproportionately affects the total compensation opportunity as the annual cash and performance awards are determined as a percentage of base salary.

 

The level of compensation selected for an executive in comparison to the market data can vary based on other relevant factors such as individual and business unit performance, scope of responsibility and accountability, cost of living, internal equity, annual merit budget or any other factors deemed important. The extent to which each of these factors is considered may vary from executive to executive. The chief executive officer evaluates the performance of, and makes merit recommendations for, each of the other named executive officers. The chief executive officer does not participate in the discussion of his own salary.

 

To address the impact of the TARP Rules on Huntington’s executive compensation programs, the Compensation Committee approved increases, effective for 2010, in the base salaries of certain TARP Covered Employees, including Messrs. Steinour, Kimble, Stanutz and Benhase. The entire increased salary amount for each executive will be paid in shares of Huntington common stock. With respect to each semi-monthly pay period, the executive will receive the number of shares of common stock determined by dividing the amount of base salary (net of applicable tax withholdings) to be paid in common shares with respect to that pay period by the closing price of a share of Huntington common stock as reported on the NASDAQ Global Select Market on the pay date for such period, or if not a business day, the business day immediately preceding such date. The shares will be paid under Huntington’s Amended and Restated 2007 Stock and Long-Term Incentive Plan in the form of restricted stock. The shares will be immediately 100% vested as of the pay date and will not be subject to any requirement of future service. The shares may not, however, be sold, transferred, pledged, assigned, or otherwise disposed of until the later to occur of (1) or (2) below:

 

(1) The date that is six months after the pay date; or

 

 

The Compensation Committee may, in its sole discretion and without the executive’s consent, terminate, modify or suspend this compensation structure at anytime.

 

Annual Cash Incentive Awards

The TARP Rules restrict the payment of bonuses and thus impacted the annual cash incentive awards for the named executive officers.

 

Cash incentive awards may be earned on an annual basis under the Management Incentive Plan when specific, pre-determined goals are met in the short-term (one year). This plan aligns executive officers and other participants with common short-term corporate goals, which can change from year to year depending on Huntington’s strategic direction. The Management Incentive Plan, which was approved by the shareholders, provides a number of key performance criteria for corporate performance which the Compensation Committee can select from annually to set financial performance goals. The Compensation Committee establishes the performance criteria and weightings, the performance goals at various levels of performance and the potential awards under the Management Incentive Plan for each year.

 

The Compensation Committee selected pre-tax pre provision income (40%), core deposit growth (20%), the efficiency ratio (20%) and credit quality (20%) as the performance criteria and weightings for 2009. The chief executive officer and the chief financial officer recommended that these criteria represented important indicators for relative performance of Huntington when compared to its peers in light of current economic conditions and Huntington’s strategic plan. After considering Huntington’s performance for the prior year, and the actual and expected performance of peers, the performance goals for each of these measures were set at Huntington’s targeted performance goals for the year. The compensation consultant also had the

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opportunity to comment on the measures and goals. The specific performance goals for 2009 are discussed under “Discussion of 2009 Compensation” below.

 

The named executive officers have 75% to 100% of their annual incentive awards dependent on the selected corporate performance criteria. The potential award for the chief executive officer is typically based entirely on the selected corporate performance goals to align his interests with those of the shareholders. This also is intended to maintain the deductibility of the award payable to the chief executive officer under the plan in relation to Internal Revenue Code Section 162(m) (currently limited by TARP). The other named executive officers generally have additional goals based on their business unit and specified individual initiatives (referred to as “personal performance”). These business unit and individual goals were determined by Mr. Steinour, as the manager of each of the other named executive officers. The plan also includes a discretionary component that can be used to adjust awards, other than awards subject to Section 162(m), up or down based on other factors that are critical to the company’s success.

 

Award opportunities are tied to the achievement of threshold, target and maximum performance levels. The level of achievement affected the percentage of base salary that could have been earned under the plan components. The threshold award opportunities are typically set in the range of approximately one-third to one-half of the target award, and the maximum award opportunities are typically set as two times the target award. When performance goals are met, which means performance is at or above the threshold for any one component, participants are eligible to receive annual cash awards determined as a percentage of base salary earned over the plan year. It is the intent of the Compensation Committee that maximum awards are only paid for truly exceptional performance and goals are set accordingly. The Management Incentive Plan allows for awards to be earned under each plan criterion and plan component, independent of the other criteria.

