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Mellon Financial Corp – ‘DEF 14A’ for 4/18/06

On:  Wednesday, 3/15/06, at 8:05am ET   ·   Effective:  3/15/06   ·   For:  4/18/06   ·   Accession #:  1193125-6-54308   ·   File #:  1-07410

Previous ‘DEF 14A’:  ‘DEF 14A’ on 3/11/05 for 4/19/05   ·   Next & Latest:  ‘DEF 14A’ on 3/19/07 for 4/17/07   ·   2 References:   By:  Bank of New York Mellon Corp. – ‘10-K’ on 2/25/22 for 12/31/21 By:  Bank of New York Mellon Corp. – ‘10-K’ on 2/25/21 for 12/31/20 

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 3/15/06  Mellon Financial Corp             DEF 14A     4/18/06    1:885K                                   RR Donnelley/FA

Document/Exhibit                   Description                      Pages   Size 

 1: DEF 14A     Notice & Proxy Statement                            HTML    511K 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a)

of the Securities Exchange Act of 1934

(Amendment No.     )

Filed by the Registrant  x

Filed by a Party other than the Registrant  ¨

Check the appropriate box:

MELLON FINANCIAL CORPORATION

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

Dear Shareholder:

Shareholders are cordially invited to attend the Annual Meeting of Shareholders of Mellon Financial Corporation in Pittsburgh on Tuesday, April 18, 2006, at 10:00 A.M. Further information about the meeting and the matters to be considered is contained in the formal Notice of Annual Meeting and Proxy Statement on the following pages.

It is important that each shareholder’s shares be represented at this meeting. Whether or not a shareholder plans to attend, all shareholders are requested to sign, date and return the proxy form promptly in the enclosed envelope or vote by the Internet or telephone as described on the proxy form. Completing and returning the enclosed proxy or voting by the Internet or telephone will not limit rights to vote in person or to attend the meeting.

Sincerely,

/s/ Robert P. Kelly

Robert P. Kelly

Chairman, President and Chief Executive Officer

Mellon

One Mellon Center

Pittsburgh, Pennsylvania 15258-0001

Notice of Annual Meeting of Shareholders

To the Shareholders:

On Tuesday, April 18, 2006, Mellon Financial Corporation (the “Corporation”) will hold its 2006 Annual Meeting of Shareholders on the 10th Floor of Two Mellon Center, 501 Grant Street, Pittsburgh, Pennsylvania. The meeting will begin at 10:00 A.M.

Only shareholders of record at the close of business on February 10, 2006, can vote at this meeting or any adjournments that may take place. At the meeting we will consider and act upon the following:

Enclosed are a Proxy Statement, a proxy form, a postage paid addressed return envelope and the Corporation’s 2005 Annual Report (which consists of the 2005 Summary Annual Report and 2005 Financial Annual Report). All shareholders, whether or not they expect to be present at the meeting, are requested to mark, sign and date the proxy form and return it in the postage paid addressed envelope promptly or to vote by the Internet or telephone as described on the proxy form. Shareholders who plan to attend the meeting in person are also requested to complete and return the reservation form that appears at the end of the Proxy Statement. Shareholders who attend the meeting may, if they wish, vote in person even though they have previously voted.

By Order of the Board of Directors

/s/ Carl Krasik

Carl Krasik

Secretary

March 15, 2006

Mellon

One Mellon Center

Pittsburgh, Pennsylvania 15258-0001

Proxy Statement

March 15, 2006

The Board of Directors of Mellon Financial Corporation (the “Corporation”) is soliciting proxies for the Corporation’s Annual Meeting of Shareholders scheduled to be held on Tuesday, April 18, 2006. Proxies are being solicited from holders of the Corporation’s common stock, par value $0.50 per share (the “Common Stock”). Holders of Common Stock are entitled to one vote for each share held and are not entitled to cumulative voting.

Shareholders may vote either by returning the enclosed proxy form or through the Internet or by telephone. Registered holders with addresses outside the United States may not be able to vote by telephone. The Internet and telephone voting facilities for shareholders of record will close at 11:59 p.m. on April 17, 2006. The Internet and telephone voting procedures are described on the enclosed proxy form and are designed to authenticate shareholders by use of a control number and to allow shareholders to confirm that their instructions have been properly recorded.

Whether shares are voted by proxy form, through the Internet or by telephone, shares will be voted as directed. If a shareholder signs and returns a proxy form or votes by the Internet without providing voting directions, the shareholder’s shares will be voted at the annual meeting in accordance with the recommendations of the Board of Directors as follows: Proxy Item 1—FOR the election as directors of the nominees of the Board of Directors set forth below; Proxy Item 2—FOR the proposal to approve the adoption of the Mellon Financial Corporation Director Equity Plan (2006); Proxy Item 3—AGAINST approval of the shareholder proposal—and Proxy Item 4—FOR ratification of the appointment of KPMG LLP as independent public accountants of the Corporation for the year 2006. If a shareholder votes by telephone, the shareholder must provide voting directions as to each Proxy Item. Regardless of the method of voting, a shareholder may revoke a proxy before it is voted at the meeting by completing and returning a proxy form with a later date, by voting by telephone or on the Internet at a later date and prior to the close of the telephone or Internet voting facilities, by writing to the Secretary of the Corporation and stating that the shareholder is revoking an earlier proxy or by voting in person at the meeting. If a shareholder votes more than once, the latest vote will be counted.

Unless a shareholder otherwise directs, the persons appointed proxies to vote at the annual meeting may vote or act in accordance with their judgment on any other matters properly presented for action at the meeting and at any adjournment of such meeting.

The close of business on Friday, February 10, 2006, was set by the Board of Directors as the record date for the determination of shareholders entitled to notice of and to vote at the annual meeting or any adjournment of that meeting. As of that date, the Corporation had outstanding 413,876,116 shares of Common Stock. The Corporation’s transfer agent holds in confidence proxies, ballots and voting tabulations that identify individual holders of Common Stock. Individual votes will not be disclosed to the Corporation by the transfer agent except as may be necessary to meet legal requirements, in the case of a contested proxy solicitation or as may be requested by the particular shareholder. The distribution of these proxy materials, consisting of the Notice of Annual Meeting, the Proxy Statement and the proxy form, together with the Corporation’s 2005 Annual Report (consisting of the 2005 Summary Annual Report and 2005 Financial Annual Report), is expected to commence on or about March 15, 2006. For a free copy of the Corporation’s Annual Report on Form 10-K for 2005, including financial statements and any financial statement schedules, please send a written request by e-mail to mellon_10-K/8-K@mellon.com or by mail to Carl Krasik, Secretary of the Corporation, One Mellon Center, Room 4826, Pittsburgh, PA 15258-0001.

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ELECTION OF DIRECTORS (Proxy Item 1)

The By-Laws of the Corporation provide that the directors will serve in three classes, as nearly equal in number as possible, with each class of directors serving a staggered, three-year term of office. At each annual meeting of shareholders, a class consisting of approximately one-third of the Corporation’s directors is elected to hold office for a term expiring at the annual meeting held in the third year following the year of their election and until their successors have been duly elected and qualified. The By-Laws also provide that the Corporation’s Board of Directors shall consist of such number of directors as shall be fixed from time to time by a majority vote of the full Board of Directors. The Board of Directors on February 21, 2006 fixed the number of directors at 15, effective with the 2006 Annual Meeting of Shareholders, and nominated five directors for election at this Annual Meeting. Paul L. Cejas, Seward Prosser Mellon, Mark A. Nordenberg, James F. Orr, III and William E. Strickland, Jr., all of whom are currently serving as directors of the Corporation, were nominated to the class of directors whose terms end in 2009.

Subsequently, on March 6, 2006 James F. Orr, III notified the Corporation that he did not wish to stand for reelection as a director at the expiration of his term on April 18, 2006. Mr. Orr advised that he is considering the possibility of joining the board of directors of a large corporation which would involve a substantial time commitment on his part. Mr. Orr also advised the Corporation that there is no disagreement between him and the Corporation on any matter relating to the Corporation’s operations, policies or practices. Mr. Orr, as Chair of the Corporation’s Corporate Governance and Nominating Committee, has served as the Corporation’s Lead Director since December 2005 when the position was created. He also serves on the Risk and Executive Committees of the Board. Mr. Orr was initially elected a director effective April 15, 2003. In light of Mr. Orr’s decision, the Board will at its April 17, 2006 meeting reconsider its action regarding the size of the Board.

Martin G. McGuinn ceased serving as Chairman and Chief Executive Officer on February 13, 2006 and resigned as a member of the Board of Directors effective the same date. Robert P. Kelly was appointed Chairman, President and Chief Executive Officer and was elected as a member of the Board of Directors effective February 13, 2006.

