Compensation Discussion and Analysis

EXECUTIVE SUMMARY

BUSINESS OVERVIEW

The Western Union Company provides people and businesses with fast, reliable, and convenient ways to send money and make payments around the world. Western Union offers its services in more than 200 countries and territories. Our business is complex: our regulatory environment is disparate and developing; our consumers are different from those addressed by traditional financial services firms; and our agent and client relationships are numerous and varied. Managing these complexities is at the center of Western Union’s success, and our leadership must be capable of supporting our Company’s goals amid this complexity.

The Company’s key strategic priorities for 2017 are set forth in the chart below. The performance goals and objectives under our annual incentive and long-term incentive programs were designed to support these strategies.

Please see our 2017 Annual Report on Form 10-K for more information regarding our performance.

  • See Annex A for a reconciliation of measures that are not based on accounting principles generally accepted in the United States (“GAAP”) to the comparable GAAP measure.

EXECUTIVE COMPENSATION FRAMEWORK

The Company’s executive compensation framework includes the following, each of which the Compensation Committee believes reinforces our executive compensation philosophy and objectives:

What We Do:

  • Pay-for-performance and at-risk compensation. A significant portion of our targeted annual compensation is performance-based and/or subject to forfeiture (“at-risk”), with emphasis on variable pay to reward short- and long-term performance measured against pre-established objectives informed by our Company’s strategy. For 2017, performance-based compensation comprised approximately 90% of the targeted annual compensation for our CEO and, on average, approximately 67% of the targeted annual compensation for the other NEOs. The remaining components of 2017 targeted annual compensation consisted of base salary for our CEO and base salary and service-based RSUs for our other NEOs, with the committee viewing such RSUs as at-risk as their value fluctuates based on our stock price performance.

  • Align compensation with stockholder interests. Performance measures for incentive compensation are linked to the overall performance of the Company, and are designed to be aligned with the creation of long-term stockholder value.

  • Emphasis on future pay opportunity vs. current pay. Our long-term incentive awards are equity-based and have multi-year vesting provisions to encourage retention. For 2017, long-term equity compensation comprised approximately 74% of the targeted annual compensation for our CEO and, on average, approximately 58% of the targeted annual compensation for the other NEOs.

  • Mix of performance metrics. The Company utilizes a mix of performance metrics that emphasize both absolute performance goals, which provide the primary links between incentive compensation and the Company’s strategic operating plan and financial results, and relative performance goals, which measure Company performance in comparison to the S&P 500 Index.

  • Three-year performance period for PSUs.

  • Stockholder engagement. The Compensation Committee chair and members of management seek to engage with stockholders regularly to discuss and understand their perceptions or concerns regarding our executive compensation program.

  • Outside compensation consultant retained by the Compensation Committee.

  • “Double trigger” change-in-control severance benefits.

  • Maximum payout caps for annual cash incentive compensation and PSUs.

  • “Clawback” policies. The Company may recover incentive compensation paid to an executive officer that was calculated based upon any financial result or performance metric impacted by fraud or misconduct of the executive officer. In addition, during 2017, the Board of Directors adopted a compliance clawback policy that allows the Company to recover incentive compensation paid to an executive officer for conduct that is later determined to have contributed to future compliance failures, subject to applicable laws.

  • Consider compliance in compensation program. Since 2014, the Compensation Committee has included an evaluation of compliance in the Company’s annual incentive program in order to reinforce compliance as an objective throughout the organization. In 2017, the Compensation Committee included additional evaluation criteria related to compliance in its executive review and annual incentive program so that each Company executive is evaluated on what the executive has done to ensure that the executive’s business or department is in compliance with applicable U.S. laws.

  • Robust stock ownership guidelines. We require our executive officers to own a meaningful amount of Company stock to align them with long-term stockholder interests (six-times base salary in the case of our CEO and three-times base salary for our other NEOs).

What We Don’t Do:

  • No repricing or buyout of underwater stock options. None of our equity plans permit the repricing or buyout of underwater stock options or stock appreciation rights without stockholder approval, except in connection with certain corporate transactions involving the Company.

  • Prohibition against pledging and hedging of Company securities by senior executives and directors.

  • No change-in-control tax gross ups for promotions or new hires after April 2009. Mr. Ersek is the only Company employee who remains eligible for excise tax gross-up payments based on Compensation Committee action in 2009.

  • No dividends or dividend equivalents are accrued or paid on PSUs or RSUs.

RECENT MODIFICATIONS TO EXECUTIVE COMPENSATION PROGRAM

Changes Implemented for 2018

As part of its ongoing review of the executive compensation program during 2017 and 2018, and based on input from the Compensation Committee’s compensation consultant and stockholder feedback during our stockholder engagement described below, the Compensation Committee determined that several compensation program changes would be implemented in 2018. Accordingly, in February 2018, the Compensation Committee approved the following changes to the Company’s executive compensation program:

  • Replaced the operating income growth performance metric under the Financial PSUs, as described further below, with an earnings before interest and taxes performance metric to further broaden the metrics under the annual and long-term incentive plans.

  • Modified the Financial PSUs to measure cumulative performance over a three-year performance period rather than the current design of measuring performance during each year (of the three years) of the performance period independently;

  • Increased the potential payout under the annual and long-term incentive programs to 200% of target to further align with market data and provide greater payout leverage for over-performance;

  • Modified the long-term incentive allocation for each of the NEOs in order to further align the Company’s long-term incentive design with market data, with Mr. Ersek’s 2018 target long-term incentive award to be delivered as 50% Financial PSUs, 20% TSR PSUs, 20% stock options and 10% service-based RSUs, and the other NEOs’ 2018 target long-term incentive award to be delivered as 50% Financial PSUs, 20% TSR PSUs and 30% service-based RSUs; and

  • In 2017, the Committee’s independent compensation consultant was asked to evaluate the Company’s peer group to be used for 2018 compensation decisions for continued appropriateness and, after considering the input of the compensation consultant, the committee approved the addition of Broadridge Financial, Euronet Worldwide, FleetCor and Navient to the peer group and the deletion of Charles Schwab and ADP from the peer group primarily based on the comparability of these companies in relation to the Company in terms of market capitalization, revenues, operating income and number of employees.

Changes Implemented for 2017

As previously disclosed, in January 2017, the Company entered into the Joint Settlement Agreements, pursuant to which the Company agreed to make certain changes to the Company’s executive compensation program. While the Compensation Committee has included an evaluation of compliance in the Company’s annual incentive program since 2014 in order to reinforce compliance as an objective throughout the organization, under the Joint Settlement Agreements the Company agreed to implement evaluation criteria related to compliance in its executive review and bonus program so that each Company executive is evaluated on what the executive has done to ensure that the executive’s business or department is in compliance with applicable U.S. laws. A failing score in compliance, including anti-money laundering and anti-fraud programs, will make the executive ineligible for any bonus for that year. Furthermore, the Company agreed to include in its new executive review and bonus program a provision that allows the Company to “claw back” bonuses for executives for conduct that is later determined to have contributed to future compliance failures, subject to applicable laws. Accordingly, during 2017, the Board adopted a compliance clawback policy, as discussed above, and included clawback provisions in the annual and long-term incentive award agreements.

CHIEF EXECUTIVE OFFICER COMPENSATION

Mr. Ersek’s 2017 total direct compensation levels, including his annual and long-term incentive award targets, remained unchanged from the levels set in 2016. Mr. Ersek’s 2017 compensation is aligned with median compensation for chief executive officers in the 2017 peer group, based on the most recent publicly available information, as compiled by the Compensation Committee’s compensation consultant.

For 2017 performance, Mr. Ersek received a cash payout under the 2017 Annual Incentive Plan of $1,731,000, reflecting a blended payout of 115% of target. The Compensation Committee based Mr. Ersek’s award opportunity under the Annual Incentive Plan entirely on the achievement of corporate financial and strategic performance goals as further described below. In structuring Mr. Ersek’s 2017 long-term incentive awards, the Compensation Committee elected to retain the same mix of awards for Mr. Ersek as it provided in 2016 - TSR PSUs, Financial PSUs and stock options. PSUs vest based on the achievement of pre-established performance goals over a three-year performance period.

