SCHEDULE 14A

Information Required in Proxy Statement

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934

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Huntington Bancshares Incorporated

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Huntington Bancshares Incorporated

Huntington Center

41 South High Street

Columbus, Ohio 43287

 

Richard A. Cheap

General Counsel and Secretary

 

Notice of Annual Meeting of Shareholders

 

To Our Shareholders:

 

 

The Forty-Third Annual Meeting of Shareholders of Huntington Bancshares Incorporated will be held at the Arena Grand Movie Theatre, 175 W. Nationwide Boulevard, Columbus, Ohio, on Wednesday, April 22, 2009, at 11:00 a.m., local Columbus, Ohio time, for the following purposes:

 

 

You will be welcome at the meeting, and we hope you can attend. Directors and officers of Huntington Bancshares Incorporated and representatives of its independent auditors will be present to answer your questions and to discuss its business.

 

Your vote is important. We urge you to vote as soon as possible so that your shares may be voted in accordance with your wishes. You may vote by executing and returning your proxy card in the accompanying envelope, or by voting electronically over the Internet or by telephone. Please refer to the proxy card enclosed for information on voting electronically. If you attend the meeting, you may vote in person and the proxy will not be used.

 

Sincerely yours,

 

Richard A. Cheap

 

March 10, 2009

 

 

Important Notice Regarding the Availability of Proxy Materials for the

Shareholder Meeting to Be Held on April 22, 2009

 

The proxy statement and annual report to security holders are available at www.edocumentview.com/HBAN2009

 

Information for Shareholders Who Plan to Attend the 2009 Annual Meeting of Shareholders

 

The Arena Grand Movie Theater is located at 175 W. Nationwide Boulevard, Columbus. Complimentary parking is available at the attached Marconi Parking Garage. Please allow time for parking and travel to the meeting location.

 

From I-70 East

 

Take Exit 99C, Rich/Town Street exit onto State Route 315 North. Take Dublin Road/Long Street exit. Turn right onto West Long Street (US-33). Turn left onto Neil Avenue. Turn right onto Nationwide Boulevard. Turn right onto Marconi Boulevard. Go one-half block to the Marconi Parking Garage. The garage entrance will be on your right.

 

From I-70 West

 

Take Exit 99C, Rich/Town Street exit onto State Route 315 North. Take Dublin Road/Long Street exit. Turn right onto West Long Street (US-33). Turn left onto Neil Avenue. Turn right onto Nationwide Boulevard. Turn right onto Marconi Boulevard. Go one-half block to the Marconi Parking Garage. The garage entrance will be on your right.

 

From I-670 East

 

Take Exit 3/Neil Avenue/Goodale Street onto West Goodale Street. Turn left onto Neil Avenue. Turn left onto West Nationwide Boulevard. Turn right onto Marconi Boulevard. Go one-half block to the Marconi Parking Garage. The garage entrance will be on your right.

 

From I-670 West

 

Take the Broad Street exit. Turn right onto Broad Street (US-40). Turn right onto Dublin Road (US-33). Turn left onto Neil Avenue. Turn right onto West Nationwide Boulevard. Turn right onto Marconi Boulevard. Go one-half block to the Marconi Parking Garage. The garage entrance will be on your right.

 

 

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, 2009, and at any adjournment. We are making this proxy statement, together with a proxy card, available on the Internet, or mailing them, starting on or about March 12, 2009, 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 18, 2009, are entitled to vote at the annual meeting. Huntington had 366,153,906 shares of common stock outstanding and entitled to vote on the record date. Holder’s 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 Amended and Restated 2007 Stock and Long-Term Incentive Plan, FOR the ratification of the appointment of Deloitte & Touche LLP as the independent registered public accounting firm for 2009, 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 $8,500 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 election of directors and ratification of independent auditors, but not on non-routine matters.

 

The election of each nominee for director, approval of the 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.

 

Election of Directors

Huntington’s board of directors currently consists of fourteen members, divided into three classes (two classes of five members each and one class of four members). On January 14, 2009 the board of directors appointed Stephen D. Steinour to the positions of Chairman, President and Chief

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Executive Officer, succeeding Thomas E. Hoaglin, who had served in these capacities since 2001. Mr. Steinour was appointed to serve as a Class III member of the board of directors serving a term expiring in 2011. Mr. Hoaglin resigned from his position as a Class II Director as of January 20, 2009.

 

The terms of the five Class I Directors expire at this annual meeting. In 2008, the board of directors recommended and the shareholders approved an amendment to Huntington’s charter 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. Directors at this year’s annual meeting will each be elected to serve a two-year term expiring in 2011. At the 2010 annual meeting, shareholders will be asked to vote for the Class II Directors to serve a one-year term expiring in 2011. At the 2011 annual meeting and each succeeding annual meeting, shareholders will be asked to elect all directors to serve a one-year term until the next annual meeting and until their successors are elected and qualified.