Any vacancies in the Board of Directors resulting from death, retirement, resignation, disqualification, removal from office or other cause, as well as any vacancy resulting from an increase in the number of directors that occurs between annual meetings of shareholders, will be filled by a majority vote of the remaining directors then in office. Directors so chosen to fill vacancies will hold office until the expiration of the term of the class to which they have been elected.

If one or more of the nominees named below is unable or unwilling to serve as a director, the persons named as proxies will vote for the election of such substitute nominee, if any, as shall be named by the Corporate Governance and Nominating Committee of the Board of Directors. The Board of Directors has no reason to believe that any of such nominees will be unable or unwilling to serve as a director, as each of these nominees has expressed a willingness to serve if elected.

The Corporation’s Board Policies provide that directors are expected to attend annual meetings of shareholders. Fifteen of the then-serving sixteen directors attended the 2005 annual meeting of shareholders.

Biographical Summaries of Nominees and Directors

Information regarding the four nominees for election at this year’s annual meeting, as well as information regarding the continuing directors whose terms expire in 2007 and 2008, is set forth below. The shareholders at the Corporation’s 2003 annual meeting of shareholders previously elected each of the four nominees except for Mr. Cejas. The Board of Directors elected Mr. Cejas a director effective June 1, 2004.

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		NOMINEES FOR DIRECTOR—TERM EXPIRES 2009
		Paul L. Cejas                                         Director Since 2004                            Age 63   Chairman and Chief Executive Officer, PLC Investments, Inc. (investments) (2001). From 1998 to 2001, Mr. Cejas served as the United States Ambassador to Belgium. He serves on the Corporation’s Audit Committee, Community Responsibility Committee and Risk Committee.
		Seward Prosser Mellon                      Director Since 1972                            Age 63   President and Chief Executive Officer, Richard K. Mellon and Sons (investments), and President and Trustee, Richard King Mellon Foundation (philanthropy).
		Mark A. Nordenberg                          Director Since 1998                             Age 57   Chancellor, University of Pittsburgh (major public research university). He serves on the Corporation’s Executive Committee, Human Resources Committee, Community Responsibility Committee (Chair) and Corporate Governance and Nominating Committee.
		William E. Strickland, Jr.                  Director Since 2001                            Age 58   President and Chief Executive Officer, Manchester Bidwell Corporation (education of inner-city youth and economically disadvantaged individuals). He serves on the Corporation’s Community Responsibility Committee and Risk Committee.

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		DIRECTORS—TERM EXPIRES 2007   Jared L. Cohon                                   Director Since 1998                             Age 58   President, Carnegie Mellon University (private coeducational research university). Dr. Cohon is also a director of American Standard Companies Inc. He serves on the Corporation’s Audit Committee and Corporate Governance and Nominating Committee.
		Ira J. Gumberg                                    Director Since 1989                             Age 52   President, Chief Executive Officer and director, J.J. Gumberg Co. (real estate development and acquisition). Mr. Gumberg is also a director of Jo-Ann Stores, Inc. He serves on the Corporation’s Executive Committee, Audit Committee (Chair) and Risk Committee (Vice Chair).
		Robert P. Kelly                                   Director Since 2006                             Age 51   Chairman, President and Chief Executive Officer of the Corporation and Mellon Bank, N.A. (“Mellon Bank”) (2006). From 2000 to 2006, Mr. Kelly was Chief Financial Officer of Wachovia Corporation and prior to that First Union Corporation (financial services). Mr. Kelly is also a director of Cadillac Fairview Corporation. He serves as Chair of the Corporation’s Executive Committee.
		David S. Shapira                                  Director Since 1986                            Age 64   Chairman, Chief Executive Officer, President and director, Giant Eagle, Inc. (retail grocery store chain). Mr. Shapira is also a director of Equitable Resources, Inc. He serves on the Corporation’s Executive Committee, Audit Committee (Vice Chair), Risk Committee (Chair) and Technology Committee.
		John P. Surma                                    Director Since 2004                          Age 51   Chairman (2006) and Chief Executive Officer (2004) and director (2002), United States Steel Corporation (steel manufacturing). From 2003 to 2004, Mr. Surma was President and Chief Operating Officer of United States Steel Corporation. From 2002 to 2003, Mr. Surma was Vice Chairman and Chief Financial Officer of United States Steel Corporation. From September, 2001 to 2002, Mr. Surma was Assistant to the Chairman of USX Corporation (steel manufacturing and oil and gas). From January, 2001 to September, 2001, Mr. Surma was President of Marathon Ashland Petroleum LLC (oil and gas). Mr. Surma is also a director of Calgon Carbon Corporation. He serves on the Corporation’s Audit Committee and Human Resources Committee.

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		DIRECTORS—TERM EXPIRES 2008
		Ruth E. Bruch                                    Director Since 2003                               Age 52   Senior Vice President and Chief Information Officer, Kellogg Company (cereal and convenience foods) (2006). From 2002-2006, Senior Vice President and Chief Information Officer, Lucent Technologies Inc. (communications networking solutions). From 2000 to 2002, Ms. Bruch served as Vice President and Chief Information Officer of Visteon Corporation (auto industry supplies). She serves on the Corporation’s Community Responsibility Committee, Human Resources Committee and Technology Committee.
		Steven G. Elliott                                 Director Since 2001                             Age 59   Senior Vice Chairman of the Corporation and of Mellon Bank (2001). From 1999-2001, Mr. Elliott served as Senior Vice Chairman and Chief Financial Officer of the Corporation and Mellon Bank. Mr. Elliott serves on the Corporation’s Executive Committee.
		Edmund F. Kelly                                Director Since 2004                             Age 60   Chairman, President and Chief Executive Officer, Liberty Mutual Group (multi-line insurance company). He serves on the Corporation’s Corporate Governance and Nominating Committee and Human Resources Committee.
		Robert Mehrabian                              Director Since 1994                             Age 64   Chairman, President and Chief Executive Officer, Teledyne Technologies Incorporated (advanced industrial technologies). Dr. Mehrabian is also a director of PPG Industries, Inc. He serves on the Corporation’s Executive Committee, Audit Committee, Human Resources Committee (Vice Chair) and Technology Committee (Chair).
		Wesley W. von Schack                       Director Since 1989                             Age 61   Chairman, President and Chief Executive Officer, Energy East Corporation (energy services company). Mr. von Schack is also a director of Energy East Corporation and Associated Electric and Gas Insurance Services Limited. He serves on the Corporation’s Executive Committee, Human Resources Committee (Chair), Corporate Governance and Nominating Committee (Vice Chair) and Technology Committee.

Action by Shareholders

The four nominees receiving the highest numbers of votes cast at the annual meeting by all holders of shares of Common Stock will be elected as directors for the terms expiring in 2009. A vote indicated as withheld from a nominee will not be cast for such nominee but will be counted in determining the presence of a quorum.

With respect to the election of directors (Proxy Item 1), the Board of Directors recommends a vote FOR the election of all nominees.

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THE BOARD AND ITS COMMITTEES; DIRECTORS’ COMPENSATION

The Board of Directors held 11 regular meetings and one special meeting during 2005. Each incumbent director attended at least 75 percent of the aggregate number of meetings of the Board and of the committees of which he or she was a member during the period served in 2005. With the exception of the Executive Committee, all Board committees are composed solely of independent directors. The Charters of all Board committees, including the Audit, the Corporate Governance and Nominating and the Human Resources Committees, are available at the Corporation’s website at www.mellon.com/governance/committees.html. Print copies may be obtained by making a written request to the Secretary of the Corporation at Room 4826, One Mellon Center, Pittsburgh, PA, 15258-0001.

The committees of the Board of Directors and a general description of their respective duties follow:

Executive Committee

The Executive Committee has the power and authority of the Board of Directors between meetings of the Board. The Executive Committee met one time in 2005.

Audit Committee

The Audit Committee assists the Board of Directors in fulfilling its oversight responsibilities in respect of (i) the integrity of the Corporation’s financial reporting process and systems of internal controls regarding finance and accounting, (ii) the integrity of the Corporation’s financial statements, (iii) the qualifications, independence and performance of the Corporation’s independent auditors and internal auditors and (iv) compliance with legal and regulatory requirements. All members of the Audit Committee are independent under the standards established by the New York Stock Exchange. The Audit Committee provides an avenue of communication among the independent auditors, management, the internal auditors and the Board of Directors. The Head of the Corporation’s Audit and Risk Review Department meets with the Committee at each meeting of the Committee, and the Corporation’s independent public accountants meet with the Committee at least quarterly, with and without representatives of management present, to review accounting, auditing and financial reporting matters. The Committee is also responsible for reviewing significant reports from regulatory authorities that relate to its purpose. The Corporation’s independent public accountants are appointed by the Audit Committee and ratified by the shareholders. The Audit Committee met 12 times during 2005. See “Audit Committee Report” on pages 41 and 42. The members of the Audit Committee are also the members of the Mellon Bank Audit Committee.