Mr. Ersek’s 2017 compensation was weighted significantly toward variable and performance-based incentive pay over fixed pay, and long-term, equity-based pay over annual cash compensation, because the Compensation Committee desired to tie a significant level of Mr. Ersek’s compensation to the performance of the Company. The percentage of compensation delivered in the form of performance-based compensation is higher for Mr. Ersek than compared to the other NEOs because the Compensation Committee believes that the CEO’s leadership is one of the key drivers of the Company’s success, and that a greater percentage of the CEO’s total compensation should be variable as a reflection of the Company’s level of performance. Market data provided by the Compensation Consultant supported this practice as well. The following chart illustrates this CEO pay philosophy of heavily weighting CEO compensation toward variable, performance-based pay elements.

Since a significant portion of Mr. Ersek’s compensation is both performance-based and at-risk, we are providing the following supplemental graph to compare the compensation granted to Mr. Ersek, as required to be reported by the SEC rules in the 2017 Summary Compensation Table, to the compensation “realizable” by him for 2015 to 2017.

We believe the “realizable” compensation shown is reflective of the Compensation Committee’s emphasis on “pay-for-performance” in that differences between realizable pay and total reported compensation, as well as fluctuations year-over-year, are primarily the result of our stock performance and our varying levels of achievement against pre-established performance goals under our Annual Incentive Plan and Long-Term Incentive Plan.

CEO TOTAL
REPORTED COMPENSATION
VERSUS TOTAL REALIZABLE COMPENSATION(1)

  1. This graph and the total realizable compensation reported in this graph provide supplemental information regarding the compensation paid to Mr. Ersek and should not be viewed as a substitute for the 2017 Summary Compensation Table.

  2. As reported in the Total column of the 2017 Summary Compensation Table.

  3. Amounts reported in the calculation of total realizable compensation include (a) annualized base salary, (b) actual bonus payments made to Mr. Ersek with respect to each of the years shown under the Annual Incentive Plan, (c) the value realized from the exercise of stock options and for unexercised stock options, the difference between the exercise price and the closing stock price on the last trading day of 2017, each reported in the year granted, (d) the value realized upon vesting of PSUs and the value of unvested PSUs based on the closing stock price on the last trading day of 2017, each reported in the year granted, and (e) amounts reported in the All Other Compensation Table for the respective years. For purposes of this table, the value of the TSR PSUs is based on target performance since the TSR PSUs vest based on the Company’s relative TSR performance versus the S&P 500 Index over a three-year performance period. The Financial PSUs are valued for purposes of this table based on estimated performance as of December 31, 2017. For the 2015-2017 performance period, TSR was at the 34th percentile of the S&P 500 index. As a result, the payout for the 2015 TSR PSUs was 57% of target.

2017 SAY ON PAY VOTE

The Company received approximately 95% support for its “say on pay” vote at the Company’s 2017 Annual Meeting of Stockholders. After considering these results, the committee determined that the Company’s executive compensation philosophy, compensation objectives, and compensation elements continued to be appropriate and did not make any specific changes to the Company’s executive compensation program in response to the 2017 “say on pay” vote.

STOCKHOLDER ENGAGEMENT

Management and the Compensation Committee Chair regularly reach out to stockholders to better understand their views on the Company’s executive compensation program, the “say on pay” vote and our executive compensation disclosure. Over the past few years, the committee and management have found these discussions to be very helpful in their ongoing evaluation of the Company’s executive compensation program, and intend to continue to obtain this feedback in the future. As described above, the Compensation Committee approved changes to the Company’s 2018 executive compensation program based, in part, on feedback previously provided by stockholders.

ESTABLISHING AND EVALUATING EXECUTIVE COMPENSATION

INTRODUCTION

This Compensation Discussion and Analysis describes how the Compensation Committee determined 2017 executive compensation, the elements of our executive compensation program and the compensation of each of our NEOs. The information provided should be read together with the information presented in the “Executive Compensation” section of this Proxy Statement. For 2017, the NEOs were:

Hikmet Ersek – President and Chief Executive Officer

Rajesh K. Agrawal – Executive Vice President, Chief Financial Officer

Odilon Almeida – Executive Vice President, President – Global Money Transfer

Elizabeth G. Chambers – Former Executive Vice President, Chief Strategy, Product and Marketing Officer (through January 1, 2018)

Jean Claude Farah – Executive Vice President, President—Global Payments

OUR EXECUTIVE COMPENSATION PHILOSOPHY AND OBJECTIVES

To align the Company’s incentive compensation program with the Company’s overall executive compensation philosophy, the Compensation Committee has adopted the following compensation objectives and guiding principles:

Our Executive Compensation Philosophy

The Compensation Committee believes the Company’s executive compensation program should reward actions and behaviors that build a foundation for the long-term strength and performance of the Company, while also rewarding the achievement of short-term performance goals informed by the Company’s strategy.

  • Align executive goals and compensation with stockholder interests

  • Attract, retain and motivate outstanding executive talent

  • Pay-for-performance – Hold executives accountable and reward them for achieving financial, strategic and operating goals

  • Pay-for-Performance: Pay is significantly performance-based and at-risk, with emphasis on variable pay to reward short- and long-term performance measured against pre-established objectives informed by the Company’s strategy.

  • Align Compensation with Stockholder Interests: Link incentive payouts with the overall performance of the Company, including achievement of financial and strategic objectives, as well as individual performance and contributions, to create long-term stockholder value.

  • Stock Ownership Guidelines: Our program requires meaningful stock ownership by our executives to align them with long-term stockholder interests.

  • Emphasis on Future Pay Opportunity vs. Current Pay: Our long-term incentive awards are delivered in the form of equity-based compensation with multi-year vesting provisions to encourage retention.

  • Hire, Retain and Motivate Top Talent: Offer market-competitive compensation which clearly links payouts to actual performance, including rewarding appropriately for superior results, facilitating the hire and retention of high-caliber individuals with the skills, experience and demonstrated performance required for our Company.

  • Principled Programs: Structure our compensation programs considering corporate governance best practices and in a manner that is understandable by our participants and stockholders.

THE BOARD OF DIRECTORS AND THE COMPENSATION COMMITTEE

The Board of Directors oversees the goals and objectives of the Company and of the CEO, evaluates succession planning with respect to the CEO and evaluates the CEO’s performance. The Compensation Committee supports the Board by:

  • Establishing the Company’s general compensation philosophy;

  • Overseeing the development and implementation of the Company’s compensation and benefits policies;

  • Reviewing and approving corporate goals and objectives relevant to the compensation of the CEO and other executive officers;

  • Setting the compensation levels of each of the Executive Vice Presidents; and

  • Approving the compensation of the CEO, with ratification by the independent directors of the Board.

The Compensation Committee’s responsibilities under its charter are further described in the “Corporate Governance—Committees of the Board of Directors” section of this Proxy Statement.

While not members of the Compensation Committee, the then-serving Chairman of the Board and the CEO attended all of the meetings of the Compensation Committee in 2017 to contribute to and understand the committee’s oversight of, and decisions relating to, executive compensation. The CEO did not attend portions of the meetings relating to his compensation. The Compensation Committee regularly conducts executive sessions without management present.

The Compensation Committee also engages in an ongoing dialog with the CEO and the committee’s compensation consultant in the evaluation and establishment of the elements of our executive compensation program. The committee also received input from the Chief Human Resources Officer in making executive compensation decisions.

COMPENSATION CONSULTANTS

During 2017, Frederic W. Cook & Co., Inc. (“FW Cook”) provided executive and director compensation consulting services to the Compensation Committee. In December 2017, the Compensation Committee replaced FW Cook with Meridian Compensation Partners, LLC (“Meridian”) as its compensation consultant. For purposes of this CD&A, FW Cook and Meridian are collectively referred to as “Compensation Consultant.”

The Compensation Consultant is retained by and reports to the Compensation Committee and participates in committee meetings. The Compensation Consultant informs the committee on market trends, as well as regulatory issues and developments and how they may impact the Company’s executive compensation program. The Compensation Consultant also:

  • Participates in the design of the executive compensation program to help the committee evaluate the linkage between pay and performance;

  • Reviews market data and advises the committee regarding the compensation of the Company’s executive officers;

  • Reviews and advises the committee regarding director compensation; and

  • Performs an annual risk assessment of the Company’s compensation program, as described in the “Executive Compensation—Risk Management and Compensation” section of this Proxy Statement.