 

As it does each year, Huntington reviewed the award opportunities (expressed as a percentage of base salary) and potential award amounts for the named executive officers against data from published surveys mentioned above and in the case of the chief executive officer against the Peer Bank proxy statement information to ensure that the award opportunities align with the competitive market. The opportunities for the executive officers are targeted between the 50th and 75th percentiles of the market data. The level of award opportunity is also reviewed from a total compensation perspective. The award opportunities for 2009 were increased to be more competitive. The chief executive officer’s target award opportunity was increased from 100% to 110%, and the target award opportunity for the other named executive officers was increased from 50% to 80%. Threshold and maximum award opportunities were likewise adjusted. The threshold, target, and maximum award opportunities for the named executive officers for 2009 under the Management Incentive Plan are set forth in the table below.

 

Following the end of each plan year, the Compensation Committee determines whether the applicable performance goals have been met. The Committee may include or exclude “extraordinary events” or other factors, events or occurrences in determining whether a performance goal has been achieved. “Extraordinary events” are defined in the Management Incentive Plan and include:

 

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Huntington’s chief executive officer and chief financial officer make recommendations to the Compensation Committee as to the inclusion or exclusion of extraordinary events and other objective events or occurrences. As part of the certification process, the Compensation Committee will make specific inquiries into the relationship between the achievement of the performance goals and any accounting adjustments recommended by management. The Compensation Committee meets with representatives of the Audit Committee and obtains input from the third party compensation consultant in making this determination.

 

In addition to cash awards under the Management Incentive Plan, the Compensation Committee may also approve discretionary cash bonuses outside this plan to the executive officers as the Compensation Committee deems appropriate, such as for extraordinary performance or for recruitment or retention purposes.

 

The determination of annual cash incentive awards earned by the named executive officers for 2009 is included in the “Discussion of 2009 Compensation” below.

 

Long-Term Incentive Compensation

Executive officers are also eligible to earn long-term incentive compensation consisting of equity awards and long-term performance awards under Huntington’s shareholder approved Amended and Restated 2007 Stock and Long-Term Incentive Plan, referred to as the 2007 Plan. Equity awards are a critical part of Huntington’s compensation philosophy as they encourage the alignment of senior management’s goals with those of shareholders, with the ultimate goal of increasing overall shareholder value. Long-term performance awards are payable in recognition of achievement of Huntington’s goals over a period of time longer than one year, typically a three year period.

 

Long-Term Performance Awards

Huntington’s long-term performance awards program has been suspended due to administrative complexities under the TARP rules. Long-term performance awards are based on Huntington’s performance over three-year performance cycles (however the plan allows two, three or four year cycles). A new cycle was not commenced in 2009, however one cycle ended on December 31, 2009 and another cycle is pending under the program. No awards have been earned under the cycle that ended on December 31, 2009 (the 2007 — 2009 cycle).

 

The Compensation Committee selects the participants for this program and has limited participation to the most senior executives whose performance is likely to impact Huntington’s long-term strategic goals. These awards are payable in the form of stock, although up to 50% of an award may be paid in cash at the election of the participant.

 

The Compensation Committee selects the performance criteria and weightings, the performance goals at various levels of performance, and the potential awards for each cycle based on recommendations of Huntington’s management and the input of the compensation consultant. The 2007 Plan provides a list of approved performance criteria from which to choose. For each new cycle, Huntington’s chief executive officer and chief financial officer compile long-term strategic objectives and recommend appropriate performance measures and goals to the Compensation Committee for final approval. The Compensation Committee also solicits input from the Audit Committee and the third party compensation consultant regarding the recommended performance criteria and goals.

