Audit Committee Report
The Audit Committee oversees Federated Hermes financial reporting process on behalf of the Board. Management has the primary
responsibility for the financial statements and the reporting process including the systems of internal controls. Management assessed the effectiveness of Federated Hermes internal control over financial reporting as of December 31, 2020,
in relation to criteria for effective internal control over financial reporting as described in Internal Control Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), including
Hermes Fund Managers Limited (including its subsidiaries, HFML), which Federated Hermes acquired a majority interest in on July 1, 2018, as part of its overall assessment. The scope of managements assessment of the
effectiveness of its disclosure controls and procedures did not include the internal controls over financial reporting at HGPE Capital Limited (HCL), which was acquired effective March 1, 2020. HCL represented approximately 2% of
both Federated Hermes total and net assets as of December 31, 2020 and 2% of both Federated Hermes total revenue and net income for the year ended December 31, 2020. This exclusion is consistent with the SEC Staffs
guidance that an assessment of a recently acquired business may be omitted from the scope of managements assessment of the effectiveness of disclosure controls and procedures that are also part of internal control over financial reporting in
the year of acquisition. In fulfilling its oversight responsibilities, the Audit Committee has met to review and discuss the audited financial statements in the 2020 Annual Report with management, including a discussion of the quality, not just the
acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity and completeness of disclosures in the financial statements.
The Audit Committee discussed with the independent registered public accounting firm, who is responsible for expressing an opinion on the
conformity of those audited financial statements with U.S. generally accepted accounting principles, their judgments as to the quality, not just the acceptability, of Federated Hermes accounting principles as applied to the financial
statements and such other matters as are required to be discussed with the Audit Committee under standards of the Public Company Accounting Oversight Board (United States) (PCAOB). The Audit Committee also discussed with Federated
Hermes independent registered public accounting firm the critical accounting matters identified by the firm, including valuation of indefinite-lived intangible assets, accounting for business combinations and valuation of HFML
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redeemable noncontrolling interest. In addition, the Audit Committee has received from the independent registered public accounting firm the written disclosures and the letter required by Rule
3526 of the PCAOB, Communication with Audit Committees Concerning Independence, relating to the independent registered public accounting firms independence from management and Federated Hermes, and has discussed with the independent
registered public accounting firm their independence. The Audit Committee has considered whether the provisions of non-audit services by the independent registered public accounting firm are compatible with
maintaining their independence.
The Audit Committee discussed with Federated Hermes internal auditors and independent registered
public accounting firm the overall scope and plans for their respective audits. The Audit Committee meets with the internal auditors and independent registered public accounting firm, with and without management present, to discuss the results of
their examinations, their evaluations of Federated Hermes internal controls, and the overall quality of Federated Hermes financial reporting.
The Audit Committee considered the quality of the audit services provided by the independent registered public accounting firm, the experience
and tenure at the firm as the Companys independent registered public accounting firm, and the amount of audit and related audit fees and non-audit fees. The Audit Committee considered the audit partner
selected to lead the independent registered public accounting firm with respect to the provision of audit services to the Company. The Audit Committee considered the potential impact of changing the independent registered public accounting firm. The
Audit Committee also considered the independent registered public accounting firms commitment to quality and innovation, and their industry knowledge and experience in deciding to retain the independent registered public accounting firm.
In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board (and the Board has approved) that
the audited financial statements be included in the Annual Report on Form 10-K for the year ended December 31, 2020, for filing with the SEC. The Audit Committee also selected Ernst & Young LLP
as Federated Hermes independent registered public accounting firm for the fiscal year ending December 31, 2021.
Respectfully Submitted:
Joseph C. Bartolacci, Audit Committee Chairman
Michael J. Farrell, Audit Committee Member
Marie Milie Jones, Audit Committee Member
Compensation Committee
The Compensation Committee, which operates pursuant to a written charter, consists of Messrs. Joseph C.
Bartolacci and Michael J. Farrell, and Ms. Marie Milie Jones. Mr. Farrell is Chairman of the Compensation Committee. The Compensation Committee considers performance measures and their achievement, recommends and approves compensation
levels of executive officers, awards share-based compensation, works with senior management on benefit and compensation programs for Federated Hermes employees, and monitors local and national compensation trends to ensure that Federated
Hermes compensation program is competitive within the mutual fund industry. As part of its charter, the Compensation Committee also is required to periodically receive from, and review and discuss with, Federated Hermes management
periodic reports on Federated Hermes diversity and inclusion strategy and its compensation practices, including an annual pay equity analysis. Federated Hermes compensation programs are designed to attract, retain and incentivize
talented and qualified individuals without regard to: race, color, national origin, religion, sex, pregnancy, sexual orientation, gender identity or expression, mental or physical disability, age, familial or marital status, ancestry, military
status, veteran status, or genetic information, as well as any other prohibited criteria under law applicable to Federated Hermes. Federated Hermes endeavors to reward individual contribution, as demonstrated by the delivery of long-term sustainable
results. Federated Hermes compensation programs are also designed to align the interests of its officers and employees with its business strategy, values and objectives, including the interests of its Shareholders, clients and stakeholders,
while affording the business the opportunity to grow. Federated Hermes recognizes that a diverse and inclusive workplace benefits employees and supports stronger long-term business performance.
The Compensation Committee serves as the Board Committee that administers the Federated Hermes, Inc. Stock Incentive Plan, as amended
(Stock Incentive Plan). On October 25, 2018, the Compensation Committee, pursuant to the terms of the Stock Incentive Plan, adopted a UK Sub-Plan to the Stock Incentive Plan (UK Sub-Plan), to allow the Compensation Committee to grant awards of restricted stock to Federated Hermes United Kingdom (UK)-based employees. The Compensation Committee has delegated its full
power and authority under the Stock Incentive Plan, and UK Sub-Plan, as amended, to the Chief Executive Officer with respect to all employees other than those subject to Section 16 of
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the Exchange Act. Currently, the following persons are subject to Section 16 of the Exchange Act: Messrs. Gordon J. Ceresino, J. Christopher Donahue, Thomas R. Donahue, Dolores D. Dudiak,
John B. Fisher, Peter J. Germain, Richard A. Novak, Saker A. Nusseibeh, Paul A. Uhlman and Stephen P. Van Meter, as well as the non-employee members of the Board. In 2020, the Compensation Committee met on
three occasions.
As members of the Compensation Committee, Messrs. Joseph C. Bartolacci and Michael J. Farrell, and Ms. Marie Milie
Jones, are deemed to be non-employee directors as defined in Rule 16b-3 of the Exchange Act and outside directors, as previously defined for purposes of
Section
162(m) of the Internal Revenue Code prior to its amendment pursuant to the Tax Cuts and Jobs Act of 2017 (2017 Tax Act).
Compensation Risk
The Compensation Committee collaborates with Federated Hermes management in reviewing the material terms
of Federated Hermes compensation policies and programs for all employees, and evaluates the intended behaviors each is designed to incent to ensure that such policies and programs do not encourage excessive risk-taking that could result in a
material, adverse impact to the Company. For 2020, this review included a review of the compensation policies and programs for Federated Hermes employees, including those employed by HFML. The Compensation Committee believes that Federated
Hermes compensation policies and programs do not give rise to risks reasonably likely to have a material adverse effect on the Company.
Employee, Officer and Director Hedging
Federated Hermes Policy on Trading and Confidentiality, as amended,
(the Policy) is a policy that imposes certain restrictions on, and requirements for, among other things, hedging transactions designed to offset a decrease in the market value of the Companys issued and outstanding equity
securities granted as part of compensation or held directly or indirectly. The Policy applies to Federated Hermes Personnel which includes: (a) all directors, officers and employees of the Company, (b) those contractors and
other outside professionals determined by the Companys Compliance Department to be subject to the Policy due to the nature of their job activities, and (c) the spouses, minor children and other household members of the persons described
in (a) and (b) above. Under the Policy, Federated Hermes Personnel that are subject to Section 16 of the Exchange Act are referred to as Directors and Senior Officers.
Under the Policy, Federated Hermes Personnel are prohibited from:
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(1)
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Short-selling Company securities, including, without limitation, selling Company securities short
against the box (with no exceptions);
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(2)
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Purchasing Company securities on margin without prior written approval by the Companys Compliance
Department (which may impose restrictions on such purchases); and
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(3)
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Except for options issued directly by the Company to a Director, Senior Officer, or employee, buying or
selling, directly or indirectly, any derivative security, including put options and call options, the underlying basis of which is any Company security, subject to the following limited exception:
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(a)
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A limited exception to this restriction is available, upon approval by the Companys Compliance
Department, for derivative transactions involving up to 25% of a persons beneficial interest in Company securities, where such transactions are: (i) entered into for diversification purposes; (ii) result in the disposition of the
underlying securities (although the transaction may permit cash settlement in lieu of security settlement); and (iii) the term of the transaction is for a period of no less than one year. For example, this limited exception can be used to
permit a Director or Senior Officer to diversify their holdings in the Company by investing in an exchange fund by contributing Class B Common Stock of the Company to the fund in exchange for units of the fund, which holds a diversified pool of
securities. Before approving the transaction, the Companys Compliance Department is required to: (i) notify senior management of the particulars of the transaction; (ii) review the details of the transaction (including all paperwork
that will be entered into among the parties to the transaction); and (iii) notify senior management of its decision.
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Federated Hermes Personnel also are subject to the Policys general restrictions on insider trading (i.e., trading
based on material non-public information (or inside information)), and trading during restricted (or blackout or closed) periods. The Policy also provides that Federated
Hermes Personnel should use standing orders (i.e., orders placed with a broker to buy or sell securities at a pre-designated price that leave the Federated Hermes Personnel no control over the timing of
the
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transaction) sparingly and the Policy requires Federated Hermes Personnel to rescind standing orders so that they are not operative during restricted (or blackout or
closed) periods.
Under the Policy, Directors and Senior Officers, and their spouses, minor children and other
members of their households, are required to obtain the approval of a member of a trading compliance committee before trading or effecting any change in beneficial ownership in Company securities, whether for their own benefit or on behalf of
another person or entity. Under the Policy, Directors and Senior Officers who purchase Company securities also are required to hold such securities for a minimum of six (6) months from the date of purchase, unless the security is subject to a
forced sale (e.g., as a consequence of a merger or acquisition of the Company) or unless the Director or Senior Officer obtains the express prior written consent of the Companys Compliance Department prior to the transaction. Directors
and Senior Officers who receive such express prior permission to effect a short-term or short-swing sale remain subject to the requirement that any profits that they derive from the short-swing sale will need to be disgorged to the
Company pursuant to Section 16(b) of the Exchange Act.
Corporate Governance
To address corporate governance matters and communicate its business standards, Federated Hermes has adopted Corporate Governance Guidelines
and a Code of Business Conduct and Ethics. The Code of Business Conduct and Ethics applies to directors, officers and employees of Federated Hermes. Copies of these materials, as well as Charters for the Audit, Compensation, and Compliance
Committees, are available on Federated Hermes website at FederatedHermes.com by first clicking on Investor Relations and then Corporate Governance. The information contained on, or accessible through, our
website is not part of, or incorporated by reference in, this Information Statement. The information is also available in print upon written request.
