UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION
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Exchange Act of 1934 (Amendment No. _ )

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SLM Corporation

(Name of Registrant as Specified in Its Charter)

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300 Continental Drive
Newark, Delaware 19713

 

April 8, 2011

 

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

OF SLM CORPORATION

To Be Held May 19, 2011

 

 

To our Shareholders:

 

The 2011 Annual Meeting of Shareholders of SLM Corporation will be held at the Hilton Wilmington Christiana, 100 Continental Drive, Newark, Delaware 19713, on Thursday, May 19, 2011 beginning at 11:00 a.m., local time. At the meeting, holders of the Company’s common stock will consider and vote on the following matters:

 

 

We will also conduct any other business that properly comes before the meeting.

 

All record holders of shares of the Company’s common stock at the close of business on March 21, 2011 are entitled to vote at the meeting. If you wish to attend the meeting in person, you must bring evidence of your ownership as of March 21, 2011, or a valid proxy showing that you are representing a shareholder.

 

Your participation in the annual meeting is important. We urge you to take the time to read carefully the proposals described in the proxy statement and vote your proxy at your earliest convenience. You may vote by telephone, Internet or, if you request that proxy materials be mailed to you, by completing and signing the proxy card enclosed with those materials and returning it in the envelope provided.

 

Thank you for your investment in Sallie Mae.

 

Sincerely,

 

Anthony P. Terracciano

Chairman of the Board of Directors

TABLE OF CONTENTS

 

 

PROXY STATEMENT

 

The Board of Directors of SLM Corporation (the “Company”) solicits your proxy to conduct business at the Company’s Annual Meeting to be held at the Hilton Wilmington Christiana, 100 Continental Drive, Newark, Delaware 19713, on Thursday, May 19, 2011 at 11:00 a.m., local time (the “Annual Meeting.”) This proxy statement is first being sent or made available, as applicable, to the shareholders of the Company on or about April 8, 2011.

 

Important Notice Regarding the Availability of Proxy Materials For the Annual Meeting of Shareholders to be Held on May 19, 2011 This proxy statement and the Company’s annual report on Form 10-K are available at http://www.salliemae.com/Investors/AnnualReports and http://materials.proxyvote.com/78442P. You may also obtain these materials at the SEC’s website at www.sec.gov or by contacting the Office of the Corporate Secretary at the Company’s principal executive offices, located at 300 Continental Drive, Newark, DE 19713. We will provide a copy of the Form 10-K without charge to any shareholder upon his or her written request.

 

Who may vote? Only the Company’s shareholders who owned common stock at the close of business on March 21, 2011, the record date for the Annual Meeting, can vote. At March 21, 2011, the record date, 527,552,383 shares of the Company’s voting common stock, par value $.20 per share, were outstanding and eligible to be voted. The common stock is listed on the NYSE under the symbol “SLM.”

 

Why did I receive a “Notice Regarding the Availability of Proxy Materials”? In accordance with SEC rules, instead of mailing a printed copy of our proxy materials, the Company may send to shareholders a Notice Regarding the Availability of Proxy Materials to shareholders that provides instructions as to how you may access and review all of the important information contained in the proxy materials via the Internet. If you receive such a notice, you will not receive a printed copy of the proxy materials unless you specifically request one. The Notice of Availability provides instructions on how to vote your shares and information about how to request a printed set of proxy materials. It also contains a 15-digit control number that you will need to vote your shares. Please keep the Notice Of Availability for your reference through the meeting date.

 

How do I request paper copies of the proxy materials? You may request paper copies of the 2011 proxy materials by following the instructions listed at www.proxyvote.com, by telephoning 1-800-579-1639, or by sending an e-mail to sendmaterial@proxyvote.com. The Notice of Availability also contains instructions regarding how to request paper copies of the proxy materials.

 

What is the difference between holding shares as a beneficial owner in street name and as a shareholder of record? If your shares are held in street name through a broker, bank, trust or other nominee, you are considered the beneficial owner of shares held in street name. As the beneficial owner, you have the right to direct your broker, bank, trust or other nominee on how to vote your shares. Your broker, bank, trust or other nominee may only vote your shares on routine matters (routine matters do NOT include the election of directors, the advisory vote on executive compensation and the advisory vote on the frequency of future of advisory votes on executive compensation, and do include ratification of the appointment of the Company’s independent registered public accounting firm). For non-routine matters, your shares will not be voted without your specific voting instructions. Accordingly, we encourage you to vote your shares.

 

If your shares are registered directly in your name with the Company’s transfer agent, Computershare, you are considered to be a shareholder of record with respect to those shares. As a

shareholder of record, you have the right to grant your voting proxy directly to the Company or to a third party, or to vote in person at the Annual Meeting.

 

How do I vote? You may vote in one of the following ways:

 

By Internet.  You may vote electronically via the Internet at www.proxyvote.com. Votes submitted via the Internet must be received by 11:59 p.m., Eastern Daylight Time, on May 18, 2011. Have your Notice of Availability or proxy card available when you log on.

 

By Telephone.  If you wish to vote by telephone you may call the toll-free telephone number on the Notice of Availability or your proxy card (1-800-690-6903), which is available 24-hours a day, and follow the pre-recorded instructions. Have your Notice of Availability or proxy card available when you call. If you hold your shares in street name, your broker, bank, trustee or other nominee may provide you additional instructions regarding voting your shares by telephone. Votes submitted telephonically must be received by 11:59 p.m., Eastern Daylight Time, on May 18, 2011.

 

In Person.  If you hold shares directly in your name as a shareholder of record, you may either vote in person or be represented by another person at the Annual Meeting by executing a legal proxy designating that person.

 

If you hold your shares in street name, you must obtain a legal proxy from your broker, bank, trust or other nominee and present it to the inspector of elections with your ballot to be able to vote at the Annual Meeting. To request a legal proxy, please follow the instructions at www.proxyvote.com.

 

By Mail.  If you hold your shares in street name through a broker, bank, trust or other nominee, to vote by mail you must request paper copies of the proxy materials. Once you receive your paper copies, you will need to mark, sign and date the Voting Instruction Form and return it in the prepaid return envelope provided. Your Voting Instruction Form must be received no later than close of business on May 18, 2011.

 

If you hold your shares directly in your name as a shareholder of record, to vote by mail you must request paper copies of the proxy materials. Once you receive your paper copies, you will need to mark, sign and date the proxy card and return it in the prepaid return envelope provided. Your proxy card must be received no later than close of business on May 18, 2011.

 

What if I hold my shares in street name and I do not provide my broker, bank, trustee or other nominee with instructions about how to vote my shares? You may instruct your broker, bank, trustee or other nominee on how to vote your shares using the methods described above. If you do not provide voting instructions to the firm that holds your shares prior to the company’s Annual Meeting, the firm has discretion to vote your shares according to the Board’s recommendations with respect to Proposal 4 on the proxy card regarding ratification of the independent public accounting firm, which is considered a routine matter, but the firm does not have discretion to vote your shares with respect to Proposals 1, 2 and 3, on the proxy card, each of which is considered a non-routine matter. You are encouraged to participate in electing directors and voting on all of the proposals by returning voting instructions.

 

How do I vote my 401(k) Plan shares? If you participate in the Company’s 401(k) Plans, you may vote the number of shares equivalent to your interest, if any, as credited to your account on the record date. You will need to instruct the 401(k) Plan Trustee by telephone, internet or by mail how to vote your shares. Voting instructions must be received no later than close of business on May 17, 2011.