Corporate Governance and Nominating Committee

It is the responsibility of the Corporate Governance and Nominating Committee to review and make recommendations to the Board with respect to the corporate governance policies and practices of the Corporation and to develop and recommend to the Board a set of corporate governance principles applicable to the Corporation. All members of the Committee are independent under the standards for independence established by the New York Stock Exchange. The Committee will periodically review, develop and recommend Board Policies to the Board which represent the corporate governance principles of the Corporation, including the compensation of directors who are not employees of the Corporation or its subsidiaries, and the responsibilities of the committees of the Boards of the Corporation and Mellon Bank. The Corporate Governance and Nominating Committee also recommends to the Corporation’s Board and to the Boards of its various significant subsidiaries such as Mellon Bank, Mellon United National Bank, Mellon 1st Business Bank, National Association, Mellon Trust of New England, National Association (collectively the “Banks”), The Boston Company and The Dreyfus Corporation, candidates for nomination for election as directors of the Corporation and of those respective entities. The Committee also recommends appointments of directors as members of committees of the Boards of the Corporation and Mellon Bank.

The Committee considers nominees recommended by shareholders for election as directors of the Corporation. To make such a recommendation, a shareholder should submit in writing the name, address and qualifications of the proposed nominee to the Secretary of the Corporation, One Mellon Center, Room 4826, Pittsburgh, Pennsylvania 15258-0001. In addition, Article 2, Section 4 of the

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Corporation’s By-Laws sets forth specific procedures that, if followed, enable any shareholder entitled to vote in the election of directors to make nominations directly at a meeting of shareholders. Those procedures include a requirement for written notice to the Corporation at least 90 days prior to the anniversary date of the previous year’s annual meeting of shareholders. For the Corporation’s annual meeting to be held in 2007, the notice deadline under the By-Law will be January 18, 2007.

The Committee also has oversight responsibility for the self-evaluation process of the Corporation’s Board and Committees, the orientation of new Board members and the continuing education of Directors. The Committee has sole authority to retain any search firm to be used to identify director candidates, including approval of fees and other retention terms. See “Corporate Governance and Nominating Committee Report” beginning on page 39. The Committee met one time during 2005.

Human Resources Committee

The Human Resources Committee establishes the compensation and benefits of the Chairman, President and Chief Executive Officer, the Senior Vice Chairman and such other senior officers of the Corporation and its subsidiaries as it decides. All members of the Human Resources Committee are independent under the standards established by the New York Stock Exchange. The Committee also reviews programs to facilitate the selection and development of key managers and receives reports regarding the operation and administration of the Corporation’s employee benefit plans. The Committee administers the Corporation’s Profit Bonus Plan and Long-Term Profit Incentive Plan, including the making of awards thereunder. The Committee is responsible for conducting a formal, written evaluation of the performance of the Chief Executive Officer annually and reviewing a succession plan for the Chief Executive Officer and other senior officers. See “Compensation Committee Report” beginning on page 34. The Human Resources Committee met 15 times during 2005.

Community Responsibility Committee

The Community Responsibility Committee assists the Board of Directors in fulfilling its oversight responsibilities in respect of the Corporation’s policy concerning overall compliance with the Community Reinvestment Act (“CRA”) and Fair Lending activities. In addition, the Committee has specific responsibilities for reviewing the Corporation’s overall policy and goals concerning CRA and Fair Lending activities, reviewing the Corporation’s and each Bank’s compliance with CRA and Fair Lending laws and reviewing CRA-related community relationships. The Committee reviews the examination reports of the Corporation and the Banks by regulatory authorities concerning CRA and Fair Lending compliance and renders a report to the Board with respect to these matters. The Community Responsibility Committee met two times during 2005.

Risk Committee

The Risk Committee assists the Board of Directors in fulfilling its oversight responsibilities in respect of: (i) the risks inherent in the Corporation’s businesses and the control processes with respect to such risks; (ii) the risk profile of the Corporation; (iii) the Corporation’s risk management, compliance and control activities; and (iv) compliance with legal and regulatory requirements and the integrity of the Corporation’s systems of operational controls regarding such compliance.

The Committee is also responsible for reviewing significant reports from regulatory agencies relating to risk and compliance issues. In consultation with management, the independent auditors and the internal auditors, it is the Committee’s responsibility to review significant financial and other risk exposures and the steps management has taken to monitor, control and report such exposures, including, without limitation, review of credit, market, fiduciary, liquidity, reputation, operational, fraud and strategic risks. The Risk Committee met four times in 2005.

Technology Committee

The Technology Committee assists the Board of Directors in fulfilling its oversight responsibilities in respect of the overall role of technology and its use throughout the Corporation. It advises and assists management in the formulation and implementation of operating and strategic plans designed to take full advantage of existing and emerging technology. It monitors the performance of technology throughout the Corporation and its contribution towards the Corporation’s business and strategic objectives. The Technology Committee met five times during 2005.

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Directors’ Compensation

Each director of the Corporation who does not receive a salary from the Corporation or one of its subsidiaries currently receives a monthly retainer of $3,750 and, in addition, a fee of $1,500 for each meeting at which such director renders services to the Corporation, including meetings of shareholders, the Board of Directors or any committee of the Board on which he or she serves, and separate meetings (if any) with senior management of the Corporation at which services are rendered. Also, this meeting fee is payable for each day’s attendance by a director at a continuing education program. Directors attending such a program are also reimbursed for tuition fees and out-of-pocket expenses. There is an orientation fee of $500 per meeting payable for attendance at orientation meetings to a director in his or her first term or to a director who has assumed new responsibilities. In addition, the Audit Committee Chair and the Human Resources Committee Chair each receives an annual retainer of $12,500 and the director who serves as a Committee Chair of each other committee receives an annual retainer of $10,000 (proposed to be increased to $12,500 for the Chair of the Corporate Governance and Nominating Committee, effective April 18, 2006). The directors also serve as the Board of Directors of Mellon Bank and are paid a fee of $700 for attending meetings of that Board on a day when the Corporation’s Board of Directors does not meet. Total cash compensation paid in 2005 to individual directors ranged from a low of approximately $59,600 to a high of approximately $156,500, and averaged approximately $95,000.

The Corporation reimburses directors for their out-of-pocket expenses incident to their service on the Board and also reimburses the expenses of their spouses incurred in connection with spouses’ attendance at the annual Board of Directors off-site meeting and the annual meeting of shareholders. Directors are covered by travel and accident insurance and directors and officers liability insurance provided by Mellon, receive a modest holiday gift from the Corporation and may receive other incidental benefits (such as event tickets) because they serve on the Board.

Non-employee directors may defer all or a portion of their fees pursuant to the terms of the Corporation’s 1990 Elective Deferred Compensation Plan for Directors and Members of the Advisory Board (the “Directors Deferred Compensation Plan”). Deferred compensation accrues interest at a rate based on the 120-month rolling average rates on 10-year Treasury Notes, plus a premium based on years of service, subject to a floor of 7.5% for periods from and after January 2002. The rate in 2005 for a director with 7 or more years of service was 10.13%. Directors may also invest their future deferrals to match the return on certain variable return funds.

Non-employee directors currently receive stock option grants under the Corporation’s Stock Option Plan for Outside Directors (2001) (the “2001 Director Plan”), under which options to purchase 3,300 shares of Common Stock are granted to non-employee directors each year on the third business day following the Corporation’s annual meeting of shareholders. All options have a term of 10 years from the regular grant date, become fully exercisable one year from the regular grant date, and have an exercise price equal to the closing price of the Common Stock on the New York Stock Exchange on the grant date. Non-employee directors (if any) elected between annual meetings receive an option grant covering a prorated number of shares and with an exercise price equal to the closing price of the Common Stock on the New York Stock Exchange on the grant date but with all other terms identical to those options granted under the Plan on the regular grant date. If the director’s service ceases for any reason other than death, disability or completion of term of service, options that have not become exercisable are forfeited. In the event of a change in control of the Corporation, as defined, all unvested option grants under the Plan would become immediately exercisable. Options that have become exercisable remain exercisable throughout their 10-year term, regardless of whether the optionee is a director at the time of exercise. In April 2005, each non-employee director was granted an option covering 3,300 shares of Common Stock at an exercise price of $27.45 per share.