The Compensation Consultant does not provide any other services to the Company. The Compensation Committee has assessed the independence of both FW Cook and Meridian pursuant to the NYSE rules and the Company concluded that the work performed by FW Cook and Meridian for the Compensation Committee did not raise any conflict of interest.

During 2017, management retained the services of Willis Towers Watson to assist the Company in evaluating the Company’s annual and long-term incentive programs. The Compensation Committee evaluated the findings of Willis Towers Watson in its review of the 2017 incentive program design. The Compensation Committee has assessed the independence of Willis Towers Watson PLC pursuant to the NYSE rules and the Company concluded that Willis Towers Watson’s work did not raise any conflict of interest.

SETTING 2017 COMPENSATION

In late 2016, the Compensation Committee, working with the Compensation Consultant and the CEO, engaged in a detailed review of the Company’s executive compensation programs to evaluate whether the design and levels of each compensation element were:

  • Appropriate to support the Company’s strategic performance objectives;

  • Consistent with the philosophy and objectives described under “—Our Executive Compensation Philosophy and Objectives” above; and

  • Reasonable when compared to market pay practices (see “—Market Comparison” below).

For 2017, based on a variety of factors, including the market data, “say on pay” vote results and positive feedback received during the Company’s stockholder engagement efforts, the Compensation Committee elected to continue the compensation program elements implemented in 2016. Accordingly, for 2017, the Company’s executive compensation program continued to be significantly weighted towards performance-based compensation and continued to include a diversified mix of long-term incentive awards. Annual Incentive Plan awards to executives other than Mr. Ersek continued to be based on an assessment of individual performance relating to personalized objectives and the committee could increase or decrease the award payout resulting from the achievement of the financial and strategic performance objectives by up to 25%, for a maximum 2017 annual incentive opportunity of 175% of target. Mr. Ersek’s Annual Incentive Plan award continued to be based entirely on the achievement of corporate and strategic performance goals, with a maximum 2017 incentive opportunity equal to 150% of target. The committee also maintained the overall percentage of annual equity grants with vesting provisions that are performance-based and/or at-risk. Accordingly, for 2017, the annual equity awards under the Long-Term Incentive Plan for participants other than the CEO continued to consist of 80% PSUs (60% Financial PSUs, incorporating both revenue and operating income growth, and 20% TSR PSUs, with Company performance under the PSUs measured over a three-year period) and 20% RSUs. The committee approved this design in order to strengthen the Company’s ability to retain executive talent, while still maintaining a variable compensation element as the value of the RSUs will fluctuate based on our stock price performance. Mr. Ersek’s long-term incentive award continued to be weighted 60% Financial PSUs, 20% TSR PSUs and 20% stock options. For 2017, the Compensation Committee continued to incorporate a stock option component into Mr. Ersek’s long-term incentive design to emphasize the achievement of long-term objectives and encourage long-term value creation as the stock options will only have value to Mr. Ersek if the Company’s stock price appreciates from the date of grant. As noted above, for 2018, the Compensation Committee replaced a portion of the Financial PSU component of Mr. Ersek’s long-term incentive award with an RSU component in order to further align his compensation with market data and the compensation program applicable to the Company’s other executive officers.

Setting 2017 Compensation Levels

With respect to setting 2017 compensation levels, Mr. Ersek presented to the Compensation Committee his evaluation and recommendation for each of the other NEOs and their respective salary, annual bonus targets, and long-term incentive award targets. Mr. Ersek based his assessments on a number of factors, including but not limited to: individual performance and relative contributions to the Company’s success; the performance of the executive’s respective business unit or functional area; retention considerations; market data; compensation history; and internal equity. After consideration and discussion, the Committee reviewed and approved Mr. Ersek’s 2017 recommendations for the NEOs other than himself.

Also in early 2017, Mr. Ersek submitted a self-evaluation to the Compensation Committee. The committee shared Mr. Ersek’s goals for the year and his self-evaluation with the independent members of the Board, who then evaluated Mr. Ersek’s performance in 2016 based on his actual performance versus such goals. In setting Mr. Ersek’s 2017 compensation, the committee considered this evaluation, market data regarding chief executive officer compensation levels provided by the Compensation Consultant, and a tally sheet of Mr. Ersek’s historical and current compensation data. No member of management, including Mr. Ersek, made any recommendations regarding Mr. Ersek’s compensation or participated in the portions of the Compensation Committee meeting or in the meeting of the independent directors of the Board during which Mr. Ersek’s compensation was determined or ratified.

MARKET COMPARISON

For 2017, the Compensation Committee considered market pay practices when setting executive compensation, but did not target the specific compensation elements or total compensation against the market data. Instead, the committee used market data to assess the overall competitiveness and reasonableness of the Company’s executive compensation program.

While the Compensation Committee considers relevant market pay practices when setting executive compensation, it does not believe it appropriate to establish compensation levels based only on market practices. The Compensation Committee believes that compensation decisions are complex and require a deliberate review of Company performance and peer compensation levels. The factors that influence the amount of compensation awarded include:

  • Market competition for a particular position;

  • Experience and past performance inside or outside the Company;

  • Compensation history;

  • Role and responsibilities within the Company;

  • Tenure with the Company and associated institutional knowledge;

  • Long-term potential with the Company;

  • Contributions derived from creative and innovative thinking and leadership;

  • Money transfer or financial services industry expertise;

  • Past and future performance objectives; and

  • Value of the position within the Company.

As further discussed below, the committee considered market data from both an executive compensation peer group and a general industry compensation survey, but did not assign a specific weight to either data source.

The Compensation Committee believes that the Company’s executive compensation peer group should reflect the markets in which the Company competes for business, executive talent and capital. Accordingly, the Company’s peer group includes companies meeting either of the following criteria:

  • Global brands providing virtual products or services; or

  • Companies involved with payment and/or processing services.

The executive compensation peer group used for evaluating 2017 compensation decisions consisted of the companies below. In 2016, in connection with its ongoing review of the Company’s peer group and after considering the input of the Compensation Consultant, the Compensation Committee replaced eBay Inc. with PayPal Holdings, Inc. and added Vantiv, Inc. in order to more closely align the peer group with the types of services provided by the Company. These changes were first effective with respect to evaluating 2017 executive compensation decisions. The Compensation Consultant compiled compensation information from the peer group based on the publicly filed documents of each member of the peer group.

PEER GROUP   2016
REVENUES*
(IN MILLIONS)
  2016
OP INCOME*
(IN MILLIONS)
  EMPLOYEES
(AS OF 12/31/16)
  MARKET CAP
(AS OF 12/31/16)
(IN MILLIONS)
ADP   $11,668   $2,248   57,000   $46,372
Ameriprise Financial   $11,768   $2,529   13,000   $17,534
Charles Schwab   $7,108   $2,725   15,300   $52,324
CME Group   $3,496   $2,172   2,530   $39,144
Comerica   $2,552   $743   9,103   $11,733
Discover   $7,181   $3,691   15,036   $28,432
Fidelity National Info   $8,670   $1,417   55,000   $24,827
Fiserv   $5,442   $1,399   22,000   $23,069
Global Payments   $3,089   $490   8,995   $10,668
Intuit   $4,694   $1,242   7,900   $29,417
MoneyGram   $1,695   $82   2,820   $628
NASDAQ OMX   $3,597   $980   3,824   $11,088
Northern Trust   $4,904   $1,548   16,200   $20,164
PayPal   $10,417   $1,536   16,800   $47,626
State Street   $10,206   $2,976   32,356   $29,979
Total Systems Services   $3,755   $602   10,500   $9,013
Vantiv   $3,476   $547   3,313   $9,604
75th Percentile   $8,670   $2,248   16,800   $29,979
Median   $4,904   $1,417   13,000   $23,069
25th Percentile   $3,496   $743   7,900   $11,088
Western Union   $5,423   $484   10,700   $10,531
  • All data was compiled by the Compensation Consultant who obtained peer company financial market intelligence from Capital IQ Compustat. The data generally represents revenue and operating income for the most recent four quarters available to the Compensation Consultant at the time the Compensation Consultant compiled the data in January 2017. Other than for the Company, operating income may reflect measures not in conformity with GAAP.