 

How do I attend the Annual Meeting? In order to attend the meeting, you must present a valid picture identification and, if you hold shares in street name (though a broker, bank, trust or other nominee), proof of stock ownership as of the record date.

 

How do proxies work? The Company’s Board of Directors is requesting your proxy. Giving the Board your proxy means that you authorize representatives of the Board to vote your shares at the Annual Meeting in the manner you specify and as described above. If you hold your shares as record holder and sign and return the enclosed proxy card but do not specify how to vote, the Board of Directors will vote your shares in accordance with the Board’s recommendations “FOR” the election of each of the director

nominees named in this proxy statement, “FOR” approval of the advisory vote on executive compensation, “one year” with respect to the advisory vote on the frequency of future advisory votes on executive compensation, and “FOR” ratification of the appointment of the Company’s independent registered public accounting firm. Giving the Board your proxy also means that you authorize their representatives to cumulate votes in the election of directors and to vote on any other matter presented at the Annual Meeting in such manner as they determine best. The Company does not know of any other matters to be presented at the Annual Meeting as of the date of this proxy statement. If you own shares through the 401(k) Plans and do not provide voting instructions with respect to your plan shares, the Trustee will vote your plan shares in the same proportion as other plan shares have been voted.

 

Can I change my vote? Yes. If you hold your shares as a record holder, you may revoke your proxy or change your vote at any time prior to the final tallying of votes by:

 

 

Your new vote must be submitted in accordance with the applicable timeframe and other requirements listed under the “How do I vote?” section.

 

If your shares are held in street name, contact your broker, bank, trustee or nominee for instructions on how to revoke or change your voting instructions.

 

What vote is necessary to approve each matter to be voted on at the Annual Meeting? Shareholders of record are entitled to one vote per share of common stock held for each director nominee and for each other matter to be voted on at the meeting.

 

Election of directors.  This election is an uncontested election because the number of nominees for election to the Board equals the number of directors to be elected. Accordingly, a director nominee will be elected to the Board if the number of shares voted “FOR” the nominee exceeds the number of votes cast “AGAINST” the nominee’s election. If any of the 16 nominees fails to receive a majority of the votes cast “FOR” his or her election, the Nominations and Governance Committee will make a recommendation to the Board on whether to accept or reject the nominee’s resignation, which automatically will be tendered upon the certification of the election results. The Board will act on the Committee’s recommendation and publicly disclose its decision and the rationale behind it within 90 days from the date of the certification of the election results.

 

In the election of directors, shareholders are entitled to cumulative voting, which means that each share of common stock is entitled to the number of votes equal to the number of directors to be elected. Therefore, each share you own is entitled to 16 votes in the election of directors. You may cumulate your votes and cast all your votes “FOR” one nominee or you may distribute your votes among the nominees in any manner. If cumulative voting is applied at the Annual Meeting, the persons named as proxies may cumulate votes and cast such votes in favor of the election of some or all of the Board’s nominees in their sole discretion, except that a shareholder’s votes will not be cast for a nominee as to whom such shareholder instructs that such votes be cast “AGAINST” or “ABSTAIN.” The persons named as proxies by the Company will not exercise discretion to cumulate votes unless another shareholder cumulates its shares when voting for directors.

 

Abstentions and shares that are not voted in the election of directors, including broker non-votes, have no direct effect in the election of directors.

 

Other matters.  Approval of each of the other matters at the Annual Meeting requires an affirmative vote of at least a majority of the votes present or represented and entitled to be voted on the matter, with

each share of stock entitled to one vote. Abstentions have the same effect as votes against the matter. Shares that are not voted on a matter, including broker non-votes, have no direct effect on the matter.

 

What constitutes a quorum? A quorum of shareholders is necessary to transact business at the Annual Meeting. A quorum exists if the holders of a majority of the Company’s shares entitled to vote are present in person or represented by proxy, at the Annual Meeting, including proxies on which abstentions (withholding authority to vote) are indicated. Abstentions and broker non-votes, will be counted in determining the quorum.

 

Who will count the vote? Votes will be tabulated by the Company’s Corporate Secretary.

 

This proxy statement contains four proposals requiring shareholder action. Proposal 1 requests the election of 16 directors to the Board of Directors. Proposal 2 requests an advisory vote on executive compensation. Proposal 3 requests an advisory vote on the frequency of an advisory vote on executive compensation. Proposal 4 requests ratification of the appointment of PricewaterhouseCoopers as the Company’s independent registered public accounting firm. Each of the proposals is discussed in more detail below.

 

At the 2011 Annual Meeting, 16 directors are to be elected to hold office until the 2012 Annual Meeting and until their successors have been elected or appointed. The 16 persons nominated by the Board for election at the 2011 Annual Meeting are as follows:

 

Ann Torre Bates

William M. Diefenderfer

Diane Suitt Gilleland

Earl A. Goode

Ronald F. Hunt

Albert L. Lord

Michael E. Martin

Barry A. Munitz

Howard H. Newman

A. Alexander Porter, Jr.

Frank C. Puleo

Wolfgang Schoellkopf

Steven L. Shapiro

J. Terry Strange

Anthony P. Terracciano

Barry L. Williams

 

Biographical information and qualifications and experience with respect to each nominee appear below under the heading “Nominees for Election to the Board of Directors.” All 16 nominees were last elected by the shareholders at the 2010 Annual Meeting and are currently serving as SLM directors.

 

We know of no reason why any nominee would be unable to serve. However, if any nominee should become unavailable to serve as a director, the Board may reduce the size of the Board or designate a substitute nominee. If the Board designates a substitute nominee, persons named as proxies will vote “FOR” that substitute nominee.

 

Board Recommendation

 

The Board of Directors recommends a vote “FOR” the election of the 16 nominees named above.

 

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) requires, among other things, that the Company permit a non-binding, advisory vote on the compensation of its named executive officers, as described in the tabular disclosure regarding named executive officer compensation and the accompanying narrative disclosure in this proxy statement. This proposal, also

known as “say on pay,” gives shareholders the opportunity to endorse or not to endorse the compensation of our named executive officers through the following resolution:

 

“Resolved, that the Company’s shareholders approve, on an advisory basis, the compensation of our named executive officers, as disclosed in the Compensation Discussion and Analysis and the related compensation tables and narrative disclosure in this proxy statement.”

 

The Company believes that our executive compensation programs appropriately align the named executive officers’ incentives with shareholder interests and are designed to attract and retain high quality, executive talent.

 

The vote is advisory and not binding upon the Company and the Board, and may not be construed as overruling a decision by the Board or creating an additional fiduciary duty of the Board. However, the Compensation and Personnel Committee will carefully evaluate the outcome of the vote when considering future executive compensation decisions.

 

Board Recommendation

 

The Board of Directors unanimously recommends a vote “FOR” the approval, on an advisory basis, of the compensation of our named executive officers, as disclosed in the Compensation Discussion and Analysis and the related compensation tables and narrative disclosure in this proxy statement.

 

Section 14A of the Exchange Act also requires the Company to hold, at least once every six years, shareholder advisory votes on the frequency of future advisory votes on executive compensation. This proposal allows the Company’s shareholders to express their views on whether future advisory votes on executive compensation of the nature reflected in Proposal 2 should occur every one, two or three years. Shareholders may specify any one of these three choices on the proxy card or voting instruction form or may abstain from voting on this proposal. Shareholders are not voting to approve or disapprove the Board’s recommendation.