 

Upon consultation with the Nominating and Corporate Governance Committee, the board of directors proposes the election of four Class I Directors at this meeting. John B. Gerlach, Jr., D. James Hilliker, Jonathan A. Levy, and Gene E. Little currently serve as Class I Directors of Huntington and are being nominated for re-election. Consistent with Huntington’s Corporate Governance Guidelines and Bylaws, Raymond J. Biggs, who has served as a Class I Director since 2002, is not being nominated for reelection since he is over the age of 70. The size of the board will be reduced to thirteen members effective as of this meeting.

 

The nominees for Class I Directors, if elected, will each serve a two-year term expiring at the 2011 annual meeting of shareholders and until their successors are elected. It is intended that, unless otherwise directed, the shares represented by a properly submitted proxy will be voted FOR the election of Messrs. Gerlach, Hilliker, Levy and Little as Class I 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.

 

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

 

CLASS I DIRECTORS

(NOMINEES FOR TERMS EXPIRING IN 2011)

 

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CLASS II DIRECTORS
(TERMS EXPIRE IN 2010)

 

 

CLASS III DIRECTORS
(TERMS EXPIRE IN 2011)

 

 

 

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Corporate Governance

 

Recent Initiatives

In 2007 Huntington asked shareholders to approve an amendment to Huntington’s charter to eliminate the classified board structure and provide for annual election of all directors. The amendment as approved eliminates the class structure in a manner that does not affect the unexpired terms of previously elected directors. Commencing with the 2011 annual meeting of shareholders, all directors will be elected for one-year terms.

 

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.

 

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

Raymond J. Biggs, a director of Huntington, served as an officer of Huntington Bancshares Michigan, Inc. from 1990 to 1994, following Huntington’s acquisition of First Macomb Bank, of which Mr. Biggs was an executive officer. Mr. Biggs currently receives periodic payments from Huntington, which amounts represent the negotiated settlement of supplemental retirement and other benefits payable to Mr. Biggs under the Supplemental Retirement Income Agreement previously entered into between Mr. Biggs and First Macomb Bank. The negotiated benefits, as agreed upon in 1995, are annual payments of $15,159 beginning in 1995 and continuing for fifteen years, and monthly payments of $13,142 beginning in August of 2002 and continuing for fifteen years. As of January 1, 2009, the aggregate amount remaining to be paid to Mr. Biggs is $1,368,785.

 

The Huntington National Bank leases a banking office in Alliance, Ohio (acquired in the merger with Sky Financial Group, Inc.) 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 National Bank currently pays $4,650 per month for rent including parking. As of January 1, 2009, the aggregate rental amount payable through the end of the current lease term is $209,250. 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. For the origination period under the agreement (which ended in 2008),

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the minimum quarterly management fee was equal to $262,500; thereafter the minimum is $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 the same management fees and percentage of profits as Stonehenge Mezzanine Partners LLC under the initial fund. Effective April 1, 2009, the minimum management fee payable to Stonehenge Mezzanine Partners II LLC will be reduced by 50%. During 2008, Stonehenge Mezzanine Partners LLC and Stonehenge Mezzanine Partners II LLC collectively received management fees from Huntington Mezzanine Opportunities, Inc. of $1,972,031 and collectively earned $2,376,908 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.

 

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 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.

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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: Raymond J. Biggs, 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, David L. Porteous and Kathleen H. Ransier. 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, Executive, Nominating and Corporate Governance, Pension Review and Risk Committees. 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 www.huntington.com.  The board of directors appointed David L. Porteous as Lead Director in November 2007.

 

In addition, the board of directors has adopted a corporate governance program which includes Corporate Governance Guidelines and a Code of Business Conduct and Ethics. 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 2008, the board of directors held a total of fifteen 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. Thirteen of the fourteen members of the board attended the 2008 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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Board Committees

The table below indicates the standing committees of the board, the committee members during 2008, and the number of times the committees met in 2008.

 

Mr. Steinour and Mr. Porteous were appointed to the Executive Committee on January 22, 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 each of David P. Lauer, Chairman of the Audit Committee, and Gene E. Little qualifies as an “audit committee financial expert” as the term is defined in the SEC rules and as an “independent director” as the term is defined in the Nasdaq Stock Market Marketplace Rules. Designation of Mr. Lauer and Mr. Little 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.

 

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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, 2008 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 2008, the Audit Committee believes that the services provided by Deloitte & Touche LLP in 2008 are compatible with and do not impair Deloitte & Touche LLP’s independence.

 

Based on these reviews and discussions, 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 2008 for filing with the SEC.

 

Audit Committee

David P. Lauer, Chairman

Gene E. Little

Gerard P. Mastroianni

David L. Porteous

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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 also advises the board of directors with respect to compensation for service by non-employee directors on the board of directors and its committees. This 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.

 

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.

 

The Huntington National Bank leases office space in Columbus, Ohio from a partnership of which the mother of D. James Hilliker and her revocable trust are the partners D. James Hilliker is a director and a member of the Compensation Committee. The current lease term runs through April 30, 2011 and the monthly rental is $4,500. As of January 1, 2009, the aggregate rental amount payable through the end of the current lease term is $126,000. Huntington has an option to renew the lease through April 30, 2016 at a monthly rental of $4,750.

 

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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 2009 annual meeting of shareholders.