The Compensation Committee also used a general industry compensation survey in evaluating executive pay. Survey data provides a broader perspective on market practices. For the 2017 compensation review, the Compensation Consultant compiled compensation data from a general industry compensation survey provided by Willis Towers Watson (which included data from companies with annual revenues between $3 billion and $6 billion).

Use of Tally Sheets

The Compensation Committee reviews tally sheets that present historical and current compensation data, valuations of future equity vesting, value of option exercises in the past five years, as well as analyses for hypothetical terminations and retirements to allow the Compensation Committee to consider the Company’s obligations under such circumstances. The tally sheets provide additional context for the committee in determining and assessing NEO compensation.

THE WESTERN UNION 2017 EXECUTIVE COMPENSATION PROGRAM

Pay-For-Performance and At-Risk Compensation

The principal components of the Company’s 2017 annual executive compensation program were annual base salary, annual incentive awards, and long-term incentive awards in the form of PSUs, stock options (for the CEO) and RSUs (for participants other than the CEO). The Compensation Committee designed the 2017 executive compensation program so that performance-based pay elements (Annual Incentive Plan awards, PSUs and, if applicable, stock options) would constitute a significant portion of the executive compensation awarded, determined at target levels. The following charts illustrate the mix of the targeted annual compensation for the CEO and the average targeted annual compensation for the other NEOs, and the portion of that compensation that is performance-based and/or at-risk. For purposes of these charts, the percentage of targeted annual compensation was determined based on the annual base salary and target incentive opportunities applicable to the NEO as of December 31, 2017.

Since a significant portion of the compensation of our NEOs is performance-based and/or at-risk, we are providing the following supplemental table to compare the compensation granted to our NEOs, as required to be reported by SEC rules in the 2017 Summary Compensation Table, to the compensation “realizable” by such NEOs for the 2015 to 2017 fiscal years. While the manner for reporting equity compensation as “realizable” compensation differs from the SEC rules relating to the reporting of compensation in the 2017 Summary Compensation Table, we believe this table serves as a useful supplement to the 2017 Summary Compensation Table. The 2017 Realizable Compensation Table and the total “realizable” compensation reported in the table provides supplemental information regarding the compensation paid to the NEOs and should not be viewed as a substitute for the 2017 Summary Compensation Table.

We believe the “realizable” compensation shown is reflective of the Compensation Committee’s emphasis on “pay-for-performance” in that differences between “realizable” pay and total reported compensation, as well as fluctuations year-over-year are primarily the result of our stock performance and our varying levels of achievement against pre-established performance goals under our Annual Incentive Plan and Long-Term Incentive Plan. 

2017 REALIZABLE COMPENSATION TABLE
NAME YEAR PROXY REPORTED
COMPENSATION
($000)(1)
TOTAL REALIZABLE
COMPENSATION
($000)(2)
REALIZABLE
AS A % OF
REPORTED
Hikmet Ersek 2017 9,726.4 9,422.3 97%
  2016 9,285.5 8,350.3 90%
  2015 8,569.8 8,187.0 96%
Rajesh K. Agrawal 2017 3,252.5 3,623.6 111%
  2016 3,163.3 3,215.3 102%
  2015 2,634.5 2,224.4 84%
Odilon Almeida 2017 3,061.5 3,395.5 111%
  2016 2,474.1 2,406.7 97%
  2015 2,450.3 2,207.1 90%
Elizabeth G. Chambers 2017 2,267.2 2,489.8 110%
  2016 2,344.0 2,381.8 102%
  2015 N/A N/A N/A
Jean Claude Farah 2017 2,164.7 2,359.6 109%
  2016 N/A N/A N/A
  2015 N/A N/A N/A

Footnotes:

  1. As reported in the Total column of the 2017 Summary Compensation Table.

  2. Amounts reported in the calculation of total realizable compensation include (a) annualized base salary, (b) actual bonus payments made to each eligible executive with respect to each of the years shown under the Company’s Annual Incentive Plan, (c) the value realized from the exercise of stock options and for unexercised stock options, the difference between the exercise price and the closing stock price on the last trading day of 2017, each reported in the year granted, (d) the value realized upon vesting of RSUs or PSUs and the value of unvested RSUs or PSUs based on the closing stock price on the last trading day of 2017, each reported in the year granted, and (e) amounts reported in the All Other Compensation Table for the respective years. For purposes of this table, the value of the TSR PSUs is based on target performance since the TSR PSUs vest based on the Company’s TSR at the end of the three-year performance period compared to the Company’s TSR at the beginning of the performance period. The Financial PSUs are valued for purposes of this table based on estimated performance as of December 31, 2017. For the 2015-2017 performance period, TSR was at the 34th percentile of the S&P 500 index. As a result, the payout for the 2015 TSR PSUs was 57% of target.

ELEMENTS OF 2017 EXECUTIVE COMPENSATION PROGRAM

The following table lists the material elements of the Company’s 2017 executive compensation program for the Company’s NEOs. The committee believes that the design of the Company’s executive compensation program balances fixed and variable compensation elements, provides alignment with the Company’s short and long-term financial and strategic priorities through the annual and long-term incentive programs, and provides alignment with stockholder interests.

ELEMENT KEY
CHARACTERISTICS
WHY WE PAY
THIS ELEMENT
HOW WE
DETERMINE AMOUNT
Base salary Fixed compensation component payable in cash. Reviewed annually and adjusted when appropriate. Establish a pay foundation at competitive levels to attract and retain talented executives. Experience, job scope, responsibilities, market data, internal equity, and individual performance.
Annual incentive awards Variable compensation component payable in cash based on performance against annually established performance objectives.

Motivate and reward executives for performance on key financial, strategic and/or individual performance goals over the year.

Hold our executives accountable, with payouts varying from target based on actual performance against pre-established and communicated performance goals.

Internal pay equity, market practice and corporate and individual performance.

Participants are eligible to receive a cash payout ranging from 0% to 150% of target based on the achievement of financial and strategic goals. 

Payouts for participants other than the CEO are subject to a +/- 25% modifier based on individual performance with respect to personalized objectives, including business unit goals.

PSUs PSUs vest based on the Company’s achievement of financial performance objectives and the Company’s relative TSR performance.

Align the interests of executives with those of our stockholders by focusing the executives on the Company’s financial and TSR performance over a multi-year period.

Hold our executives accountable, with payouts varying from target based on actual performance against pre-established and communicated performance goals.

Internal pay equity, market practice and individual performance.

Financial PSUs: Payout based on revenue and operating income growth over 2017-2019 performance period.

TSR PSUs: Payout based on the Company’s TSR performance relative to the S&P 500 Index over 2017-2019 performance period.

Stock options Non-qualified stock options granted with an exercise price equal to fair market value on the date of grant that expire 10 years after grant and become exercisable in 25% annual increments over a four-year vesting period. Align interests of the CEO with those of our stockholders by focusing the executive on long-term objectives over a multi-year period, including stock price appreciation. Internal pay equity, market practice and individual performance.
RSUs RSUs cliff vest on the third anniversary of the date of grant based on continued service during vesting period.

Competitive with market practices in order to attract and retain top executive talent.

Align the interests of executives with those of our stockholders by focusing the executives on long-term objectives over a multi-year vesting period, with the value of the award fluctuating based on stock price performance.

Internal pay equity, market practice and individual performance.

Each of Western Union’s 2017 executive compensation program elements is described in further detail below.

Base Salary

Our philosophy is that base salaries should meet the objectives of attracting and retaining the executives needed to lead the business. Base salary is a fixed compensation component payable in cash. In February 2017, Messrs. Agrawal, Almeida and Farah received base salary increases of 4%, 6% and 9%, respectively, in order to further align their total compensation levels with the market data and, in the case of Mr. Farah, to reflect his global scope and responsibility within the Company. None of our other NEOs received a salary increase during 2017.