Under Federated Hermes policies, the directors are expected to attend the Annual Meeting. All of the directors on the Board at the time
of the 2020 Annual Meeting attended the 2020 Annual Meeting via teleconference.
Communications with the Board
Independent members of the Board have regularly scheduled executive sessions without management participation. Mr. Farrell presides over
these meetings. In order that Shareholders and other interested parties may make their concerns known to the independent directors as well as to the Audit Committee, Compliance Committee, and the full Board, the Board has established a telephone
messaging system and an internet-based anonymous incident reporting system. All messages will be forwarded to and reviewed by Federated Hermes Chief Compliance Officer (CCO), who will prepare a summary of such communications for
the independent directors, the Audit Committee, the Compliance Committee, or the full Board, as appropriate. Information concerning the use of the messaging system and the reporting system can be obtained on Federated Hermes website at
FederatedHermes.com by first clicking on Investor Relations and then Corporate Governance. The information contained on, or accessible through, Federated Hermes website is not part of, or incorporated by
reference in, this Information Statement.
Board Leadership Structure
In 2020, Mr. J. Christopher Donahue was elected, and continues to serve, as President and Chief Executive Officer, and Chairman, of the
Company. The Board does not have a policy with respect to whether the Chairman should be an independent director, an affiliated director or a member of Company management. The Companys policy as to whether the role of Chief Executive Officer
and Chairman should be separate is to adopt the practice that the Board believes best serves the Companys and Shareholders interests at any particular time. Currently, the Board believes that, given Mr. J. Christopher Donahues
knowledge, experience and strategic vision, and the evolving investment management industry, combining the roles of Chairman, President and Chief Executive Officer best serves the interests of the Company and its Shareholders. Additionally, the
Board has currently designated Mr. Michael J. Farrell as Lead Independent Director. In that capacity, he chairs all executive sessions of the independent directors and serves as a liaison between the independent directors and management.
The Board believes this leadership structure is appropriate because it effectively allocates authority, responsibility and oversight between management and the non-employee directors.
Risk Oversight
The Board has oversight responsibility for risk management, focusing on significant risks facing Federated Hermes, including operational,
financial, legal, compliance and macro-economic risks. The Board and its committees work closely with management to monitor risk and it is managements responsibility to manage risk and bring to the Boards attention
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material risks to the Company. The Board has delegated responsibility to certain Board committees for the oversight of specific risks as follows:
The Compliance Committee is responsible for monitoring and reviewing significant legal, compliance and regulatory matters involving Federated
Hermes. It accomplishes this by receiving regular reports from Federated Hermes Chief Risk Officer (CRO) and CCO, and meeting in executive session with these individuals as necessary.
The Audit Committee is responsible for monitoring and reviewing Federated Hermes policies and procedures relating to the financial
reporting process, including the internal control process. It also monitors the Companys internal audit function, the work performed by the independent registered public accounting firm and the Companys compliance with related applicable
legal and regulatory requirements. The Audit Committee also oversees Federated Hermes cybersecurity and business continuity risks/events and practices, measures, training and other efforts, and receives periodic (e.g., generally quarterly or
more frequently when circumstances warrant) reports on such topics from Federated Hermes Chief Information Officer. It accomplishes these tasks by receiving regular reports from Federated Hermes Chief Audit Executive (CAE),
as well as from Federated Hermes management and independent registered public accounting firm. It also meets in regular executive sessions with the CAE and the independent registered public accounting firm.
In addition, the Board as a whole receives regular reports on significant legal and regulatory matters from Federated Hermes Chief Legal
Officer and General Counsel.
Federated Hermes maintains several departments which focus on risk assessment and mitigation. It maintains
an Enterprise Wide Risk Management department (Risk Management) headed by the CRO. The CRO chairs the Enterprise Wide Risk Management Committee which includes department heads from across Federated Hermes, including HFMLs Head of
Strategic Risk & Compliance. Risk Management implements the processes established to report and monitor material risks to the Company. The CRO reports directly to the Compliance Committee of the Board on a quarterly basis and the full Board
as appropriate. The CRO reports to the Compliance Committee on significant enterprise risks such as regulatory, compliance and business risks as well as top investment-related risks that could impact the investment products under management by
Federated Hermes. The CRO also provides the Compliance Committee with regular updates on enterprise risk initiatives being conducted by Risk Management.
Federated Hermes also maintains a Compliance Department headed by the CCO. The function of the Compliance Department and the role of the CCO
are intended to operate in a manner consistent with Rule 38a-1 under the Investment Company Act of 1940 and Rule 206(4)-7 of the Investment Advisers Act of 1940,
respectively. HFMLs Head of Strategic Risk & Compliance performs similar functions at HFML and provides information to Federated Hermes CCO on compliance matters. The Compliance Departments primary responsibility is to
assure that compliance and ethical standards are in place within Federated Hermes and that policies and procedures have been adopted and implemented that are reasonably designed to prevent violations of federal securities laws and regulations. The
CCO, like the CRO, reports directly to the Compliance Committee on significant compliance issues and initiatives on a quarterly basis and the full Board as appropriate.
Federated Hermes also maintains an Internal Audit Department headed by the CAE. The function of the Internal Audit Department is to provide an
internal assessment of business processes, including assessments of Federated Hermes internal controls over the financial reporting process. It also provides consulting services to Federated Hermes business units to better allow such units to
assess and monitor risk relating to their business processes. HFML also maintains an internal audit function, and HFMLs Head of Internal Audit provides information to Federated Hermes CAE on audit matters. The CAE reports directly to the
Audit Committee on significant internal audit-related issues, as well as on the progress of managements review of the internal controls over financial reporting on a quarterly basis.
Federated Hermes also maintains a Business Information Services Division (BISD) headed by Federated Hermes Chief Information
Officer (CIO). The BISD includes a dedicated Information Security Group (ISG) that is charged with daily oversight of Federated Hermes cybersecurity program and is headed by Federated Hermes Chief Information
Security Officer (CISO). The ISG coordinates cybersecurity efforts with counterparts at HFML. The CIO provides regular updates to the Audit Committee on Federated Hermes cybersecurity program.
Federated Hermes CCO, CRO and Deputy General Counsel, as well as Federated Hermes CIO, CISO, and other senior members of Federated
Hermes management, also are members of, and Federated Hermes CAE attends meetings of, Federated Hermes Information Security and Data Governance Committee (ISDG). The ISDGs primary functions are to:
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(1) serve as a governing body to support Federated Hermes information security and data governance
practices and efforts; (2) address information security matters and data governance matters critical to Federated Hermes; (3) review written policies and procedures reasonably designed to (a) comply with applicable legal requirements,
and (b) maintain appropriate information security and data governance practices; (4) monitor, and evaluate against industry practices and applicable regulatory requirements and guidance, Federated Hermes strategies relative to
information security and data governance; and (5) serve as a liaison for discussions concerning information security and data governance with various Federated Hermes committees or governing bodies, management, and the Board. The ISDG receives
updates quarterly on relevant cybersecurity and data governance matters, such as recent cybersecurity matters, phishing test results, cybersecurity training, BISD and ISG staffing, HFMLs cybersecurity program, regulatory developments, and
enterprise data governance and strategy.
Each of the CCO, CAE, CRO and Deputy General Counsel report to Federated Hermes Chief
Legal Officer and General Counsel. Federated Hermes fosters effective communications among its various departments by maintaining internal compliance committees that meet at least quarterly. These committees (the Internal Compliance
Committees), one for Federated Hermes and its wholly-owned subsidiaries (the Federated Hermes Committee) and one for its majority-owned subsidiary, HFML and its subsidiaries (the HFML Committee, which committee is also
known as the HFML Risk & Compliance Executive), administer Federated Hermes overall compliance program, including Federated Hermes Code of Business Conduct and Ethics. The Federated Hermes Committee is chaired by
Federated Hermes CCO and composed of the Deputy General Counsel, the CRO and the CAE. The HFML Committee is chaired by HFMLs Head of Strategic Risk & Compliance, and includes the Head of Legal Services, Chief Operating Officer
and Head of Internal Audit at HFML. The HFML Head of Strategic Risk & Compliance also participates in meetings of the Federated Hermes Committee. In addition, the Chief Legal Officer and General Counsel of Federated Hermes may provide input
to each Committee at his discretion. The HFML Committee provides information to the Federated Hermes Committee, and the Federated Hermes Committee apprises the Chief Legal Officer and General Counsel of any significant compliance matters. This
committee structure presents a formal mechanism for these department heads to discuss compliance- and risk-related matters at Federated Hermes. In addition, each of Federated Hermes CCO, CAE, CRO and Deputy General Counsel, as well as
Federated Hermes Chief Legal Officer and General Counsel, has the authority to contact the Board directly at any time to discuss risk-related matters if they deem it necessary.
Federated Hermes believes that the division of risk management responsibilities described above is an effective approach for addressing the
risks facing Federated Hermes and that the Board leadership structure, described above, supports this approach.
Nomination of
Directors
Under the NYSE Rules, Federated Hermes is not required to have a nominating committee because it is considered a
controlled company for purposes of these rules. In light of this fact, Federated Hermes believes that it is appropriate not to have a nominating committee and, therefore, does not have a nominating committee charter in reliance on the
NYSE Rules exemption. Federated Hermes current practice is for the Board as a whole to perform the functions of a nominating committee.
The Board does not currently consider director candidates recommended by Shareholders and does not have a formal policy with regard to
consideration of director candidates recommended by Shareholders. Federated Hermes believes that it is appropriate not to have such a policy because of its status as a controlled company under the NYSE Rules.
The Board seeks candidates who possess the background, skills, experience, expertise, integrity, and degree of commitment necessary to make a
significant contribution to the Board. In connection with its evaluation of a nominee, the Board takes into account all applicable laws, rules, regulations and listing standards and considers other relevant factors as it deems appropriate, including
the current composition of the Board, the balance of management and independent directors, the need for Audit Committee expertise, and its evaluation of other prospective nominees.
Although the Board does not have a formal policy regarding the consideration of diversity in identifying nominees for director, the Board
believes directors should be selected so that the Board is a diverse body. In order to achieve this result, the Board seeks nominees who reflect differences of viewpoint, professional experience, education, skill and other individual qualities and
attributes that it believes will strengthen the Board as a whole.
Nominees for directorship are recommended to the Board by Federated
Hermes Chief Executive Officer and its other directors. An invitation to join the Board will generally be extended by Federated Hermes Chairman and Chief Executive Officer.
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Compensation Committee Report
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis included herein with management. Based on this
review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Information Statement.