 

The vote is advisory and not binding upon the Company and its Board of Directors. Notwithstanding the Board’s recommendation and the outcome of the shareholder vote, the Board may in the future decide to conduct advisory votes on a more or less frequent basis and may vary its practice based on factors such as discussions with shareholders and the adoption of material changes to compensation programs.

 

Board Recommendation

 

The Board of Directors unanimously recommends a vote “FOR” the option of 1 year as the preferred frequency for advisory votes on executive compensation.

 

The Company’s independent registered public accounting firm is selected by the Audit Committee. The Audit Committee has appointed PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for 2011, subject to ratification by the Company’s shareholders. This proposal is put before the shareholders because the Board believes that it is a good corporate practice to provide shareholders an advisory vote on ratification of the selection of the independent registered public accounting firm. If the appointment of PricewaterhouseCoopers LLP is not ratified, the Audit Committee will evaluate the basis for the shareholders’ vote when determining whether to continue the firm’s engagement. Even if the selection of the Company’s independent accountant is ratified, the Audit Committee may direct the appointment of a different independent registered public accounting firm at

any time during 2011 if, in its discretion, it determines that such a change would be in the Company’s best interests.

 

Representatives of PricewaterhouseCoopers LLP are expected to attend the Annual Meeting and to respond to appropriate questions from shareholders present at the meeting and will have an opportunity to make a statement if they desire to do so.

 

Board Recommendation

 

The Board of Directors of the Company recommends a vote “FOR” the ratification of the appointment of PricewaterhouseCoopers LLP as independent accountant for 2011.

 

The Board of Directors consists of 16 individuals, all of whom, at the recommendation of the Nominations and Governance Committee, were nominated for election to the Board. In addition to fulfilling the general criteria for director nominees described below under “Nominations Process,” each nominee possesses experience, skills, attributes and other qualifications that the Board has determined support its oversight and management of the Company’s business, operations and structure. These qualifications are discussed below along with brief biographies for each director nominee.

 

 

The role of the Board of Directors is to promote sustainable, long-term growth of the Company in the interest of its shareholders. The primary responsibilities of the Board are to:

 

 

 

The Board’s governance guidelines are published at www.salliemae.com under the tab “Investors, Corporate Governance” and a written copy may be obtained by contacting the Corporate Secretary. Among the Company’s governance practices are the following:

 

 

 

The Board has been led by an independent chairman, Anthony Terracciano, since the beginning of 2008. The Board currently believes that the Company is best served by separating the role of Chairman and CEO. The independent Chairman serves as the principal representative of the Board, presiding over meetings of the Board and shareholders. The Board’s governance guidelines provide for a Lead Independent Director, who is also independent. The position of Lead Independent Director is currently held by Mr. Schoellkopf. Albert Lord, Vice Chairman and CEO, is the only member of management who is also a member of the Board. The Board believes the current structure is the best structure for the Company in the current circumstances.

 

For a director to be considered independent, the Board must determine that the director does not have any direct or indirect material relationship with the Company. The Board’s governance guidelines, described above and published at www.salliemae.com under “Investors, Corporate Governance,” include the standards for determining director independence. These guidelines conform to the independence requirements of the New York Stock Exchange (“NYSE”) listing standards and are also listed below.

 

The Board has determined that all of the individuals who served as a director during 2010, and all nominees standing for election at the 2011 Annual Meeting, other than Mr. Lord, are independent of the Company. The Board made this determination based on factors including the following:

 

 

 

In making its determinations regarding independence, the Board took into account that Mr. Hunt was an executive officer of the predecessor of the Company until 1990. Mr. Lord is not independent because of his employment relationship with the Company.

 

During 2010, the Board of Directors met 10 times, and each of the incumbent directors attended at least 75 percent of the total number of meetings of the Board and committees on which he or she served. Directors are expected to attend the Annual Meeting, and all 16 members of the Board attended the Annual Meeting in May 2010. During 2010, the independent directors met in executive session nine times.

 

The Board has established the following committees (the “Core Standing Committees”) to assist in its oversight responsibilities:

 

 

Each committee has a Board-approved written charter, which sets forth the respective committee’s functions and responsibilities. Committee charters are published at www.salliemae.com under “Investors, Corporate Governance.” Shareholders may obtain a written copy of a committee charter by contacting the Corporate Secretary, SLM Corporation, 300 Continental Drive, Newark, DE 19713.

 

An annual work plan is created from the charters of each Core Standing Committee so that responsibilities of the committees are addressed at appropriate times throughout the year. Agendas for meetings are based on each committee’s annual work plan and all other current matters the Committee Chair or management believes should be addressed at the meeting. The work of each Core Standing Committee is regularly reported to the full Board by the Committee Chair.

 

The membership of the Core Standing Committees during 2010 and through the date hereof, and the number of meetings held in 2010 is as follows:

 

 

 

 

Chairmanship and membership of the Core Standing Committees is expected to change on the date of the Annual Meeting. The functions of each committee are described below.

Audit Committee.  The Audit Committee assists the Board in fulfilling its responsibilities by providing oversight relating to: (1) the integrity of the Company’s financial reporting; (2) the Company’s system of disclosure controls and system of internal controls regarding financial, accounting, legal compliance and ethics; (3) the independent accountant’s qualifications, independence and performance; (4) the performance of the Company’s internal audit function; (5) the Company’s overall compliance assessment policies and management practices with respect to legal and regulatory requirements; (6) the review of related persons transactions; (7) the Company’s overall corporate risk assessment policies and risk management practices; and (8) the preparation of the report of the Audit Committee for the Company’s annual proxy statement, as required by the Securities and Exchange Commission (“SEC”).

 

The Board has determined that the following individuals qualify as audit committee financial experts: Ms. Bates; Mr. Diefenderfer; Mr. Goode; Mr. Martin; Mr. Newman; Mr. Porter; Mr. Schoellkopf; Mr. Shapiro; Mr. Strange; Mr. Terracciano and Mr. Williams. Except for Mr. Strange, none of the Committee members serves on the audit committee of more than three public companies. In addition to his service on the Audit Committee of the Company, Mr. Strange also serves on the audit committees of three other public companies. The Board has determined, however, that such simultaneous service does not impair Mr. Strange’s ability to effectively serve on the Company’s Audit Committee.

 

Compensation and Personnel Committee.  The Compensation and Personnel Committee (the “Compensation Committee”): (1) assists the Board in fulfilling its responsibilities relating to human resources, compensation and benefit matters concerning the Company; (2) carries out the Board’s responsibilities relating to compensation of the Company’s executives; and (3) prepares the report of the Compensation Committee for the Company’s annual proxy statement, as required by the SEC. The Compensation Committee considers executive officer and director compensation on an annual basis. Each January, after consultation with independent directors, the Compensation Committee will set Chief Executive Officer and executive officer level compensation. It will also make recommendations to the full Board of Directors with respect to director compensation. Throughout the year, the Compensation Committee considers executive compensation as warranted by personnel changes.

 

Compensation Committee Interlocks and Insider Participation.  The Compensation Committee members whose names appear above were committee members during all of fiscal year 2010, and no other individual served on the Compensation Committee during fiscal year 2010. No member of the Compensation Committee is or has been a former or current executive officer of the Company or had any relationships requiring disclosure by the Company under the SEC’s rules requiring disclosure of certain relationships and related party transactions. None of the Company’s executive officers served as a director or a member of a compensation committee (or other committee serving an equivalent function) of any other entity that has or has had one or more executive officers who served as a director or member of the Compensation Committee during the fiscal year ended December 31, 2010.