 

In addition, the Compensation Committee certifies that it has reviewed with the company’s senior risk officers the senior executive officer (named executive officer) compensation arrangements and has made reasonable efforts to ensure that such arrangements do not encourage the named executive officers to take unnecessary and excessive risks that threaten the value of Huntington.

 

Compensation Committee

John B. Gerlach, Jr., Chairman

Don M. Casto III

Marylouise Fennell

D. James Hilliker

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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. There are no specific additional criteria at this time. Huntington generally does not pay any third parties to identify or evaluate, or assist in identifying or 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 Executive Committee considers matters brought before it by the chief executive officer. This 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 Pension Review Committee provides recommendations to the board of directors in connection with actions taken by the board of directors in fulfillment of the duties and responsibilities delegated to Huntington and/or the board of directors pursuant to the provisions of Huntington’s retirement plans. In addition, the Pension Review Committee acts on behalf of the board of directors in fulfilling such duties and responsibilities as are delegated by written action of the board of directors. The Pension Review Committee also takes such actions as are specifically granted to the Pension Review Committee pursuant to retirement plan documents. The Risk 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 Committee monitors the

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level and trend of key risks, management’s compliance with board-established risk tolerances and Huntington’s risk policy framework. The Risk Committee also oversees material pending litigation, 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.

 

Ownership of Voting Stock

The beneficial ownership of Huntington common stock by each of Huntington’s directors and nominees for director, five named executive officers, and directors and executive officers as a group, as of December 31, 2008, is set forth below.

 

 

 

 

(footnotes continued on following page)

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(footnotes continued from previous page)

 

 

 

As of December 31, 2008, 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:

 

 

 

(footnotes continued on following page)

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(footnotes continued from previous page)

 

 

 

Huntington also has issued and outstanding 8.50% Series A non-voting perpetual convertible preferred stock (“Series A Preferred Stock”). As of December 31, 2008, 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, 2008, 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.

 

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. 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 2008 all filing requirements applicable for reporting persons were met.

 

Compensation Discussion & Analysis

This Compensation Discussion and Analysis covers the compensation awarded to, earned by, or paid to the five named executive officers whose compensation is detailed in this proxy statement. These named executive officers are the chief executive officer, the chief financial officer and the other three most highly compensated executive officers serving as of December 31, 2008 as listed in the Summary Compensation Table.

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Compensation Philosophy and Objectives

Huntington’s executive compensation programs are designed to balance the following key compensation objectives:

 

 

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 the same for all executive officers; however, the actual amounts paid and potential incentive opportunities vary depending upon the executive’s role and scope of responsibility. For example, Mr. Hoaglin 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, Mr. Hoaglin’s annual cash incentive compensation was 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 Huntington’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.

 

Participation in the TARP Capital Purchase Program

Capital Purchase Program — Executive Compensation Restrictions issued in October 2008. Upon participating in the U.S. Treasury’s Capital Purchase Program in November 2008, Huntington became subject to certain limitations on compensation with respect to the named executive officers that were established by the U.S. Treasury in October 2008 (the “October TARP Limitations”). Huntington was one of the qualified financial institutions approved for participation in the Capital Purchase Program, a component of the Troubled Asset Relief Program under the Emergency Economic Stabilization Act of 2008 (“TARP”). Under the October TARP Limitations, Huntington must structure its executive compensation programs to exclude incentives for its senior executive officers to take unnecessary and excessive risks that threaten the value of the institution. Second, Huntington must implement a provision for the recovery of any bonus or incentive compensation paid to a senior executive officer if the payments were based on materially inaccurate financial statements and any other materially inaccurate performance metric criteria. Third, Huntington must not make certain termination payments to its senior executive officers. Finally, Huntington 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).

 

Within 90 days of Huntington’s participation in the Capital Purchase Program, the Compensation Committee met with the company’s Chief Risk

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Officer and other senior officers to review and analyze the relationship between Huntington’s risk management policies and practices and the incentive compensation arrangements for named executive officers. The Compensation Committee believes that the executive officer compensation arrangements do not encourage the named executive officers to take unnecessary and excessive risk that threaten the value of Huntington. While Huntington’s compensation programs do not directly limit risk-taking activities, the Compensation Committee concluded that Huntington’s compensation practices, which include the following elements, appropriately limit the ability of executive officers to benefit from taking unnecessary or excessive risks:

 

 

In January 2009, Huntington voluntarily initiated cost-cutting measures that impact compensation including elimination of 2008 bonuses and annual merit increases, and suspending the employer match in the Huntington Investment and Tax Savings Plan and Supplemental Stock Purchase Plan. In addition, the board of directors has voted to be compensated in 2009 with shares of Huntington common stock rather than cash.