The proposed Mellon Financial Corporation Director Equity Plan (2006) (the “2006 Director Plan”) is discussed on pages 28 to 31. If the adoption of the 2006 Director Plan is approved by the Corporation’s shareholders, no grant of stock options will be made under the 2001 Director Plan in 2006 or thereafter. Subject to shareholder approval of the 2006 Director Plan, the Corporate Governance and Nominating Committee has recommended that a grant of Deferred Share Units having a value of approximately $85,000 be made to each non-employee director on April 21, 2006. Each proposed Deferred Share Unit would represent the right to receive one share of Common Stock upon the termination of the director’s service on the Board. The proposed Deferred Share Units would vest on

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the date of the Corporation’s 2007 annual meeting of shareholders. Upon termination of service a director would receive, in addition to the shares represented by the Deferred Share Units originally awarded, the number of shares that could have been purchased with dividends if each Unit were an outstanding share enrolled in the Corporation’s dividend reinvestment plan. No determination has been made as to any awards that may be made under the 2006 Director Plan other than the one described above. If the adoption of the 2006 Director Plan is not approved by shareholders, grants of stock options will continue to be made under the 2001 Director Plan.

As part of its overall program to promote charitable giving, the Corporation has established a Directors’ Charitable Giving Program that is informally funded by Corporation-owned life insurance policies on the directors. Under the program, upon a director’s death the Corporation will donate up to an aggregate of $250,000 over a 10-year period to one or more qualifying charitable organizations designated by the director. A director must have served on the Board for three years to be eligible to participate. The program is not expected to result in any material cost to the Corporation.

As a further part of its overall program to promote charitable giving, the Corporation has established a Directors’ Charitable Matching Gift Program. Under this Program, the Corporation will match on a 1 to 1 basis donations by non-employee directors to qualifying charitable organizations up to a maximum of $5,000 per director per calendar year.

CORPORATE GOVERNANCE MATTERS

The corporate governance principles and practices of the Corporation are set forth in the Board Policies of the Board of Directors. The Board Policies cover a wide range of subjects such as criteria for the nomination of Directors, procedural matters relating to meetings of the Board, Board Committees, Stock Ownership Guidelines (discussed in footnote 4 on page 14), management authority and matters that require Board approval, Committee Charters and the compensation schedule for directors. The Board Policies are available at the Corporation’s website at www.mellon.com/governance/policies.html. Print copies may be obtained by making a written request to the Secretary of the Corporation at Room 4826, One Mellon Center, Pittsburgh, PA, 15258-0001.

During 2006, the Board of Directors and Robert P. Kelly, the Corporation’s new Chairman, President and Chief Executive Officer, will conduct a thorough review of all the Corporation’s corporate governance arrangements that relate to unsolicited takeover efforts. The Board of Directors and Mr. Kelly believe that it is important that this review be thorough and that an appropriate amount of time needs to be allocated to the process. The Board has determined, however, that regardless of any other results of this review and analysis, it will propose as a management proposal to the shareholders for a vote at the 2007 annual meeting of shareholders and recommend in favor of an amendment to the By-Laws to declassify the Board of Directors. Once fully phased in and with the phase-in beginning with the election of directors in 2007, the entire Board of Directors will stand for election at each annual meeting.

In December, 2005 the Board of Directors amended the Board Policies to provide that the Chair of the Corporate Governance and Nominating Committee is by virtue of that position the Corporation’s Lead Director. Under the Board Policies, the Lead Director is to, among other things, review and approve schedules and agendas for meetings of the Board (including matters to be covered and time allocated to the various matters), review with the Chairman of the Board the adequacy and appropriateness of information being distributed to the Board and preside at executive sessions of the non-management directors.

The Board Policies provide that a director is expected to retire from the Board effective as of the date of the Annual Meeting after he or she has attained the age of 70. A director who retires from, or otherwise discontinues his or her active employment or substantially changes his or her position or responsibilities with, the business or other enterprise with which he or she was primarily affiliated at the time of his or her most recent election to the Board is expected to tender his or her resignation as a director at the time such retirement, discontinuance or change becomes effective. In February 2006, in connection with a change of employment, Ruth E. Bruch submitted her resignation as a director, and the Board decided not to accept her resignation.

The Board Policies require the Board annually to evaluate its performance, and the Board conducted a self-assessment in December, 2005. Board Policies encourage director attendance at quality continuing education programs, provide for succession planning for the Chief Executive Officer and other senior

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managers and provide that the Board and any Committee has the ability to retain, at the Corporation’s expense, special legal, accounting or other consultants or experts it deems necessary.

The Board Policies provide that executive sessions of the non-management directors with no members of management present are to be held in January, May and September of each year and chaired by the Corporation’s Lead Director. At each other Board meeting, directors are offered the opportunity to hold an executive session without any Corporation officer present and chaired by the Corporation’s Lead Director. In 2005, eight executive sessions of the non-management directors were held. In 2005, executive sessions of the Committee were held after six Audit Committee meetings, three Risk Committee meetings and ten Human Resources Committee meetings.

New Board members have an orientation program consisting of in-depth meetings with each of the Chief Financial Officer and the Secretary and any additional meetings with senior officers that the director may request.

In February, 2004, the Board determined that Ira J. Gumberg, Chair of the Audit Committee and an independent director, is an audit committee financial expert and, in April, 2004 the Board determined that John P. Surma, a member of the Audit Committee and an independent director, is an audit committee financial expert, in each case within the meaning of rules of the Securities and Exchange Commission.

The Corporation has adopted a Code of Ethics for Members of the Board of Directors, a Code of Ethics for Senior Financial Officers and an Employee Code of Conduct, each of which is available at the Corporation’s website at www.mellon.com/governance/ethics.html. Print copies may be obtained by making a written request to the Secretary of the Corporation at Room 4826, One Mellon Center, Pittsburgh, PA, 15258-0001.

BUSINESS RELATIONSHIPS AND RELATED TRANSACTIONS

Certain directors and executive officers of the Corporation and their associates (including entities of which directors of the Corporation are officers) were customers of and had transactions with one or more of the Banks or other subsidiaries of the Corporation in the ordinary course of business during 2005. Similar transactions may be expected to take place in the future. Loans and commitments included in such transactions were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and did not involve more than the normal risk of collectibility, nor did they present other unfavorable features. The Banks and other subsidiaries, in the ordinary course of business, also engage in purchases and sales of government and municipal securities and in other banking, trust, investment management, brokerage, mutual fund, money market, interest rate risk and foreign exchange transactions with certain directors and executive officers of the Corporation and their associates (including entities of which directors of the Corporation are officers). In addition, the Banks and other subsidiaries, in the ordinary course of business, act as transfer and exchange agent for and as fiduciaries, custodians or recordkeepers under various employee benefit plans, trusts, endowments and foundations of and as investment managers and providers of cash management, benefit payment, transition, performance analytics and securities lending services and software for investment management processes to certain customers (and related employee benefit plans, trusts, endowments and foundations), officers of which are directors of the Corporation and of Mellon Bank.

During 2005, the purchase of goods and services, or the lease of property, by the Corporation, the Banks or other subsidiaries of the Corporation in the ordinary course of business included transactions with various director-related companies. The amounts involved in these transactions were in no case material in relation to the business of the Corporation. It is also believed that the amounts involved in such transactions, as well as the transactions themselves, were not material in relation to the business of any such director-related company and that no director had a material interest in any such transaction.

DIRECTOR INDEPENDENCE

The Board of Directors has determined that each director, other than Mr. Robert Kelly and Mr. Elliott, who are officers of the Corporation, has no material relationship with the Corporation (either directly or as a partner, shareholder or officer of an organization that has a relationship with the Corporation) and is therefore an independent director. In reaching these determinations, the Board reviewed the following categorical standards, the corporate governance rules of the New York Stock Exchange and the individual

11

circumstances of each director and determined that Ms. Bruch, Mr. Cejas, Dr. Cohon, Mr. Gumberg, Mr. E. Kelly, Dr. Mehrabian, Mr. Mellon, Mr. Nordenberg, Mr. Orr, Mr. Shapira, Mr. Surma, Mr. Strickland and Mr. von Schack satisfied each standard. Directors have or may have one or more relationships with the Corporation that satisfy the categorical standards set forth below.

The categorical standards adopted and applied by the Board consist of the following:

(1)    If the director or an organization in which the director is a senior officer or significant shareholder, partner or member had a relationship or transaction in 2005 or through February, 2006 with the Corporation or any of its subsidiaries, such relationship or transaction must have been on substantially the same terms (including, if applicable, interest rates and collateral) as those prevailing at the time for comparable transactions by the Corporation or any of its subsidiaries with other persons who are not directors or related to a director. If the transaction involved an extension of credit, the Corporation or its subsidiary shall have followed credit underwriting procedures that were not less stringent than those prevailing at the time for comparable transactions by the Corporation or its subsidiary with other persons who are not a director or related to a director and the extension of credit currently does not involve more than the normal risk of repayment or present other unfavorable features.

