SCHEDULE 14A

Information Required in Proxy Statement

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

Filed by the Registrant þ

Filed by a Party other than the Registrant o

Check the appropriate box:

þ		Preliminary Proxy Statement
o		Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
o		Definitive Proxy Statement
o		Definitive Additional Materials
o		Soliciting Material Under Rule 14a-12

Huntington Bancshares Incorporated

Payment of Filing Fee (Check the appropriate box):

þ		No fee required.
o		Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

	(1)		Title of each class of securities to which transaction applies:
	(2)		Aggregate number of securities to which transaction applies:
	(3)		Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined):
	(4)		Proposed maximum aggregate value of transaction:
	(5)		Total fee paid:

o		Fee paid previously with preliminary materials.
o		Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

	(1)		Amount Previously Paid:
	(2)		Form, Schedule or Registration Statement No.:
	(3)		Filing Party:
	(4)		Date Filed:

 

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-Second Annual Meeting of Shareholders of Huntington Bancshares Incorporated will be held in the Riffe Center Capitol Theatre, 77 South High Street, Columbus, Ohio, on Wednesday, April 23, 2008, at 11:00 a.m., local Columbus, Ohio time, for the following purposes:

 

(1) to elect four directors to serve as Class III Directors until the 2011 Annual Meeting of Shareholders and until their successors are elected;

 

(2) to consider and vote upon a proposal to amend Huntington’s charter to declassify the board of directors;

 

(3) to consider and vote upon a proposal to ratify the appointment of Deloitte & Touche LLP as the independent registered public accounting firm for Huntington Bancshares Incorporated for the year 2008; and

 

(4) to transact any other business which may properly come before the meeting.

 

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 [  ], 2008

 

Important Notice Regarding the Availability of Proxy Materials for the

Shareholder Meeting to Be Held on April 23, 2008

 

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

 

Information for Shareholders Who Plan to Attend the 2008 Annual Meeting of Shareholders

 

The Riffe Center Capitol Theatre, 77 South High Street, is located just south of Huntington’s corporate offices (Huntington Center, 41 South High Street) and Capitol Square Banking Office (17 South High Street) in Downtown Columbus. Huntington will provide complimentary parking passes for shareholders parking in the four facilities below. Please allow time for parking and travel to the meeting location.

 

 

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 23, 2008, 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   , 2008, 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 20, 2008, are entitled to vote at the annual meeting. Huntington had [          ] shares of common stock outstanding and entitled to vote on the record date.

 

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 amendment to the charter and FOR the ratification of the appointment of Deloitte & Touche LLP as the independent registered public accounting firm for 2008. A properly submitted proxy will also confer discretionary authority to vote on any other matter which may properly come before the meeting.

 

A shareholder may vote by proxy by using the telephone, via the Internet, or by properly signing and submitting the enclosed 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 will constitute a quorum at the meeting. Under the law 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 requires the favorable vote of a plurality of all votes cast by the holders of common stock at a meeting at which a quorum is present. Only shares that are voted in favor of a particular nominee will be counted toward such nominee’s achievement of a plurality and thus broker non-votes and abstentions will have no effect. The approval of the amendment to Huntington’s charter requires the affirmative vote of two-thirds of all of the votes entitled to be cast on the matter. Broker non-votes and abstentions will have the same effect as votes cast against the approval of the amendment to Huntington’s charter. Ratification of the appointment of Deloitte & Touche LLP 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 this matter 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), with terms of office that expire at successive annual meetings. The terms of the four Class III Directors expire at this annual meeting. Upon consultation with the Nominating and Corporate Governance Committee, the board of directors proposes the election of four Class III Directors at this Meeting.

 

Don M. Casto III, Michael J. Endres, Wm. J. Lhota, and David L. Porteous currently serve as Class III Directors of Huntington and are being nominated for re-election at this annual meeting. The nominees for Class III Directors, if elected, will each serve a three-year term expiring at the 2011 Annual Meeting of Shareholders and until their successors are elected.

 

1

Marylouise Fennell and Gerard P. Mastroianni were appointed to the board as Class II directors and D. James Hilliker and Jonathan A. Levy were appointed to the board as Class I directors, in each case following Huntington’s merger with Sky Financial Group, Inc. effective July 1, 2007. In February 2007, Huntington’s board amended the bylaws to provide that any director elected to fill a vacancy shall serve for the remainder of the full term of the class in which the vacancy occurred and until his or her successor is elected. Accordingly, these new directors are each serving until the expiration of their full terms.

 

It is intended that, unless otherwise directed, the shares represented by a properly submitted proxy will be voted FOR the election of Messrs. Casto, Endres, Lhota and Porteous as Class III 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.

 

Huntington is proposing and recommending that shareholders approve an amendment to Huntington’s charter that would eliminate the classified board structure and provide for annual elections of all directors commencing in 2011. See “Proposal to Approve the Amendment to Huntington’s Charter” below.