 

American Recovery and Reinvestment Act of 2009 — Additional Executive Compensation Restrictions. On February 17, 2009, the American Recovery and Reinvestment Act of 2009 was enacted (the “ARRA”). The ARRA significantly revises the restrictions on executive compensation which apply to institutions that have already received financial assistance under TARP as well as institutions that will receive assistance in the future (the “ARRA Restrictions”). Under the ARRA, the Secretary of the U.S. Treasury will require each TARP recipient to meet standards for executive compensation and corporate governance. Significant provisions impacting Huntington include:

 

 

The Secretary of the U.S. Treasury will promulgate rules to implement the ARRA Restrictions. Other standards specified in the ARRA include: limits on compensation that exclude incentives for senior executive officers to take unnecessary and excessive risks that threaten the value of the institution; expanded clawback requirements; a prohibition on any compensation plan that would encourage manipulation of reported earnings to enhance the compensation of any employees; policies limiting excessive or luxury expenditures; a non-binding shareholder vote on executive compensation; and additional certification requirements. The ARRA Restrictions apply during any period in which any obligation arising from financial assistance under TARP remains outstanding.

 

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:

 

 

Of these components, increases to 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

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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 tax and financial planning services and paid parking. For Mr. Hoaglin, Huntington provided security monitoring for his personal residence and previously provided (through August 17, 2008) occasional personal use of a private airplane. All of 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

The October TARP Limitations provide that bonus and incentive compensation paid to the named executive officers during the period the U.S. Treasury maintains an equity interest in Huntington acquired under the Capital Purchase Program are subject to recovery by Huntington if the payments were based on materially inaccurate financial statements or any other materially inaccurate performance metric criteria. The ARRA Restrictions expand this clawback provision to the next 20 most highly compensated employees as well and provides for recovery of any bonus, retention award, or incentive compensation based on statements of earnings, revenues, gains, or other criteria that are later found to be materially inaccurate.

 

In addition, Huntington’s board of directors has previously adopted a recoupment policy that 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 based 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 2007 Stock and Long-Term Incentive Plan specific to awards under that plan.

 

Employment Agreements

Huntington and Mr. Hoaglin, Huntington’s Chairman, President and Chief Executive Officer until January 14, 2009, previously entered into an employment agreement which entitled Mr. Hoaglin to an annual base salary of at least $865,000, a target annual bonus of no less than 100% of his annual base salary and long-term incentive and annual equity incentive awards on terms and conditions no less favorable than those provided to other senior executives of Huntington. Mr. Hoaglin was also entitled to employee benefits, fringe benefits and perquisites on a basis no less favorable than those provided to other senior executives of Huntington. The employment agreement also provided that Mr. Hoaglin was entitled to certain payments and benefits if his employment was terminated during the term of the employment agreement for certain reasons. Mr. Hoaglin’s severance benefits are subject to significant limitations imposed due to Huntington’s participation in the Capital Purchase Program under the U.S. Treasury’s TARP program. The ARRA Restrictions, which will be implemented

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by regulations to be issued by the Secretary of the U.S. Treasury Department, include an executive compensation standard that prohibits Huntington from making any severance payment to the named executive officers or the next 5 most highly-compensated employees, except for payments for services performed or benefits accrued. Huntington expects that Mr. Hoaglin will be impacted by this restriction. See “Potential Payments Upon Termination or Change in Control” below.

 

Huntington elected Stephen D. Steinour as Chairman, President and Chief Executive Officer, effective January 14, 2009. In connection with the commencement of his employment, Huntington and Mr. Steinour entered into an employment agreement effective as of January 14, 2009 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 will serve as Huntington’s President and Chief Executive Officer, reporting directly to the board of directors and will be initially appointed, and thereafter nominated, to serve as a member and Chairman of the Board. Pursuant to the agreement, Mr. Steinour has an initial 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 three-year 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). The option vests in equal increments on each of the first five anniversaries of the date of grant, and expires on the seventh anniversary. The option was granted as an inducement option outside the terms of Huntington’s 2007 Stock and Long-Term Incentive Plan, but will be subject to the terms of the plan.

 

The employment agreement provides that, upon a termination of Mr. Steinour’s employment without “cause” or for “good reason” (each, as defined in the agreement), he is entitled to certain accrued amounts, a pro-rata annual incentive payment for the year of termination, which may be based on the higher of the target incentive payment and the incentive payment paid to Mr. Steinour for the year prior to the year of termination or may be based on actual performance, a lump sum cash severance amount equal to two times the sum of his annual base salary and the higher of the target incentive payment and the incentive payment paid to Mr. Steinour for the year prior to the year of termination and pro-rata long-term incentive plan awards for any open cycles, based on actual performance. Huntington and Mr. Steinour also entered into a change in control agreement, referred to as an Executive Agreement, to provide certain protections in the event of any actual or threatened change in control of Huntington, which is substantially similar to the Executive Agreement previously entered into between Huntington and Mr. Hoaglin. Mr. Steinour’s severance benefits under both the employment agreement and Executive Agreement are subject to the limitations imposed due to Huntington’s participation in the Capital Purchase Program under the U.S. Treasury’s TARP program.

 

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 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 Mr. Hoaglin as chief executive officer was 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 compensation plans, on that date. The guidelines for each of the named executive officers were determined as of July 18, 2006, when the fair market

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value was $23.34. The guidelines for the named executive officers in terms of multiple of salary and number of shares are set forth below.