The following table sets forth each NEO’s 2017 base salary level:

EXECUTIVE 2017 BASE
SALARY ($000)
Hikmet Ersek $1,000.0
Rajesh K. Agrawal $590.0
Odilon Almeida $650.0
Elizabeth G. Chambers $535.0
Jean Claude Farah $500.0

Annual Incentive Compensation

Our Annual Incentive Plan is designed to motivate and reward our NEOs for achieving short-term performance objectives. Compensation under the Annual Incentive Plan is intended to be a significant component of an executive’s total compensation opportunity in a given year, helping create a “pay-for-performance” culture. Annual Incentive Plan compensation holds executives accountable and rewards them based on the Company’s performance against pre-established objectives informed by the Company’s strategy. The Annual Incentive Plan was designed to provide annual incentive awards that qualify as “performance-based compensation” under Section 162(m) of the Code.

Target payout opportunities under the Annual Incentive Plan are expressed as a percentage of a participant’s annual base salary, with potential payouts ranging from 0% to 150% of target based on the achievement of pre-established financial and strategic goals. Because the committee believes that individual objectives are indicators of the executive’s success in fulfilling the executive’s responsibilities, the total payout under the Annual Incentive Plan for the NEOs other than the CEO is subject to a +/- 25% modifier based on the committee’s assessment of individual performance, including with respect to business unit goals. For 2017, the Compensation Committee did not change the target bonus opportunities, as a percentage of base salary, for the NEOs.

The Annual Incentive Plan is based on the achievement of financial and strategic goals weighted at 70% and 30%, respectively. As discussed further below, the weighting of the performance measures reflects the desire of the Compensation Committee to tie a significant portion of annual incentive compensation to performance measures that the committee believes are meaningful to and readily accessible by our investors, while at the same time, emphasizing strategic performance objectives that focus on the Company’s growth imperatives.

When the financial and strategic performance measures were established, and consistent with prior years, the committee determined that the effect of currency fluctuations, acquisitions and divestitures, restructuring, and other significant charges not included in the Company’s internal 2017 financial plan should be excluded from the payout calculations to more closely align payouts with the underlying operating performance of the business. Consistent with the Company’s historical practices, under this plan design, bonus targets and results are calculated using the prior year’s actual exchange rates to exclude the impact of currency fluctuations. Specifically, the 2017 Annual Incentive Plan targets were to be measured assuming no changes in the currency exchange rates from the 2016 currency exchange rates. In addition, when establishing the 2017 performance measures and targets, the committee elected to exclude charges incurred pursuant to the Company’s WU Way program, which is designed to transform the Company’s operating model to better enable accelerated innovation, improve customer experience, and drive cost efficiencies. The committee viewed these costs as significant expenses not indicative of the Company’s day-to-day performance.

Financial Performance Metrics. As it had in previous years, the Compensation Committee set the 2017 financial performance goals by establishing a grid based on the Company’s revenue and operating income. These performance measures were used in order to tie annual incentive compensation to measures of the Company’s financial performance that the committee deemed meaningful to and readily accessible by our investors.

The Compensation Committee established the performance goal grid and corresponding payout percentages based upon input from management regarding the Company’s expected performance in the upcoming year. The committee designed the grid to encourage strong, focused performance by our executives. The 2017 performance goal grid provided a payout of 100% of target if the Company achieved its internal operating plan for operating income and revenue (revenue of approximately $5.6 billion and operating income of approximately $1.1 billion, each measured on a constant currency basis), with a maximum initial payout level of 150% of target if revenue and operating income grew by 4.5% and 4.2%, respectively, as compared to 2016 (with such payout further subject to the +/- 25% performance modifier for participants other than Mr. Ersek).

For 2017, the performance goal grid for revenue and operating income as well as a comparison to 2016 actual results and the 2017 achievement are set forth in the following table, which illustrates that in order to receive target payouts for both revenue and operating income, the Company had to achieve constant currency revenue and operating income growth of 2.5% and 1.2%, respectively, as compared to 2016 actual performance.

When establishing the 2017 operating income performance measure, the committee elected to exclude charges incurred pursuant to the Company’s WU Way program. Following the conclusion of 2017, the committee exercised discretion to exclude the following from 2017 results: (i) additional Joint Settlement Agreements costs, (ii) costs associated with a January 4, 2018 consent order, which resolved a matter with the New York State Department of Financial Services (“NYDFS Consent Order”) relating to facts set forth in the Joint Settlement Agreements, and (iii) a goodwill impairment relating to our Business Solutions reporting unit (the “WUBS Impairment). The committee viewed these 2017 costs as significant expenses not indicative of the Company’s day-to-day performance. The WUBS Impairment, which was primarily caused by a decrease in projected future revenue growth rates and EBITDA margins for Business Solutions and the impact of recently enacted United States tax reform legislation (the “Tax Act”), was a non-cash item and the impact of the reporting unit’s 2017 performance was already reflected in the Company’s overall results. Absent the exclusion of the additional Joint Settlement Agreement costs, the NYDFS Consent Order costs, and the WUBS Impairment, in 2017, overall achievement would have been 78% of target.

    2016 ACTUAL RESULTS*   2017 TARGET*   TARGET RANGE*   2017 ACTUAL RESULTS*   ACHIEVEMENT (%)
Total Revenue   $5,423M   $5,560M   $5,451M - $5,668M   $5,586M   112%
Operating Income   $1,085M   $1,118M   $1,085M - $1,151M   $1,144M   136%
Overall Achievement                   119%
  • 2017 target, target range and actual results shown at constant currency - calculated assuming no changes in the currency exchange rates from 2016 currency exchange rates. For comparative purposes, the 2016 Actual Results are calculated excluding the Joint Settlement Agreements.

Strategic Performance Objectives. Participants in the 2017 Annual Incentive Plan had 30% of their award opportunity tied to the achievement of performance objectives based upon the Company’s strategic operating plan, with a focus on the Company’s growth imperatives (as measured by digital money transfer revenue and digital money transfer sender customer experience, each weighted 10%) and compliance execution objectives (weighted 10%). Performance levels of the objectives were designed to be achievable, but required the coordinated, cross-functional focus and effort of the executives. Based on the achievement of the strategic performance objectives, the committee certified a payout equal to 107% of each NEO’s target allocated to the strategic performance objectives.

Individual Performance-Based Modifier. Other than for Mr. Ersek, a participant’s payout under the 2017 Annual Incentive Plan was subject to a +/- 25% modifier based on the committee’s assessment of individual and business unit performance. In making its assessment, the committee considered the recommendations of the CEO based on his review of the performance of each of the NEOs against the individual objectives established by the committee. The following table summarizes key performance indicators for each NEO under the 2017 Annual Incentive Plan, as approved by the Compensation Committee. In addition to the performance goals described below, each of these NEOs was also assessed based on contributions towards compliance initiatives, the Company’s WU Way program goals, employee engagement, and leadership.

Executive Individual Performance Objectives
Rajesh K. Agrawal Earnings per share and operating cash flow**
Odilon Almeida Revenue, controllable profit, controllable margin, money transfer digital revenue, money transfer number of active loyal customers
Elizabeth G. Chambers Advancement of Company’s strategic planning process and execution
Jean Claude Farah Revenue, controllable profit, controllable margin, and payments customer retention
  • The committee exercised discretion to exclude from these performance results: (i) additional Joint Settlement Agreement costs, (ii) the NYDFS Consent Order costs, (iii) the WUBS Impairment, and (iv) taxes owed pursuant to the Tax Act primarily due to a tax on previously undistributed earnings of certain foreign subsidiaries. The committee viewed these costs as significant expenses not indicative of the Company’s day-to-day performance. Also, as discussed above, the WUBS Impairment was a non-cash item and the impact of Business Solutions’ 2017 performance was already reflected in the Company’s overall results.

The committee believes the performance objectives established for each of the NEOs are indicators of the executive’s success in fulfilling the executive’s responsibilities to the Company and support the Company’s strategic operating plan. The committee also believes that including an assessment of contributions towards the Company’s compliance initiatives, the Company’s WU Way program goals and leadership in each of the NEO’s individual and business unit objectives reinforces these objectives as priorities throughout the organization. The performance levels of the individual and business unit objectives were designed to be achievable, but required strong and consistent performance by the executive.