(2)    The director may not be an executive officer, employee or significant stockholder, partner or member of an organization, or have an immediate family member who is an executive officer of an organization, that made payments to, or received payments from the Corporation or any of its subsidiaries for property or services during any of the most recently completed three fiscal years of the organization and either (i) the consolidated gross revenues received by the Corporation and its subsidiaries from such relationship during any such year exceeded 2% of the consolidated gross revenues of the Corporation and its subsidiaries for such year or (ii) the consolidated gross revenues received by the other organization from the Corporation and its subsidiaries in any such year exceeded the greater of $1 million or 2% of its consolidated gross revenues for that fiscal year or (iii) such payments made by such other organization to the Corporation and its subsidiaries in any such year exceeded the greater of $1 million or 2% of the consolidated gross revenues of such other organization for that fiscal year.

(3)    The director may not be, or within the past three years have been, employed by the Corporation or any of its subsidiaries.

(4)    The director, or an immediate family member of the director, may not be directly receiving, or within any twelve-month period in the past three years may not have directly received, fees or other payments from the Corporation or any of its subsidiaries in excess of $100,000, except in his or her capacity as a director and except compensation received by an immediate family member for service as an employee of the Corporation or any of its subsidiaries (other than an executive officer).

(5)    An immediate family member of the director may not currently serve, or within the past three years have served, as an executive officer of the Corporation.

(6)    The director may not be a sponsor or organizer of, or have a 2% or greater interest in, an investment vehicle where the Corporation (i) was the initial investor, (ii) is the largest investor or (iii) has investments exceeding 2% of the aggregate investments.

(7)    The director may not be an executive officer of a charitable organization where the Corporation’s discretionary contributions to the organization during any of the most recently completed three fiscal years of the organization exceeded the greater of $1 million or 2% of the organization’s consolidated gross revenues for that fiscal year.

(8)    The director may not be a partner, member or hold a similar position in an accounting firm, law firm, consultant or other professional services firm and either (i) the director directly performed services for the Corporation or any of its subsidiaries in 2005, or (ii) the payments made by the Corporation and its subsidiaries to such firm exceeded 2% of the firm’s revenues for its most recent fiscal year.

(9)    The director (i) may not be, or have an immediate family member that is, a current partner of a firm that is the Corporation’s internal or external auditor; (ii) may not be a current employee of such a firm; (iii) may not have an immediate family member who is a current employee of such a firm and who participates in the firm’s audit, assurance, or tax compliance (but not tax planning) practice or (iv) may not have been, or have an immediate family member that has been, within the last three years (but is

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no longer), a partner or employee of such a firm, if such director or immediate family member previously worked on the Corporation’s audit within that time.

(10)    The director or a member of the director’s immediate family may not be, or have been in the past three years, employed as an executive officer of another company where any of the Corporation’s present executives serve, or served within the past three years, on such other company’s compensation committee.

For purposes of these standards, a significant stockholder, partner or member will normally be considered a general partner or a stockholder, limited partner or member owning more than 5% of the voting or equity interests.

BENEFICIAL OWNERSHIP OF STOCK

Directors, Nominees and Executive Officers

The following table sets forth, as of February 10, 2006, the amount of the Corporation’s Common Stock beneficially owned by each incumbent director, each nominee and each executive officer named in the Summary Compensation Table appearing on page 16 and by all incumbent directors, nominees and executive officers of the Corporation as a group. Except as otherwise indicated, sole voting power and sole investment power with respect to the shares shown in the table are held either by the individual alone or by the individual together with his or her spouse.

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(footnotes continued on next page)

Principal Shareholders

The following table sets forth, as of December 31, 2005, the beneficial ownership of the person known to the Corporation to beneficially own more than 5% of the outstanding shares of the Corporation’s Common Stock.

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PERFORMANCE GRAPH

Set forth below is a line graph comparing the cumulative total shareholder return on the Corporation’s Common Stock, based on the market price of the Common Stock and assuming the reinvestment of dividends at quarter-end, with the cumulative total return of (i) a selected peer group of 19 companies¹ (“New Peer Group”), (ii) companies on the KBW 50 Index and (iii) the Standard & Poor’s 500 Stock Index. The New Peer Group is the same group utilized by the Human Resources Committee in reviewing the compensation of the Corporation’s senior officers and by the Corporate Governance and Nominating Committee in reviewing the compensation of the Corporation’s directors. The Corporation believes that the companies included in the New Peer Group are more reflective of the Corporation’s current business mix and size than the companies included in the KBW 50 Index, and therefore will provide a more meaningful comparison of stock performance. Returns for the New Peer Group in the chart below are market-capitalization weighted, but the Total Shareholder Return Percentile Rank utilizing this group as described on page 35 is not. The KBW 50 Index, available from Keefe, Bruyette & Woods, Inc., is a market-capitalization-weighted bank-stock index made up of 50 of the nation’s most important banking companies including all money-center and most major regional banks. The Corporation is included in the KBW 50 Index.

COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*

Among Mellon Financial Corporation, New Peer Group, S&P 500 Index and KBW 50 Index

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EXECUTIVE COMPENSATION

Summary Compensation Table

The following table shows the compensation for the past three years of each of the Corporation’s five most highly compensated officers, including the chief executive officer (the “named executive officers”).

(footnotes continued on next page)

16

(footnotes continued on next page)

17

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Option Grants in 2005

Shown below is information on grants of stock options pursuant to the Corporation’s Long-Term Profit Incentive Plan (the “Option Plan”) during 2005. The Option Plan is administered by the Human Resources Committee of the Board of Directors, which has authority to determine the individuals to whom options are granted and the amount and terms of all grants thereunder. No stock appreciation rights were granted in 2005. In the event of a change in control of the Corporation, as defined in the Option Plan, all the option grants shown below for Mr. Elliott, Mr. O’Hanley, Mr. Lamere and Mr. Canter would become immediately exercisable.

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Aggregated Option/SAR Exercises in 2005 and Year-End Option Values

The following table shows information with respect to the exercise of stock options during 2005 by each of the named executive officers and the value of unexercised options on December 31, 2005. No SARs are currently outstanding.

Equity Compensation Plan Information

The following table shows information relating to the numbers of shares authorized for issuance under the Corporation’s Equity Compensation Plans. For a narrative description of each of the equity compensation plans included in the following table, see Note 23 of Notes to Financial Statements in the Corporation’s 2005 Financial Annual Report to Shareholders. Equity compensation plans described in Note 23 that have not received shareholder approval are the Corporation’s ShareSuccess Plan, Stock Option Plan for the Mellon Financial Group West Coast Board of Directors, and the Stock Option Plan for Affiliate Boards of Directors. Additional annual broad-based grants under the ShareSuccess Plan are not anticipated, and additional grants under the Stock Option Plan for the Mellon Financial Group West Coast Board of Directors will not be made.

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Pension Plan Table

The following table sets forth the estimated annual benefits payable on a single-life annuity basis on retirement at age 65 pursuant to the retirement plans of the Corporation and Mellon Bank to participating employees, including officers, in specified compensation and years-of-service classifications. The credited years of service for Messrs. McGuinn, Elliott, O’Hanley, Lamere and Canter are, 25, 18, 9, 23 and 11, respectively. Benefits are determined based upon average base salary for the five years of highest compensation during the 10 years preceding retirement. The base salary of each of the named executive officers for the past three years is set forth in the Summary Compensation Table on page 16.

Payment of the amounts shown in the table is subject to annual limitations imposed by the Internal Revenue Code on tax-qualified plans. To the extent the benefits set forth above exceed these limitations, benefits will be paid pursuant to nonqualified supplemental plans maintained by the Corporation and Mellon Bank. The benefits set forth above are not subject to any deduction for Social Security or other offset amounts.

Supplemental Retirement Agreements With Named Executive Officers

In order to attract and motivate senior executives and to encourage such executives to remain with the Corporation and its affiliates, the Corporation has provided certain named executive officers with retirement and/or death benefits, as described below, supplementing those available under the retirement plans described above.

Messrs. McGuinn and Elliott

Under the terms of their employment agreements (discussed below), Mr. McGuinn is entitled to receive an unfunded supplemental retirement benefit commencing on February 1, 2008, and Mr. Elliott will be entitled to receive an unfunded supplemental retirement benefit upon the later of termination of employment or attainment of age 60, with a reduced benefit available at age 55. The supplemental benefit calculated on an unreduced 50% joint and survivor basis is a monthly amount equal to the named executive’s “Final Average Compensation” multiplied by a “Service Percentage” and reduced by

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the total monthly amount of benefits provided under all other retirement plans maintained by the Corporation and Mellon Bank. “Final Average Compensation” generally means 1/12th of the sum of the executive’s base salary and any bonus award earned for the calendar year within the final three full calendar years of the executive’s employment by the Corporation which produces the highest amount. “Service Percentage” generally means 2.0% for each full or partial year of employment with the Corporation or with a prior employer if treated as credited service with the Corporation plus certain years for which payments under the employment agreements are continued. If Mr. Elliott’s termination of employment were due to his death prior to the commencement of the payment of the supplemental benefits, his spouse would be entitled to a pre-retirement death benefit, payable in the form of a lifetime annuity, equal to the benefit that would have been payable had he retired immediately prior to death assuming election of a 50% joint and survivor annuity, but without any early payment reduction. The supplemental annual retirement benefit payable to Mr. McGuinn is discussed below. Based on 2005 compensation, and assuming retirement at age 65, the supplemental annual retirement benefit payable to Mr. Elliott is estimated to be $671,000.