 

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

 

CLASS I DIRECTORS
(TERMS EXPIRE IN 2009)

 

 

2

 

CLASS II DIRECTORS
(TERMS EXPIRE IN 2010)

 

 

CLASS III DIRECTORS
(NOMINEES FOR TERMS EXPIRING IN 2011)

 

 

 

 

3

 

Corporate Governance

 

Transactions with Directors and Executive Officers

 

Indebtedness of Management

 

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

 

Certain Other Transactions

 

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 February 29, 2008, the aggregate amount remaining to be paid to Mr. Biggs is $1,515,386.60.

 

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. The current lease term runs through April 30, 2011 and the monthly rental is $4,500. As of January 1, 2008, the aggregate rental amount payable through the end of the current lease term is $180,000.00. Huntington has an option to renew the lease through April 30, 2016 at a monthly rental of $4,750.

 

The Huntington National Bank leases a banking office in Alliance, Ohio (acquired in the merger with Sky Financial Group, Inc.) from a limited liability company owned by 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, 2008, the aggregate rental amount payable through the end of the current lease term is $265,050.00. 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 in 2002 a private corporate mezzanine investment fund 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, the minimum quarterly management fee is 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. The investment fund has been substantially invested. Huntington has authorized Huntington Mezzanine Opportunities Inc. to invest up to $198 million in a second private corporate mezzanine investment fund which would operate substantially the same as the initial fund described above. An affiliate of Stonehenge Mezzanine Partners LLC, would serve as the asset manager of the second fund and would be entitled to the same management fees and percentage of profits as Stonehenge Mezzanine Partners LLC under the initial fund. Through December 31, 2007, Stonehenge Mezzanine Partners LLC has received management fees from Huntington Mezzanine Opportunities, Inc. in the aggregate of $6,123,174 and has earned $7,565,581 as a percentage of profits. Michael J. Endres, a director of Huntington, has a 12.56667% equity interest in Stonehenge Mezzanine Partners 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

 

4

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.

 

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 NASD requirements 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 chief executive officer, chief financial officer,

 

5

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 2007, the board of directors held a total of eleven 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. Ten of the eleven members of the board then serving (all ten members continuing in office) attended the 2007 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.

 

Board Committees

 

The table below indicates the standing committees of the board, the committee members, and the number of times the committees met in 2007.

 

 

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. Both Mr. Lauer and Mr. Little are determined to be “independent directors” 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.

 

6

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, 2007 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 Statement on Auditing Standards No. 61, as amended, Communications with Audit Committees (AICPA, Professional Standards, Vol. 1. AU section 380.)

 

In addition, the Audit Committee has reviewed the written disclosures and letter from Deloitte & Touche LLP required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees 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 2007, the Audit Committee believes that the services provided by Deloitte & Touche LLP in 2007 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 2007 for filing with the SEC.

 

Audit Committee

 

David P. Lauer, Chairman

Gene E. Little

Gerard P. Mastroianni

David L. Porteous

 

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.

 

7

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.

 

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 2008 annual meeting of shareholders.

 

Compensation Committee

 

John B. Gerlach, Jr., Chairman

Don M. Casto, III

Marylouise Fennell

D.James Hilliker

 

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, and during 2007, did not, pay any third parties to identify or evaluate, or assist in identifying or evaluating, potential 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.

 

8

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 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 as of December 31, 2007, by each of Huntington’s directors, nominees for director, five named executive officers, directors as a group, executive officers as a group, and directors and executive officers as a group, is set forth below.

 

 

 

 

9

 

 

 

As of December 31, 2007, 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:

 

 

 

 

As of December 31, 2007, all executive officers as a group owned 100 shares of Class C Preferred Stock, $25.00 par value, issued by Huntington Preferred Capital, Inc., a subsidiary of Huntington, which was less than 1% of the Class C Preferred Stock outstanding.

 

10

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. In connection with the merger with Sky Financial, Mr. Adams received an award of restricted stock that vested in monthly installments beginning on July 31, 2007, all of which vested upon his termination on December 31, 2007. Pursuant to the terms of the award, shares could be withheld by the company upon vesting in order to cover the associated tax liability. Due to administrative error, six exempt share withholdings were not reported on Form 4 but were reported on Form 5. Otherwise, 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 2007 all filing requirements applicable for reporting persons were met.

 

Compensation Discussion & Analysis

 

This Compensation Discussion and Analysis discusses the compensation awarded to, earned by, or paid to the 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 as of December 31, 2007 as listed in the Summary Compensation Table.

 

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

 

 

Of these components, annual incentive awards, long-term incentive awards, and increases to base salary 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 operating performance compared with Huntington’s strategic plans for each plan year or plan cycle.

 

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 has a higher base salary and higher potential award opportunities because of his role as chief executive officer. In addition, Mr. Hoaglin’s annual cash incentive compensation is tied to overall corporate performance, whereas other named executive officers have components of their award tied to personal performance. Mr. Hoaglin also is held to a higher stock ownership guideline reflecting his increased stake in Huntington’s performance. Huntington’s stock ownership guidelines for senior management are discussed below.