 

 

Mr. Steinour’s ownership guideline is 1,010,101 shares based on a multiple of 5 times base salary and the fair market value of Huntington common stock on January 14, 2009, which was $4.95. If guidelines are not met by the fifth anniversary 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. The Compensation Committee retains the right to modify or adjust the ownership targets and time frames established for compliance under these 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 and 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 2008 peers began with the selection of U.S. based publicly traded banks with assets as of December 31, 2007, 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 8 reasonably comparable banks with assets ranging from $26 billion to $111 billion. “Reference Peers” were the four banks that were immediately larger than $111 billion in assets as of December 31, 2007 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.

 

Peer Banks Utilized During 2008

 

 

Huntington also relies on survey data, and in 2008 utilized the 2007 Hewitt Financial Services Executive Total Compensation Survey and the 2007 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 their data consisted of 32 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. Seven of Huntington’s Peers were included in the survey along with 25 other participants considered part of the banking industry for this survey which were: Bank of America, BankAtlantic Bancorp, Inc., BMO Financial Group

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(Harris Bank), Capital One Financial, Compass Bank, Cullen/Frost Bankers, Inc., Downey Savings & Loan Assoc., Federal Home Loan Bank of Atlanta, Federal Home Loan Bank of Dallas, Federal Reserve Bank of Boston, Federal Reserve Bank of Cleveland, Federal Reserve Bank of New York, Federal Reserve Bank of St. Louis, HSBC Bank USA, Navy Federal Credit Union, The Northern Trust Company, Peoples Bank, RBC Centura Banks, Inc., San Antonio Federal Credit Union, SunTrust Banks, Inc., TD Banknorth, Inc., U.S. Bancorp, UnionBanCal Corporation, Wachovia and Wells Fargo and Company.

 

The Towers Perrin Survey of U.S. Commercial Banks Report represented 30 banks excluding Huntington. The banks in the survey ranged in size from approximately $6 billion to $2 trillion, with median asset size of $52 billion. Banks were grouped into two asset sizes as follows: less than $50 billion which included 12 banks and greater than $50 billion which included 18 banks. Eight 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, Commerce Bancorp, Compass Bancshares, Cullen/Frost Bankers, Harris Bank, HSBC North America, IndyMac, Irwin Financial, People’s Bank, RBC Centura, Sovereign Bancorp, SunTrust Banks, 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 ten Peers with the exception of Colonial BancGroup and Zions Bankcorp. In addition, the following financial institutions were included in the report: Associated Banc-Corp, Bank of America, Bank of N.T. Butterfield & Son Limited, Bank of the West, Capital One Financial, Citigroup, Commerce Bancorp, Compass Bancshares, Federal Home Loan Bank of Pittsburgh, Federal Home Loan Bank of San Francisco, Harris Bank, HSBC North America, IndyMac, Irwin Financial, People’s Bank, RBC Centura, Sovereign Bancorp, SunTrust Banks, SVB Financial, TD Banknorth, Union Bank of California, U.S. Bancorp, Wachovia, Webster Bank and Wells Fargo. 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 key 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, however, Huntington typically positions base salaries for executive officers to fall between the 50th and 75th market percentile.

 

The Compensation Committee annually reviews salaries for the executive officers, other than the chief executive officer, in February. The review of the chief executive officer’s salary is typically later in the year so that the proxy 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.

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For the 2008 annual salary review for the named executive officers, Huntington’s management compiled comparative data with respect to each named executive officer’s position using the third party published surveys referenced above. The surveys used in 2008 primarily represented financial institutions of comparable size. The data referenced represented the 25th to 90th percentiles of the competitive market. With respect to Mr. Hoaglin’s salary review, recent data from proxy statements for the Reference Peer and Primary Peer banks was also compiled. The data provided base salary comparisons as well as comparisons for other key elements of compensation such as annual cash awards and long-term awards. The market data and annual merit recommendations were reviewed by the compensation consultant. The consultant provided comments and analysis to the Committee and was available for discussion and questions. For 2008, the Compensation Committee was also provided with a complete history of merit increases for each named executive officer along with the history of annual cash bonuses and any awards under Huntington’s stock programs in order to have a complete view of previous decisions and actions and of other elements of compensation. Decisions with respect to base salaries are discussed below under Discussion of 2008 Compensation.

 

Annual Cash Incentive Awards

As noted above, the ARRA Restrictions prohibit the payment or accrual of any bonus, retention award, or incentive compensation during the period which any obligation arising from financial assistance provided under TARP remains outstanding, except for certain long-term restricted stock awards. The discussion below covers Huntington’s compensation philosophy and programs for annual cash incentive awards in effect prior to the ARRA Restrictions.

 

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.

 

In February 2008, the Compensation Committee established the performance criteria and weightings, the performance goals at various levels of performance and the potential awards under the Management Incentive Plan for 2008. The Compensation Committee selected earnings per share, referred to as EPS, and efficiency ratio as the financial measures for plan year 2008. For this purpose efficiency ratio is defined as the ratio of total non-interest operating expense (less amortization of intangibles) divided by total revenues (less securities gains). The chief executive officer and the chief financial officer recommended that these criteria were the best objective measures of performance for Huntington for 2008 and also represented important indicators for relative performance of Huntington when compared to its peers. 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 as Huntington’s targeted performance goals for the year. The compensation consultant also had the opportunity to comment on the measures and goals. The specific performance goals for 2008 are discussed under “Discussion of 2008 Compensation” below.