Employment Agreements with Named Executive Officers

Background relating to Mr. McGuinn’s and Mr. Elliott’s Employment Agreements

In December 2003, Mr. McGuinn and Mr. Elliott each entered into a new employment agreement with the Corporation. In connection with these agreements, the Human Resources Committee of the Board of Directors retained legal counsel and human resources consultants not regularly utilized by the Corporation. Such legal counsel and consultants reported to the Human Resources Committee and analyzed and provided advice regarding the terms of Mr. McGuinn’s and Mr. Elliott’s employment contracts. The terms of the new employment agreements entered into with Mr. McGuinn and Mr. Elliott are substantially the same as their respective prior agreements, except that Mr. McGuinn’s new agreement was for a term of four years, rather than the three-year term of his prior agreement.

Mr. McGuinn

Mr. McGuinn joined the Corporation in 1981 as Senior Vice President and Chief Counsel and served in positions of increasing responsibility until becoming Chairman and Chief Executive Officer effective January 1, 1999. In December 2003, Mr. McGuinn entered into an employment agreement with the Corporation, effective February 1, 2004, to serve as the Chairman and Chief Executive Officer of the Corporation and as Chairman, President and Chief Executive Officer of Mellon Bank, N.A., with a term lasting until January 31, 2008. This agreement was a renewal of an employment agreement effective February 1, 2001 which was preceded by an employment agreement effective February 1, 1998. The most recent employment agreement provided for an annual base salary of $900,000, subject to annual review (see the Compensation Committee Report on page 35 for a discussion of base salary action in 2005), participation in all of the Corporation’s executive compensation and other benefit programs and perquisites appropriate to Mr. McGuinn’s position, including club memberships, physical examinations and personal financial planning services, and the supplemental retirement benefit described above. The agreement stated that it was the intention of the Corporation and Mr. McGuinn that Mr. McGuinn’s total compensation be competitive with that paid by similar financial institutions. Mr. McGuinn ceased serving as Chairman and Chief Executive Officer on February 13, 2006. In connection with such cessation, the Board of Directors is honoring his employment agreement, and Mr. McGuinn will receive the payments, awards and benefits provided in Section 6(a) of his employment agreement which is titled “Without Cause Termination or Constructive Discharge”. That Section provides for:

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The closing price for the Corporation’s common stock on February 3, 2006 as reported in the New York Stock Exchange Composite Transactions was $34.50 per share.

Not as part of his employment agreement but under the Corporation’s benefit plans and practices and on the same terms as are provided to other participants, Mr. McGuinn will receive: (i) in accordance with his previously filed election, amounts deferred by him and earnings on amounts deferred under the Corporation’s deferred compensation plan (Mr. McGuinn has participated in the plan for 16 years and at January 31, 2006 his account reflected approximately $8.6 million of salary and bonus deferred by him over that period and approximately $5.1 million of interest on those deferrals); (ii) his Mellon 401(k) Retirement Savings Plan account; and (iii) the right to the cash value (approximately $891,000) of a life insurance policy he owns under Mellon’s Senior Executive Life Insurance Plan. In addition, Mr. McGuinn will receive a parking place in the Corporation’s headquarters building parking garage through January 31, 2008, use of the services of Mellon Travel Services through January 31, 2008 and continuation through September 30, 2006 of umbrella liability insurance. In accordance with its practice, the Corporation will waive the obligation of Mr. McGuinn to repay the initiation fee at a country club originally paid by the Corporation.

The Corporation expects to record a pre-tax charge of approximately $19.3 million in the first quarter of 2006 in connection with the above payments, awards and benefits. Such charge plus the amounts accrued by the Corporation through December 31, 2005 in connection with such payments, awards and benefits will approximate the expense associated with the total obligation of the Corporation to Mr. McGuinn.

Mr. Elliott

In December 2003, Mr. Elliott entered into an employment agreement with the Corporation, effective February 1, 2004, to serve as Senior Vice Chairman of the Corporation and of Mellon Bank, N.A., with a term lasting until January 31, 2007. The employment agreement provides for an annual base salary of $660,000, subject to annual review (see the Compensation Committee Report on page 35 for a discussion of base salary action in 2005), participation in all of the Corporation’s executive compensation and other benefit programs and perquisites appropriate to Mr. Elliott’s position, including club memberships, physical examinations and personal financial planning services, and the supplemental retirement benefit described above. The agreement states that it is the intention of the Corporation and Mr. Elliott that Mr. Elliott’s total compensation be competitive with that paid by

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similar financial institutions. The agreement provides that if, during the term of the agreement, Mr. Elliott’s employment is terminated by the Corporation other than for cause or in the event of a constructive discharge (a) he will receive full salary and benefits until the expiration of the agreement’s term or, if termination occurs within 12 months prior to the end of the term, for a period no less than the shorter of (i) 12 months or (ii) until the date Mr. Elliott commences full-time employment with another employer, (b) he will receive for each calendar year or portion of a year remaining in the term of the agreement an amount (prorated in the case of any partial year) equal to the highest bonus received by him for any of the three years preceding his termination, and (c) all outstanding stock options with associated deferred cash incentive awards and performance-based restricted stock will remain outstanding and become exercisable and payable as if Mr. Elliott had remained employed. If Mr. Elliott’s employment is terminated for cause or if he terminates his employment for reasons other than a constructive discharge, permanent disability, retirement or death, he will receive any benefits that have vested prior to such termination under the supplemental retirement provisions of his employment agreement or under the terms of the Corporation’s generally applicable employee benefit plans. If an actual or threatened Change in Control (as defined in Mr. Elliott’s Change in Control Severance Agreement) occurs and Mr. Elliott’s employment is terminated in accordance with such Agreement, then Mr. Elliott will be entitled to payments under such Agreement in lieu of severance payments under his employment agreement. See below for a description of the Change in Control Severance Agreements. On retirement, Mr. Elliott is entitled to payment of accrued obligations, a prorated bonus for the year of retirement, vesting of stock options, restricted stock and other awards under the Long-Term Profit Incentive Plan and post-retirement perquisites not less than those customarily provided to similarly situated retired executives. Mr. Elliott had a prior employment agreement with the Corporation that ended on January 31, 2004.

Mr. O’Hanley

Effective January 1, 2003, Mr. O’Hanley entered into an employment agreement with the Corporation with a term lasting until December 31, 2006, which provides that he will serve as President of Mellon Institutional Asset Management (now Mellon Asset Management) and as a Vice Chairman of the Corporation. Under the agreement, Mr. O’Hanley will receive a base salary of $525,000, subject to annual review, an annual bonus of up to four times the amount of his base salary in effect at the end of the relevant calendar year and an annual long term incentive award composed of performance accelerated restricted stock and stock options with a minimum aggregate net present value as of the date of the award of $1,540,000. Mr. O’Hanley is entitled to participate in all of the Corporation’s executive compensation and other benefit programs and perquisites appropriate to his position, except to the extent that the termination benefits under his employment agreement duplicate those available under the Corporation’s displacement, separation or severance programs. If, during the term of the agreement, Mr. O’Hanley’s employment is terminated by the Corporation other than for cause or in the event of a constructive discharge, subject to certain conditions (a) he will receive full salary and benefits until the expiration of the agreement’s term, (b) he will receive for the year of termination and each subsequent calendar year, if any, during the remainder of the term of the agreement an amount equal to the highest bonus received by him for any of the three years preceding his termination, (c) the restricted stock received as part of his annual bonus will fully derestrict, and (d) to the extent that restrictions on certain outstanding performance-based restricted stock have not lapsed on the date of termination, such restrictions will lapse on September 30, 2006 (awards granted prior to January 1, 2003) or on the seventh December 31 following the grant of the award (awards granted after January 1, 2003). If Mr. O’Hanley’s employment is terminated without cause within six months of the end of the agreement’s term, the Corporation will continue to pay his base salary after the end of the term for up to six months after the date of termination. If his employment terminates due to disability or death, all of his annual bonus and performance accelerated restricted stock will immediately derestrict. If Mr. O’Hanley’s employment is terminated for cause or if he terminates his employment for reasons other than a constructive discharge, permanent disability, or death, he will receive any benefits that have vested or been earned prior to such termination under the terms of the Corporation’s generally applicable employee benefit plans and the restrictions on his annual bonus restricted stock will lapse. The agreement also provides that in the event the Corporation provides written notice on or before June 30, 2006 that the executive’s employment will terminate at the end of the term, subject to certain conditions, the restrictions on his unvested performance accelerated restricted stock granted during the

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term of the agreement will lapse as to 14% of the original number of shares granted for each completed year of service subsequent to the date of grant. Mr. O’Hanley had a prior employment agreement with the Corporation that ended on December 31, 2002.