 

Nominations and Governance Committee.  The Nominations and Governance Committee assists the Board in establishing appropriate standards for the governance of the Company, the operations of the Board and the qualifications of directors. The Nominations and Governance Committee also identifies individuals qualified to become Board members and recommends to the Board the director nominees for each annual meeting of shareholders. The nominations process is described below, in “Nominations Process.”

 

Finance and Operations Committee.  The Finance and Operations Committee assists the Board in fulfilling its responsibilities and providing oversight relating to capital management, financing strategy and the general operations of the business, including technology and servicing operations.

 

The Board believes that effective risk oversight is critical to the Company’s ability to effectively predict and implement its business strategies. Management is responsible for identifying and managing the risks facing the Company, including within each area of the business and through its risk assessment function.

The Board, including through its committees, is responsible for overseeing management’s implementation of risk assessment and management, and for guiding the Company’s risk tolerance in areas of key risks.

 

Each year the Company’s key risks are identified and are reported to the Board and/or its committees. For example, strategic and political risks are reported to the Board. Operational risk is reviewed by the Finance and Operations Committee and the Board. Risks related to funding and liquidity are reviewed by the Board and the Finance and Operations Committee, and risks related to compliance and regulatory matters are reviewed by the Audit Committee.

 

During the year the Audit Committee reviews with management the Company’s key risks and the processes for reporting those risks to the Board. As part of the review, the Committee discusses management’s processes for addressing the Company’s key risks. Key risks are identified and managed by the Company’s senior executives in their roles overseeing business divisions or corporate functions for which they are responsible, and through participation in various management committees. In addition, the Company’s Chief Audit Officer conducts a yearly risk assessment among members of management and reports the results to the executive management team and the Audit Committee. In addition to processes throughout the year which provide the Board and its committees the opportunity to evaluate and oversee risk management, the Board also considers the Company’s key risks when it reviews and approves the Company’s annual business plan each year, and each time the Board considers the Company’s long-term business plan, a key consideration of which is the risks facing the Company.

 

In 2010, the Compensation Committee reviewed with management the Company’s compensation policies and practices for all employees, including non-executive officers, in order to understand whether they create risks that are reasonably likely to have a material adverse effect on the Company. The Compensation Committee carried out the review during the year in consultation with the Company’s chief compliance officer, chief credit officer and senior vice president of administration (who oversees the Company’s human resources function) and the Company’s independent compensation consultant, Pearl Meyer & Partners, LLC. During its review, the Compensation Committee discussed the Company’s compensation policies and practices, including the existence of risk mitigating factors and whether there were any features that could encourage unnecessary and excessive risk-taking. Based on the discussions described above, the Compensation Committee determined that such policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company.

 

Also during the year, the Compensation Committee considered the Company’s executive compensation programs in light of the Joint Banking guidance on Sound Incentive Compensation Policies requirements that such programs not encourage excessive risk-taking and be compatible with effective controls and risk management. The Compensation Committee reviewed the Company’s executive and other compensation programs, focusing on risk-mitigating factors such as the proportion of cash and equity components of incentive-based compensation awarded to executive management and the length of vesting and restricted periods. The Compensation Committee reviewed and discussed inclusion of additional risk-mitigating factors in the design and structure of the Company’s incentive-based compensation plans for executive management. For a greater discussion regarding the risk-mitigating factors adopted by the Compensation Committee, see “Changes to Elements of Executive Compensation Program” below.

 

The Nominations and Governance Committee considers director candidates recommended by shareholders. The Nominations and Governance Committee also receives suggestions for candidates from Board members. Candidates are evaluated based on the needs of the Board and the Company at that time, given the then-current mix of Board members. The Board seeks representation that reflects gender, ethnic and geographic diversity. The Nominations and Governance Committee through its charter is responsible for reviewing the composition and diversity of the Board and its committees and is assessed

on its performance in this regard as part of the annual Board evaluation process. When evaluating a candidate, the Nominations and Governance Committee does not use any specified minimum qualifications but rather evaluates each nominee’s particular experience and qualifications by considering numerous factors including, but not limited to, a nominee’s:

 

 

To recommend a candidate, shareholders should send, in writing, the candidate’s name, credentials, contact information, and his or her consent to be considered as a candidate to the Chairman of the Nominations and Governance Committee, c/o Corporate Secretary, SLM Corporation, 300 Continental Drive, Newark, DE 19713. The shareholder should also include his or her contact information and a statement of his or her share ownership. The Nominations and Governance Committee considers and evaluates candidates recommended by shareholders in the same manner that it considers and evaluates all other director candidates. In order to have been timely for consideration at the 2011 Annual Meeting, a notice of any director candidate recommendation must have been received by the Company on or after January 13, 2011 and on or before March 14, 2011. Any such notice also must satisfy the other requirements in the Company’s By-laws applicable to shareholder proposals and nominations. The Committee did not receive any such notices of recommendations for director candidates for the 2011 Annual Meeting.

 

Shareholders and other interested parties may submit communications to the Board of Directors, the non-management directors as a group, the Lead Independent Director, the Chairman of the Board, or any other individual member of the Board by contacting the Chairman of the Board or the Lead Independent Director in writing at the following address: c/o Corporate Secretary, SLM Corporation, 300 Continental Drive, Newark, DE 19713.

 

The Company has a Code of Business Conduct that applies to Board members and all employees, including the chief executive officer, the principal financial officer and the principal accounting officer. The Code of Business Conduct is available on the Company’s website (www.salliemae.com under “Investors, Corporate Governance”) and a written copy is available from the Corporate Secretary. The Company intends to post amendments to or waivers of the Code of Business Conduct (to the extent applicable to the Company’s chief executive officer, principal financial officer or principal accounting officer or any director) at this location on its website.

 

Fees Paid to Independent Registered Public Accounting Firm for 2009 and 2010

 

Aggregate fees billed for services performed for the Company by its independent accountant, PricewaterhouseCoopers LLP, for fiscal year ended December 31, 2010, and for fiscal year ended December 31, 2009, are set forth below.

 

 

Audit Fees.  Audit fees include fees for professional services rendered for the audits of the consolidated financial statements of the Company and statutory and subsidiary audits, issuance of comfort letters, consents, income tax provision procedures, and assistance with review of documents filed with the SEC.

 

Audit-Related Fees.  Audit-related fees include fees for assurance and other services related to service provider compliance reports, trust servicing and administration reports, internal control reviews, attest services that are not required by statute or regulation, and consultations concerning financial accounting and reporting standards.

 

Tax Fees.  Tax fees include fees for tax return preparation services and consultations related to tax compliance and tax planning.

 

All Other Fees.  All other fees for the fiscal years ended December 31, 2010 and December 31, 2009 were $0.

 

Pre-Approval Policies and Procedures

 

The Audit Committee has adopted a written policy concerning the approval of audit and non-audit services to be provided by the independent accountant to the Company. The policy requires that all services to be provided by the Company’s independent accountant be pre-approved by the Audit Committee or its Chair. Each approval of the Audit Committee or the Chair must describe the services provided and set a dollar limit for the services. The Audit Committee, or its Chair, pre-approved all audit and non-audit services provided by PricewaterhouseCoopers LLP during 2010. The Chair reports to the Audit Committee regarding services that he or she pre-approved between committee meetings. The Audit Committee receives regular reports from management regarding the actual provision of non-audit services by PricewaterhouseCoopers LLP that have been pre-approved by the Audit Committee.