Respectfully Submitted:
Michael J. Farrell,
Compensation Committee Chairman
Joseph C. Bartolacci, Compensation Committee Member
Marie Milie Jones, Compensation Committee Member
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
Compensation Philosophy and Objectives
The investment management business is highly competitive and experienced professionals have significant career mobility. Federated Hermes
ability to attract, retain and properly motivate highly qualified professionals across the Company is a critical factor in maintaining Federated Hermes competitive position within the investment management industry and ensuring Federated
Hermes the opportunity for future success. Federated Hermes compensation programs across the company are designed to attract, retain and incentivize talented and qualified individuals. Federated Hermes endeavors to reward individual
contribution, as demonstrated by the delivery of long-term sustainable results. Federated Hermes compensation programs are also designed to align the interests of its officers and employees with its business strategy, values and objectives,
including the interests of its Shareholders, clients and stakeholders, while affording the business the opportunity to grow. For employees managed out of the U.S., Federated Hermes compensation programs are comprised of competitive levels of
cash compensation together with equity and other components for certain positions. Compensation is structured in the form of salary, which is competitively evaluated annually; bonus; and, where appropriate, long term incentives. For employees
managed out of the United Kingdom (UK), compensation is based on fixed and variable compensation. Fixed compensation can include base salary, a retirement plan and other corporate benefits, and is designed to provide competitive fixed compensation
at a level that reflects market-compensation. Variable compensation is discretionary based on, among other factors, an employees performance and behavior, as well as team and overall Company performance. Federated Hermes compensation
programs are designed to reward outcomes related to a variety of factors including Federated Hermes revenues, earnings, earnings on a per share basis, return on equity and payout ratio. Additional consideration is given to Federated
Hermes investment and financial performance as measured against other similar companies within the investment management industry and the performance of Federated Hermes stock. Federated Hermes Chief Executive Officer, Chief
Financial Officer and its three other most highly compensated executive officers for 2020 are referred to herein as the Named Executive Officers.
Allocation Among Compensation Components
As previously noted, each component of Federated Hermes compensation program is designed to be competitive within the investment
management industry and to align the interests of Federated Hermes executive officers with those of Federated Hermes Shareholders, clients and stakeholders. The final determination on setting compensation for executive officers rests
with the Compensation Committee. The Compensation Committee takes a holistic approach to assessing and determining the components of each executive officers total compensation. The Compensation Committee receives input and recommendations
from, and works collaboratively with, Federated Hermes Chief Executive Officer in analyzing information relating to the Company and individual performance. The Compensation Committee not only considers a variety of factors relating to Company
performance, including Federated Hermes Operating Profits (as defined hereinafter), revenues, earnings per share and stock performance, but also considers industry compensation trends among companies in Federated Hermes peer group, as
discussed below. The Compensation Committee also reviews investment performance and financial performance on a comparative basis, as well as the effectiveness of marketing and sales efforts. The Compensation Committee subjectively considers a number
of different individual and corporate performance factors, such as those noted above, but gives no specific weighting to any such factor. Each component of compensation is reviewed independently each year, taking into consideration both Company and
individual results as well as comparative peer group information.
Peer Group. In 2020, Federated Hermes engaged McLagan Partners,
Inc. (McLagan), a nationally recognized consulting firm with expertise in executive compensation practices and the investment management business, to conduct a study of the compensation of executive officers at Federated Hermes and
thirteen of Federated Hermes peers within the
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investment management industry. The Compensation Committee has reviewed Federated Hermes relationships with, and the services provided by, McLagan and has not identified any conflicts of
interest.
Federated Hermes peer group selected for purposes of McLagans study included Affiliated Managers Group, Inc.;
AllianceBernstein Holding LP; Artisan Partners; BlackRock, Inc.; Eaton Vance Corp.; Franklin Resources, Inc.; Invesco Ltd.; Janus Henderson Group PLC; Legg Mason, Inc.; T. Rowe Price Group, Inc.; Victory Capital; Virtus and Waddell & Reed
Financial, Inc. In selecting this peer group, Federated Hermes used the size criteria of approximately one-half to two times Federated Hermes in one or more of the following metrics: revenue, assets under
management, net income and market capitalization. The peer group data used for purposes of McLagans study is generally gathered from both publicly disclosed documents of those companies and industry compensation survey results. Information
prepared by McLagan was provided to the Compensation Committee to assist it in its efforts to determine appropriate levels of compensation. While the Compensation Committee considers the peer data provided by McLagan in setting executive
compensation, Federated Hermes does not benchmark to a specified percentile of this peer group.
Base Salary. Base salaries are
intended to form a competitive percentage of total cash compensation. Federated Hermes objective in paying a base salary is to provide its executive officers with a level of assured cash compensation that is commensurate with their position,
expertise and accomplishments. In establishing base salaries, the Compensation Committee considers performance assessments and recommendations provided by Federated Hermes Chief Executive Officer with respect to executive officers other than
himself. The Compensation Committee also gives consideration to Federated Hermes financial results from the prior year as well as the base salaries paid for comparable positions by companies in Federated Hermes peer group. With the
exception of Paul A. Uhlman, who received a base salary increase in consideration of his progression in the role of President, Federated Securities Corp., which he assumed in June 2016, the Compensation Committee did not increase Named Executive
Officers 2020 base salaries consistent with Federated Hermes company-wide effort to control expenses. The Compensation Committee also did not increase any of the Named Executive Officers 2021 base salaries consistent with Federated
Hermes company-wide effort to control expenses.
Bonuses. Bonuses paid under the Federated Hermes, Inc. Annual Incentive
Plan, as amended (Annual Incentive Plan) are designed to reward executive officers for the successful attainment of annual results that are consistent with Federated Hermes long-term growth and development. Each year, the
Compensation Committee reviews requirements relating to executive compensation and considers one or more performance goals for bonus awards. While a performance goal is no longer required for tax purposes due to changes from the Tax Cuts and Jobs
Act of 2017, management and the Compensation Committee continue to believe that attainment of a performance goal provides appropriate incentives and serves as an appropriate factor to consider in determining whether a bonus award is earned.
The performance period over which the performance goals are measured may be a calendar year, or other period of 12 months or less, for which a
participants performance is measured as established in the discretion of the Compensation Committee. The Compensation Committee considered a performance goal of Federated Hermes attaining Operating Profits (as defined below) of
$78.75 million for the nine-month period ended September 30, 2020, as a factor to consider in connection with bonuses awarded for 2020 to be paid in the first quarter of 2021. For purposes of the Annual Incentive Plan performance goal,
considered in connection with the Annual Incentive Plan, operating profits are defined, for the applicable performance period, as total revenue less distributions to non-controlling (minority) interests and
less total expenses (including net non-operating income/expenses and income taxes and excluding amortization of intangibles, impairment losses and debt expenses) as reflected in Federated Hermes
unaudited financial statements (Operating Profits). The Compensation Committee determined that the achievement of the performance goal under the Annual Incentive Plan will not be a condition precedent for awards under the Annual
Incentive Plan, but instead will be a factor that the Committee can consider in connection with awards. For the nine-month period ended September 30, 2020, Federated Hermes had Operating Profits of approximately $247.4 million. Achievement
of the performance goal does not serve to ensure the award of a bonus under the Annual Incentive Plan. The Compensation Committee has the discretion (either negative or positive), in appropriate circumstances, to increase, reduce or eliminate a
bonus. The awards are payable under the Annual Incentive Plan promptly after the Compensation Committee has made the final award determinations (but in no event later than 2 1⁄2 months after the close of the fiscal year in which the performance period ends).
Participants in
the Annual Incentive Plan for 2020 included Federated Hermes executive officers as of January 30, 2020. For 2021, the Compensation Committee will consider a performance goal of Federated Hermes attaining Operating Profits of
$82.50 million for the nine-month period ending September 30, 2021 as a factor to consider in connection with bonuses that will be awarded for 2021 and payable in the first quarter of 2022.
In determining awards for 2020 under the Annual Incentive Plan, the Compensation Committee considered a variety of factors, including
Federated Hermes Operating Profits, revenues, earnings, earnings on a per share basis and return on equity
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and payout ratio. Also taken into consideration by the Compensation Committee was the performance of Federated Hermes stock, Federated Hermes investment and financial performance as
measured against its peer group noted above, and the performance assessment and recommendations made by Federated Hermes Chief Executive Officer with respect to executive officers other than himself. The Compensation Committee also considered
the Companys relative performance in challenging market conditions during the pandemic, the Companys effective expense management and the Companys market share.
The Compensation Committee, as noted above, also considers individual performance factors.
Individual factors the Compensation Committee considered when determining Mr. J. Christopher Donahues 2020 bonus award included
executive leadership with respect to overall management of the Company, and executive leadership in responding to current and emerging regulatory issues.
Individual factors the Compensation Committee considered when determining Mr. Thomas R. Donahues 2020 bonus award included
breadth of operational responsibility beyond traditional Chief Financial Officer duties, and executive leadership with respect to financial reporting, industry initiatives, and acquisitions.
Individual factors the Compensation Committee considered when determining Mr. John B. Fishers 2020 bonus award included
executive leadership with respect to investment management, product performance and depth and breadth of fund knowledge.
Individual
factors the Compensation Committee considered when determining Mr. Gordon J. Ceresinos 2020 bonus award included executive leadership with respect to the Companys global business plan and international distribution.
Individual factors the Compensation Committee considered when determining Mr. Paul A. Uhlmans 2020 bonus award included his
management of Federated Hermes sales organization and executive leadership with respect to product sales, sales results and communications with clients and fund shareholders.
The Compensation Committee gives no specific weighting to any of the aforementioned individual and corporate performance factors and considers
each of them on a subjective basis. None of the determinations that the Compensation Committee made upon considering the 2017 Tax Act and the Annual Incentive Plan were intended to modify or otherwise affect in any way any remuneration provided
pursuant to a written binding contract in effect as of November 2, 2017. As a general matter, the changes to Code Section 162(m) effected by the 2017 Tax Act apply to taxable years beginning after December 31, 2017 (i.e., from
January 1, 2018 forward), however, remuneration provided pursuant to a written binding contract in effect as of November 2, 2017, and which has not thereafter been modified in any material respect, can be grandfathered under the 2017 Tax
Act and continue to be deductible (assuming compliance with other relevant requirements of former Code Section 162(m)).
Equity
Compensation. Executive officers receiving bonus awards under the Annual Incentive Plan participate in Federated Hermes Restricted Stock Program. For 2020 Annual Incentive Plan bonus awards, executive officers under the age of sixty-two on the date of the award generally receive eighty percent of their award amount in cash and twenty percent in the form of restricted stock (Bonus Restricted Stock), and may elect to receive
seventy-five percent in cash and twenty-five percent in Bonus Restricted Stock, or may elect to receive seventy percent in cash and thirty percent in Bonus Restricted Stock. For 2020, executive officers aged
sixty-two or older on the date of the award who receive bonus awards under the Annual Incentive Plan may elect to receive 100% of such awards in cash, may elect to receive eighty percent in cash and twenty
percent in Bonus Restricted Stock, may elect to receive seventy-five percent in cash and twenty-five percent in Bonus Restricted Stock, or may elect to receive seventy percent in cash and thirty percent in Bonus Restricted Stock. Bonus Restricted
Stock is awarded at eighty-five percent of fair market value, based on the closing price of Federated Hermes Class B Common Stock on the NYSE on the award date and generally vests ratably over a three-year period. Additionally, the Compensation
Committee may, at its discretion, make cash bonus awards that are not subject to the Bonus Restricted Stock Program.