Mr. Lamere

Effective January 1, 2003, Mr. Lamere entered into an employment agreement with the Corporation with a term lasting until December 31, 2005. The agreement provided that Mr. Lamere would serve as Chairman and Chief Executive Officer of Mellon New England, Executive Vice President of Mellon Bank and as a Vice Chairman of the Corporation. This agreement expired according to its terms on December 31, 2005 and was not replaced. Mr. Lamere continues to be employed as an officer of the Corporation in the same capacity and with the same titles as those set forth in the agreement. Under the expired agreement, Mr. Lamere received a base salary of $400,000, subject to annual review, an annual bonus of up to four times his base salary in effect at the end of the relevant calendar year and an annual long term incentive award composed of performance accelerated restricted stock and stock options with a minimum aggregate net present value as of the date of the award of $700,000. The agreement provided that Mr. Lamere was entitled to participate in all of the Corporation’s executive compensation and other benefit programs and perquisites appropriate to his position, except to the extent that the termination benefits under his employment agreement duplicated those available under the Corporation’s displacement, separation or severance programs. If, during the term of the agreement, Mr. Lamere’s employment had been terminated by the Corporation other than for cause or in the event of a constructive discharge, subject to certain conditions (a) he would have received full salary and benefits until the expiration of the agreement’s term, (b) he would have received for the year of termination and each subsequent calendar year, if any, during the remainder of the term of the agreement an amount equal to the highest bonus received by him for any of the three years preceding his termination, (c) the restricted stock received as part of his annual bonus would have fully derestricted, and (d) to the extent that restrictions on certain outstanding performance-based restricted stock had not lapsed on such a date of termination, such restrictions would have lapsed on September 30, 2006 (awards granted prior to January 1, 2003) or on the seventh December 31 following the grant of the award (awards granted after January 1, 2003). If Mr. Lamere’s employment had been terminated without cause within six months of the end of its term, the Corporation would have continued to pay his base salary after the end of the term for up to six months after the date of termination. If his employment had terminated due to disability or death, all of his annual bonus stock and performance accelerated restricted stock would have immediately derestricted. If Mr. Lamere’s employment had been terminated for cause or if he terminated his employment for reasons other than a constructive discharge, permanent disability, or death, he would have received any benefits that had vested or been earned prior to such termination under the terms of the Corporation’s generally applicable employee benefit plans and the restrictions on his annual bonus stock would have lapsed. The agreement also provided that in the event the Corporation had provided written notice on or before June 30, 2005 that Mr. Lamere’s employment would have terminated at the end of the term, subject to certain conditions, the restrictions on his unvested performance accelerated restricted stock granted during the term of the agreement would have lapsed as to 14% of the original number of shares granted for each completed year of service subsequent to the date of grant. The Corporation did not provide such notice. Mr. Lamere had a prior employment agreement with the Corporation that ended on December 31, 2002.

Mr. Lamere’s current compensatory arrangements are described in an exhibit to the Corporation’s 2005 Annual Report on Form 10-K. Future documentation of certain of these arrangements as contemplated by that exhibit will be reflected in a Current Report on Form 8-K.

Mr. Canter

Effective January 1, 2003, Mr. Canter entered into an employment agreement with the Corporation with a term lasting until December 31, 2007, which provides that he will serve as the Chairman and Chief Executive Officer of The Dreyfus Corporation and as a Vice Chairman of the Corporation. Under the agreement, Mr. Canter will receive a base salary of $500,000, subject to annual review, an annual bonus of up to four times the amount of his annualized base salary as of the end of the calendar year and an annual long term incentive award composed of performance accelerated restricted stock and

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stock options with a minimum aggregate net present value as of the date of the award of $1,687,500. Mr. Canter is entitled to participate in all of the Corporation’s executive compensation and other benefit programs and perquisites appropriate to his position, except to the extent that the termination benefits under the employment agreement duplicate those available under the Corporation’s displacement, separation or severance programs. If, during the term of the agreement, Mr. Canter’s employment is terminated by the Corporation other than for cause or in the event of a constructive discharge, subject to certain conditions (a) he will receive full salary and benefits until the expiration of the agreement’s term, (b) he will receive for the year of termination and each subsequent calendar year, if any, during the remainder of the term of the agreement an amount equal to the highest bonus received by him for any of the three years preceding his termination, (c) to the extent that restrictions on certain outstanding performance accelerated restricted stock awards have not lapsed on the date of termination, the restrictions will lapse on September 30, 2006 (awards granted prior to January 1, 2003) or on the seventh December 31 following the grant of the award (awards granted after January 1, 2003), and (d) all other restricted stock awards will immediately derestrict. If Mr. Canter’s employment is terminated without cause within six months of the end of its term, the Corporation will continue to pay his base salary after the end of the term for up to six months after the date of termination. The employment agreement also provides that if Mr. Canter terminates employment at or after age 65, all unvested performance accelerated restricted stock awards granted to him during the term of the agreement will immediately derestrict. If Mr. Canter’s employment terminates prior to age 65 other than due to disability or death, the restrictions on his unvested performance accelerated restricted stock awards granted during the term of the agreement will lapse as to 14% of the original number of shares granted for each completed year of service subsequent to the date of grant, and all other restricted stock awards will fully derestrict. Where his employment terminates due to disability or death, all of his restricted stock awards will immediately derestrict. If Mr. Canter’s employment is terminated for cause or if he terminates his employment for reasons other than a constructive discharge, permanent disability, or death, he will receive any benefits that have vested or been earned prior to such termination under the terms of the Corporation’s generally applicable employee benefit plans. Mr. Canter had a prior employment agreement with the Corporation that ended on December 31, 2002.

Change in Control Severance Agreements—Senior Officers

The Corporation has entered into change in control severance agreements (the “Agreements”) with the Chairman, each of the named executive officers and certain other senior officers of the Corporation. The purpose of the Agreements is to secure the continued service and dedication of the executives in the event of an actual or threatened Change in Control (as defined in the Agreements). Each Agreement becomes operative only upon both a Change in Control and the subsequent termination of employment of the executive in accordance with the terms of the Agreement. Payments under the Agreements are in full settlement of all other severance payments which may otherwise be payable to the executive under any other severance plan or agreement of the Corporation, including the employment agreements described above and the Displacement Program and Change in Control Severance Pay Resolution described below. The following discussion summarizes the key provisions of the Agreements covering the Chairman and each named executive officer. If the employment of any of these officers is terminated during the three-year period following a Change in Control of the Corporation, either by the Corporation other than for Cause (as defined in the Agreements) or by the executive for Good Reason (as defined in the Agreements, including the termination of employment by the executive for any reason during the 30-day period commencing one year after the date of such Change in Control), the executive will be entitled to receive: (a) a lump sum cash amount equal to such executive’s unpaid salary and bonus amounts which have become payable and have not been deferred, plus a pro-rata portion of such executive’s annual bonus for the fiscal year of termination of employment; (b) severance pay in a lump sum cash amount equal to three times the sum of (i) the executive’s highest annual rate of base salary during the 12-month period immediately prior to his termination of employment and (ii) the executive’s highest annual incentive bonus earned during the last three completed fiscal years of the Corporation (see the Summary Compensation Table on page 16 for salary and bonus information for the named executive officers for the past three years); (c) continuation of medical, dental, accident, disability and life insurance benefits for the executive and his dependents for a period of three years following the executive’s date of termination of employment; and (d) three additional years of service

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credit under all non-qualified retirement plans and excess benefit plans in which the executive participated as of his date of termination. In the event that payments related to a Change in Control of the Corporation to any executive under the Agreements or otherwise are subject to the excise tax under Section 4999 of the Internal Revenue Code, the Corporation will generally provide the executive with an additional amount sufficient to enable the executive to retain the full amount of his Change in Control benefits as if the excise tax had not applied, unless a reduction in such Change in Control related payments by less than 5% would result in the excise tax not being imposed on such executive, in which case payments under the Agreement shall be reduced (but not below zero) to the amount that could be paid to such executive without giving rise to such excise tax. Mr. McGuinn ceased serving as Chairman and Chief Executive Officer on February 13, 2006. The Corporation has advised Mr. McGuinn that as of February 14, 2006, he is no longer covered under the Agreement described above.