 

The Audit Committee has reviewed and discussed with management and the Company’s independent accountant, PricewaterhouseCoopers LLP, the Company’s audited financial statements as of and for the year ended December 31, 2010. The Committee also discussed with PricewaterhouseCoopers LLP the matters required to be discussed by applicable Public Company Accounting Oversight Board (“PCAOB”) rules, and with and without management present, discussed and reviewed the results of the independent accountant’s examination of the financial statements.

 

The Committee received and reviewed the written disclosures and the letter from PricewaterhouseCoopers LLP required by applicable requirements of the PCAOB regarding the independent accountant’s communications with the Committee concerning independence and has discussed with PricewaterhouseCoopers LLP the accountant’s independence.

Based on the reviews and discussions referred to above, the Committee recommended to the Board of Directors that the financial statements referred to above be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 for filing with the SEC.

 

Audit Committee

Ann Torre Bates, Chairman

Barry A. Munitz

Frank C. Puleo

J. Terry Strange

Barry L. Williams

 

Listed below are the only entities known by the Company to have been the beneficial owners of more than 5% of the 527,544,839 shares of Company common stock outstanding as of March 14, 2011.

 

 

 

 

 

The following table provides information regarding shares of common stock of the Company beneficially owned (i.e., owned or pursuant to SEC rules that may be acquired within 60 days), for each of the Company’s directors, each of the Company’s named executive officers (the “NEOs”), as well as all directors and NEOs as a group. The ownership information is as of March 14, 2011.

 

 

 

 

The Company’s executive officers are appointed annually by the Board of Directors or the Chief Executive Officer. The following sets forth biographical information concerning the Company’s executive officers who are not directors. Biographical information for Mr. Lord, Vice Chairman and Chief Executive Officer, is included above in “Nominees for Election to the Board of Directors.”

 

 

The Compensation and Personnel Committee of the Board of Directors has reviewed and discussed with management the below Compensation Discussion and Analysis. Based on its review and discussions with management, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference in the Company’s Annual Report on Form 10-K for 2010.

 

Compensation and Personnel Committee

Wolfgang Schoellkopf, Chairman

Diane Suitt Gilleland

A. Alexander Porter, Jr.

Steven L. Shapiro

 

Compensation Objectives

 

The objectives of the Compensation and Personnel Committee (the “Committee”) with regard to selecting the components of the Company’s executive compensation program are to:

 

 

 

Elements of Compensation

 

The Company’s executive compensation program consists of six elements of compensation. These elements, as well as the reasons for why each was chosen and the ways in which each achieves compensation objectives and affects decisions regarding other elements, are described below.

 

 

 

¹  The Company’s defined contribution savings program provides for Company and employee contributions to tax-deferred, savings-style accounts under both a tax-qualified plan and a non-qualified plan. The investment risk is borne solely by employees.

²   The terms of these agreements and plans are summarized below in “Narrative Description of Employment Arrangements.”

 

2010 Summary

 

In 2010, the Company’s management team continued to demonstrate its ability to safely guide the Company through the unprecedented turmoil the Company, the student loan industry and capital markets have experienced over the past several years. The Company continued to maintain sufficient liquidity during extremely illiquid capital markets and made significant strides in diversifying its businesses and reducing costs, despite the threat of elimination of its core business of lending under the Federal Family Education Loan Program, formerly the Guaranteed Student Loan Program (“FFELP.”) Effective July 1, 2010, the Health Care and Education Reconciliation Act eliminated FFELP loan originations, a major source of the Company’s net income. As a result, the Company will no longer generate revenue related to FFELP loan originations and net income from its portfolio of FFELP loans and related loan servicing and collections activities will decline.

 

Despite these challenges, the Company made significant achievements in many key measures in 2010, including:

 

 

 

 

 

 

³  “Core Earnings” are not a substitute for reported results under generally accepted accounting principles (“GAAP”), however management use Core Earnings as a primary financial performance measure. A full explanation of Core Earnings and reconciliation to the Company’s financial statements prepared in accordance with GAAP can be found in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010, which can be obtained on the Company’s website and otherwise as described on the first page of this proxy statement.

 

 

Changes to Elements of Executive Compensation Program

 

The Committee regularly reviews and reconsiders the elements of the Company’s executive compensation program in light of industry best practices and the evolving direction of the Company’s business strategy which, in 2010, shifted considerably with the elimination of the FFELP business. In 2010 and the first quarter of 2011, the Committee undertook the following adjustments to the components of the Company’s executive compensation program.

 

Annual Incentive Bonuses

 

 

Longer-Term Equity-Based Incentives

 

 

Retirement Benefits

 

 

 

⁴  The Company’s defined benefit plan retirement program is funded solely by corporate contributions and includes a tax-qualified plan and a non-qualified plan, which ceased to accrue benefits on June 30, 2009. The Company bears the investment risks of this program.

 

Severance Plans

 

 

NEO Employment Agreements

 

 

Management Incentive Plan for 2010

 

Each year management develops an operating plan for presentation to, and approval by, the Board. Specific business objectives are then established for the purpose of focusing and uniting executives around the achievement of common business goals for the year. Individual performance objectives are then developed for each executive covered by our management incentive plan. Annual bonus targets are a function of each executive’s position and base salary.

 

Individual bonuses, including those paid to our NEOs, are not established using target performance formulas. Each year the Committee establishes the aggregate funding level available to be awarded by management to executives under the management incentive plan for the year based upon its view of the Company’s degree of success in achieving business objectives, as well as other qualitative factors. Separately, the Committee determines individual annual incentive bonus awards for each NEO on a discretionary basis based on the Committee’s views of their individual performance and success in achieving business objectives for the year.

 

As in past years, in late 2009 and early 2010 the Committee met with management to review its operating plan for the year so that the Committee could consider the performance parameters it would apply to operating plan achievement in establishing the aggregate funding level for the management incentive plan. For 2010, key operating plan objectives included improvements in Core Earnings per share;

capital adequacy; management of private education loan charge-offs and delinquencies; operating expense reductions; and maintenance of targeted liquidity levels.

 

The Committee met twice in January 2011 to review the Company’s relative success in achieving improvements of each identified objective, and to consider the individual performance of the CEO and other members of the executive management team over the course of the year. The Chairman of the Board joined the initial meeting.

 

The Committee reviewed with the Chairman the Company’s relative achievement of each of the previously identified key objectives targeted for improvement. The Committee recognized that management had achieved the Committee’s expectations with respect to Core Earnings per share, management of private education loan delinquencies and capital adequacy and showed significant improvements, in the aggregate, in remaining measures. After discussions with management regarding their views on the Company’s achievements, the Committee noted that Core Earnings per share, capital adequacy and available liquidity measures were incrementally affected by gains on the Company’s debt repurchases in excess of those contained in the Company’s 2010 operating plan. The Committee decided not to take into account the effects of those gains in excess of plan when considering the relative achievement of such measures in its final determination regarding the aggregate funding level of annual incentive bonuses for the year.

 

Long-Term Equity-Based Incentive Plan Awards

 

In setting the size of long-term incentive awards for NEOs, the Committee seeks to recognize ongoing individual performance of each NEO in the context of total compensation within an identified peer group. The Chief Executive Officer recommends long-term incentive awards for each NEO other than himself. The Committee considers these recommendations in consultation with its compensation consultant and then determines the final awards for each NEO, and makes its own determination with regard to the Chief Executive Officer. The long-term equity-based incentive awards granted by the Committee in January 2011 reflected the Committee’s desire to ensure the continued efforts of the NEOs to meet the long-term goals and strategy of the Company and to align this element of compensation with the long-term interest of Company shareholders.