 

All participants have some portion of their awards dependent on the selected corporate performance criteria. The potential award for Mr. Hoaglin was based entirely on the selected corporate performance goals to align his interests with those of the shareholders. This also was intended to maintain the deductibility of the award payable to Mr. Hoaglin under the plan in relation to Internal Revenue Code Section 162(m) (now 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. Hoaglin, 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.

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Participants for the 2008 plan year were assigned to one of several incentive plan groups. The different incentive groups align award opportunities with internal peers and market practices. Each group had award opportunities 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. Each incentive group also had different weightings of the plan components described above. Mr. Hoaglin made recommendations to the Compensation Committee as to the specific incentive plan group assignment for each of his direct reports, including the other named executive officers. The threshold award opportunities are typically set in the range of one-third to one-half of the target award and the maximum award opportunities are typically set as two times the target award. 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 actual award amounts for the named executive officers against data from published surveys mentioned above and in the case of Mr. Hoaglin, 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 50^th and 75^th percentiles of the market data. The level of award opportunity is also reviewed from a total compensation perspective. The award opportunity at target for Messrs. Kimble, Nelson and Benhase and Ms. Navarro was 50% of base salary with a maximum opportunity equal to 100% of base salary. Mr. Hoaglin’s target was set at 100% of base salary, which was the same as the target for Mr. Hoaglin for 2007. 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.

 

The threshold, target, and maximum award opportunities for the named executive officers for 2008 under the Management Incentive Plan are set forth in the table below.

 

 

The table below shows how each plan component for 2008 is weighted when evaluating each of the named executive officers. For the named executive officers other than Mr. Hoaglin, the weighting of the corporate components was changed from 2007 in order to place more emphasis on corporate performance. For 2008, 75% of the award was dependent on corporate performance, and in 2007 60% of the award was dependent on corporate performance.

 

Following the end of each plan year, the 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.

 

The Management Incentive Plan was designed in part to preserve the deductibility of compensation paid to covered officers under Code Section 162(m) which limits the deductibility of non-performance based compensation in excess of $1 million that is paid to covered officers. As noted above, Huntington’s ability to deduct compensation to executive officers is currently limited due to Huntington’s participation in TARP. Code Section 162(m) does not prohibit a company from reducing any amount of compensation otherwise payable. As such, the Compensation Committee has the discretion to reduce or eliminate an award that would otherwise be payable under the Management Incentive Plan. Except for identified covered officers, the Compensation Committee may increase individual awards based upon extraordinary circumstances. Notwithstanding the foregoing discussion, the Management Incentive Plan gives the Committee authority to provide compensation that may not be deductible under Code Section 162(m) if the Committee believes that such compensation would serve the best interests of Huntington.

 

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 payable to the named executive officers for 2008 is included in the “Discussion of 2008 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 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 currently awards long-term performance awards under the 2007 Plan. Cycles beginning before 2007 operated under the 2004 Stock and Long-Term Incentive Plan, referred to as the 2004 Plan. The last cycle under the 2004 Plan ended on December 31, 2008 (the 2006 — 2008 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. 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). 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.

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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 2006 — 2008 cycle ended on December 31, 2008. There are currently two other cycles pending under this program, the 2007 — 2009 and 2008 — 2010 cycles. 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 three years because that time frame strikes a balance between providing a meaningful long-term award and reasonable goal setting.

 

The plan performance criteria for the 2006 — 2008 cycle were based on performance goals established for average annual growth in EPS and average ROE over the three-year period. 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 a third performance criteria which is 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 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. Revenue growth was added to the most recent cycle because of the importance of continued growth in Huntington’s core franchise and the achievement of revenue synergies available from the acquisition of Sky Financial Corp in 2007. This component replaces ROTE because Huntington did not engage in share repurchase activity in 2008. These criteria consider profitability and growth (by reviewing EPS) as well as quality of earnings (by reviewing ROE/ROTE). The 2007 - 2009 and the 2008 - 2010 cycles focus more strongly 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 three 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 current two cycles 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. Messrs. Kimble, Nelson and Benhase and Ms. Navarro have all been placed in the next highest incentive level below Mr. Hoaglin.

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The threshold, target, superior and maximum award opportunities for the named executive officers under the 2006 — 2008 cycle and the two current cycles not yet completed are set forth in the table below.

 

For the 2006 — 2008 cycle the maximum awards listed above can be increased by up to 20% if maximum efficiency ratio targets established under the plan for the cycle are achieved, or decreased by 10% if the 2008 efficiency ratio is worse than target. 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 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 2006 — 2008 long-term performance cycle which ended December 31, 2008 is discussed under the “Discussion of 2008 Compensation” below.

 

Equity Awards

Huntington’s equity awards program for senior management currently 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.

 

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 2007 Long-Term Incentive Plan Report (mentioned previously), which

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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, annual Peer’s Proxy Statement grant levels are reviewed for the chief executive officer and chief financial officer.