 

11

Huntington strives to balance its compensation philosophy with the goal of achieving maximum deductibility under Internal Code Revenue 162(m). Huntington also takes into consideration Internal Revenue Code Section 409A with respect to non-qualified deferred compensation programs, and Financial Accounting Standards Board Statement No. 123(R), Share-Based Payment (FAS 123(R)) in administering its equity compensation program.

 

Compensation Components

 

Base salary is an important factor in attracting and retaining key personnel. Base salary is also significant because it serves as the basis for determining eligible levels for certain benefits and it is used for the calculation for key executive programs for which awards are determined as a multiple or percentage of base salary. 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.

 

Cash incentive awards may be earned on an annual basis under the Management Incentive Plan. Awards are earned 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.

 

Executive officers are also eligible to earn long-term incentive compensation, consisting of equity awards and long-term performance awards in a combination of stock and cash. The value of equity awards increases as the value of the underlying common stock increases. Long-term performance awards are payable in recognition of achievement of Huntington’s goals over a period of time — typically a three year period.

 

Huntington’s equity awards program for senior management consists of a mix 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. The long term incentive strategy is described in more detail in a later section of this discussion.

 

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 also 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 officers whose income exceeds the limits established by the Internal Revenue Service. Individuals are nominated for participation in these two benefit plans by Huntington’s management and must be approved by the Compensation Committee.

 

Huntington also offers additional fringe benefits to certain senior officers including tax and financial planning services and paid parking. For Mr. Hoaglin, Huntington also provides security monitoring for his personal residence and 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 have an Executive Agreement with Huntington, which provides income continuation security and benefit protection in the event of any change in control of Huntington.

 

Recoupment Policy

 

On July 17, 2007, Huntington’s board of directors adopted a recoupment policy. 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 have to restate all or a portion of its financial statements, the board may require repayment of a portion or all of any incentive-based compensation paid and/or effect the cancellation of any unvested restricted stock if the amount or vesting of the incentive compensation was calculated based upon or contingent upon the achievement of financial or operating results that were the subject of or 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. This recoupment policy is in addition to the forfeiture and recoupment provisions contained in the 2007 Stock and Long-Term Incentive Plan.

 

12

Employment Agreements

 

In connection with the merger with Sky Financial, Huntington entered into a new employment agreement with Thomas E. Hoaglin and an employment agreement with Marty E. Adams, each with a term commencing upon completion of the merger on July 1, 2007. Mr. Adams has terminated his employment agreement effective December 31, 2007.

 

Employment Agreement with Thomas E. Hoaglin

 

Under the agreement with Mr. Hoaglin, from the effective date of the merger, he will serve as the chief executive officer of Huntington until December 31, 2009 and as chairman of Huntington until the date of Huntington’s annual shareholders meeting in 2011. Mr. Hoaglin will, subject to election, continue as a member of the board of directors. During the employment period, Mr. Hoaglin will receive an annual base salary of at least $865,000 (his base salary at the time the agreement was entered into), will have a target annual bonus of no less than 100% of his annual base salary and will receive 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 will be entitled to employee benefits, fringe benefits and perquisites on a basis no less favorable than those provided to other senior executives of Huntington. The existing change-in-control agreement, referred to as the Executive Agreement, between Huntington and Mr. Hoaglin will remain in effect.

 

Mr. Hoaglin will be entitled to certain payments and benefits if his employment is terminated during the term of the employment agreement for certain reasons. These potential payments and benefits are described under Potential Payments Upon Termination or Change in Control below.

 

Employment Agreement with Marty E. Adams

 

Although Mr. Adams has since terminated employment with Huntington, his employment agreement provided that he would serve as president and chief operating officer of Huntington until December 31, 2009 and succeed to president and chief executive officer of Huntington thereafter until Huntington’s annual shareholders meeting in 2011. Mr. Adams would also serve as a member of the Huntington board of directors. While serving as president and chief operating officer, Mr. Adams would receive annual base salary at a rate of at least 80% of Mr. Hoaglin’s annual base salary, but in no event less than $692,000. Mr. Adams would have a target bonus of not less than 100% of his base salary and no less than 80% of Mr. Hoaglin’s bonus for the applicable year and would receive long-term incentive and annual equity incentive awards with a value of no less than 80% of those awarded to Mr. Hoaglin.

 

Mr. Adams would be entitled to employee benefits, fringe benefits and perquisites on a basis no less favorable than those provided to other senior executives of Huntington. As of completion of the merger, Mr. Adams was eligible to participate in Huntington’s non-qualified deferred compensation plans and would receive service credit for his recognized service with Sky Financial for purpose of eligibility and vesting, but not benefit accrual, under such plans and under Huntington’s post-retirement welfare plans.