 

The 2007 — 2009 cycle ended on December 31, 2009 and the 2008 — 2010 cycles will end on December 31, 2010. Awards earned under any cycle will generally be paid in the first quarter of the year following the end of the respective cycle. Typically, a new cycle begins each year as is consistent with market practices and keeps future expectations in line with current expectations. Each cycle is typically

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three years because that time frame strikes a balance between providing a meaningful long-term award and reasonable goal setting.

 

The performance criteria for the 2007 — 2009 cycle are average annual growth in EPS and return on average annual tangible equity (referred to as ROTE) along with average annual efficiency ratio. The performance criteria for the 2008 — 2010 cycle are average annual growth in EPS and annual efficiency ratio, and revenue growth. The former chief executive officer and chief financial officer determined that these criteria were the best objective measures of performance for Huntington for the respective three-year periods. These criteria consider profitability and growth (by reviewing EPS) as well as quality of earnings (by reviewing ROTE). The 2007 — 2009 and the 2008 — 2010 cycles also focus on control of expenses through the efficiency ratio component. The chief executive officer and the chief financial officer recommended to the Compensation Committee for approval the specific goals for each performance criteria under each cycle, taking into consideration the economic outlook for Huntington’s markets and the expected relative performance of peers over the same cycle. The weighting of the performance criteria for potential awards under the two cycles discussed above are set forth in the table below.

 

 

The award opportunities were established at the beginning of each cycle as a percentage of base salary and set at various levels of performance for plan threshold, target, superior and maximum performance results. The award opportunities as a percentage of base salary are the same for the cycle that just ended and for the cycle not yet completed. If performance falls between the established performance goals, the Committee uses straight-line interpolation to determine the appropriate level of earned award. Participants are assigned to one of three incentive groups and award opportunities vary among the three groups. The chief executive officer, due to his role with the company, participates in the highest level incentive group. The chief executive officer recommends to the Compensation Committee the incentive group placement for each of the other participants.

 

The threshold, target, superior and maximum award opportunities for the named executive officers under the 2007 — 2009 cycle and the current cycle not yet completed are set forth in the table below.

Mr. Steinour is a participant on a pro-rated basis in both the 2007 — 2009 cycle and the 2008 — 2010 cycle and Mr. Thompson is a participant on a pro-rated basis in the 2008 — 2010 cycle.

 

Awards for the 2007 — 2009 cycle can be increased by up to 20% or decreased by 10% based on the success of the Sky Financial integration, determined on a subjective basis by the Compensation Committee at the end of the cycle. Awards for the 2008 — 2010 cycle can be increased by up to 20% or decreased by 10% based on credit quality (net charge-offs) in 2010. Awards under this plan can only be paid if performance is at or above the threshold levels of performance criteria established for each cycle.

 

Following the end of each cycle, the Compensation Committee determines whether the applicable performance goals have been met. The Compensation Committee may include or exclude “extraordinary events” or any other factors, events or occurrences in determining whether a performance goal has been achieved. “Extraordinary

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events” are the same as those used in the Management Incentive Plan and discussed above.

 

Huntington’s chief executive officer and chief financial officer make recommendations to the Compensation Committee as to the inclusion or exclusion of extraordinary events and other objective events or occurrences. As part of the certification process, the Compensation Committee will make specific inquiries into the relationship between the achievement of the performance goals and any accounting adjustments recommended by management. The Compensation Committee meets with representatives of the Audit Committee and obtains the input of the third party compensation consultant in making this determination.

 

The number of shares that can be awarded to a participant is determined by dividing the dollar value of the award by the fair market value (see more information on definition of fair market value below) of a share of Huntington common stock as of the award date as determined by the Compensation Committee.

 

The 2007 — 2009 long-term performance cycle which ended December 31, 2009 is discussed under the “Discussion of 2009 Compensation” below.

 

Equity Awards

Huntington’s equity awards program for senior management typically consists of a combination of restricted stock units, referred to as RSUs and stock options. RSUs offer a strong emphasis on executive retention and continuity and have certain advantages for Huntington, as explained in greater detail below. Huntington was generally prohibited from awarding stock options to the TARP Covered Employees during 2009. Huntington also granted restricted stock awards (RSAs) to certain executive officers in 2009 for recruitment purposes.