 

Mr. Hoaglin made the recommendations to the Compensation Committee for the number of shares to be awarded to his direct reports, including each of the named executive officers. Mr. Hoaglin did not make recommendations in regard to his own awards. 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 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. Huntington believes that the use of stock options and restricted stock units will accomplish the goals established.

 

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.

 

Restricted stock has the advantage of reducing share usage, which Huntington thinks is a positive aspect for our shareholders. 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.

 

Due to the decline in stock price experienced by Huntington and its competitors in 2008, equity awards at the same level of shares as in 2007 would have reflected a lower value. Huntington attempted to balance an appropriate value for awards with conservative use of shares. For 2008 awards, Huntington selected a ratio of 4 stock options to one RSU. Generally 2008 grant sizes were larger (in terms of numbers of shares) and in some cases supplemented with a cash award to provide a more competitive total award value.

 

Recipients of stock options and RSUs in 2008 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. In addition, 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.

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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 amended and restated the Executive Deferred Compensation Plan in 2008 primarily to comply with Internal Revenue Code Section 409A. 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 2008 below.

 

Huntington also offers a supplemental defined contribution plan providing additional salary deferral for officers whose income exceeds the limits 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 2008.

 

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 Non-Qualified Deferred Compensation 2008 Table below.

 

Huntington maintains the Huntington Bancshares Retirement Plan (Pension Plan) for its eligible employees. Huntington also maintains the Huntington Bancshares Incorporated Supplemental Retirement Income Plan (SRIP). The SRIP provides benefits according to the same benefit formula as the Pension Plan, except that benefits under the SRIP are not limited by the compensation and benefit limits of the Internal Revenue Code. The named executive officers are eligible to participate under the Pension Plan and the SRIP. Additional detail about the Pension Plan and SRIP is set forth following the Pension Benefits 2008 Table below.

 

Other Benefits

Huntington provides other benefits to executive officers on the same basis that they are provided to

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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 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 an allowance for tax and financial planning to its more senior officers, including the named executive officers, equal to 2% of base salary. For Mr. Hoaglin, Huntington provided security monitoring of his personal residence and occasional 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, 2008 to Huntington’s principal executive officer serving in 2008, principal financial officer, and the three other most highly compensated executive officers serving at the end of 2008.

 

Summary Compensation 2008

 

 

(footnotes continued on following page)

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(footnotes continued from previous page)

 

 

 

 

 

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(footnotes continued from previous page)

 

 

 

Grants of Plan-Based Awards 2008

 

 

 

(footnotes continued on following page)

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(footnotes continued from previous page)

 

 

Discussion of 2008 Compensation

During 2008, the Compensation Committee considered and made decisions with respect to base salary increases and approved grants of equity awards. Following the end of the year, the Compensation Committee reviewed Huntington’s 2008 performance against applicable performance goals under the Management Incentive Plan and against the applicable performance goals for the Long-Term Incentive Plan award cycle that ended on December 31, 2008. However, as part of a cost cutting initiative, Huntington made a corporate decision that there would be no bonuses paid with respect to 2008.

 

The challenging credit environment and weakening economy impacted Huntington’s executive compensation in 2008. Salary increases, incentive compensation, and the value of existing equity awards were all negatively effected. Following the reported net loss for the fourth quarter of 2007, the board of directors approved in January 2008, as additional incentive, a cash retention payment arrangement for certain of the company’s senior officers, including three named executive officers. As recommended by Mr. Hoaglin, retention payments of $400,000 were approved for each of Daniel B. Benhase, Donald R. Kimble and Mary W. Navarro based on continued employment with the company through December 31, 2010. Huntington expects that these retention payment arrangements for the named executive officers will be impacted by the restrictions under the ARRA due to Huntington’s participation in the Capital Purchase Program under TARP.

 

Base Salary

At its February 2008 meeting, the Compensation Committee reviewed base salaries of the senior executive officers, other than Mr. Hoaglin. As noted above, the Compensation Committee does not review the CEO’s salary until later in the year after more recent peer bank proxy statement data is available. The Compensation Committee reviewed the market survey data described above and a complete history of merit increases and cash incentive and equity awards for each officer. The Compensation Committee determined that, based on the overall financial performance of the company at that time, and consistent with the recommendations of Mr. Hoaglin, there would be no increases approved in base salary for the majority of the senior executives reporting to the CEO. None of Messrs. Kimble, Nelson or Benhase received a salary increase for 2008. Ms. Navarro received a base salary increase of 2.80% which was approved in recognition of additional responsibilities she took on during 2008 in overseeing Operations and Technology.

 

The Compensation Committee reviewed Mr. Hoaglin’s salary in October 2008. The Compensation Committee was presented with material prepared by the consultant related to Mr. Hoaglin’s total compensation. The first analysis that the consultant provided compared Huntington’s full year 2007 performance based on various common performance metrics (such as the percentage change in EPS, return on average assets, return on average equity, 3-year total return, the efficiency ratio and deposit growth) against our 8 Primary Peers and 4 Reference Peers. A composite of the average rankings for these performance metrics showed Huntington to be in the bottom 1/3^rd of performance against the Peer Group.