 

In addition, the employment agreement provided that, following the merger, Huntington would pay Mr. Adams an amount which was approximately equal to the cash severance that was payable to Mr. Adams upon a termination without “cause” or for “good reason” within two years of a change in control of Sky under his then existing employment agreement with Sky. Huntington agreed that this amount would be paid and provided to him as follows: (i) $4 million in a lump sum within 30 days after completion of the merger and (ii) an award of restricted stock with a fair market value, as of the grant date, equal to approximately $5,038,489. The terms of the award provided that the restricted stock would vest in equal monthly installments at the end of each calendar month through December 31, 2009, subject to acceleration on certain terminations of employment and change in control transactions. Pursuant to the employment agreement, Huntington also entered into an Executive Agreement with Mr. Adams, similar to the Executive Agreement between Huntington and Mr. Hoaglin, to be effective with respect to transactions that would constitute a change of control of Huntington occurring following completion of the merger.

 

In the event that, during the term, Mr. Adams’s employment was terminated for certain reasons, he would be entitled to certain payments and benefits. Mr. Adams termination effective December 31, 2007, triggered the payments and benefits as described under Potential Payments Upon Termination or Change in Control below.

 

13

Stock Ownership Guidelines

 

Consistent with the objective to align senior management’s goals with those of shareholders, and to reinforce, for both the investing public and employees, senior management’s commitment to the company, the Compensation Committee has adopted stock ownership guidelines for key Huntington executives who are viewed as critical to the company’s success. Each officer has five years to meet a specified minimum level of share ownership which was derived based on a multiple of his or her base salary. The multiple for Mr. Hoaglin is, and Mr. Adams was, 5 times base salary. For the other named executive officers, the requirement is 2 times base salary. To determine the individual ownership guidelines, the product of the multiple of salary and salary at the date the executive is made subject to the guidelines is divided by the fair market value, referred to as FMV, of Huntington’s stock price on that date. The guidelines in terms of multiple of salary and number of shares are set forth below.

 

 

 

 

If guidelines are not met by July 18, 2011, the continuing officers 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 and used throughout the year when data is available for the peer bank. Because Huntington’s asset size grew by approximately 55% with the acquisition of Sky Financial, Huntington reviewed and revised the peer group for 2007 with the help of the outside compensation consultant with Watson & Wyatt. The revised peer group provides for better comparisons with the organization’s increased size. The general philosophy for selecting peer banks remained the same. 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 began with the selection of U.S. based publicly traded banks with assets as of December 31, 2006, ranging from approximately one-half of Huntington’s assets (following the Sky Financial merger) to approximately twice the amount of Huntington’s assets. This initial group of banks was then reviewed based upon business mix. Banks with a significantly different business mix and those under foreign ownership were dropped from the group. The resulting group consisted of 9 reasonably comparable banks with December 31, 2006 assets ranging from $26.5 billion to $106 billion. In order to enlarge the group for better comparisons, the next larger and the next smaller banks on the list were added back for a total of 11 “Primary Peer” banks.

 

“Reference Peers” were the two banks that were immediately larger than $106 billion in assets as of December 31, 2006 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.

 

14

Peer Banks Utilized During 2007

 

 

Huntington also relies on survey data, and in 2007 utilized the 2006 Hewitt TCM Financial Services Executive Total Compensation Survey and the 2006 Towers Perrin Financial Services Industry Executive Compensation Data Base – U.S. Commercial Banks Report and 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 cut of their data consisted of 26 banks excluding Huntington. The data was provided in two asset cuts: $40.0 — $74.9 billion and greater than $75.0 billion. Seven of Huntington’s Peers were included in the survey along with 19 other participants considered part of the banking industry for this survey which were: Ameriquest Mortgage Company, AmSouth, BMO Financial Group (Harris Bank), Capital One Financial, Compass Bank, Countrywide Financial, Cullen/Frost Bankers, Inc., Federal Home Loan Bank of Atlanta, Federal Reserve Bank of Boston, HSBC Bank USA, LaSalle Bank, Navy Federal Credit Union, The Northern Trust Company, Peoples Bank, SunTrust Banks, U.S. Bancorp, UnionBanCal, Wachovia and Wells Fargo.

 

The Towers Perrin Survey of U.S Commercial Banks Report represented 32 banks (excluding Huntington). The banks in the survey ranged in size from approximately $3 billion to $1 trillion, with median asset size of $52 billion. Banks were grouped into two asset sizes as follows: less than $50.0 billion which included 15 banks and greater than $50 billion which included 17 banks. Eight Peers were included in the survey and the remaining 24 banks participating were as follows: AmSouth, Associated Banc-Corp, Bank of America, Bank of the West, Citigroup, Commerce Bancshares, Compass Bancshares, Cullen/Frost Bankers, Harris Bank, HSBC North America, IndyMac, Irwin Financial, LaSalle Bank, People’s Bank, Sovereign Bancorp, SunTrust Banks, SVB Financial, TD Bank North, Texas Capital Bank, U.S. Bancorp, Union Bank of California, 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 eight Peers with the exception of Cullen/Frost Bankers. In addition, the following financial institutions were included in the report: First Midwest Bancorp, Guaranty Bank, Home Federal Savings Bank, National City and UCBH Holdings. 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 and 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

 

The Compensation Committee reviews salaries for the executive officers on an annual basis. In 2007, the Compensation Committee reviewed Mr. Hoaglin’s salary in October, Mr. Adams’ salary in June and the salaries of the other named executive officers 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.