 

Of the named executive officers, Messrs. Kimble, Stanutz and Benhase received only long-term restricted stock awards pursuant to the limits in the TARP rules. Mr. Steinour also received a long-term restricted stock award pursuant to the TARP rules, and, in addition, received a stock option award that was grandfathered under the rules because it was pursuant to a binding contract in effect prior to February 11, 2009. For other executive officers who were not TARP Covered Employees for 2009, including Mr. Thompson, the typical annual grant process applied.

 

Grant Practices

The Compensation Committee considers grants of equity awards annually, and typically approves equity awards in July following the release of earnings. The option price for each grant of an option is equal to the fair market value of a share on the date the option is granted. Under the 2007 Plan, fair market value is generally defined as the closing price on the date of grant.

 

Huntington management annually compares (a) its level of stock grants relative to outstanding stock grants, and (b) the level of outstanding stock awards and stock available for grant relative to its common shares outstanding with similar levels for its Reference and Primary Peers.

 

To set the appropriate range of opportunity for individual grants, the compensation consultant reviewed the Towers Perrin 2008 Long-Term Incentive Plan Report (mentioned previously), which provides data on grant levels by salary bands and separately for the chief executive officer and advised as to market comparable grant range opportunities. Other published surveys (mentioned previously) are used to determine market practices for positions similar to Huntington’s named executive officers. In addition, grant levels as discussed in proxy statements for our Primary Peers are reviewed annually for the chief executive officer and chief financial officer.

 

Mr. Steinour made recommendations to the Compensation Committee for the number of shares to be awarded to his direct reports (excluding the TARP Covered Employees). In addition to the market data mentioned above, previous grant amounts and grants for internal peers are reviewed and factored into the grant decisions. Huntington’s management, with advice from the compensation consultant, based on current market practices, recommends the terms of the stock awards. The recommended grants and terms are then presented to the Compensation Committee for review and approval.

 

Stock Options and Restricted Stock Units

The goals of providing a combination of both stock options and RSUs are to attract and retain the talent

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the Company needs to be successful, align senior management with shareholder interests, promote and encourage stock ownership, reward performance achievements, and maintain simplicity for ease of understanding. When the TARP rules cease to apply to Huntington, Huntington intends to return to utilizing stock options with respect to all of its executive officers.

 

Stock options remain an important part of the long-term incentive compensation strategy for Huntington’s senior executives. Stock options encourage participants to focus on increasing Huntington’s stock price as these types of awards only have value if the stock price increases above the option price set at the fair market value on the date of grant. Stock options typically have a 7-year expiration date and vest equally over three years on each anniversary of grant. Huntington grants both Incentive Stock Options, referred to as ISOs, and Non-statutory Stock Options, referred to as NSOs, to its executive officers as approved by the Compensation Committee.

 

RSUs have the advantage of reducing share usage. In addition, Huntington believes that RSUs provide stronger retention value and create a stronger ownership alignment. Generally, the RSUs vest on the third anniversary of the grant provided the executive has been continuously employed through the date of vesting, subject to acceleration on certain terminations of employment and change in control transactions. Upon vesting the RSUs will be paid in shares. As an added benefit for additional retention value, the Compensation Committee approved the accumulation of dividends, which will be paid in cash when the underlying RSUs are paid.

 

Recipients of stock options and RSUs in 2009 were required to agree to a non-solicitation provision that will remain in effect for one year following termination of employment, unless termination is due to a change in control or not for cause.

 

Awards under the 2007 Plan are subject to forfeiture. Except following a change in control, in the event the Compensation Committee determines that a participant has committed a serious breach of conduct (which includes, without limitation, any conduct prejudicial to or in conflict with Huntington or any securities law violations including any violations under the Sarbanes-Oxley Act of 2002), or has solicited or taken away customers or potential customers with whom the participant had contact during the participant’s employment with Huntington, the Compensation Committee may terminate any outstanding award, in whole or in part, whether or not yet vested. If such conduct or activity occurs within three years following the exercise or payment of an award, the Compensation Committee may require the participant or former participant to repay to Huntington any gain realized or payment received upon exercise or payment of such award. In addition, awards may be forfeited upon termination of employment for cause.