 

Individual Performance of NEOs

 

In its January 2011 meetings, the Committee and the Chairman also reviewed with the Committee’s compensation consultant current and proposed compensation, including long-term incentive awards, for the executive management team compared to the following peer group: Genworth Financial, KeyCorp, Discover Financial Services, Fifth Third Bancorp, CIT Group Inc., Fidelity National Information Services, Inc., Fiserv, Inc., Total System Services Inc. and M&T Bank Corporation. The Committee discussed and affirmed its view that the Company’s compensation structure and philosophy should continue to focus on performance achieved in compliance with approved risk parameters while providing a balance of both cash and equity-based incentives in order to fully engage the Company’s leaders in performance that is aligned with shareholder return over time.

 

In establishing Mr. Lord’s compensation, the Committee and the Chairman reviewed the individual performance of Mr. Lord, including how his performance contributed to the achievement of operating plan objectives. During this review, they considered, among other things, Mr. Lord’s:

 

 

 

On the basis of Mr. Lord’s performance during 2010, the Committee granted Mr. Lord a bonus of $1.5 million for 2010, and the Committee granted Mr. Lord 150,000 restricted stock units and options to purchase 190,000 shares of Company common stock, all with standard terms applicable to senior management. The Committee also determined to maintain Mr. Lord’s salary at $1 million for 2011.

 

The Committee then reviewed with the CEO the individual performance of the other NEOs, including how each individual’s performance contributed to the achievement of operating plan objectives. The Committee based its determination with respect to each individual, in part, on the following individual achievements and made the determinations described below.

 

Mr. Remondi:

 

 

On the basis of Mr. Remondi’s performance during 2010, the Committee granted Mr. Remondi a bonus of $1 million for the year and granted Mr. Remondi options to purchase 80,000 shares of Company common stock and 80,000 restricted stock units, with standard terms applicable to senior management. The Committee also determined to maintain Mr. Remondi’s salary at $850,000 for 2011.

 

Mr. Clark:

 

 

On the basis of Mr. Clark’s performance during 2010, the Committee granted Mr. Clark a bonus of $453,375 for the year and granted Mr. Clark 75,000 options to purchase Company common stock and 45,000 restricted stock units, with standard terms applicable to senior management. The Committee also determined to increase Mr. Clark’s salary to $475,000 for 2011.

Mr. DePaulo:

 

 

On the basis of Mr. DePaulo’s performance during 2010, the Committee determined to grant Mr. DePaulo a bonus of $558,000 for the year and granted Mr. DePaulo 100,000 options to purchase Company common stock and 50,000 restricted stock units, with standard terms applicable to senior management. The Committee also determined to increase Mr. DePaulo’s salary to $500,000 for 2011.

 

Mr. Hewes:

 

 

On the basis of Mr. Hewes’ performance during 2010, the Committee determined to grant Mr. Hewes a bonus of $825,000 for the year. The Committee did not award restricted stock or options to purchase Company stock to Mr. Hewes.

 

Role of the Compensation Committee and Chief Executive Officer

 

On a yearly basis, the Committee reviews and approves the Company’s annual management incentive plan that establishes annual corporate goals and is applicable to all members of executive management. Prior to approval, the Committee discusses the proposed plan with the Vice Chairman and CEO and the Committee’s compensation consultant. In addition, the Committee, in consultation with the Chairman of the Board and the other independent members of the Board, reviews the performance of the Vice Chairman and CEO and approves his compensation. The Committee, in consultation with the Vice Chairman and CEO, awards performance-based compensation to other members of executive management and reviews total compensation of such executives.

 

Compensation Consultant and Use of Peer Group

 

The Committee retains a compensation consultant to advise it. During the annual compensation process, the Committee uses the compensation consultant to accomplish the following:

 

 

 

The Committee’s consultant during 2009 and the first two months of 2010 was Hewitt Associates (“Hewitt.”) The Committee engaged Pearl Meyer & Partners, LLC (“Pearl Meyer”), beginning in February, 2010. During 2010, Pearl Meyer provided no services to the Company other than providing advice or recommendations regarding the form and amount of director and executive compensation and attending the July 2010 Committee meeting. During 2010, Hewitt provided services to the Board in amount of $19,467 during the first three months of 2010. Hewitt provided additional services to the Company in the amount of $121,838 during the last five months of 2010 during which time the Compensation Committee had engaged Pearl Meyer as its compensation consultant. The decision to engage Hewitt during the last five months of 2010 was made by management after the Compensation Committee had engaged Pearl Meyer as its consultant and terminated the engagement of Hewitt, and Hewitt’s fees for services during that period were approved by management.

 

In setting compensation, the Committee reviews compensation data from a variety of sources. These data are used as a context to inform the Committee about the marketplace for executive pay and to determine if pay at the Company is fair and reasonable. The data is not used to set pay at the Company at a particular percentile relative to executive pay reported by peer or survey companies. With the assistance of its consultant, the Committee in January 2010 reviewed the Company’s executive pay compared to executive pay practices at other companies, using data from a custom selected group as follows (the “Peer Group”): Genworth Financial, Inc.; KeyCorp; Discover Financial Services; Fifth Third Bancorp; CIT Group Inc.; Americredit Corp.; Fiserv, Inc.; Total System Services, Inc. and M&T Bank Corporation. The Committee selected each of the companies in the Peer Group based on their financial services or data processing focus, and their having revenues, assets, net income, market value and workforce size within a range of the Company’s.

 

Other Arrangements, Policies and Practices Related to Executive Compensation Programs

 

Share Ownership Guidelines

 

The Company has maintained share ownership guidelines applicable to NEOs for more than ten years, except for a four-month period beginning in April, 2009, during which time the application of the guidelines was suspended due to the decreased price of the Company’s common stock as a result of the global economic downturn. The ownership guidelines, which are expected to be achieved over a five-year period, are as follows:

 

Chief Executive Officer—Lesser of 1 million shares or $5 million in value

 

Vice Chairman & CFO/Sr. Executive Vice President—Lesser of 500,000 shares or $2.5 million in value

 

Executive Vice President—Lesser of 200,000 shares or $1 million in value

 

The guidelines encourage continued ownership of a significant amount of the Company’s common stock acquired through equity awards and help align the interests of executives with the interests of the Company’s shareholders. Except as otherwise approved by the Committee, an NEO must hold all Company common stock acquired through equity grants until the guidelines are met, and an NEO will not be eligible to receive further equity grants if he or she sells this stock before the guidelines are met or after the guidelines are met, if such sale would result in violation of the guidelines.

 

The following shares and share units count towards the ownership guidelines: shares held in brokerage accounts; vested shares credited to deferred compensation accounts; shares credited to qualified retirement plan accounts; vested performance stock and performance stock units; on an after-tax basis, restricted stock and restricted stock units that vest solely upon the passage of time and vested stock options, to the extent that they are “in-the-money on an after-tax basis.”

Opportunity to defer compensation

 

The Company offers executive management, including the NEOs, the opportunity to defer payment of a portion of their cash compensation into a non-qualified deferred compensation plan. The Company provides this opportunity to be competitive and provide retirement planning opportunities. The Committee views the plan as providing executives with an optional strategy to engage in tax-deferred retirement planning rather than a provided benefit. The Company does not make contributions to the deferred compensation plan or pay above market rates of return on amounts contributed to the plan.