As noted above, in 2017, the Company implemented evaluation criteria related to compliance in its executive bonus system so that each Company executive is evaluated on what the executive has done to ensure that the executive’s business or department is in compliance with applicable U.S. laws. A failing score in compliance, including anti-money laundering and anti-fraud programs, will make the executive ineligible for any bonus for that year. In addition, the 2017 award agreements under the Annual Incentive Plan included clawback provisions, specifically authorizing the clawback of annual incentive payments due to compliance failures. In early 2018, the Compensation Committee evaluated the performance of each of the NEOs with respect to compliance and determined that each of the NEOs remained eligible for a bonus with respect to 2017.

The following table sets forth each NEO’s 2017 target award opportunity expressed (i) as a percentage of 2017 base salary and (ii) in dollars and the annual incentive payouts received by each NEO.

EXECUTIVE TARGET
BONUS
AS A %
OF BASE
SALARY
TARGET
AWARD
OPPORTUNITY
($000)
CORPORATE
OBJECTIVES
PAYOUT
AT 119% OF
TARGET
($000)
STRATEGIC
OBJECTIVES
PAYOUT
AT 107% OF
TARGET
($000)
+/- INDIVIDUAL
PERFORMANCE
MODIFIER
FINAL
BONUS
($000)
FINAL
BONUS
AS A % OF
TARGET
Hikmet Ersek 150% $1,500.0 $1,249.5 $481.5 N/A $1,731.0 115%
Rajesh K. Agrawal 100% $590.0 $491.5 $189.4 15% modifier $769.4 130%
Odilon Almeida 90% $585.0 $487.3 $187.8 5% modifier $704.3 120%
Elizabeth G. Chambers 90% $481.5 $401.1 $154.6 0% modifier $555.7 115%
Jean Claude Farah 90% $450.0 $374.9 $144.4 0% modifier $519.3 115%

Long-Term Incentive Compensation

The objectives for the long-term incentive awards were to:

  • Align the interests of our executives with the interests of our stockholders by focusing on objectives that result in stock price appreciation;

  • Increase cross-functional executive focus in the coming years on key performance metrics through Financial PSUs;

  • Amplify executive focus on stockholder returns through TSR PSUs; and

  • Retain the services of executives through multi-year vesting provisions.

The Company’s long-term incentive program allows the Compensation Committee to award various forms of long-term incentive grants, including stock options, RSUs, performance-based equity and performance-based cash awards. The Compensation Committee approves all equity grants made to our senior executives, with the equity grants made to the CEO ratified by the independent directors of the Board. When making regular annual equity grants, the Compensation Committee’s practice is to approve them during the first quarter of each year as part of the annual compensation review. Among the other factors listed in the table above regarding the material elements of the Company’s 2017 executive compensation program, the Compensation Committee also considers dilution of the Company’s outstanding shares when making equity grants.

2017 Annual Long-Term Incentive Awards.

In early 2017, the Compensation Committee granted the NEOs long-term incentive awards under the Long-Term Incentive Plan. In approving the 2017 long-term incentive awards, the committee approved increases to Messrs. Agrawal’s and Almeida’s target award values as compared to 2016, primarily to more closely align their total direct compensation with the median of the market data.

The following table sets forth the target award value, as of the date of grant, of the 2017 long-term incentive award received by each NEO:

EXECUTIVE TARGET GRANT VALUE ($000)
Hikmet Ersek $7,000.0
Rajesh K. Agrawal $2,000.0
Odilon Almeida $1,800.0
Elizabeth G. Chambers $1,200.0
Jean Claude Farah $1,050.0

Once the target grant value is set for each NEO, the grant value is then allocated among PSUs, RSUs and stock options, as applicable. For 2017, no changes were made to the NEOs’ mix of long-term incentive awards from the previous year. The following chart illustrates the mix of 2017 long-term incentive awards granted to the NEOs other than Mr. Ersek.

The committee believes that this mix continues to be appropriate based on market practices, as a tool to strengthen the Company’s ability to retain executive talent, and because it includes a variable compensation element as the value of RSUs fluctuates based on our stock price performance. The RSUs vest 100% on the third anniversary of the grant date.

For 2017, the committee maintained Mr. Ersek’s long-term incentive award allocation. The following chart illustrates the mix of 2017 long-term incentive awards granted to Mr. Ersek.

The stock options further emphasized the achievement of long-term objectives and encourage long-term value creation as the stock options will only have value to Mr. Ersek if the Company’s stock price appreciates from the date of grant. The stock options vest in 25% annual increments over four years and have a 10-year term. The committee believes that the Company’s 2017 long-term incentive design supports retention and represents a balanced reflection of stockholder returns and financial performance.

Financial PSUs. The 2017 Financial PSU awards will vest if and only to the extent that specific performance goals for revenue and operating income are met during the performance period. The Compensation Committee utilized revenue and operating income as elements in both the Company’s Annual Incentive Plan and long-term incentive program. When designing the Company’s 2017 executive compensation program, the Compensation Committee evaluated a range of performance metrics for purposes of the Company’s incentive programs and considered input from management and the prior advice of Willis Towers Watson PLC. Based on such review, the Compensation Committee determined that because revenue and operating income continue to be viewed as core drivers of the Company’s performance and stockholder value creation, these measures remained appropriate for both the short-term and long-term incentive programs. In addition, the Compensation Committee continued its practice of supplementing these measures with additional performance measures in order to strike an appropriate balance with respect to incentivizing top-line growth, profitability, non-financial business imperatives and stockholder returns over both the short-term and long-term horizons. As noted above, in 2018, the committee replaced the operating income growth performance metric under the Financial PSUs with an earnings before interest and taxes performance metric to further broaden the metrics under the annual and long-term incentive plans.

Similar to the Annual Incentive Plan, when the financial performance objectives were established for the Financial PSUs, the committee determined that the effect of currency fluctuations, acquisitions and divestitures, restructuring, and other significant charges not included in the Company’s internal financial plans should be excluded from the payout calculations. Consistent with the Company’s historical practices, under this plan design, the performance results for the Financial PSUs will be calculated using the prior year’s currency exchange rates.

To motivate constant improvement over prior year results, the performance objectives under the 2017 Financial PSUs are based on targeted constant currency compound annual growth rates (“CAGR”) for revenue and operating income. At the beginning of the performance period, the committee established revenue and operating income CAGR goals for each year of the performance period, with each year weighted equally in the determination of the award payout but different weightings for the performance goals during the performance period. For the first year of the performance period, revenue was weighted 70% and operating income was weighted 30%, while each performance goal was weighted equally in years two and three. The committee approved this design in order to provide greater emphasis on revenue growth. Under the terms of the awards, as much as 150% of the targeted Financial PSUs may be earned based on the Company’s performance with respect to the revenue and operating income performance objectives over the three-year performance period. In order to receive a threshold payout under the award, the three-year CAGR for both revenue and operating income must be positive.

The performance objectives for payment of the 2017 Financial PSU awards and their respective weightings are set forth in the following table.

2017 FINANCIAL PSUs
(PERFORMANCE PERIOD 2017-2019)
PERFORMANCE OBJECTIVES
Targeted CAGR for revenue (weighted 70%) and operating income (weighted 30%), comparing 2017 actual performance against 2016 actual performance (weighting 33-1/3%)
Targeted CAGR for revenue and operating income (each weighted 50%), comparing 2018 actual performance against 2017 actual performance (weighting 33-1/3%)
Targeted CAGR for revenue and operating income (each weighted 50%), comparing 2019 actual performance against 2018 actual performance (weighting 33-1/3%)

In order to obtain target payout with respect to the first year of the three-year performance period, the Company had to achieve a constant currency growth rate of 2.5% and 1.2% for revenue and operating income, respectively. Based on 2017 performance, the Company achieved revenue and operating income of approximately $5.6 billion and $1.1 billion, respectively, resulting in blended achievement with respect to the first year of the three-year performance period of 119% of target. Similar to the 2017 annual incentive payout calculations and pursuant to the underlying award agreements, when approving the performance goals, the Compensation Committee determined to exclude from the payout calculation charges incurred in connection with the Joint Settlement Agreements and costs incurred in 2016 and 2017 related to the Company’s WU Way program since these costs were viewed as significant expenses not indicative of the Company’s day-to-day performance. This portion of the award remains subject to the requirement for a three-year positive CAGR in both revenue and operating income, as well as the participant’s continued service through the third anniversary of the grant date (February 2020).