Bonus Restricted
Stock awards are made at eighty-five percent of fair market value in recognition of the risk of forfeiture and the delay in receiving awards earned. The Company believes that the Bonus Restricted Stock portion of bonus awards serves to further align
the interests of executive officers with those of Federated Hermes Shareholders, clients and stakeholders.
In 2020, the
Compensation Committee also granted periodic restricted stock (Periodic Restricted Stock) awards to executive officers under the Stock Incentive Plan. In determining whether Periodic Restricted Stock awards are appropriate and, if so,
the size of such an award, the Compensation Committee holistically considers any outstanding and unvested
15
restricted stock the executive officer holds as well as the value of equity compensation as a component of total compensation. In making its decision, the Compensation Committee also considers on
a subjective basis factors such as the executive officers performance, changes in his or her responsibilities, promotions and general industry practices. Periodic Restricted Stock awards, for which executive officers pay the Company $3.00 per
share, generally vest over a ten-year period for U.S.-based personnel which Federated Hermes believes serves to align the long-term interests of executive officers with those of Federated Hermes
Shareholders, clients and stakeholders. The timing of Periodic Restricted Stock grants is driven by the Compensation Committees assessment of the need to compensate executive officers, not by Federated Hermes Class B Common Stock
price. Grants are made only during open periods in which the Company has not implemented trading restrictions. Please refer to footnotes (2) and (3) of the 2020 Summary Compensation Table and footnotes (2), (3) and (4) of the
Outstanding Equity Awards at Fiscal Year End Table, and the Narrative Disclosure to the 2020 Summary Compensation Table and the 2020 Grants of Plan-Based Awards Table, for further information relating to the Companys awards of Bonus Restricted
Stock and Periodic Restricted Stock to Named Executive Officers.
Federated Hermes does not currently award stock options to its executive
officers (or its other employees).
Perquisites and Other Benefits. Federated Hermes provides a limited number of perquisites and
other benefits to its executive officers that are intended to encourage the health and wellness of its executive officers and to reduce the time and attention that they must spend on non-Federated Hermes
issues.
Certain executive officers are eligible for reimbursement for the initiation fees and dues associated with membership in golf
and/or social clubs that have a business purpose. Such memberships provide executive officers with an appropriate forum for entertaining clients/customers and interacting with the community. During 2020, six executive officers were provided with on-site parking at Federated Hermes headquarters. Executive officers are permitted to use Federated Hermes corporate aircraft for a limited amount of personal use when the corporate aircraft is not being
utilized for business purposes. Such personal use of the corporate aircraft must be pre-approved by the Chief Executive Officer or Chief Financial Officer. Personal use of the corporate aircraft by an
executive officer results in taxable income to the executive officer determined in accordance with Internal Revenue Service regulations. For security and efficiency reasons, the Chairman and Chief Executive Officer and Chief Financial Officer are
required to use the corporate aircraft for business and personal use to the greatest reasonable extent.
Executive officers are entitled
to receive medical, life and disability coverage and other corporate benefits available to most of Federated Hermes other employees. Executive officers are also provided an annual physical, at their option.
Executive officers based in the U.S. are eligible to participate in the Federated Hermes, Inc. Profit Sharing/401(k) Plan, which is made
available to substantially all of Federated Hermes U.S. employees. Federated Hermes executive officer based in the UK is eligible to participate in a retirement plan and deferred compensation scheme which is made available to
substantially all of the Federated Hermes employees managed out of the UK.
Board Process
The Compensation Committee receives input and recommendations from, and works collaboratively with, Federated Hermes Chief Executive
Officer in analyzing information relating to Company and individual performance. As discussed above, the Compensation Committee also considers a variety of factors when determining annual salary and awards of cash bonuses and Periodic Restricted
Stock. The Compensation Committee not only considers a variety of factors relating to Company performance, including Federated Hermes Operating Profits, revenues, earnings per share and stock performance, but also considers industry
compensation trends among companies in Federated Hermes peer group as provided in the aforementioned study conducted by McLagan. The Compensation Committee also reviews investment performance and financial performance on a comparative basis,
as well as the effectiveness of marketing and sales efforts. Although the Compensation Committee considers a number of different individual and corporate performance factors, no specific weighting is given to any such factor. Because Federated
Hermes is a controlled company and does not solicit proxies, consents or authorizations from Shareholders relating to the Annual Meeting, Federated Hermes is not required to hold, and, therefore, consideration is not given to the results
of, a shareholder advisory vote on executive compensation pursuant to Section 14A of the Exchange Act.
16
Summary Compensation Table
The following table sets forth compensation information for the fiscal years ended December 31, 2020, 2019 and 2018 for Federated
Hermes Named Executive Officers.
2020 SUMMARY COMPENSATION TABLE
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Name &
Principal Position
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Year
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|
Salary
($)
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|
Bonus
($)
(1)
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|
Stock
Awards
($)
(2)
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|
Non-Equity
Incentive Plan
Compensation
($)
(3)
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All Other
Compensation
($)
(4)
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|
|
Total
($)
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|
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|
|
|
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|
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J. Christopher Donahue
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2020
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|
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787,500
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|
|
-
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|
1,482,362
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|
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3,150,000
|
|
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|
698,647
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|
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6,118,509
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|
President and Chief
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2019
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|
|
|
787,500
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|
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-
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1,376,494
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2,940,000
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604,694
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5,708,688
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Executive Officer
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2018
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|
|
|
787,500
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|
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-
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|
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|
1,376,487
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2,730,000
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545,267
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5,439,254
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Thomas R. Donahue
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2020
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720,000
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|
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-
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1,567,241
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2,415,000
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|
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|
935,152
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5,637,393
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|
Chief Financial Officer and President,
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2019
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720,000
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|
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-
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1,586,508
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2,205,000
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650,868
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5,162,376
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FII Holdings, Inc.
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2018
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|
720,000
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|
|
-
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1,371,985
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2,030,000
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615,731
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4,737,716
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John B. Fisher
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|
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2020
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|
|
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635,000
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|
|
|
-
|
|
|
|
1,602,540
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2,870,000
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|
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|
579,609
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|
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5,687,149
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|
Vice President and President and
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2019
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|
635,000
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|
|
|
-
|
|
|
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1,833,549
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2,925,000
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318,413
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|
|
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5,711,962
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|
Chief Executive Officer,
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2018
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|
635,000
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|
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-
|
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1,654,336
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2,520,000
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313,083
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5,122,419
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Federated Advisory Companies
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|
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Gordon J. Ceresino
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2020
|
|
|
|
798,000
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|
|
|
-
|
|
|
|
1,020,187
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1,330,000
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|
|
|
422,095
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|
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3,570,282
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|
Vice Chairman and President,
|
|
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2019
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|
|
|
798,000
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|
|
|
-
|
|
|
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1,621,808
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1,120,000
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|
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230,753
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3,770,561
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Federated International Management
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|
|
2018
|
|
|
|
798,000
|
|
|
|
3,000,000
|
|
|
|
771,981
|
|
|
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2,100,000
|
|
|
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261,183
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|
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6,931,164
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|
Limited and Federated International
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Securities Corp.
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Paul A. Uhlman
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2020
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500,000
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|
|
-
|
|
|
|
2,239,545
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|
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2,880,000
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|
|
|
600,529
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|
|
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6,220,074
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|
Vice President and President,
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2019
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|
|
450,000
|
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|
|
-
|
|
|
|
1,080,620
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|
|
1,680,000
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|
|
|
257,795
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|
|
|
3,468,415
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Federated Securities Corp.
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2018
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|
|
425,000
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|
|
|
-
|
|
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1,160,205
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1,760,000
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229,279
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3,574,484
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(1)
|
On August 31, 2018, in connection with the successful closing of Federated Hermes acquisition of a
majority interest in HFML, Mr. Gordon J. Ceresino received a bonus of $3 million under the Annual Incentive Plan which was paid entirely in cash and was not subject to Federated Hermes Bonus Restricted Stock Program.
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(2)
|
The amounts in this column reflect the aggregate grant date fair value of restricted stock awards for the
fiscal years ended December 31, 2020, 2019 and 2018 (as applicable) calculated in accordance with U.S. generally accepted accounting principles applicable to stock compensation. Additional information regarding Restricted Stock awards can be
found in the 2020 Grants of Plan-Based Awards Table. The calculation methodology for the valuation of Periodic Restricted Stock and Bonus Restricted Stock awards is set forth in Note 1(t) of Federated Hermes Consolidated Financial Statements
contained in Federated Hermes Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
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(3)
|
While the cash portion of the total bonus paid in 2021 for fiscal year 2020 is reported in the Non-Equity Incentive Plan Compensation column of the 2020 Summary Compensation Table, the portion of the fiscal year 2020 total bonus received in the form of Bonus Restricted Stock in 2021 is not
represented. Rather, the Bonus Restricted Stock received in 2020 for fiscal year 2019 Total Bonus is included in the Stock Awards column for fiscal year 2020. The grant date fair value of the Bonus Restricted Stock received in 2020, 2019
and 2018 for fiscal years 2019, 2018 and 2017, respectively, was based on the NYSE closing prices of $26.52, $29.89 and $34.01, respectively, on the relevant grant dates. The closing price of the Class B Common Stock on December 31, 2020,
the last day of trading in 2020, was $28.89. Bonus Restricted Stock is awarded at eighty-five percent of fair market value on the date of grant.
|
17
(4)
|
With respect to Mr. J. Christopher Donahue, the amount listed for 2020 reflects matching contributions
under Federated Hermes 401(k) Plan, company-provided parking, club dues, spousal travel and an annual physical. In addition, Federated Hermes paid the premium for life insurance and long-term disability insurance. It also includes a medical
insurance premium of $210,763, dividends received on restricted stock of $298,367 and $115,568 that reflects the aggregate incremental cost to Federated Hermes of personal use of the corporate aircraft. The aggregate incremental cost to Federated
Hermes of personal use of the corporate aircraft is determined on a per flight basis and includes the cost of fuel, landing and storage fees, crew-related expenses and other miscellaneous variable costs.
|
With respect to Mr. Thomas R. Donahue, the amount listed for 2020 reflects matching contributions under Federated Hermes
401(k) Plan, company-provided parking and spousal travel. In addition, Federated Hermes paid the premium for long-term disability insurance. It also includes a life insurance premium of $54,259, a medical insurance premium of $289,824, club dues of
$25,293, dividends received on restricted stock of $457,947 and $87,613 that reflects the aggregate incremental cost to Federated Hermes of personal use of the corporate aircraft.
With respect to Mr. Fisher, the amount listed for 2020 reflects matching contributions under Federated Hermes 401(k) Plan,
company-provided parking, club dues, spousal travel and an annual physical. In addition, Federated Hermes paid the premium for long-term disability insurance and a portion of the premiums for life, accidental death and medical insurance. It also
includes dividends received on restricted stock of $462,785 and $71,792 that reflects the aggregate incremental cost to Federated Hermes of personal use of the corporate aircraft.