 

Deferred Compensation

Huntington permits its senior officers to defer receipt of base salary, annual cash awards, RSUs and associated dividends, and long-term performance awards pursuant to the Executive Deferred Compensation Plan, a non-qualified plan. Huntington believes that the Executive Deferred Compensation Plan provides a good vehicle for participants to defer receipt of cash or stock to a time when taxes may be at a more personally beneficial rate and/or to save for long-term financial needs. Amounts deferred will accrue interest, earnings and losses based on the performance of the investment options selected by the participant. The investment options consist of Huntington common stock and a variety of mutual funds and are generally the same investment options available to all employees under Huntington’s defined contribution plan. Eligibility to participate in this plan is determined by the Compensation Committee from time to time. Each of the named executive officers is eligible to participate. Amounts payable under the Executive Deferred Compensation Plan are general unsecured obligations of Huntington. Such amounts, as well as any administrative costs relating to the Executive Deferred Compensation Plan, will be paid out of the general assets of Huntington to the extent not paid by a grantor trust. Amounts in this plan that are earned and vested on or after January 1, 2005 are subject to Internal Revenue Code Section 409A. The Executive Deferred Compensation Plan is also discussed following the table on Non-Qualified Deferred Compensation 2009 below.

 

Huntington also offers a supplemental defined contribution plan providing additional salary deferral for officers whose income exceeds the limits

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established by the Internal Revenue Service for qualified plans. This Supplemental Plan is discussed in greater detail following the table on Non-Qualified Deferred Compensation 2009.

 

Benefits

Huntington provides a comprehensive benefits package to its employees and Huntington’s executive officers are eligible for the same broad based benefits as other employees. These benefits consist of two qualified retirement plans and a variety of welfare benefits plans described below. Huntington also makes retiree medical coverage and life insurance available to employees satisfying the eligibility requirements for these benefits at the time of their termination of employment.

 

In addition, officers nominated by senior management and approved by the Committee are eligible to participate in a supplemental defined contribution plan and a supplemental defined benefit pension plan. The value of the benefits for which an executive is eligible does not impact the decisions with respect to the other components of the executive’s compensation.

 

Retirement Plans

Huntington maintains a broad-based tax qualified 401(k) plan, the Huntington Investment and Tax Savings Plan (HIP). Huntington also maintains the Huntington Bancshares Incorporated Supplemental Stock Purchase and Tax Savings Plan (Supplemental Plan), which is not a tax qualified plan. The purpose of the Supplemental Plan is to provide a supplemental savings program for selected Huntington employees who are unable to continue to make contributions to HIP for part of the year because they have made the maximum permitted pre-tax deferrals during a calendar year to HIP. The named executive officers are eligible to participate in both HIP and the Supplemental Plan. Additional detail about HIP and the Supplemental Plan can be found following the table relating to Non-Qualified Deferred Compensation 2009 below.

 

Huntington maintains the Huntington Bancshares Retirement Plan (Retirement Plan). Colleagues hired or rehired on or after January 1, 2010 are not eligible to participate in the Retirement Plan. Eligible employees hired before January 1, 2010 will continue to participate in the Retirement Plan but the benefit formula is reduced for benefits earned after December 31, 2009. Benefits earned on or before December 31, 2009 are determined under the Retirement Plan formula in effect prior to these changes. Huntington also maintains the Huntington Bancshares Incorporated Supplemental Retirement Income Plan (SRIP) for selected executives. The SRIP was not amended. SRIP benefits for employees terminating employment on or after becoming eligible for early or normal retirement are determined under the Retirement Plan benefit formula as of December 31, 2009, except that benefits under the SRIP are not limited by the compensation and benefit limits of the Internal Revenue Code. SRIP benefits for employees who are not eligible for early or normal retirement at the time they terminate employment are determined under the Retirement Plan benefit formula taking into account the changes made effective January 1, 2010, except that benefits under the SRIP are not limited by the compensation and benefit limits of the Internal Revenue Code. All of the named executive officers are eligible to participate under the Retirement Plan and the SRIP. Additional detail about the Retirement Plan and SRIP is set forth following the Pension Benefits 2009 Table below.