 

For the 2007 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 2007 primarily represented financial institutions of comparable size. The data referenced represented the 25^th to 90^th

 

15

percentiles of the competitive market. With respect to Mr. Hoaglin’s and Mr. Adams’ salaries, 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. 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. Mr. Hoaglin evaluates the performance of, and makes merit recommendations for, each of the other named executive officers. Mr. Hoaglin does not participate in the discussion of his own salary.

 

The market data and annual merit recommendations are reviewed by the compensation consultant. The consultant provides comments and analysis to the Committee and is available for discussion and questions.

 

For 2007, the Compensation Committee was also provided with a complete history of merit increases for each named executive officer along with 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. The decisions to adjust the base salaries are discussed below under Discussion of 2007 Compensation.

 

Annual Cash Incentive Awards

 

In February of each year, the Compensation Committee establishes the performance criteria and weightings, the performance goals at various levels of performance and the potential awards under the Management Incentive Plan for that year. Huntington’s fiscal year is the calendar year. For 2007, the Compensation Committee selected earnings per share, referred to as EPS, efficiency ratio (defined as the ratio of total non-interest operating expense (less amortization of intangibles) divided by total revenues (less securities gains)), and return on tangible equity, referred to as ROTE, as the financial measures for the plan. These measures were selected from among the corporate performance criteria available under the plan as approved by the shareholders, on the recommendations of the chief financial officer and the chief executive officer. EPS and efficiency ratio were financial measures for 2006; return on average equity was also used in 2006 but was changed to ROTE in 2007. The chief executive officer and the chief financial officer recommended that these criteria were the best objective measures of performance for Huntington for 2007 and also represented important indicators for relative performance of Huntington when compared to its peers. The change from ROE to ROTE reflects the impact of purchase accounting on equity. Companies that have recently purchased other businesses have a higher level of recorded equity and related intangibles resulting from the acquisitions. ROTE provides a better performance metric for peer comparisons, as it adjusts for the impact of the intangibles. After considering Huntington’s performance for the prior year and the actual and expected performance of peers, the performance goals for each of these measures were set at the 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 2007 are discussed under “Discussion of 2007 Compensation” below.

 

All participants have some portion of their awards dependent on the selected corporate performance criteria. Potential awards for Mr. Hoaglin and Mr. Adams were based entirely on the selected corporate performance goals to align their interests with those of the shareholders. This also maintains the deductibility of the awards payable to Mr. Hogalin and Mr. Adams under the plan in relation to Internal Revenue Code Section 162(m). 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 are 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.

 

The Compensation Committee approves participants for each plan year and assigns them to one of several incentive plan groups. The different incentive groups align award opportunities with internal peers and market practices. Each group has award opportunities tied to the achievement of threshold, target and maximum performance levels. The level of achievement affects the percentage of base salary that can be earned under the plan components. Each incentive group also has different weightings of the plan components described above. Mr. Hoaglin makes 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. However, Mr. Adams’ incentive group was specified by his employment agreement.

 

16

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.

 

Huntington annually reviews 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 was 50% of base salary with a maximum opportunity equal to 100% of base salary. Mr. Hoaglin’s and Mr. Adams’ MIP target was set at 100%, which was the same as the target for Mr. Hoaglin for 2006. 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 table below shows how each plan component for 2007 is weighted when evaluating each of the named executive officers. For Messrs. Kimble, Nelson and Benhase, the weighting of the corporate components was changed from 2006 in order to place more emphasis 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 MIP plan as:

 

 

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, whose judgments could be affected by financial self-interest. 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). Code Section 162(m) limits the deductibility of non-performance based compensation in excess of $1 million that is paid to covered officers. 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.

 

17

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 2007 is included in the “Discussion of 2007 Compensation” below.

 

Long-Term Incentive Compensation

 

As indicated, 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.

 

Huntington’s 2007 Stock and Long-Term Incentive Plan, referred to as the 2007 Plan, which was approved by the shareholders in 2007, provides for a variety of long-term incentive vehicles. Opportunities are typically awarded in the form of stock options, restricted stock units or stock and cash under the long-term performance awards program under the 2007 Plan. The named executive officers are all eligible for each of these types of awards provided for in the 2007 Plan.

 

Long-Term Performance Awards

 

Huntington awards long-term performance awards under the 2007 Stock and Long-Term Incentive Plan. For cycles beginning before 2007, the long-term performance awards program operates under the 2004 Stock and Long-Term Incentive Plan, referred to as the 2004 Plan. 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.

 

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 regarding the recommended performance criteria and goals.