With respect to Mr. Ceresino, the amount listed for 2020 reflects matching contributions under Federated Hermes 401(k) Plan and
club dues. In addition, Federated Hermes paid the premium for long-term disability insurance and a portion of the premiums for life, accidental death and medical insurance. It also includes dividends received on restricted stock of $379,348.
With respect to Mr. Uhlman, the amount listed for 2020 reflects matching contributions under Federated Hermes 401(k) Plan,
company-provided parking, club dues, spousal travel, personal use of the corporate aircraft and an annual physical. In addition, Federated Hermes paid the premium for long-term disability insurance and a portion of the premiums for life, accidental
death and medical insurance. It also includes dividends received on restricted stock of $530,662.
18
Grants of Plan-Based Awards
The following table sets forth information concerning cash bonuses and restricted stock awards granted to the Named Executive Officers during
the fiscal year ended December 31, 2020.
2020 GRANTS OF PLAN-BASED AWARDS TABLE
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|
|
|
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|
|
Estimated future payouts under
non-equity incentive plan awards
|
|
|
Estimated future payouts under
equity incentive plan awards
|
|
|
All other
stock
|
|
|
|
|
Name
|
|
Grant
Date
|
|
|
Approval
Date
(1)
|
|
|
Threshold
($)
|
|
|
Target
($)
(2)
|
|
|
Maximum
($)
|
|
|
Threshold
(#)
|
|
|
Target
(#)
(3)
|
|
|
Maximum
(#)
|
|
|
awards:
number of
shares of
stock or
units
(#)
(4)
|
|
|
Grant date
fair value
of stock
and option
awards
($)
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
J. Christopher
|
|
|
3/6/20
|
|
|
|
1/30/20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,896
|
|
|
|
1,482,362
|
|
Donahue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas R.
|
|
|
3/6/20
|
|
|
|
1/30/20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,922
|
|
|
|
1,111,771
|
|
Donahue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/18/20
|
|
|
|
11/18/20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,500
|
|
|
|
|
|
|
|
|
|
|
|
455,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,415,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
John B.
|
|
|
3/6/20
|
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|
|
1/30/20
|
|
|
|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
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|
|
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|
43,253
|
|
|
|
1,147,070
|
|
Fisher
|
|
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|
|
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|
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|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
11/18/20
|
|
|
|
11/18/20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,500
|
|
|
|
|
|
|
|
|
|
|
|
455,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,870,000
|
|
|
|
|
|
|
|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Gordon J.
|
|
|
3/6/20
|
|
|
|
1/30/20
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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21,294
|
|
|
|
564,717
|
|
Ceresino
|
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|
11/18/20
|
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|
|
11/18/20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,500
|
|
|
|
|
|
|
|
|
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|
|
455,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,330,000
|
|
|
|
|
|
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|
|
Paul A.
|
|
|
3/6/20
|
|
|
|
1/30/20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,941
|
|
|
|
847,075
|
|
Uhlman
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/22/20
|
|
|
|
2/22/20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
937,000
|
|
|
|
|
11/18/20
|
|
|
|
11/18/20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,500
|
|
|
|
|
|
|
|
|
|
|
|
455,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,880,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Compensation Committee approval date.
|
(2)
|
With respect to Messrs. J. Christopher Donahue, Thomas R. Donahue, John B. Fisher and Gordon J. Ceresino, the
amounts in this column reflect seventy percent of the bonus each received in 2021 under the Annual Incentive Plan for fiscal year 2020. The remaining thirty percent for 2020 was received in 2021 in the form of Bonus Restricted Stock. With respect to
Mr. Paul A. Uhlman, the amount in this column reflects eighty percent of the bonus he received in 2021 under the Annual Incentive Plan for fiscal year 2020 that was subject to Federated Hermes Bonus Restricted Stock Program. The
remaining twenty percent of that bonus was received in 2021 in the form of Bonus Restricted Stock.
|
(3)
|
The amounts reflected in this column represent Periodic Restricted Stock received in 2020 under the Stock
Incentive Plan for a purchase price of $3.00 per share.
|
(4)
|
The amounts reflected in this column represent Bonus Restricted Stock received in 2020 attributed to the
allocated portion of the 2019 bonus payable under the Annual Incentive Plan, which is generally subject to a three-year vesting period.
|
(5)
|
The calculation methodology for the valuation of Periodic Restricted Stock and Bonus Restricted Stock awards is
set forth in Note 1(t) of Federated Hermes Consolidated Financial Statements contained in Federated Hermes Annual Report on Form 10-K for the fiscal year ended December 31, 2020. Named
Executive Officers pay the Company $3.00 per share for Periodic Restricted Stock awards.
|
19
Narrative Disclosure to 2020 Summary Compensation Table and 2020 Grants of Plan-Based Awards Table
The 2020 Bonus Restricted Stock awards included in the Stock Awards column of the 2020 Summary Compensation Table
were granted in partial payment of the 2019 bonus awards and generally vest in equal one-third amounts over a three-year period. The Bonus Restricted Stock is awarded at eighty-five percent of fair market
value. The Bonus Restricted Stock is granted under the Annual Incentive Plan. See the discussion under the captions Bonuses and Equity Compensation in the Compensation Discussion and Analysis above for further information regarding the terms
applicable to Bonus Restricted Stock. The Bonus Restricted Stock grant date fair value is reflected under the Grant date fair value of stock and option awards column of the 2020 Grants of Plan-Based Awards Table.
On November 18, 2020, each of Messrs. Thomas R. Donahue, John B. Fisher, Gordon J. Ceresino and Paul A. Uhlman received an award of
18,500 shares of Periodic Restricted Stock under the Stock Incentive Plan. These awards are reflected in the Estimated future payouts under equity incentive plan awards column of the 2020 Grants of Plan-Based Awards Table. Each such
award is governed by an accompanying 2020 Restricted Stock Award Agreement. A performance measure of Operating Profits of at least $78.75 million for the nine-month period ended September 30, 2020 was considered in connection with the
awards. Additionally, Mr. Uhlman received an award of 50,000 shares of Periodic Restricted Stock on May 22, 2020 which is also reflected in the Estimated future payouts under equity incentive plan awards column of the 2020
Grants of Plan-Based Awards Table. Such awards are subject to confidentiality and non-competition obligations. Recipients pay the Company $3.00 per share for Periodic Restricted Stock awards and are entitled
to receive dividends on the restricted shares which are the same as those paid on unrestricted Class B Common Stock. Periodic Restricted Stock awards granted in 2020 vest over a ten-year period with
restrictions lapsing fifty percent on each of approximately the awards fifth- and tenth-year anniversaries, except in the case of a recipients death or separation from employment due to disability, in which case should death or
separation from employment due to disability occur prior to the fifth vesting date, the stock vests in accordance with the vesting schedule and all unvested shares at the time of death or disability are forfeited and sold back to Federated Hermes
for the purchase price ($3.00/share) or should death or separation from employment due to disability occur on or after the fifth vesting date, all of the unvested shares become vested shares upon such separation from employment or death.
Federated Hermes makes a matching contribution under the Federated Hermes, Inc. Profit Sharing/401(k) Plan in an amount equal to 100% of the
first 4% that each participant defers and 50% of the next 2% of deferral contributions, for a total match of 5%.
20
Outstanding Equity Awards at Fiscal Year End
The following table sets forth information concerning unvested restricted stock awards held by the Named Executive Officers as of
December 31, 2020. The Named Executive Officers held no stock options as of December 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
Name
|
|
Grant Date
|
|
Number of Units of Stock
That Have Not Vested (#)
|
|
|
Market Value of Units of Stock That
Have Not Vested ($)
(1)
|
|
J.
Christopher
|
|
11/18/2011 (2)
|
|
|
7,500
|
|
|
$
|
216,675
|
|
Donahue
|
|
11/16/2012 (2)
|
|
|
7,000
|
|
|
$
|
202,230
|
|
|
|
11/18/2013 (2)
|
|
|
8,000
|
|
|
$
|
231,120
|
|
|
|
3/6/2018 (3)
|
|
|
13,491
|
|
|
$
|
389,755
|
|
|
|
3/5/2019 (3)
|
|
|
30,702
|
|
|
$
|
886,981
|
|
|
|
3/6/2020 (3)
|
|
|
55,896
|
|
|
$
|
1,614,835
|
|
|
|
|
|
|
122,589
|
|
|
$
|
3,541,596
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
R.
|
|
11/18/2011 (2)
|
|
|
7,500
|
|
|
$
|
216,675
|
|
Donahue
|
|
11/16/2012 (2)
|
|
|
7,000
|
|
|
$
|
202,230
|
|
|
|
11/18/2013 (2)
|
|
|
8,000
|
|
|
$
|
231,120
|
|
|
|
11/18/2014 (2)
|
|
|
9,000
|
|
|
$
|
260,010
|
|
|
|
11/18/2015 (2)
|
|
|
9,250
|
|
|
$
|
267,233
|
|
|
|
11/18/2016 (2)
|
|
|
14,800
|
|
|
$
|
427,572
|
|
|
|
11/17/2017 (2)
|
|
|
15,725
|
|
|
$
|
454,295
|
|
|
|
3/6/2018 (3)
|
|
|
9,340
|
|
|
$
|
269,833
|
|
|
|
11/16/2018 (2)
|
|
|
16,650
|
|
|
$
|
481,019
|
|
|
|
3/5/2019 (3)
|
|
|
22,830
|
|
|
$
|
659,559
|
|
|
|
11/18/2019 (2)
|
|
|
17,575
|
|
|
$
|
507,742
|
|
|
|
3/6/2020 (3)
|
|
|
41,922
|
|
|
$
|
1,211,127
|
|
|
|
11/18/2020 (2)
|
|
|
18,500
|
|
|
$
|
534,465
|
|
|
|
|
|
|
198,092
|
|
|
$
|
5,722,880
|
|
|
|
|
|
|
|
|
|
|
|
|
John
B.
|
|
11/18/2011 (2)
|
|
|
7,500
|
|
|
$
|
216,675
|
|
Fisher
|
|
11/16/2012 (2)
|
|
|
7,000
|
|
|
$
|
202,230
|
|
|
|
11/18/2013 (2)
|
|
|
8,000
|
|
|
$
|
231,120
|
|
|
|
11/18/2014 (2)
|
|
|
9,000
|
|
|
$
|
260,010
|
|
|
|
11/18/2015 (2)
|
|
|
9,250
|
|
|
$
|
267,233
|
|
|
|
11/18/2016 (2)
|
|
|
14,800
|
|
|
$
|
427,572
|
|
|
|
11/17/2017 (2)
|
|
|
15,725
|
|
|
$
|
454,295
|
|
|
|
3/6/2018 (3)
|
|
|
12,107
|
|
|
$
|
349,771
|
|
|
|
11/16/2018 (2)
|
|
|
16,650
|
|
|
$
|
481,019
|
|
|
|
3/5/2019 (3)
|
|
|
28,340
|
|
|
$
|
818,743
|
|
|
|
11/18/2019 (2)
|
|
|
17,575
|
|
|
$
|
507,742
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
3/6/2020 (3)
|
|
|
43,253
|
|
|
$
|
1,249,579
|
|
|
|
11/18/2020 (2)
|
|
|
18,500
|
|
|
$
|
534,465
|
|
|
|
|
|
|
207,700
|
|
|
$
|
6,000,454
|
|
|
|
|
|
|
|
|
|
|
|
|
Gordon J.