The following table sets forth each NEO’s threshold, target and maximum award opportunity with respect to the 2017 Financial PSUs:

  2017 FINANCIAL PSU AWARD OPPORTUNITY
EXECUTIVE THRESHOLD TARGET MAXIMUM
Hikmet Ersek 105,053 210,106 315,159
Rajesh K. Agrawal 30,288 60,576 90,864
Odilon Almeida 27,259 54,518 81,777
Elizabeth G. Chambers(1) 18,173 36,346 54,519
Jean Claude Farah 15,902 31,803 47,705
  1. In connection with her separation from the Company, Ms. Chambers forfeited her 2017 Financial PSUs.

TSR PSUs. In 2017, the Company continued to grant TSR PSUs to enhance focus on stockholder returns. These TSR PSUs require the Company to achieve 60th percentile relative TSR performance versus the S&P 500 Index over a three-year performance period in order to earn target payout, with 30th percentile relative TSR performance resulting in threshold payout and 90th percentile relative TSR performance resulting in maximum payout.

This portion of the award is also subject to the participant’s continued service through the third anniversary of the grant date (February 2020).

The following table sets forth each NEO’s threshold, target and maximum award opportunities with respect to the 2017 TSR PSUs:

  2017 TSR PSU AWARD OPPORTUNITY
EXECUTIVE THRESHOLD TARGET MAXIMUM
Hikmet Ersek 53,764 107,527 161,291
Rajesh K. Agrawal 15,937 31,873 47,810
Odilon Almeida 14,343 28,686 43,029
Elizabeth G. Chambers(1) 9,562 19,124 28,686
Jean Claude Farah 8,367 16,734 25,101
  1. In connection with her separation from the Company, Ms. Chambers forfeited her 2017 TSR PSUs.

2015 PSU Awards. Under the terms of the 2015 PSUs, 2017 represented the final year of the three-year performance periods for the 2015 Financial PSUs and the 2015 TSR PSUs. The 2015 Financial PSUs vested based on the extent to which the Company’s CAGR for revenue and operating income (each weighted 50%), met certain performance goals based on each performance year’s actual performance as compared to the prior year, as well as a three-year positive CAGR in both revenue and operating income. The 2015 TSR PSUs vested based on the Company’s achievement of relative TSR performance versus the S&P 500 Index over a three-year performance period.

The 2015 Financial PSU and 2015 TSR PSU performance objectives and the achievement levels are set forth in the tables below. While the performance periods for the 2015 PSUs concluded as of December 31, 2017, these awards remained subject to service-based vesting conditions until the third anniversary of the grant date (February 2018). Pursuant to the terms of the underlying award agreements, the Compensation Committee excluded from the 2015 Financial PSU payout calculations charges incurred pursuant to the Joint Settlement Agreements and the NYDFS Consent Order after considering (i) the Department of Justice’s statement of facts which noted that, since at least September 2012, the Company took remedial measures and implemented compliance enhancements to improve its anti-fraud and anti-money laundering programs and that these remedial measures and compliance enhancements were taken at the direction of the CEO, among others, and reflect their ongoing commitment to enhancing compliance policies and procedures, (ii) over the past six years, the Company increased overall compliance funding by more than 200%, and now spends approximately $200 million per year on compliance, with more than 20% of its workforce currently dedicated to compliance functions, (iii) that the comprehensive improvements by the Company have added more employees with law enforcement and regulatory expertise, strengthened its consumer education and agent training, bolstered its technology-driven controls and changed its governance structure so that its CCO has a direct reporting line to the Compliance Committee of the Board, (iv) the incidence of consumer fraud reports associated with the Company’s money transfers has been low – less than one-tenth of 1% of all consumer-to-consumer money transfer transactions during the past 10 years, (v) over the last six years, the dollar value of reported fraud in consumer-to-consumer transactions, compared with the total value of all transactions, has dropped more than 60%, and (vi) the conduct at issue mainly occurred from 2004 to 2012. In addition, the committee excluded from the payout calculations costs incurred in connection with (i) the 2015 Paymap Settlement Agreement, (ii) the WU Way program in 2016 and 2017, and (iii) the WUBS Impairment. The committee viewed these costs as significant expenses not indicative of the Company’s day-to-day performance. The WUBS Impairment, which was primarily caused by a decrease in projected future revenue growth rates and EBITDA margins for Business Solutions and the impact of the Tax Act, was a non-cash item and the impact of the reporting unit’s 2015-2017 performance was already reflected in the Company’s overall results. Absent the exclusion of these items, the overall attainment level would have been 79%of target.

The committee also reviewed the Company’s clawback policies and considered whether any reductions in the 2015 Financial PSU vesting levels were warranted under such clawback policies in light of the Joint Settlement Agreements or the NYDFS Consent Order or due to compliance concerns. The committee determined that the clawback policies did not require a clawback of the vesting levels of the 2015 PSUs.

 2015 FINANCIAL PSUs
(PERFORMANCE PERIOD 2015-2017)
PERFORMANCE OBJECTIVES 2015 FINANCIAL PSU PERFORMANCE GOALS ACTUAL PERFORMANCE*
Targeted annual constant currency growth rate for revenue and operating income (each weighted 50%), comparing 2015 actual performance against 2014 actual performance (weighting 33-1/3%) Revenue growth rate: 2.1%
Operating income growth rate: 3.6%

Revenue growth rate = 124% achievement

Operating income growth rate = 110% achievement

Targeted annual constant currency growth rate for revenue and operating income (each weighted 50%), comparing 2016 actual performance against 2015 actual performance (weighting 33-1/3%) Revenue growth rate: 3.6%
Operating income growth rate: 4.6%

Revenue growth rate = 87% achievement

Operating income growth rate = 96% achievement

Targeted annual constant currency growth rate for revenue and operating income (each weighted 50%), comparing 2017 actual performance against 2016 actual performance (weighting 33-1/3%) Revenue growth rate: 4.8%
Operating income growth rate: 5.7%

Revenue growth rate = 76% achievement

Operating income growth rate = 70% achievement

Overall Attainment Level 94%
  • At constant currency - calculated assuming no changes in the currency exchange rates from the prior year’s currency exchange rates.
2015 TSR PSUs
(PERFORMANCE PERIOD 2015-2017)
   PERFORMANCE GOALS    
PERFORMANCE OBJECTIVE THRESHOLD   TARGET   MAXIMUM   ACTUAL PERFORMANCE
TSR relative to S&P 500 Index* 30th percentile   60th percentile   90th percentile   34th percentile
Overall Attainment Level 57%
  • Relative TSR performance for purposes of the 2015 TSR PSUs was calculated based on the terms of the 2015 PSU award agreement, which requires using a beginning stock price calculated as the average company closing stock price for all trading days during December 2014 and an ending stock price calculated as the average company closing stock price for all trading days during December 2017. In determining the TSR for the companies in the S&P 500 Index, the companies comprising the Index on December 31, 2017 were used.

Other Elements of Compensation

To remain competitive with other employers and to attract, retain, and motivate highly talented executives and other employees, we provide the benefits listed in the following table to our United States-based employees:

BENEFIT OR PERQUISITE NAMED EXECUTIVE OFFICERS OTHER OFFICERS AND KEY EMPLOYEES ALL FULL-TIME
AND REGULAR
PART-TIME
EMPLOYEES
401(k) Plan
Supplemental Incentive Savings Plan (a nonqualified defined contribution plan)  
Severance and Change-in-Control Benefits (Double-Trigger)
Health and Welfare Benefits
Limited Perquisites  

Severance and Change-in-Control Benefits. The Company has an executive severance policy for our executive officers. The policy helps accomplish the Company’s compensation philosophy of attracting and retaining exemplary talent. The committee believes it appropriate to provide executives with the rewards and protections afforded by the Executive Severance Policy. The policy reduces the need to negotiate individual severance arrangements with departing executives and protects our executives from termination for circumstances not of their doing. The committee also believes the policy promotes management independence and helps retain, stabilize, and focus the executive officers in the event of a change-in-control. In the event of a change-in-control, the policy’s severance benefits are payable only upon a “double trigger.” This means that severance benefits are triggered only when an eligible executive is involuntarily terminated (other than for cause, death, or disability), or terminates his or her own employment voluntarily for “good reason” (including a material reduction in title or position, reduction in base salary or bonus opportunity or an increase in the executive’s commute to his or her current principal working location of more than 50 miles without consent) within 24 months after the date of a change-in-control. Severance benefits under the policy are conditioned upon the executive executing an agreement and release which includes, among other things, non-competition and non-solicitation restrictive covenants and a release of claims against the Company. Upon her January 2018 departure from the Company, Ms. Chambers became eligible for benefits under the terms of the Executive Severance Policy.