 

The 2005 — 2007 cycle ended on December 31, 2007.  There are currently two other cycles pending under this program, the 2006 — 2008 and 2007 — 2009 cycles. Awards earned under any cycle will 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 2005 — 2007 and 2006 — 2008 cycles are the same. They are 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 include 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 chief executive officer and chief financial officer determined that these criteria were the best objective measures of performance for Huntington for the three-year periods. These criteria consider profitability and growth (by reviewing EPS) as well as quality of earnings (by reviewing ROE/ROTE). The 2007 — 2009 cycle focuses 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.

 

 

18

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 between 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 have all been placed in the next highest incentive level below Mr. Hoaglin. Mr. Adams was placed in the highest level incentive group, however, due to his termination he is not eligible to receive any further payments under this program.

 

The threshold, target, superior and maximum award opportunities for the named executive officers under the 2005 — 2007 cycle and the two current cycles not yet completed are set forth in the table below.

 

 

For the 2005 — 2007 and the 2006 — 2008 cycles, the maximum awards listed above can be increased by up to 20% if maximum efficiency ratio targets established under the plan for each cycle are achieved or decreased by 10% if the 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 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 listed 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, whose judgments could be affected by financial self-interest. The Compensation Committee meets with representatives of the Audit Committee and obtain 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 FMV (see more information on definition of FMV below) of a share of Huntington common stock as of the award date as determined by the Compensation Committee.

 

The determination of long-term performance awards for the cycle ended December 31, 2007 is discussed under the “Discussion of 2007 Compensation” below.

 

Equity Awards

 

Grant Practices

 

Huntington considers grants of equity awards annually. Huntington provides that the Compensation Committee may designate an effective grant date following the date of the Compensation Committee action. This practice may be followed in the event the Compensation Committee action occurs shortly before an earnings announcement or there exists other material non-public information. The grant date would be set as a date following public dissemination of the material non-public information.

 

As noted above, Huntington’s equity awards for senior executives consist of a mix of RSUs and stock option grants. The option price for each grant of an option is equal to the FMV of a share on the date the option is granted. Beginning with the 2007

 

19

Plan, FMV is defined as the closing price on the date of grant. Prior to the approval of the 2007 Plan, FMV was defined as the average of the high and low stock price on the date of grant. Huntington changed to closing price because Huntington believes that closing price is becoming the new standard for option exercise prices. The 2007 Plan also allows the Compensation Committee discretion to establish such other FMV in good faith using a reasonable method to determine the price at which a share might change hands between a willing buyer and seller.

 

The Compensation Committee has delegated authority to the chief executive officer to grant stock awards on an as-needed basis such as in the case of new hires or internal promotions or other similar events. The chief executive officer’s authority is limited and all options and restricted stock units granted by the chief executive officer are made consistent with the terms set by the Compensation Committee. Since being given this authority in 2001, the chief executive officer has not exercised his authority to grant stock awards to any executive officers.

 

Huntington annually compares share usage and other metrics such as run rate and overhang against those of the Reference and Primary Peers when determining annual stock grants in order to gauge whether the overall amount of equity being delivered is competitive compared to peers.

 

To set the appropriate range of opportunity for individual grants, the compensation consultant reviewed the Towers Perrin 2006 Long-Term Incentive Plan Report (mentioned previously), which provides data on grant levels by salary bands and separately for the CEO 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 Peers Proxy Statement grant levels are reviewed for the chief executive officer and chief financial officer.

 

Mr. Hoaglin makes the recommendations to the Compensation Committee for the number of shares to be awarded to his direct reports, including the named executive officers. Mr. Hoaglin does 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

 

Beginning in 2006, Huntington revised its equity award practice to substitute one-half of past stock option grant levels with RSUs of equivalent value (1 RSU to 5 stock options). The goals of this program 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. Restricted stock has the advantage of reducing share usage, which Huntington thinks is a positive aspect for our shareholders. Huntington believes that the use of stock options and restricted stock units will accomplish the goals established.

 

Stock options will remain an important part of the long-term incentive compensation strategy for Huntington’s senior executives. The continued use of stock options will 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 FMV on the date of grant. As with grants in recent years, the stock options will 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. ISOs are typically only granted to the most senior executives as they are most likely to be in the position to take advantage of the long-term capital gains tax benefits.

 

RSUs provide stronger retention value and create a stronger ownership alignment. The RSUs will fully 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 to this program with additional retention value, the Compensation Committee approved the accumulation of dividends, which will be paid in cash when the underlying RSUs are paid.

 

Recipients of stock options and RSUs in 2007 were required to agree to a non-solicitation provision that will remain in effect for one year following termination of employment for any reason. 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

 

20

Committee may require the participant or former participant to repay to Huntington any gain realized or payment received upon exercise or payment of such award. In addition, awards may be forfeited upon termination of employment for cause.

 

Deferred Compensation

 

Huntington permits its senior officers to defer receipt of base salary, annual cash awards, RSUs and associated dividends, and long-term performance awards pursuant to the Executive Deferred Compensation Plan, a non-qualified plan. Huntington believes that the Executive Deferred Compensation Plan provides a good vehicle for participants to defer receipt of cash or stock to a time when taxes may be at a more personally beneficial rate and/or to save for long-term financial needs. Amounts deferred will accrue interest, earnings and losses based on the performance of the investment options selected by the participant. The investment options consist of Huntington common stock and a variety of mutual funds and are 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 409(a).