|
|
11/18/2011 (2)
|
|
|
7,500
|
|
|
$
|
216,675
|
|
Ceresino
|
|
11/16/2012 (2)
|
|
|
7,000
|
|
|
$
|
202,230
|
|
|
|
11/18/2013 (2)
|
|
|
8,000
|
|
|
$
|
231,120
|
|
|
|
11/18/2014 (2)
|
|
|
9,000
|
|
|
$
|
260,010
|
|
|
|
11/18/2015 (2)
|
|
|
9,250
|
|
|
$
|
267,233
|
|
|
|
11/18/2016 (2)
|
|
|
14,800
|
|
|
$
|
427,572
|
|
|
|
11/17/2017 (2)
|
|
|
15,725
|
|
|
$
|
454,295
|
|
|
|
3/6/2018 (3)
|
|
|
3,459
|
|
|
$
|
99,931
|
|
|
|
11/16/2018 (2)
|
|
|
16,650
|
|
|
$
|
481,019
|
|
|
|
3/5/2019 (3)
|
|
|
23,617
|
|
|
$
|
682,295
|
|
|
|
11/18/2019 (2)
|
|
|
17,575
|
|
|
$
|
507,742
|
|
|
|
3/6/2020 (3)
|
|
|
21,294
|
|
|
$
|
615,184
|
|
|
|
11/18/2020 (2)
|
|
|
18,500
|
|
|
$
|
534,465
|
|
|
|
|
|
|
172,370
|
|
|
$
|
4,979,771
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul A.
|
|
11/18/2011 (2)
|
|
|
2,100
|
|
|
$
|
60,669
|
|
Uhlman
|
|
11/16/2012 (2)
|
|
|
3,500
|
|
|
$
|
101,115
|
|
|
|
11/18/2013 (2)
|
|
|
2,200
|
|
|
$
|
63,558
|
|
|
|
11/18/2014 (2)
|
|
|
2,250
|
|
|
$
|
65,003
|
|
|
|
11/18/2015 (2)
|
|
|
2,000
|
|
|
$
|
57,780
|
|
|
|
6/15/2016 (4)
|
|
|
40,000
|
|
|
$
|
1,155,600
|
|
|
|
11/18/2016 (2)
|
|
|
40,000
|
|
|
$
|
1,155,600
|
|
|
|
11/17/2017 (2)
|
|
|
15,725
|
|
|
$
|
454,295
|
|
|
|
3/6/2018 (3)
|
|
|
7,264
|
|
|
$
|
209,857
|
|
|
|
11/16/2018 (2)
|
|
|
16,650
|
|
|
$
|
481,019
|
|
|
|
3/5/2019 (3)
|
|
|
11,546
|
|
|
$
|
333,564
|
|
|
|
11/18/2019 (2)
|
|
|
17,575
|
|
|
$
|
507,742
|
|
|
|
3/6/2020 (3)
|
|
|
31,941
|
|
|
$
|
922,775
|
|
|
|
5/22/2020 (4)
|
|
|
50,000
|
|
|
$
|
1,444,500
|
|
|
|
11/18/2020 (2)
|
|
|
18,500
|
|
|
$
|
534,465
|
|
|
|
|
|
|
261,251
|
|
|
$
|
7,547,542
|
|
|
(1)
|
The amounts in this column reflect a December 31, 2020 closing price of
$28.89 for Class B Common Stock on the NYSE.
|
|
(2)
|
These restricted stock awards are 10-year plans which vest 5% in years 1-4 and years 6-9 and 30% in years 5 and 10. Vested shares are still considered restricted until they are released - releases occur in years 5 (first half of shares released)
and 10 (second half of shares released). Vesting schedules for the awards shown above are as follows:
|
22
|
|
|
Grant Date:
|
|
Vesting Schedule (vesting percentages should be applied to Original Shares Awarded):
|
11/18/2011
|
|
30% on November 16, 2021
|
11/16/2012
|
|
5% on November 16, 2021; 30% on November 16, 2022
|
11/18/2013
|
|
5% on November 16, 2021 and 2022; 30% on November 17, 2023
|
11/18/2014
|
|
5% on or about November 16, 2021, 2022 and 2023; 30% on November 18, 2024
|
11/18/2015
|
|
5% on or about November 16, 2021, 2022, 2023, and 2024; 30% on November 18, 2025
|
11/18/2016
|
|
5% on or about November 16, 2022, 2023, 2024 and 2025; 30% on or about November 16, 2021 and 2026
|
11/17/2017
|
|
5% on or about November 16, 2021, 2023, 2024, 2025 and 2026; 30% on or about November 16, 2022 and 2027
|
11/16/2018
|
|
5% on or about November 16, 2021, 2022, 2024, 2025, 2026 and 2027; 30% on or about November 17, 2023 and 2028
|
11/18/2019
|
|
5% on or about November 16, 2021, 2022, 2023, 2025, 2026, 2027 and 2028; 30% on or about November 18, 2024 and 2029
|
11/18/2020
|
|
5% on or about November 16, 2021, 2022, 2023, 2024, 2026, 2027, 2028 and 2029; 30% on or about November 18, 2025 and 2030
|
|
(3)
|
These restricted stock awards are 3-year bonus plans which vest 33 1/3%
each year for three years. Vested shares under these plans are released upon vesting. Vesting schedules for the awards shown above are as follows:
|
|
|
|
Grant Date:
|
|
Vesting Schedule (vesting percentages should be applied to Original Shares Awarded):
|
3/6/2018
|
|
Two-thirds of this award have already vested; remaining 1/3 to vest on March 5, 2021
|
3/5/2019
|
|
One-third of this award has already vested; remaining 2/3 to vest on March 5, 2021 (1/3) and March 4, 2022 (1/3)
|
3/6/2020
|
|
Vesting occurs 33 1/3% on each of March 5, 2021, March 4, 2022 and March 6, 2023
|
|
(4)
|
These restricted stock awards are structured identically to the 10-year
November awards described in footnote (2). Vesting schedules for these awards are as follows:
|
|
|
|
Grant Date:
|
|
Vesting Schedule (vesting percentages should be applied to Original Shares Awarded):
|
6/15/2016
|
|
5% on or about June 15, 2022, 2023, 2024, and 2025; 30% on June 15, 2021 and 2026
|
5/22/2020
|
|
5% on or about May 25, 2021, 2022, 2023, 2024, 2026, 2027, 2028 and 2029; 30% on or about May 23, 2025 and 2030
|
23
Option Exercises and Stock Vested
The following table sets forth information concerning Periodic Restricted Stock and Bonus Restricted Stock held by the Named Executive
Officers that vested during the fiscal year ended December 31, 2020. No options were exercised by the Named Executive Officers during the fiscal year ended December 31, 2020.
2020 OPTION EXERCISES AND STOCK VESTED TABLE
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
Name
|
|
Number of
shares
acquired on
vesting
(#)
|
|
|
Value realized
on vesting
($)
(1)
|
|
|
|
|
J. Christopher Donahue
|
|
|
53,987
|
|
|
|
1,417,223
|
|
|
|
|
Thomas R. Donahue
|
|
|
51,942
|
|
|
|
1,349,152
|
|
|
|
|
John B. Fisher
|
|
|
61,008
|
|
|
|
1,589,582
|
|
|
|
|
Gordon J. Ceresino
|
|
|
35,459
|
|
|
|
918,098
|
|
|
|
|
Paul A. Uhlman
|
|
|
29,341
|
|
|
|
748,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The value realized on vesting of stock awards is equal to the difference between the closing market price of
Class B Common Stock on the NYSE on the date of vesting and the purchase price paid by the Named Executive Officer, if any, multiplied by the number of shares that vested.
|
Environmental, Social and Governance (ESG) Matters
Our goal at Federated Hermes is to deliver superior risk-adjusted returns for our clients by endeavoring to set the standard for responsible,
active investment management, including rigorous investment analysis and consideration of the long-term needs of our Shareholders, clients and other stakeholders. We take a holistic approach that integrates ESG considerations and engagement insights
into our investment products and strategies, something that offers our investment professionals an additional lens through which to evaluate portfolio investments for the potential to deliver long-term sustainable wealth. Our approach to responsible
investing is through ESG integration, combining traditional analysis with ESG considerations we believe may impact the long-term sustainable growth of a company. In support of this approach, we have developed proprietary ESG analytics tools to
facilitate ESG integration into our products and strategies. These tools include data from third-party data providers along with our own data gleaned from engagement with issuers. These tools are available to all our investment teams.
As a company, Federated Hermes also utilizes an ESG lens to analyze our operations in an effort to identify both risks and opportunities that
may exist. Like the investments we evaluate as portfolio investments for our products and strategies, our goal is to identify those ESG issues that may impact the long-term sustainable growth of Federated Hermes. While the impact of specific ESG
factors varies by industry and even by company, Federated Hermes seeks to identify those most relevant to the Company and work towards improving in those areas. While that is an ongoing endeavor that may change and morph over time, Federated Hermes
is proud of our progress to date.
Federated Hermes has developed a diversity and inclusion strategy with the mission to foster a diverse,
inclusive and respectful workplace where employees across the Company are encouraged to be innovative and creative and where unique perspectives and experiences are recognized and appreciated for the contributions they bring to the Company. We
recognize that a diverse and inclusive workforce benefits our employees and supports stronger long-term business performance.
24
In addition to achieving a diverse workforce, the Companys benefit offerings across the
company are designed to equip Federated Hermes employees with resources and services to help them stay healthy, develop their careers, meet their financial goals, and balance the demands of work and personal life, as well as to further employee
engagement and retention. Along with the traditional health and welfare benefits, such as medical, dental, disability, paid time off and retirement, the Company also offers flexible work arrangements, education assistance, paid parental leave, paid
volunteer time, employee discounts and other programs and services.
Federated Hermes provides a professional work
environment for employees across the Company that supports employees career aspirations and professional development interests through training programs and mentoring initiatives. Training is provided on the job and by Federated Hermes
training staff through a blend of internal/external classroom and online courses. Federated Hermes extensive training curriculums focus on Technical, Professional, Leadership & Management, and includes, among others, courses on: the
securities markets and Federated Hermes products; compliance/regulatory requirements; license exam preparation; sales skills; customer service skills; dignity and respect in the workplace; individual and team performance; communication skills;
technical (systems) topics; and general professional development.
Federated Hermes also seeks to better the communities in which we live
and work. The Company encourages our employees participation in their communities by supporting funding requests for organizations where our employees are actively engaged. In this vein, the Company offers employees paid time off annually to
volunteer for a charity.