 

The consultant also provided analysis of recent proxy statements for the Primary and Reference Peers and provided analysis of various components of Mr. Hoaglin’s compensation that related to salary adjustments. In addition to the data from recent proxy statements, the analysis included 2007 published survey data along with the consultant’s assessment of the competitiveness of Mr. Hoaglin’s

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compensation. The consultant concluded that Mr. Hoaglin’s base salary was well below the peer and survey data levels of competitiveness estimated for 2008. However, due to the overall financial performance of the company, the Compensation Committee decided not to increase Mr. Hoaglin’s salary in 2008.

 

Annual Cash Incentive Awards

The two components for the 2008 Management Incentive Plan cycle tied to overall corporate performance were actual EPS and the efficiency ratio. Huntington’s actual results for 2008 for EPS were below the threshold level of performance, and the efficiency ratio was higher (worse) than the threshold level of performance. Even after consideration of adjustments for “extraordinary events” impacting 2008 performance, none of the corporate performance targets or threshold levels for 2008 was met.

 

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

 

 

Since Mr. Hoaglin’s award potential was based entirely on the corporate performance criteria, weighted 75% for EPS and 25% for efficiency ratio, Mr. Hoaglin was not eligible to receive an annual cash incentive award under the Management Incentive Plan. Although the company’s corporate performance goals were not met in 2008, the Compensation Committee could have approved annual cash incentive awards under the personal performance and discretionary components of the Management Incentive Plan. The potential awards for each of Messrs. Kimble, Nelson and Benhase and Ms. Navarro included both personal performance (20%) and discretionary (5%) components in addition to the corporate performance criteria. However, as noted above, Huntington determined not to pay bonuses with respect to 2008.

 

Long-Term Incentive Compensation

The 2006 — 2008 cycle of the Long-Term Incentive Awards program, which is discussed in detail above in the “Compensation Discussion and Analysis”, ended December 31, 2008. No awards were earned or paid under this cycle.

 

The goals for this cycle, which were established in February 2006 were based on average annual growth in EPS over the cycle with a baseline adjusted EPS of $1.68 and average annual ROE over the cycle, with the entire award subject to adjustment based on Huntington’s efficiency ratio performance in 2008.

 

The target, reported and adjusted values for performance criteria are set forth in the table below.

 

 

If awards were earned by achieving EPS and ROE performance goals above the threshold level, such awards could be adjusted upward by 10% if Huntington achieved an efficiency ratio of 53% or lower (better) or 20% with achievement of an efficiency ratio of 52% or lower.

 

Huntington’s actual EPS growth (41.5%) was under the established plan threshold for growth of 6%. Huntington also calculated EPS growth with considerations for adjustments for extraordinary events over the cycle as determined against actual adjustments made for the Management Incentive Plan, which occurred in the same years as the years included in this cycle. The overall average for the adjusted EPS for the cycle was (24.2%), which was below the level required to receive an award under this program.

 

The three-year average performance result established for reported ROE was 5.2% and 9.3% for adjusted ROE with both figures also coming in under the 15.5% threshold needed to generate awards.

 

No adjustment for the efficiency ratio was calculated since no awards were earned based on the other criteria.

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Stock Option and Restricted Stock Unit Awards

Stock award recommendations made by management and Mr. Hoaglin were presented to the Compensation Committee at its July 2008 meeting. Prior to reviewing the recommendations, the Compensation Committee reviewed and discussed metrics presented by the consultant related to Huntington’s stock usage compared to the Reference Peers and Primary Peers. Based on past grants, overall Huntington fell closest to the 25^th percentile of its peers in areas related to dilution, overhang and run-rate levels.

 

As noted above, due to the decline in stock price experienced by Huntington and its competitors in 2008, Huntington attempted to balance an appropriate value for awards with conservative use of shares. Generally 2008 grant sizes were larger (in terms of numbers of shares) and in some cases supplemented with a cash award to provide a more competitive total award value. The Compensation Committee approved stock grants effective July 21, 2008 for the named executive officers (other than Mr. Hoaglin), in each case as recommended by Mr. Hoaglin in his discretion.

 

 

The Compensation Committee considered and approved equity awards for Mr. Hoaglin in September 2008. The Compensation Committee was provided with market data from the Reference Peers and Primary Peers which provided a total compensation view of Mr. Hoaglin’s compensation in comparison to the selected group and the published survey data. The market analysis showed Mr. Hoaglin’s annualized long-term incentive opportunity to be below market medians. The Compensation Committee considered the information provided and approved a grant of 165,000 stock options and 33,000 RSUs to Mr. Hoaglin which was equal to the grants he received in each of 2006 and 2007.

 

The stock options granted to Mr. Hoaglin have an option price of $9.01 and the stock options granted to the other named executive officers have an option price of $6.97 (in each case, 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. The options will be exercisable for a period of seven years from date of grant. The grant date fair market value of the RSUs was based on the closing price of a share of Huntington common stock on the date of grant. The RSUs will generally vest on the third anniversary after grant and will be paid in shares. The cash awards granted to supplement the equity awards vest and become payable on the third anniversary of the date of grant. Dividends will accumulate over the vesting period and be paid in cash at the same time as the underlying RSUs are paid.

 

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Outstanding Equity Awards at Fiscal Year-End 2008