 

Accounting and Tax Information

 

Section 162(m) of the Internal Revenue Code: Tax Deductibility of Compensation over $1 million

 

Section 162(m) of the Internal Revenue Code can potentially disallow a federal income tax deduction to the Company for compensation over $1 million paid to the chief executive officer and the three most highly compensated named executive officers other than the chief executive officer, who have been serving as of the last day of the Company’s fiscal year (“covered employees”). The Internal Revenue Service has issued technical guidance stating that a company’s chief financial officer is not necessarily a covered employee under Section 162(m). One exception to Section 162(m)’s disallowance of a federal income tax deduction for compensation over $1 million applies to “performance-based compensation” paid pursuant to shareholder-approved plans. Although much of the compensation opportunity in our executive compensation program is performance-based and generally deductible for federal income tax purposes, the Committee retains the flexibility to award compensation the NEOs that is not deductible for federal income tax purposes.

 

The table below summarizes compensation paid or awarded to or earned by each of the NEOs for the fiscal year ended December 31, 2010. NEOs for 2010 are:

 

Mr. Lord, who served as Principal Executive Officer for the entire year;

 

Mr. Remondi, who served as Principal Financial Officer for the entire year;

 

Mr. Hewes, Mr. Clark and Mr. DePaulo who were serving as executive officers at year end and were the most highly paid executive officers other than Mr. Lord and Mr. Remondi; and

 

Mr. Heleen, who, based on total compensation paid in 2010, would have been among the highest paid executive officers.

For those individuals who were also NEOs in 2009 and 2008, compensation information for the years ended December 31, 2009 and December 31, 2008 is included.

 

 

 

 

 

 

 

NARRATIVE DESCRIPTION OF COMPENSATION ARRANGEMENTS

 

Individually negotiated compensation arrangements were effective during 2010 for three NEOs: Messrs. Lord, Remondi and DePaulo. None of the arrangements contained a “single trigger” arrangement. A summary of each of these arrangements and the severance plans applicable to NEOs follows.

 

Mr. Lord.  Effective March 20, 2008, Mr. Lord and the Company entered into an employment agreement for Mr. Lord’s services as Chief Executive Officer. Under the agreement, Mr. Lord was paid an annual base salary of $1.25 million. Effective January 2010, Mr. Lord and the Committee agreed to decrease his annual base salary to $1,000,000. The agreement expired on December 31, 2010 and was not renewed. Mr. Lord’s annual base salary remains $1,000,000 and events relating to the end of Mr. Lord’s employment for various reasons are now covered by the Company’s Severance Plans.

 

The agreement defined various scenarios under which Mr. Lord’s employment might terminate, including after a change in control, in terms substantially similar to those contained in the Company’s Severance Plans. However, under the agreement, if the Company had terminated Mr. Lord’s employment without cause or had Mr. Lord ended his employment for good reason, Mr. Lord would have been entitled to receive a cash payment equal to: (1) his target bonus plus (2) the number of months remaining in the term of the agreement divided by 12, but not less than one, times his base salary plus his target annual bonus for the year.

 

Mr. Remondi.  In January 2008, Mr. Remondi and the Company entered into a three-year employment agreement for Mr. Remondi’s services as Chief Financial Officer and Vice Chairman. Under the agreement, Mr. Remondi received 3 million options to purchase the Company’s common stock, was paid an annual base salary of $1 million and was eligible to receive an annual performance bonus of three times his salary. Effective January 2010, Mr. Remondi volunteered to decrease his annual base salary to $850,000. The agreement expired on January 8, 2011 and was not renewed. Mr. Remondi’s annual base salary remains $850,000 and events relating to the end of Mr. Remondi’s employment for various reasons are now covered by the Company’s Severance Plans.

 

Two million of the options were granted on January 8, 2008 at a grant price of $17.30, the closing price of the Company’s stock on that day. These options vested on January 8, 2010, after meeting price and time vesting requirements. One million of the options were granted on January 8, 2009 at a grant price of $10.17, the closing price of the Company’s stock on that day. These options vest and are exercisable when the share price trades at $24.22 for five consecutive days (a 40 percent increase over $17.30, the grant price for the first two million options), but no earlier than January 8, 2010. If these options do not vest under the price-vesting target, they vest on January 8, 2014. Once vested, options may be exercised during the remainder of their 10-year term, unless Mr. Remondi’s employment ends. Until January, 2011, upon employment termination, Mr. Remondi was required to exercise all vested options within 3 months of his last day of employment, except in the case of death or disability. In January 2011, the Committee amended the terms of the options granted in connection with Mr. Remondi’s employment agreement such that after January 27, 2011, Mr. Remondi has three years from employment termination to exercise any vested options. If Mr. Remondi’s employment ends due to death or disability, all unvested options vest immediately and are exercisable for one year following his death or disability.

 

The agreement defined various scenarios under which Mr. Remondi’s employment might terminate, in terms substantially similar to those contained in the Company’s Severance Plans. However, under the agreement, if the Company had terminated Mr. Remondi’s employment without cause or had Mr. Remondi

ended his employment for good reason, Mr. Remondi would have been entitled to receive a target bonus plus a cash payment equal to six months of pay (the average of base salary and annual bonus since employment) for each year of service, up to a maximum of three years of service.

 

Under the agreement, Mr. Remondi was also provided with housing in Reston, Virginia and an allowance of $100,000 per year for use of corporate aircraft.

 

Mr. DePaulo.  In March, 2009, Mr. DePaulo and the Company entered into a two-year employment agreement for Mr. DePaulo’s services as an Executive Vice President which provided for an annual base salary of $400,000. Under the agreement, Mr. Depaulo was granted 150,000 stock options and 20,000 shares of restricted stock. The agreement expired on March 27, 2011 and was not renewed. Mr. DePaulo’s annual base salary was increased to $500,000 effective January 2011. Events relating to the end of Mr. DePaulo’s employment for various reasons are now covered by the Company’s Severance Plans.

 

Under the agreement, if the Company had terminated Mr. DePaulo’s employment without cause or had Mr. DePaulo ended his employment for good reason, Mr. DePaulo would have been entitled to receive a cash payment equal to one-half of his target bonus for the year plus one-half of his annual base salary. In the event of termination of employment following a change in control of the Company, Mr. DePaulo’s benefits were determined under the Change in Control Severance Plan.

 

Description of Severance Plans

 

Executive Severance Plan.  Under the plan, eligible officers who do not have an individually negotiated severance arrangement, will receive a lump sum cash payment equal to a multiple of their compensation (base salary plus an average of the last 24 months of bonus compensation) upon the following events: (i) resignation from employment for good reason; (ii) the Company’s decision to terminate an eligible officer’s employment for any reason other than for cause, death or disability or (iii) upon mutual agreement of the Company and the eligible officer. The multiplier for each eligible officer position is as follows: CEO-2; Higher than Executive Vice President-1.5; Executive or Senior Vice President-1.0. If the Company’s decision to terminate an eligible officer’s employment is due to job abolishment, outstanding and unvested equity awards granted through May 22, 2009 vest upon termination according to their underlying terms. Prior to January 2011, the two-year average of any amounts included in taxable income due to vesting of restricted stock during the two-year period prior to termination of employment were included in yearly compensation. In January 2011, the Committee amended the plan to remove the inclusion of this income due to restricted stock vesting. Under the plan, in no event will a severance payment exceed a multiple of three times an officer’s base and incentive bonus.

 

In addition to the cash severance payment, eligible officers will receive subsidized medical benefits and outplacement services for 18 to 24 months. If an eligible officer is otherwise subject to an individually-negotiated severance arrangement, the terms of that arrangement, and not the policy, apply until the expiration of the arrangement. The policy will apply after the expiration of the arrangement.