 

Other Benefits

Huntington provides other benefits to executive officers on the same basis that they are provided to employees generally. Other benefits include medical, dental and vision benefits to all eligible employees through its group health plan.

 

Huntington provides basic group term life insurance coverage at no cost to employees and optional term life insurance and dependent term life insurance at their own expense. Eligible employees may also elect to receive accidental death and dismemberment insurance (AD&D) for themselves and their eligible dependents at their own expense. Huntington also provides business travel life and AD&D insurance coverage to its eligible employees. Huntington provides short and long term disability benefits to its employees at no cost. Other broad based benefits available to eligible employees include health and dependent care flexible spending accounts, and commuter, educational assistance and adoption benefits.

 

Huntington maintains a transition pay plan that provides benefits based upon an employee’s service with Huntington in the event employment is

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terminated as a result of his or her position being eliminated due to business or economic conditions or a job reassessment.

 

Fringe Benefits

Huntington offers certain fringe benefits to its more senior officers. The value of fringe benefits received by an executive officer does not impact decisions regarding other components of the executive officer’s compensation. All of the named executive officers who are located at Huntington’s headquarters in downtown Columbus are eligible for paid parking. Huntington also offers a quarterly allowance for tax and financial planning to its more senior officers, including the named executive officers, equal to 2% of base salary. For the chief executive officer, Huntington provides security monitoring of his personal residence and infrequent use of a private airplane.

 

Executive Agreements

Huntington has entered into change-in-control agreements, referred to as Executive Agreements, with its executive officers which provide certain protections for the executive officers, and thus encourage their continued employment, in the event of any actual or threatened change in control of Huntington. Huntington believes that the definition of change in control used in its Executive Agreements is standard within the financial services industry. Each executive officer is a party to one of three forms of Executive Agreement. The protections provided by the Executive Agreements include lump-sum severance payments and other benefits, as further described under “Potential Payments Upon Termination or Change in Control” below. Severance benefits for the named executive officers are subject to the significant limitations imposed due to Huntington’s participation in the Capital Purchase Program under the U.S. Treasury’s TARP program.

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The following table sets forth the compensation paid by Huntington and its subsidiaries for each of the last three fiscal years ended December 31, 2009 to Huntington’s principal executive officers serving in 2009, principal financial officer, and the three other most highly compensated executive officers serving at the end of 2009.

 

 

 

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Perquisites and personal benefits for Mr. Hoaglin totaled $19,926 and consisted of financial planning, executive parking and limited use of a company airplane. Perquisites and personal benefits for Mr. Thompson totaled $153,632 and included $145,779 for relocation expenses, including travel and temporary housing, a negotiated relocation allowance and a gross-up for taxes, in the amount of $32,517. Other perquisites and personal benefits for Mr. Thompson consisted of financial planning and executive parking. Perquisites and personal benefits for Mr. Benhase totaled $25,732 and consisted of financial planning, executive parking and temporary housing and relocation expense. Perquisites and personal benefits for Mr. Kimble and Mr. Stanutz did not exceed $10,000 and are not included.

 

Premiums for group term life insurance paid by Huntington during 2009 for each named executive officer are also included in this column as follows: $564 for Mr. Steinour, $94 for Mr. Hoaglin, $513 for Mr. Kimble, $462 for Mr. Thompson, $388 for Mr. Stanutz, and $421 for Mr. Benhase. Also included are dividends paid to Messrs. Thompson, Kimble, Stanutz and Benhase upon the vesting of RSU and RSA awards in 2009 in the amounts of $2,000, $12,334, $10,091 and $13,455, respectively.

 

 

 

 

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Huntington’s annual grant practices on July 27, 2009. Mr. Thompson’s RSUs vest on the third anniversary of the date of grant. The RSUs were granted under Huntington’s Amended and Restated Stock and Long-Term Incentive Plan. Mr. Thompson also received a grant in the form of a restricted stock award (RSA) for 100,000 shares effective April 20, 2009. These restricted shares vest in 25% increments on the dates that are 6 months, 18 months, 24 months and 30 months from the date of grant. The grant of restricted shares was an inducement award outside the terms of Huntington’s 2007 Stock and Long-Term Incentive Plan, but is subject to the terms of the plan.