We see the above as opportunities we can continue to develop to better the long-term sustainable growth of the
Company. Considering ESG related risks is equally important.
Within the investment management industry, the importance of data governance
and information security continues to grow. Federated Hermes emphasizes the protection of data of our clients, Shareholders, employees and vendors. As such, we have developed policies and procedures and put into place tools designed to protect
against cybersecurity threats and vulnerabilities. Federated Hermes employs various measures aimed at mitigating cyber risk, including, among others, use of firewalls, system segmentation, system monitoring, virus scanning, periodic penetration
testing, employee phishing training and an employee cybersecurity awareness campaign. Federated Hermes also conducts due diligence on key service providers relating to cybersecurity. In recognition of the importance of information security and data
governance, Federated Hermes has established an Information Security and Data Governance Committee (ISDG) to oversee Federated Hermes information security and data governance efforts. The ISDG receives updates quarterly on relevant
cybersecurity and data governance matters, such as recent cybersecurity matters, phishing test results, cybersecurity training, staffing, HFMLs cybersecurity program, regulatory developments, and enterprise data governance and strategy.
Federated Hermes Audit Committee (and, as appropriate, Board) receive reports on cybersecurity and data governance matters on a periodic basis as part of risk management oversight responsibilities.
Pay Ratio Disclosure
For
Federated Hermes fiscal year ended December 31, 2020:
The median annual compensation of all employees of Federated Hermes
(other than the Chief Executive Officer (or principal executive officer) (CEO)) was $107,951; and
The annual total
compensation of Federated Hermes CEO was $6,118,509.
Based upon this information, the 2020 ratio of the annual total compensation
of Federated Hermes CEO to the median of the annual total compensation of all employees was approximately 57 to 1.
We believe the
pay ratio disclosed above is a reasonable estimate calculated in a manner consistent with the SECs Regulation S-K, Item 402(u). To identify the median of the annual total compensation of all of Federated
Hermes employees and to determine the annual total compensation of Federated Hermes median employee and Federated Hermes CEO, Federated Hermes took the following steps:
Federated Hermes selected December 31, 2020, which is within the last three months of 2020, as the date used to identify Federated
Hermes median employee because it enabled Federated Hermes to make such identification in an efficient and reasonable manner.
Federated Hermes determined that, as of December 31, 2020, Federated Hermes had 1,986 employees, with 1,454 employees in the U.S. and 532
employees outside of the U.S. in the United Kingdom (499), Singapore (12), Ireland (11),
25
Germany (3), Canada (2), Australia (1), Japan (1), Spain (1), Denmark (1), and Switzerland (1). For purposes of identifying the employee with the median annual compensation of all of Federated
Hermes employees, Federated Hermes considered all of its employee population, including permanent employees and temporary or seasonal employees. Employees of UK-based MEPC Limited, which became a
consolidated subsidiary as of January 1, 2020, were included. Employees of UK-based Hermes GPE LLP, which became a consolidated subsidiary as of March 1, 2020, were included and their
compensation annualized. The annual total compensation Federated Hermes used to identify the employee with the median total compensation includes all earnings reported for Federated Hermes U.S. employees on Form W-2 to the Internal Revenue Service for 2020 and internal human resources compensation records for non-U.S. employees. Federated Hermes annualized the total compensation of
the permanent employees who did not work for Federated Hermes during the entire 2020 fiscal year. Once the employee with the median total annual compensation was identified, Federated Hermes combined all of the elements of such employees
compensation for 2020 in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, resulting in annual total compensation of $107,951. The employee with the median total compensation did not
receive any equity awards. The total compensation income for Federated Hermes CEO is based upon his total compensation for 2020 as reported in the 2020 Summary Compensation Table in this Information Statement.
Employment Agreements and Change-of-Control
Agreement
On December 28, 1990, Mr. John B. Fisher entered into an employment agreement (the Fisher Employment
Agreement) with Federated Investors, a predecessor of Federated Hermes, in connection with his employment by Federated Investors as an officer and employee. The Fisher Employment Agreement is still in effect. Under the terms of the Fisher
Employment Agreement, Mr. Fisher is subject to certain restrictions with regard to confidentiality and competition. Mr. Fisher is not permitted to disclose confidential information that he receives in the course of or as a result of his
employment. Additionally, upon termination of his employment, Mr. Fisher is prohibited from directly or indirectly competing with Federated Hermes for a period of two years. Furthermore, upon termination of his employment, Mr. Fisher
agrees not to directly or indirectly solicit employees of Federated Hermes to terminate their employment or contractual relations with Federated Hermes.
On October 22, 1990, Mr. Uhlman entered into an employment agreement (the Uhlman Employment Agreement) with Federated
Securities Corp., a wholly-owned subsidiary of Federated Hermes, in connection with his employment by Federated Securities Corp. as a sales representative. The Uhlman Employment Agreement is still in effect. Under the terms of the Uhlman Employment
Agreement, Mr. Uhlman is subject to certain restrictions with regard to confidentiality and competition. Mr. Uhlman is not permitted to disclose confidential information he receives in the course of or as a result of his employment.
Additionally, upon termination of his employment, Mr. Uhlman is prohibited from directly or indirectly competing with Federated Hermes in connection with the sale of shares of money market funds or any other securities or other products and
services which may be competitive for a period of two years. Furthermore, upon termination of his employment, Mr. Uhlman agrees not to directly or indirectly solicit employees of Federated Hermes to terminate their employment or contractual
relations with Federated Hermes.
The only agreement Federated Hermes currently has in place with a Named Executive Officer that contains
a change-of-control provision is a 2016 Restricted Stock Award Agreement entered into with Mr. Paul A. Uhlman on June 15, 2016, under the Stock Incentive
Plan pursuant to which Mr. Uhlman received a total of 50,000 shares of Restricted Stock. Under the terms of the 2016 Restricted Stock Award Agreement, the shares awarded vest over a ten-year period with
restrictions lapsing on fifty percent of the award on each of approximately the awards fifth- and tenth- year anniversaries, respectively. In certain circumstances where there is a change-of-control (as described below), the vesting of the shares is accelerated. For this accelerated vesting to occur: (a) there must be a change in ownership of
fifty-one percent or greater of the Class A Common Stock of Federated Hermes; and (b) one of the following must occur (i) Mr. Uhlmans employment agreement is terminated other than
for cause (as defined in the 2016 Restricted Stock Award Agreement) by Federated Hermes or its successor during the six-month period before or the first
two-year period following a change in ownership or (ii) a constructive termination (as defined in the 2016 Restricted Stock Award Agreement) occurs prior to the occurrence of events which would permit a
termination for cause during the first two-year period following a change of ownership. If this double-trigger provision is satisfied, then any portion of the award not vested will
fully vest. Assuming that the aforementioned events occurred on December 31, 2020, thereby satisfying the double-trigger provision, the shares of Restricted Stock awarded to Mr. Uhlman pursuant to the 2016 Restricted Stock
Award Agreement that were not vested would have become fully vested with an approximate value of $1,155,600 which would include $120,000 Mr. Uhlman paid for his shares. Such events, however, did not occur.
26
TRANSACTIONS WITH RELATED PERSONS
During 2020, Mr. Richard H. Donahue, son of Mr. Thomas R. Donahue, Chief Financial Officer of Federated Hermes, was
employed by Federated Hermes as an Assistant Business Controller. Mr. Richard H. Donahue was provided compensation in the amount of approximately One-Hundred Eighty Thousand dollars and received a
Periodic Restricted Stock award with a grant date value of Forty-Nine Thousand Two-Hundred and Forty dollars, which equaled the closing price of $27.62 for Federated Hermes Class B Common Stock on the
NYSE as of November 18, 2020 multiplied by 2,000 shares, minus the $3.00 per share purchase price.
CONFLICT OF INTEREST POLICIES AND PROCEDURES
Federated Hermes maintains a Code of Business Conduct and Ethics (the Code). The Code applies to each director, officer and
employee of Federated Hermes (each a Covered Person). The Code specifically addresses a variety of conflicts of interest, including transactions with related persons. The Code also sets forth guidance for Covered Persons with regard to
general conflict of interest scenarios where an individuals private interests interfere in any way with the interests of Federated Hermes as a whole. Federated Hermes relies on the integrity and undivided loyalty of Covered Persons to maintain
the highest level of objectivity in performing their duties.
Covered Persons are expected to avoid any situation in which personal
interests conflict, or have the appearance of conflicting, with those of Federated Hermes. Covered Persons are responsible for avoiding any misconduct or perceived conflicts of interest. Accordingly, employees are expected to use prudent behavior
and discretion in all transactions and relationships and are required to make prompt and complete disclosure of any possible or probable conflict of interest to their direct supervisor or manager, human resources, or Federated Hermes Internal
Compliance Committees, as described below. Non-employee directors are also expected to make appropriate disclosures to the Board and to take appropriate steps to recuse themselves from Board decisions with
respect to transactions or other matters involving Federated Hermes as to which they are interested parties or with respect to which a real or apparent conflict of interest exists. As a general rule, Covered Persons should never receive a payment or
anything of value in exchange for a decision involving Federated Hermes business, with limited exceptions for token gifts of nominal value. Additionally, Covered Persons generally may not have any direct or indirect financial interest in, or
any business relationship with, a person or entity that does business with Federated Hermes or is a competitor of Federated Hermes. If a Covered Person has a direct or indirect financial interest in, or business relationship with, a person or entity
that does business with Federated Hermes, disclosure must be made to the Federated Hermes Committee or HFML Committee, Audit Committee or the Board, as required by the Code. A decision is then made as to whether a conflict exists, has been mitigated
or does not exist, and restrictions may be imposed. This policy does not apply to an arms-length purchase of goods or services for personal or family use or to the ownership of less than five percent of the shares of a publicly traded company. Other
arms-length business relationships with Federated Hermes and/or the Federated Hermes Funds may be permissible provided such business relationships are disclosed to, reviewed and approved by the applicable Federated Hermes Internal Compliance
Committee (as detailed below). Furthermore, Covered Persons should not engage in outside jobs or activities that compete with Federated Hermes in any way. Except in certain limited circumstances, any employee who is invited to join the board of
directors or to serve as an officer of another organization must obtain the approval of the applicable Federated Hermes Internal Compliance Committee. The Code requires directors who are invited to serve on other boards to promptly notify Federated
Hermes Chief Executive Officer and Chairman.