 

The Executive Deferred Compensation Plan is also discussed following the table on Non-Qualified Deferred Compensation 2007 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 under Benefits below and following the table on Non-Qualified Deferred Compensation 2007.

 

Benefits

 

Huntington provides a comprehensive benefits package to its 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 they time of their termination of employment.

 

Huntington’s executive officers are eligible for the same broad based benefits as other employees. 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 these 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 tax qualified 401(k) plan — the Huntington Investment and Tax Savings Plan (HIP) — for employees who are at least age 21 and have at least six consecutive months of service with Huntington. Huntington also maintains the Huntington Bancshares Incorporated Supplemental Stock Purchase and Tax Savings Plan (Supplemental Plan) to provide a supplemental savings program for eligible 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 Supplemental Plan is not a tax qualified plan. Additional detail about the Retirement Plan and the Supplemental Plan can be found following the table of Non-Qualified Deferred Compensation 2007 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. Additional detail about the Pension Plan and SRIP is set forth following the Pension Benefits 2007 Table below.

 

Other benefits

 

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

 

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

 

21

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.

 

In addition to the benefits available to active employees, Huntington provides retiree life insurance and makes retiree medical coverage available to employees who meet the requirements for those benefits at the time their employment terminates.

 

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 provides security monitoring of his personal residence. Huntington also provides occasional use of a private airplane for Mr. Hoaglin’s personal use.

 

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 with in 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, all as further described under “Potential Payments Upon Termination or Change in Control” below.

 

Huntington believes that its compensation programs, by design and operation, are consistent with its compensation philosophy and business strategy.

 

The following table sets forth the compensation paid by Huntington and its subsidiaries for the fiscal year ended December 31, 2007 to Huntington’s principal executive officer, principal financial officer, and the three most highly compensated executive officers serving at the end of 2007, other than the principal executive officer and the principal financial officer.

SUMMARY COMPENSATION 2007

 

 

22

 

 

 

 

 

 

23

 

GRANTS OF PLAN-BASED AWARDS 2007

 

 

24

 

 

 

Discussion of 2007 Compensation

 

During 2007, the Compensation Committee considered and made decisions with respect to base salaries and approved grants of equity awards. Following the end of the year, the Compensation Committee also reviewed Huntington’s 2007 performance against applicable performance goals under the Management Incentive Plan. Although corporate performance goals were not met, the Compensation Committee considered and determined annual cash incentive awards under personal performance and discretionary components of the Management Incentive Plan. The Compensation Committee also reviewed Huntington’s performance against the applicable performance goals for the Long-Term Incentive Plan award cycle that ended on December 31, 2007 and determined that no awards would be paid for the cycle.

 

As noted above, Mr. Hoaglin has an employment agreement which provides for a minimum base salary and that he will participate in Huntington’s incentive plans and other benefits afforded to executive officers. Although Mr. Adams terminated employment as of December 31, 2007, during his tenure with Huntington, Mr. Adams’ employment agreement provided that his base salary and incentive awards would be no less than 80% of Mr. Hoaglin’s. The determination of Mr. Adams’ base salary and equity awards are discussed below. Mr. Adams was named a participant under the 2007 cycle of the Management Incentive Plan. Mr. Adams was not a participant in the Long-Term Incentive Plan award cycle that ended on December 31, 2007, however, upon his termination of employment, he became entitled to certain payments calculated pursuant to the terms of his employment agreement, as described under Potential Payments Upon Termination or Change in Control below.

 

Base Salary

 

At its February 2007 meeting, the Compensation Committee approved base salary increases of 3.20%, 3.24% and 4.10% for each of Messrs. Kimble, Nelson and Benhase, respectively, effective March 1, 2007. These increases were determined based on the chief executive officer’s evaluation of each officer’s individual performance. These increases were consistent with the goal of maintaining salaries between the 50^th and 75^th percentile of the market survey data utilized with respect to commercial banks.

 

The Compensation Committee met in June 2007 to determine an appropriate salary for Mr. Adams in his role as president and chief operating officer, effective July 1, 2007. The compensation consultant provided the Compensation Committee with proxy statement data regarding second highest-ranking officers for the Primary and Reference Peers and published survey data. Mr. Adams’ base salary as chief executive officer at Sky ($814,000) was above the market median for a chief operating officer for an organization the size of Huntington post-merger. The compensation consultant advised the Compensation Committee, however, that they should also consider that Mr. Adams was the designated successor to Mr. Hoaglin. In addition, at the time

 

25

Mr. Adams’ salary was determined, the Compensation Committee had not yet performed Mr. Hoaglin’s annual salary review and therefore the amount that would be 80% of Mr. Hoaglin’s salary for 2008 was not yet known. Based on these factors, the Compensation Committee set Mr. Adams’ salary at $725,000.

