DEFA14A: KeyCorp Defends Executive Pay Amid Proxy Advisor Concerns Ahead of 2025 Annual Meeting

KeyCorp urges shareholders to support its executive compensation plan, despite negative recommendations from proxy advisors regarding Capital & Earnings Improvement Awards granted to the executive team.

Summary

• KeyCorp is seeking shareholder support for its executive compensation plan at the upcoming 2025 annual meeting.
• Proxy advisors Institutional Shareholder Services and Glass Lewis have recommended voting against the proposal due to concerns about Capital & Earnings Improvement Awards granted in December 2024.
• The company defends the awards, stating they are necessary to retain and align the executive leadership team following a challenging period and a strategic investment from Scotiabank.
• KeyCorp highlights the $2.8 billion capital raise at a 17% market premium in 2024 and the Scotiabank investment as key achievements of the leadership team.
• The Capital & Earnings Improvement Awards are performance-based, with a two-year performance period and a one-year post-vest holding period.
• The awards use Marked CET1 and Cumulative EPS as performance metrics.
• KeyCorp emphasizes its history of strong shareholder support for its compensation plan, with an average of over 92% in the last 5 years.

Sentiment

Score: 7

Explanation: The document conveys a sense of confidence in the leadership team and the strategic direction of the company, but acknowledges challenges and potential shareholder concerns regarding executive compensation.

Positives

• KeyCorp successfully navigated a challenging period for regional banks.
• The company executed a $2.8 billion capital raise at a 17% market premium.
• Scotiabank made a strategic minority investment in KeyCorp.
• The Capital & Earnings Improvement Awards are performance-based and aligned with shareholder value.
• KeyCorp has a history of strong shareholder support for its compensation plan.

Negatives

• Proxy advisors Institutional Shareholder Services and Glass Lewis have recommended voting against the executive compensation plan.
• The negative recommendations are driven by concerns about the Capital & Earnings Improvement Awards.
• The company acknowledges the unprecedented rapid rise in interest rates in 2022 and fallout from bank failures in 2023 had a lasting impact on the banking industry.

Risks

• The company faces potential shareholder dissent regarding its executive compensation plan.
• Macroeconomic uncertainty could impact KeyCorp's ability to deliver long-term value.
• Failure to meet the performance targets for the Capital & Earnings Improvement Awards could negatively impact executive retention and alignment.

Future Outlook

KeyCorp aims to leverage the Scotiabank investment and the raised capital to deliver sound, profitable growth and long-term shareholder value.

Management Comments

• The leadership team successfully led Key through a challenging period for regional banks and the financial services industry at large.
• This is the right leadership team to now put the raised capital to work and realize the shareholder value from the Scotiabank investment.
• We have no intention of making this type of supplemental award a regular feature of our program, but this type of award was necessary at this critical time for Key.

Industry Context

The document highlights the challenges faced by regional banks due to rising interest rates and bank failures, indicating a volatile environment where retaining key executives is crucial.

Comparison to Industry Standards

• The document mentions that the Committee selected Marked CET1 and Cumulative EPS as the performance metrics for the Awards to align with Keys goals following the investment.
• The document mentions that the Committee undertook a rigorous target-setting process across several meetings, which included counsel and advice from the Boards independent compensation consultant.
• The document mentions that consistent with past practice and peer practice, and to protect commercially sensitive information, KeyCorp did not provide forward-looking goals for the Awards.

Stakeholder Impact

• Shareholders are being asked to support the executive compensation plan.
• The company aims to deliver long-term value to shareholders through its strategic initiatives.

Next Steps

• Shareholders will vote on the advisory approval of executive compensation at the 2025 Annual Meeting.

Key Dates

Keywords

executive compensation, KeyCorp, proxy advisors, shareholder vote, Scotiabank, capital raise, performance-based awards, CET1, EPS