 

 

Discussion of 2009 Compensation

2009 executive compensation was significantly impacted by the hiring of a new chief executive officer in the midst of a challenging economic environment and the restrictions of TARP rules. In addition, upon the arrival of the new chief executive officer, Huntington embarked on a restructuring effort. These challenging circumstances were also complicated by the uncertainty that existed before the final interim rules were issued on June 15, 2009. Base salaries, annual incentive awards and long-term incentive awards were all impacted.

 

In 2009 Huntington hired Mr. Steinour as the new chief executive officer and negotiated a compensation package set forth in an employment agreement with Mr. Steinour. Under the employment agreement, Mr. Steinour has a minimum annual base salary of $1,000,000, is eligible for an annual target incentive award opportunity equal to 110% of annual base salary (and a guaranteed minimum bonus of no less than 50% of the target incentive payment for 2009), is eligible for long-term incentive awards with a target award opportunity of 31.25% of annual base salary for each performance cycle, and is generally entitled to employee benefits, fringe benefits, perquisites and annual equity awards on terms and conditions no less favorable than those provided to other senior executives of the company. In connection with entry into the employment agreement, Huntington awarded Mr. Steinour an inducement option to purchase 1,000,000 shares of Huntington’s common stock, with a per share exercise price equal to the closing price of Huntington’s common stock on January 14, 2009 ($4.95).

 

Base Salary

Due to the Company’s performance in 2008, Huntington determined that no annual merit increases would be awarded to employees in February 2009. Huntington did however approve salary increases later in the year for certain executive officers to bring these executives’ compensation in line with the competitive market and to preserve internal equity after a broad-based organization restructure.

 

As a result of the Company’s restructuring effort, Huntington hired a number of new executive officers in 2009. In connection with making employment offers to new executives, Huntington determined that its compensation levels for certain of its incumbent executive officers were not competitive. In particular, it was determined that the base salary for Mr. Kimble, Huntington’s chief financial officer, was 16% – 23% below the median of peer survey data. Because Mr. Kimble was deemed

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to be critical to the restructuring and ultimate success of the company, the Compensation Committee approved a base salary increase for Mr. Kimble of 29.1% in April 2009.

 

Typically the Compensation Committee reviews salaries in February, however, in 2009, the Compensation Committee reviewed the compensation of TARP Covered Employees in July following the issuance of the TARP rules and in conjunction with consideration of annual equity grants. The Compensation Committee considered the market survey data described and equity awards for each executive officer. In order to more competitively align their compensation externally and with recent hires, the Compensation Committee approved base salary increases of 21.9% for Mr. Stanutz and 24.2% for Mr. Benhase.

 

As part of Huntington’s restructuring efforts it was determined that there was a need for creation of a new position of Director of Strategy and Segment Performance. Mr. Thompson was identified as an executive who had the ready talent to fill this position for which Huntington had an immediate and critical need. Mr. Thompson’s starting salary was negotiated at $450,000.

 

Annual Cash Incentive Awards

The four components for the 2009 plan year tied to overall corporate performance were pre-tax pre-provision (“PTPP”) earnings , core deposit growth, the efficiency ratio and net charge-offs (credit quality). These criteria are discussed in greater detail in the Compensation Discussion & Analysis above. Huntington accrues throughout the year for potential annual cash incentive awards under the Management Incentive Plan consistent with company performance. Potential awards for the named executive officers were based 75% on corporate performance and 25% on personal performance, except for Mr. Steinour, the chief executive officer, whose potential award was based 100% on corporate performance.