 

Change in Control Severance Plan.  If termination of employment for reasons defined in the plan occurs within 24 months following a change in control of the Company, the participant is entitled to receive a lump sum cash payment equal to two times the sum of his or her base salary and average annual performance bonus (based on prior two years). A participant will also be entitled to receive a pro-rated portion of his or her target annual performance bonus for the year in which the termination occurs, as well as continuation of medical insurance benefits for a two-year period. The Company views this plan’s existence as having been an important element in allowing the Company to maintain operations through the pendency of a proposed merger during 2007 and to quickly reorient itself following termination of that merger in 2008.

 

In December 2010, the Committee amended the plan to remove the tax gross-up provisions. The Committee also amended the plan effective January 1, 2009 to eliminate vesting solely upon a change in control. As amended, for equity awards granted after January 1, 2009, unvested equity awards become

vested and non-forfeitable in connection with a change in control only if the participant’s employment is terminated or if the acquiring or surviving entity does not assume the awards. Equity awards made before January 1, 2009 vest upon a change in control pursuant to their terms, regardless of whether the participant’s employment terminates.

 

Description of Applicable Equity Plans

 

SLM Corporation 2009-2012 Incentive Plan.  The SLM Corporation 2009-2012 Incentive Plan became effective for three years upon shareholder approval on May 13, 2009. Under the plan, the Company reserves up to 10 million shares, plus any shares authorized for issuance under the SLM Corporation Incentive Plan and the SLM Corporation Management Incentive Plan that are not actually issued by reason of cancellation, forfeiture or net-settlement of awards. Shares are awarded under the plan as stock options, stock appreciation rights, incentive bonuses, performance stock, restricted stock and restricted stock units. All employees of the Company and its subsidiaries and affiliates are eligible to receive awards under the 2009-2012 Incentive Plan; however, no participant may receive more than 1 million shares in any one fiscal year.

 

The Compensation and Personnel Committee administers the plan, including amending rules promulgated under the plan, determining the terms and provisions of awards, and establishing qualifying performance criteria. Any stock options awarded must have an exercise price equal to the fair market value of the Company’s common stock on the grant date and have a term not to exceed ten years. The committee has discretion to determine other terms and conditions except any re-pricing of awards requires shareholder approval. The following terms, among others, were determined by the committee. Unvested options, will be forfeited if not vested in a particular year. Upon termination of employment other than death, disability, options that have not vested are forfeited. All options, vested or unvested, are forfeited upon termination of employment due to misconduct. Unvested performance stock will be forfeited if not vested in a particular year. Upon termination of employment other than death, disability, performance stock that has not vested is forfeited. All shares are forfeited upon termination of employment due to misconduct.

 

Awards to senior officers under the plan are subject to clawback in the event of a material misstatement of financial results and other events. The plan is structured in a manner such that awards satisfy Internal Revenue Code Section 162(m) requirements for “performance-based compensation” in order that the Company can deduct compensation in excess of $1 million paid in any one year to the Company’s executives. Awards under the plan are payable upon a change of control if not assumed by a successor and are also subject to adjustment upon a reorganization, merger, consolidation, reclassification, dividend and other similar circumstances. The Board of Directors may not make certain amendments to the plan, such as extending the term or materially increasing the number of shares that may be issued, without shareholder approval.

 

Management Incentive Plan and SLM Corporation Incentive Plan.  These plans preceded the SLM Corporation 2009-2012 Incentive Plan and no further grants may be made under them. The plans were administered by the Board of Directors or a committee appointed by the Board.

 

Both plans authorized the issuance of stock options and performance-conditioned share awards, and the SLM Corporation Incentive Plan authorized the grant of restricted stock. Awards are also authorized to be issued in stock units and permitted performance-based awards denominated as a dollar value and settled in either stock or cash from both plans. Each plan provides that the exercise price of stock options generally may not be less than 100% of the fair market value of a share on the date of grant, permits options to have a term of up to ten years, and grants the plan administrator authority to set the vesting and other terms of options, including in its sole discretion to reduce, eliminate or waive any restrictions on options.

 

The number of shares subject to the plans and to outstanding awards, and the exercise price of outstanding options, may be adjusted in the event of changes in the Company’s capital structure as a result of reorganizations, mergers, consolidation, recapitalization, restructuring, reclassification, dividends

(other than regular, quarterly cash dividends), stock splits, spin-offs and the like. The plan administrator may provide for the exercisability of outstanding options in connection with termination of employment within twenty-four months following a change in control. Certain material amendments to the plan, as well as actions to reduce or adjust downward the exercise price of outstanding options (including through an exchange program), require stockholder approval.

 

Employee Stock Purchase Plan.  The Employee Stock Purchase Plan allows eligible employees to purchase shares of stock at a discounted price with accumulated, after-tax contributions during the offering period from February 1 through January 31. The discounted purchase price is 15% less than the market closing price of SLM common stock on February 1. The maximum contribution amount per employee is 25% of base pay plus commissions, if any, up to a maximum $7,500 per employee per offering period. At the end of the offering period, if the discounted purchase price is less than the market price, shares are automatically purchased and transferred to employees, net of applicable taxes. If the discounted purchase price is greater than the market price, employees receive a refund of contributions plus interest.

 

 

 

NARRATIVE DESCRIPTION OF PLAN-BASED AWARDS

 

The Company makes annual grants of equity to executive management under its long-term incentive program, pursuant to the shareholder-approved 2009-2012 Incentive Plan. These grants are shown in the Grants of Plan-Based Awards table above, and are granted to NEOs based on meeting individual performance goals during the prior year, to provide forward-looking incentives and reflect the Committee’s commitment to deferred compensation that balance risk and reward.

Each year, the Committee determines vesting provisions of these awards. For awards granted in January 2010 and January 2011, one-third of each performance stock and option award granted under the long-term incentive program vests on each of the first, second and third anniversaries of the grant date. Vested options are exercisable until the earlier of the expiration date of ten years, or three months from the date of termination upon termination of employment for all reasons except death or disability and except as otherwise provided in the Change in Control Severance Plan. Unvested options and performance stock will vest upon termination of employment for death or disability and as provided for under the Change in Control Severance Plan. Any unvested performance stock or option awards will not vest and will be forfeited and cancelled upon termination of employment for any reason other than (i) death, (ii) disability or (iii) as provided in the Change in Control Severance Plan. All performance stock and options, whether vested or unvested, shall be forfeited upon termination of employment due to misconduct.

 

The Committee’s practice has been to grant awards under the long-term incentive program in January in the context of its evaluation of the performance of CEO and executive management and award of bonus compensation. This process allows the Committee to set the components of each executive’s compensation taking into account individual and corporate performance as well as risk and deferral factors. The Committee also has made grants of long-term incentive equity upon initial hiring of executive officers. In late 2010 and early 2011, the Committee evaluated the long term incentive program and determined to make changes, which are described in “Changes to Elements of Executive Compensation.”

 

Dividends declared, if any, on unvested shares of performance stock are not paid currently. Instead, amounts equal to declared dividends are credited to an account established on behalf of the grantee and the amounts are deemed to be invested in additional shares of the Company’s common stock. Dividend equivalents are subject to the same vesting schedule as the performance stock. At the time that the underlying performance stock vests, dividend equivalents allocable to the performance stock and any fractional share amount also vest and are payable in shares of common stock or forfeited if such stock is forfeited.

 

The table below sets forth information regarding options and stock awards that were outstanding as of December 31, 2010.

 

 

 

 

The table below sets forth information regarding amounts realized from stock awards that vested during the 2010 fiscal year. No options were exercised during the 2010 fiscal year.