 

The Compensation Committee reviewed Mr. Hoaglin’s salary in October 2007. 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 2006 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 11 Primary Peers and 2 Reference Peers. A composite of the average rankings for these performance metrics showed Huntington to be in the 2nd quartile 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 2006 published survey data along with the consultant’s assessment of the competitiveness of Mr. Hoaglin’s compensation. The consultant concluded that Mr. Hoaglin’s base salary was below the peer and survey data medians estimated for 2007.

 

The Compensation Committee approved a 3.0% increase in Mr. Hoaglin’s base salary which increased his salary from $865,000 to $891,000, effective October 16, 2007. The increase was in recognition of 1) Mr. Hoaglin’s leadership in the completion of the acquisition of Sky Financial effective July 1, 2007, which increased Huntington’s asset size by approximately 55% and included the conversion of 580,000 retail and 75,000 business customers and the addition of 3500 employees; and 2) the market data.

 

Annual Cash Incentive Awards

 

The three components for the 2007 Management Incentive Plan cycle tied to overall corporate performance were EPS, ROTE and the efficiency ratio. Huntington’s actual results for 2007 for EPS and ROTE 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 2007 performance, none of the corporate performance targets or threshold levels for 2007 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 65% for EPS, 10% for ROTE and 25% for efficiency ratio, Mr. Hoaglin did not receive an annual cash incentive award under the Management Incentive Plan.

 

As noted above, the potential awards for each of Messrs. Kimble, Nelson and Benhase included both personal performance (30%) and discretionary (10%) components in addition to the corporate performance criteria. Mr. Hoaglin evaluated personal performance for each of these executives based on observable results against agreed upon annual goals and determined an overall performance rating against five established levels of performance, and recommended an award based on that assessment for the plan’s discretionary component. Mr. Hoaglin also recommended that potential awards for executive officers based on these components be reduced by an amount between 20% and 25% due to the below target overall performance of the company. The Compensation Committee considered Mr. Hoaglin’s evaluations and recommendations and approved an award for each of Mr. Kimble, Mr. Nelson and Mr. Benhase. These awards were calculated based on the personal performance and discretionary components of their potential awards and then reduced by the Compensation Committee pursuant to its discretion under the terms of the Management Incentive Plan. Target awards would have been equal to 50% of base salary; actual awards paid to Messrs. Kimble, Nelson and Benhase were equal to 27.0%, 24.8% and 32.0% of base salary, respectively. The dollar amount of the award for each executive officer is reported under the “Non-Equity Incentive Plan Compensation” column of the table of Summary Compensation.

 

26

Long-Term Incentive Compensation

 

Long-Term Performance Awards

 

The 2005 — 2007 cycle of the Long-Term Incentive Awards program, which is discussed in detail above in the “Compensation Discussion and Analysis”, ended December 31, 2007. No awards were earned or paid under this cycle.

 

The goals for this cycle, which were established February 15, 2005, were based on average annual growth in EPS over the cycle with a baseline adjusted EPS of $1.65 and average annual ROE over the cycle, with the entire award subject to adjustment based on Huntington’s efficiency ratio performance in 2007.

 

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 51.0% or lower (better) or 20% with achievement of an efficiency ratio of 50.0% or lower.

 

Huntington’s actual EPS decline averaged 28.5% for the cycle, which was under the established plan threshold for growth of 8.0%. 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 decline for the cycle was 0.6%, which was below the level required to receive an award under this program.

 

The three-year average performance result established for ROE was 11.9% for reported ROE and 13.6% for adjusted ROE with both figures also coming in under the 17% threshold needed to generate awards.

 

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

 

Stock Options and Restricted Stock Awards

 

Stock award recommendations made by management and Mr. Hoaglin were presented to the Compensation Committee at its July 2007 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. Huntington, based on past grants, remains close to or below the median of its peers in areas related to dilution, overhang and run-rate levels.

 

The Compensation Committee reviewed and approved stock grants effective July 23, 2007. Each named executive officer received a combination of stock options and RSUs. As reported in the table of Grants of Plan-Based Awards above, Mr. Kimble was granted 30,000 stock options and 6,000 RSUs, Mr. Nelson was granted 22,500 stock options and 9,498 RSUs, and Mr. Benhase was granted 30,000 stock options and 6,000 RSUs.

 

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 LTI 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 his 2006 grant. The Compensation Committee also reviewed the same types of market data for Mr. Adams, whose employment agreement provided that his award would be no less than 80% of the value of Mr. Hoaglin’s award. The data showed that at 80% of Mr. Hoaglin’s LTI opportunity, Mr. Adams’ long-term incentive opportunity would be consistent with the published survey median market practices and would be low compared to the Peer Group market practice. The Compensation Committee approved a grant to Mr. Adams of 132,000 stock options and 26,400 RSUs.

 

All of the above stock options were granted at an option price of $20.01 (the closing price of a share of Huntington common stock on the date of grant) and will 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. Dividends will accumulate over the vesting period and be paid in cash at the same time as the underlying RSUs are paid.

 

27

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

2007