In addition, the Executive Severance Policy prohibits excise tax gross-up payments on change-in-control benefits for those individuals who became executives of the Company after April 2009. Mr. Ersek is the only Company employee who remains eligible for these excise tax gross-up payments because he became an executive of the Company prior to 2009.

As noted below, Mr. Farah is subject to an employment agreement, which is a customary practice for executives located in Dubai. Under the terms of Mr. Farah’s employment agreement, he is required to receive three months’ notice of termination of employment or, in lieu of such notice, three months of pay. In addition, Mr. Farah is also eligible for statutory severance amounts in accordance with local law. Any amounts due to Mr. Farah under the Executive Severance Policy will be reduced by any severance paid under the terms of his employment agreement or as required by local law.

Please see the “Executive Compensation—Potential Payments Upon Termination or Change-in-Control” section of this Proxy Statement for further information regarding the Executive Severance Policy, including amounts received by Ms. Chambers in connection with her departure, and the treatment of awards upon qualifying termination events or a change-in-control.

Retirement Savings Plans. The Company executives on United States payroll are eligible for retirement benefits through a qualified defined contribution 401(k) plan, the Incentive Savings Plan, and a nonqualified defined contribution plan, the Supplemental Incentive Savings Plan (“SISP”). The SISP provides a vehicle for additional deferred compensation with matching contributions from the Company. We maintain the Incentive Savings Plan and the SISP to encourage our employees to save some percentage of their cash compensation for their eventual retirement. Mr. Ersek participates in the qualified defined contribution retirement plan made available to eligible employees in Austria. The committee believes that these types of savings plans are consistent with competitive pay practices, and are an important element in attracting and retaining talent in a competitive market. Please see the 2017 Nonqualified Deferred Compensation Table in the “Executive Compensation” section of this Proxy Statement for further information regarding Western Union’s retirement savings plans.

Benefits and Perquisites. The Company’s global benefit philosophy for employees, including executives, is to provide a package of benefits consistent with local practices and competitive within individual markets. While employed with the Company, each of our NEOs participates in the health and welfare benefit plans and fringe benefit programs generally available to all other Company employees in the individual market in which they are located. For example, Mr. Farah resides in Dubai where is it customary to provide certain fringe benefits, including annual housing, education, transportation, health and wellness and technology allowances.

The Company provided its NEOs with limited, yet competitive perquisites and other personal benefits that the Compensation Committee believes are consistent with the Company’s philosophy of attracting and retaining exemplary executive talent and, in some cases, such as the annual physical examination, the Company provides such personal benefits because the committee believes they are in the interests of the Company and its stockholders. The committee periodically reviews the levels of perquisites and other personal benefits provided to NEOs. Please see the “2017 All Other Compensation Table” in the “Executive Compensation section of this Proxy Statement for further
information regarding benefits and perquisites received by our NEOs in 2017.

Employment Arrangements. The Company generally executes an offer of employment before an executive joins the Company. This offer describes the basic terms of the executive’s employment, including his or her start date, starting salary, bonus target and long-term incentive award target. The terms of the executive’s employment are based thereafter on sustained good performance rather than contractual terms, and the Company’s policies, such as the Executive Severance Policy, will apply as warranted.

Under certain circumstances, the Compensation Committee recognizes that special arrangements with respect to an executive’s employment may be necessary or desirable. For example, Mr. Ersek, the Company, and a subsidiary of the Company entered into agreements in November 2009 relating to his 2009 promotion to Chief Operating Officer, which were amended effective September 2010 to reflect his 2010 promotion to President and CEO. Employment contracts are a competitive market practice in Austria where Mr. Ersek resided at the time he assumed his position as Chief Operating Officer and the Compensation Committee believes the terms of his agreements are consistent with those for similarly situated executives in Austria. Additionally, Mr. Farah and a subsidiary of the Company entered into an employment contract in June 2008 with respect to Mr. Farah’s employment with the Company. Employment contracts are a competitive market practice in Dubai where Mr. Farah resides, and the Compensation Committee believes the terms of his contract are consistent with those for similarly situated executives in Dubai. Please see the “Executive Compensation—Narrative to Summary Compensation Table and Grants of Plan-Based Awards Table—Employment Arrangements” section of this Proxy Statement for a description of the material terms of the employment agreements with Messrs. Ersek and Farah.

Stock Ownership Guidelines

To align our executives’ interests with those of our stockholders and to assure that our executives own meaningful levels of Company stock throughout their tenures with the Company, the Compensation Committee established stock ownership guidelines that require each of the NEOs to own Company Common Stock worth a multiple of base salary. Under the stock ownership guidelines, the executives must retain, until the required ownership guideline levels have been achieved and thereafter if required to maintain the required ownership levels, at least 50% of after-tax shares resulting from the vesting of restricted stock and RSUs, including PSUs. The chart below shows the salary multiple guidelines and the equity holdings that count towards the requirement as of March 20, 2018. Each continuing NEO has met, or is progressing towards meeting, his or her respective ownership guideline.

EXECUTIVE GUIDELINE STATUS
Hikmet Ersek 6x salary Meets guideline
Rajesh K. Agrawal 3x salary Meets guideline
Odilon Almeida 3x salary Meets guideline
Jean Claude Farah 3x salary Meets guideline
WHAT COUNTS TOWARD
THE GUIDELINE
WHAT DOES NOT COUNT
TOWARD THE GUIDELINE
Company securities owned personally Stock options
Shares held in any Company benefit plan PSUs
✔ After-tax value of service-based restricted stock awards and RSUs  

Prohibition Against Pledging and Hedging of the Company’s Securities

The Company’s insider trading policy prohibits the Company’s executive officers and directors from pledging the Company’s securities or engaging in hedging or short-term speculative trading of the Company’s securities, including, without limitation, short sales or put or call options involving the Company’s securities.

Clawback Policies

The Board adopted a clawback policy in 2009. Under the policy, the Company may, in the Board’s discretion and subject to applicable law, recover incentive compensation paid to an executive officer of the Company (defined as an individual subject to Section 16 of the Exchange Act, at the time the incentive compensation was received by or paid to the officer) if the compensation resulted from any financial result or performance metric impacted by the executive officer’s misconduct or fraud. The Board is monitoring this policy to ensure that it is consistent with applicable laws, including any requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).

In addition, in 2017, pursuant to the Joint Settlement Agreements discussed above, the Board adopted a compliance clawback policy that allows the Company, in the Board’s discretion and subject to applicable laws, to “claw back” incentive compensation to covered executives (defined as a person serving or who served as the Company’s CCO at the time of the conduct and any other person serving or who served at the time of the conduct as an officer of the Company subject to the reporting requirements of Section 16 of the Exchange Act) for conduct occurring after January 19, 2017 that is later determined to have contributed to material compliance failures resulting in a failure to comply with applicable laws or regulations. Under this policy, if the Board determines that incentive compensation is subject to the compliance clawback policy, the Company, subject to the direction of the Board, has broad discretion to effect recovery of such amounts, including requiring a cash payment, canceling outstanding or deferred awards, reducing future compensation or other appropriate means.

Tax Implications of Executive Compensation Program

Under Section 162(m) of the Code, compensation paid to the CEO and certain other executive officers of the Company over $1 million for any year is generally not deductible for United States income tax purposes. Historically, performance-based compensation has been exempt from the deduction limit, however, if certain requirements were met. With the enactment of the Tax Act, the performance-based compensation exemption under Section 162(m) has been eliminated except with respect to certain grandfathered arrangements. The Compensation Committee has historically sought to structure compensation to take advantage of the performance-based compensation exemption under Section 162(m) to the extent practicable, while satisfying the Company’s compensation policies and objectives. Tax deductibility will continue to be one of many factors the Compensation Committee considers when designing an executive compensation program that enables the Company to continue to attract, retain, and motivate highly-qualified executives.