The Code is administered by the Internal Compliance Committees (i.e., the Federated
Hermes Committee and the HFML Committee). The Federated Hermes Committee is chaired by Federated Hermes CCO and composed of the Deputy General Counsel, the CRO and the CAE. The HFML Committee is chaired by HFMLs Head of Strategic
Risk & Compliance, and includes the Head of Legal Services, Chief Operating Officer and Head of Internal Audit at HFML. The HFMLs Head of Strategic Risk & Compliance also participates in meetings of the Federated Hermes
Committee. The HFML Committee provides information to the Federated Hermes Committee, and the Federated Hermes Committee apprises the Chief Legal Officer and General Counsel of any significant compliance matters. As previously discussed, the Code
requires Covered Persons to disclose to the applicable Internal Compliance Committee any personal activities or financial interests that could negatively influence, or give the appearance of negatively influencing, their judgment or decisions. The
Internal Compliance Committees then determine if there is a conflict and, if so, how to resolve or mitigate it without compromising the interests of Federated Hermes, the Federated Hermes Funds or other accounts, as applicable. When necessary, the
HFML Internal Compliance Committee reports matters to the Federated Hermes Internal Compliance Committee and the Federated Hermes Internal Compliance Committee will bring matters to Federated Hermes Chief Legal Officer and General Counsel,
senior staff or the Board for final resolution.
The transactions disclosed above were reviewed and approved in accordance with the Code.
27
A written copy of the Code is available on Federated Hermes website at
FederatedHermes.com by first clicking on Investor Relations and then Corporate Governance. The information contained on, or accessible through, our website is not part of, or incorporated by reference in, this
Information Statement.
28
SECURITY OWNERSHIP
Class A Common Stock
The following table sets forth certain information regarding beneficial ownership of Federated Hermes Class A Common Stock by each
person who is known by Federated Hermes to own beneficially more than five percent of the outstanding shares of Class A Common Stock as of February 26, 2021.
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|
|
|
|
|
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|
Name and Address of Beneficial Owner
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|
Shares
Beneficially
Owned
|
|
|
Percent of
Class
|
|
Voting Shares Irrevocable Trust
dated May 31, 1989
c/o The Beechwood Company, L.P.
Suite 720
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3716
|
|
|
9,000
|
|
|
|
100.0
|
%
|
All of the outstanding shares of Class A Common Stock are held by the Voting Trust, the trustees of which
are Mr. J. Christopher Donahue, Federated Hermes President and Chief Executive Officer and Chairman of the Board, Mr. Thomas R. Donahue, Federated Hermes Vice President, Chief Financial Officer, and Treasurer, and a
member of the Board, and Ms. Rhodora J. Donahue, their mother, for the benefit of certain members of the Donahue family. Under the terms of the Voting Trust, the trustees are authorized to vote shares held by the Voting Trust and the
trustees additionally may sell, transfer or otherwise dispose of shares owned by the Voting Trust. The entire voting power of Federated Hermes is vested in the holder of the outstanding shares of Class A Common Stock, except as otherwise
provided in the Restated Articles of Incorporation of Federated Hermes or as required by applicable law. The address for the trustees of the Voting Trust is the same address shown in the above table.
29
Class B Common Stock
The following table sets forth certain information regarding beneficial ownership of Federated Hermes Class B Common Stock as of
February 26, 2021, by (i) each of the current directors of Federated Hermes, (ii) the Named Executive Officers of Federated Hermes, and (iii) all executive officers and current directors of Federated Hermes as a group. As of
February 26, 2021, there were 98,966,443 shares of Class B Common Stock outstanding.
|
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|
|
|
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|
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Name of Beneficial Owner
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|
Shares Beneficially
Owned (1)(2)
|
|
|
Percent of
Class
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|
|
|
|
J. Christopher Donahue (3)
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|
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1,645,743
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|
|
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1.7
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%
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|
|
|
Thomas R. Donahue (4)
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|
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1,349,879
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1.4
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%
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|
|
|
John B. Fisher (5)
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|
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572,394
|
|
|
|
|
*
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|
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Gordon J. Ceresino (6)
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|
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265,495
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|
|
|
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*
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|
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Paul A. Uhlman
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298,324
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*
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Michael J. Farrell (7)
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142,850
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*
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Joseph C. Bartolacci
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8,650
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*
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Marie Milie Jones
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14,150
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*
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All executive officers and current directors as a group (13 persons)
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4,652,108
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4.7
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%
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|
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|
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(1)
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Calculated pursuant to Rule 13d-3(d) of the Exchange Act. Unless
stated below, each such person has sole voting and investment power with respect to all such shares.
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(2)
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Does not include an aggregate of 30,654 shares of Class B Common Stock allocated to the accounts of
directors and executive officers who are participants in the Federated Hermes, Inc. Profit Sharing/401(k) Plan.
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(3)
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Includes 5,819 shares owned by Rhodora J. Donahue Revocable Trust, Mr. J. Christopher Donahue is a
trustee (Mr. J. Christopher Donahue disclaims beneficial ownership of all 5,819 shares owned by Rhodora J. Donahue Revocable Trust); and 478,343 shares owned by The John F. Donahue and Rhodora J. Donahue Joint Revocable Trust, Mr. J.
Christopher Donahue is a trustee (Mr. J. Christopher Donahue disclaims beneficial ownership of all 478,343 shares owned by The John F. Donahue and Rhodora J. Donahue Joint Revocable Trust).
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(4)
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Includes 7,795 shares owned by Mrs. Thomas R. Donahue; 3 shares owned by The Thomas R. and Frances
L. Donahue Grantor Dynasty Trust; 27,544 shares owned by The Fran L. Donahue Grantor Trust; 37,544 shares owned by The Thomas R. Donahue Grantor Trust; 2,000 shares owned by Maxfund, Inc., of which Mr. Thomas R. Donahue is a shareholder;
421,690 shares owned by Maxfund Partners, L.P., a limited partnership of which Maxfund, Inc. is the general partner, Mr. Thomas R. Donahue is a shareholder of Maxfund, Inc. (Mr. Thomas R. Donahue disclaims beneficial ownership of
approximately 405,872 shares owned by the Maxfund Partners, L.P.); 138,911 shares owned by Comax Partners, L.P. (d/b/a The Beechwood Company, L.P.), a limited partnership of which Beechmax, Inc. is general partner, Mr. Thomas R. Donahue is
a trustee of the Trust for the Benefit of the Family of Thomas R. Donahue which is a shareholder of Beechmax, Inc. (Mr. Thomas R. Donahue disclaims beneficial ownership of approximately 136,921 shares owned by Comax Partners, L.P.); and
50,000 shares owned by a family trust, for which Mr. Thomas R. Donahue is a trustee (Mr. Thomas R. Donahue disclaims beneficial ownership of all 50,000 shares owned by the family trust).
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(5)
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Includes 40,000 shares held by Rosewood Limited Partnership, a limited partnership of which
Mr. John B. Fisher is a
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30
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general partner. Mr. John B. Fisher disclaims beneficial ownership of all shares in which he does not have a pecuniary interest.
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(6)
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Includes 79,375 shares held by Ceresino Family Trust. Mr. Gordon J. Ceresino disclaims beneficial
ownership of all shares in which he does not have a pecuniary interest.
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(7)
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Includes 30,000 shares owned by the Farrell Family Partnership 2nd, a limited partnership of which
Mr. Michael J. Farrell is the sole owner of the corporate general partner; 60,200 shares owned by the Michael J. Farrell Charitable Remainder Unit Trust; and 10,000 shares owned by The MJF 2011 Trust. Mr. Michael J. Farrell
disclaims beneficial ownership of all shares in which he does not have a pecuniary interest.
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31
Delinquent Section 16(a) Reports
Under the securities laws of the United States, Federated Hermes directors, its executive officers and any persons beneficially owning
more than ten percent of Federated Hermes Class A Common Stock and Class B Common Stock are required to report their ownership of Federated Hermes Class A Common Stock and Class B Common Stock and any changes in that
ownership to the SEC and to the NYSE. Specific due dates for these reports have been established and Federated Hermes is required to report in this Information Statement any failure to file by these dates. Based on a review of any Forms 3 and 4 (and
amendments) furnished to Federated Hermes during, and Forms 5 (and amendments) furnished to Federated Hermes with respect to, the fiscal year ended December 31, 2020, all reports required by Section 16(a) of the Exchange Act during the
fiscal year were timely filed.
32
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP served as the independent registered public accounting firm for Federated Hermes for 2020 and continues to serve as
the independent registered public accounting firm for Federated Hermes. Representatives of Ernst & Young LLP will be present at the Annual Meeting via teleconference, will have an opportunity to make a statement if they desire to do so, and
will be available to respond to appropriate questions.
The following fees are for services rendered by Ernst & Young LLP for the
audit of Federated Hermes financial statements for the fiscal years ended December 31, 2020 and December 31, 2019, the audit of internal control over financial reporting for the fiscal years ended December 31, 2020 and
December 31, 2019, the review of the financial statements in Federated Hermes Forms 10-Q for the fiscal years ended December 31, 2020 and December 31, 2019, and other billings for services
rendered to Federated Hermes:
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2020
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2019
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|
Audit Services Fees:
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|
$
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5,134,007
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$
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4,760,473
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Fees for audit of consolidated financial statements, quarterly reviews, audit of internal control over financial reporting, statutory audits of certain subsidiaries, and other significant transactions.
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Audit-Related Services Fees:
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40,230
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40,230
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Fees for audit-related services include audit of the employee benefit plan.
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Tax Fees:
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367,754
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256,145
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Fees for international tax compliance, tax advice and tax planning services and portfolio scanning services.
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All Other Fees:
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61,760
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|
129,850
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|
Fees for other services primarily include certain Federated Hermes-sponsored product-related tax assistance and certain permitted advisory services.
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AUDIT COMMITTEE PRE-APPROVAL POLICIES AND
PROCEDURES
The Audit Committee has adopted a policy for pre-approval of all audit,
audit-related, tax and other services, classified as All Other Services, to be performed by Federated Hermes independent registered public accounting firm, subject to the de minimis exception for
non-audit services described in Section 10A(i)(1) subparagraph (B) of the Exchange Act. The policy was adopted in order to ensure that the provision of these services does not impair the
auditors independence. The Audit Committee annually, or more frequently (if necessary), reviews and pre-approves the services that may be provided by the independent registered public accounting firm.
Unless a type of service to be provided by the independent registered public accounting firm has received general pre-approval, it will require specific pre-approval by
the Audit Committee. The Audit Committee will revise the list of general pre-approved services from time to time, based upon subsequent determinations. The term of the general
pre-approval is twelve months from the date of pre-approval, unless specifically provided otherwise. The Audit Committee will waive the
pre-approval requirement with respect to the provision of non-audit services if: (i) the aggregate amount of all such
non-audit services provided constitutes not more than five percent of the total amount of fees paid by Federated Hermes to its independent registered public accounting firm during the fiscal year in which the
services are provided; (ii) such services were not recognized by Federated Hermes at the time of engagement of the independent registered public accounting firm to be non-audit services; and
(iii) such services are promptly brought to the attention of the Audit Committee (or its delegate) and approved prior to the completion of the audit. The Audit Committee has delegated pre-approval
authority to the Chairman of the Audit Committee. The Chairman of the Audit Committee reports any pre-approval decisions to the Audit Committee at its scheduled meetings. All fees paid to Ernst &
Young LLP for the fiscal years ended December 31, 2020 and December 31, 2019 were pre-approved by the Audit Committee in accordance with this policy.
33
Federated Hermes, Inc.
1001 Liberty
Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
FederatedHermes.com