 

Huntington’s actual performance for each component in 2009 compared to the performance goals varied. Huntington’s pre-tax pre-provision earnings were above the threshold level of performance and below the target level of performance. Core deposit growth was above the maximum level of performance and the efficiency ratio was lower (better) than threshold level of performance. Net charge-offs were higher (worse) than the threshold level of performance Huntington’s performance was impacted by several isolated and non-recurring transactions that the chief executive officer and the chief financial officer recommended be considered as “extraordinary events” under the terms of the plan. The Compensation Committee accepted the recommendations of the chief executive officer and the chief financial officer and excluded the following “extraordinary events”:

 

 

All of these adjustments were applied to the efficiency ratio and had a negative impact. The first four adjustments were already excluded from pre-tax pre-provision earnings by definition; however, the last adjustment was applied and had a negative impact on this component. None of the adjustments were applicable to the measurement of core deposit growth or net charge-offs and therefore had no impact. Based on the adjusted levels of performance, the components paid out at the following levels compared to target:

 

 

The threshold, target and maximum goals and the actual and adjusted values for the performance criteria are set forth in the table below.

 

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Mr. Thompson, who was not a TARP Covered Employee in 2009, earned an annual cash incentive award under MIP for 2009 of $150,000. Since Mr. Thompson has been identified as a 2010 TARP Covered Employee, his award will be held until after Huntington repays TARP. Mr. Steinour received an award of $550,000 as provided in his employment agreement. The other named executive officers could have earned annual cash incentives accrued through June 15, 2009, the effective date of the TARP rules. Based on Mr. Steinour’s recommendation, the Compensation Committee approved an incentive award for Mr. Stanutz of $120,000, which will be held until after Huntington repays TARP. No awards were approved for Messrs. Kimble and Benhase.

 

Long-Term Incentive Compensation

The 2007 — 2009 cycle of the Long-Term Incentive Awards program, which is discussed in detail above in the “Compensation Discussion and Analysis”, ended December 31, 2009. No awards were paid under this cycle.

 

The goals for this cycle, which were established in February 2007, were based on average annual growth in EPS over the cycle with a baseline adjusted EPS of $1.82, average annual return on tangible equity (referred to as ROTE), and average annual efficiency ratio. In addition, awards for this cycle could be increased by up to 20% or decreased by 10% based on the success of the Sky Financial integration, determined on a subjective basis by the Compensation Committee at the end of the cycle.

 

Huntington’s performance was below the threshold levels of performance for each component and no awards were earned. The threshold, target, superior and maximum goals for the performance criteria are set forth in the table below.

 

 

Stock Option and Restricted Stock Unit Awards

The Compensation Committee granted long-term restricted stock awards to Messrs. Steinour, Kimble, Stanutz and Benhase as permitted under the TARP rules. The bonus restrictions under TARP allow for the granting awards of long-term restricted stock. Pursuant to the TARP rules, Huntington granted RSUs to its executive officers who were TARP Covered Employees in 2009 which had a value equal to one half of the officer’s annual salary for 2009, and in the case of Mr. Steinour, equal to one half of his annual salary, agreed upon bonus and the Black-Scholes value of his inducement option grant. The values were divided by the closing price of a share of the Company’s common stock on the date of grant to determine the number of shares. These RSUs will vest on the later of the second anniversary of the date of grant or the date Huntington repays the financial assistance it received under TARP.

 

These RSUs were granted to Messrs. Kimble, Stanutz and Benhase on July 27, 2009, when the closing price of a share of Huntington common stock was $3.92. The RSUs for Mr. Steinour were granted on December 16, 2009 when the closing price for a share of Huntington common stock was $3.62.

 

Mr. Thompson received an inducement grant in the form of a restricted stock award of 100,000 shares upon commencement of employment. These shares were granted to entice Mr. Thompson to join Huntington and to compensate Mr. Thompson for potential foregone compensation upon departure

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from his former employer. In accordance with Mr. Thompson’s offer of employment, he was also considered for an annual equity grant and received an award of 10,000 RSUs and 40,000 stock options. The stock options granted to Mr. Thompson have an option price of $3.92 per share, the closing price of a share of Huntington common stock on the date of grant. All of these stock options become exercisable in three equal annual installments beginning on the first anniversary of grant with suspension of award accruals while he is serving as a TARP covered employee. The options will be exercisable for a period of seven years from the date of grant. The RSUs will vest on the third anniversary after grant and will be paid in shares. Dividends will accumulate over the vesting period and be paid in cash at the same time as the underlying RSUs are paid.