Awards under the Corporation’s Long-Term Profit Incentive Plan (2004) vest on a Change In Control Event as defined in that Plan.

Change in Control Benefits—Other Employees

Displacement Program

Under the Corporation’s Displacement Program, eligible salaried employees of the Corporation may receive certain benefits if their employment with the Corporation is terminated due to technological changes or other business reasons not related to individual performance. Such benefits may include temporary assignments, placement assistance, benefits continuation and/or severance payments based upon years of service. The program is subject to revision or termination at the Corporation’s discretion; provided, however, that it may not be changed to reduce benefits payable upon a displacement occurring within three years following a change in control of the Corporation, unless such change to the program was adopted at least 12 months prior to the occurrence of the change in control.

Change in Control Arrangements

All eligible salaried employees who are terminated within three years after a change in control (as defined) of the Corporation, other than for good cause, and under circumstances that would entitle them to benefits under the Displacement Program, would also be entitled to 12 months of base salary and benefit continuation under the Corporation’s Change in Control Severance Pay Resolution. In addition, for 10 years after the occurrence of a change in control of the Corporation, no plan merger or coverage extension involving Mellon Bank’s tax-qualified retirement plan will be permitted if it would cause the plan’s assets to fall below 125% of its liabilities, and employees age 50-54 on the date of the change in control will become eligible for early retirement under this Mellon Bank plan, on or after age 55, on the same basis as employees who are age 55. These benefits may not be reduced unless such change was adopted at least 12 months prior to the occurrence of the change in control.

A change in control will generally occur for purposes of the Displacement Program, the Change in Control Severance Pay Resolution and the tax-qualified retirement plan upon approval by the Corporation’s shareholders of a business combination or merger involving the Corporation unless immediately following such transaction the surviving corporation meets each of the following requirements: (a) the surviving corporation owns consolidated assets of the Corporation with an aggregate book value equal to more than 50% of the book value of the Corporation’s consolidated total assets prior to the transaction, (b) more than 50% of the total voting power of the surviving corporation is held by the Corporation’s shareholders immediately prior to the transaction, (c) at least a majority of the members of the board of directors of the surviving corporation were directors of the Corporation prior to the merger, and (d) no person is the beneficial owner of 15% or more of the total voting power of the surviving corporation.

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APPROVAL OF THE ADOPTION OF THE MELLON FINANCIAL CORPORATION DIRECTOR EQUITY PLAN (2006) (Proxy Item 2)

Upon the recommendation of the Corporate Governance and Nominating Committee, the Board of Directors has adopted, subject to shareholder approval, the Director Equity Plan (2006) (the “Plan”). If approved by the shareholders, the Plan will replace the Stock Option Plan for Outside Directors (2001), and no further awards under that plan will be granted. If the adoption of the Plan is not approved by shareholders, awards will continue to be granted under the Stock Option Plan for Outside Directors (2001).

The purposes of the Plan are to align the interests of the Corporation’s outside directors more closely with the interests of the shareholders, to provide the outside directors with an additional incentive to work for the Corporation’s long-term success, and to establish an effective element of a reasonable directors’ compensation package. In contrast to the Stock Option Plan for Outside Directors, which is limited to stock options, the new Plan offers a variety of types of awards which may be used by the Board to provide equity compensation to outside directors.

As described below, the Board intends to grant an initial award under the Plan as of April 21, 2006 of that number of deferred share units that have a value of approximately $85,000 on the grant date to each outside director. That award is subject to shareholder approval of the Plan.

The Board of Directors recommends that shareholders vote “FOR” approval of the Director Equity Plan (2006).

Set forth below is a summary of the terms of the Plan. The summary does not purport to be complete and is qualified in its entirety by reference to the full text of the Plan, which is attached to this Proxy Statement as Exhibit A. Terms which are defined in the Plan are used in this description as defined in the Plan.

Administration

The Board will have the authority in its discretion to grant awards under the Plan to outside directors, including the authority to determine, subject to the provisions of the Plan, the types and amounts of awards to be granted and the terms and conditions of the awards. The Board may appoint its Corporate Governance and Nominating Committee to administer the Plan. Administrative functions, including the authority to interpret the Plan, may be delegated to the Chair or Vice Chair of the Corporate Governance and Nominating Committee.

Eligibility

Awards under the Plan may be granted only to outside directors of the Corporation. An outside director is defined as a director who is not an employee of the Corporation or any subsidiary. Each of the 15 current members of the Board other than Mr. Robert Kelly and Mr. Elliott is an outside director for purposes of the Plan.

Authorized Shares

The aggregate number of shares which may be issued under the Plan is limited to 850,000 shares of Common Stock, of which no more than one-third may be issued pursuant to awards other than stock options. In applying this limit, each share issued pursuant to a stock option will reduce the number of shares remaining available under the Plan by one share, and each share issued pursuant to any other type of award will reduce the number of shares remaining available by three shares. When a stock option is exercised by the delivery of shares in payment of the option price, only the net number of new shares issued will be counted against the shares remaining available under the Plan. Shares covered by a stock option which terminates unexercised or expires and shares covered by any other type of award which are surrendered or forfeited to the Corporation shall again be available for issuance under the Plan.

On March 6, 2006, the closing price of a share of Common Stock in the New York Stock Exchange Composite Transactions was $35.89.

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Stock Options

The option price of any stock option granted under the Plan may not be less than 100% of the fair market value per share of the Common Stock on the date the option is granted. Options may be granted for such terms, not in excess of ten years, and become exercisable at such times, as the Board may determine.

The exercise price of an option may be paid in cash or in shares of Common Stock, including, if permitted by the Committee, shares that are withheld at the direction of the participant upon exercise of the option. In lieu of physical delivery of shares in payment of the exercise price of an option, a participant may certify ownership of such shares and receive from the Corporation the difference between the number of shares for which the option is exercised and the number of shares required to pay the option price. Where the exercise price is paid in shares of Common Stock, the shares used to pay the option price, or an equivalent number of shares where shares are withheld, must have been owned by the participant for six months or longer prior to the exercise.

Unless otherwise determined by the Board, (a) options that have not become exercisable shall terminate on the date the participant ceases to be a director for any reason other than death or disability; (b) options that have not become exercisable on the date the participant ceases to be a director due to death or disability shall immediately vest and become exercisable for the full term of the option; and (c) options that have become exercisable shall remain exercisable throughout their terms, regardless of whether the participant continues to serve as a director.

Stock options granted under the Plan may not be repriced by any method, including cancellation and reissuance. Unless otherwise expressly provided, all options granted under the Plan will become exercisable immediately upon the occurrence of a Change in Control Event, as defined in the Plan.

Restricted Stock

Restricted stock awards cover shares of Common Stock which are registered in the participant’s name upon grant. The participant generally enjoys all the incidents of stock ownership with respect to such shares, including the right to receive cash dividends and to vote the shares. However, the participant may not sell, transfer, assign or otherwise encumber or dispose of the shares until the restrictions have lapsed. Restricted stock awards will remain restricted following the date of grant for such period as the Board may determine, and the Board may also impose such other restrictions and conditions on the shares or the release of the restrictions as it deems appropriate. Unless otherwise provided, the restrictions upon shares of restricted stock will lapse upon termination of a directors’ service due to death or disability or upon the occurrence of a Change in Control Event, as defined in the Plan, and shares which remain subject to restriction will be forfeited to the Corporation upon termination of a director’s service for any other reason.

Deferred Share Units

General. A deferred share unit entitles the participant to receive a share of Common Stock on the deferred payment date specified by the Board. A deferred share unit is forfeited to the Corporation if the director’s service terminates prior to the vesting date specified by the Board for any reason other than death or disability. If the director’s service continues through the vesting date specified by the Board, or if a Change in Control Event, as defined in the Plan, occurs prior to the vesting date, the deferred share unit becomes vested and is not thereafter subject to forfeiture. Vested deferred share units will generally be payable 30 days following the date the director’s service on the Board terminates for any reason.

Unless otherwise provided by the Board, each deferred share unit award which vests and becomes payable entitles the participant to receive, in addition to the shares covered by the deferred share units originally awarded, the number of shares of Common Stock that would have been earned until the date of termination of the participant’s service as a director if the shares covered by the original deferred share unit award had been held for the participant’s account under the Corporation’s Direct Stock Purchase and Dividend Reinvestment Plan.

Initial Grant of Deferred Share Units. Subject to shareholder approval of the Plan, the Board intends to grant to each outside director as of April 21, 2006 an award of that number of deferred share units that

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have an approximate value of $85,000 on the grant date. The exact number of deferred share units to be granted will be calculated by dividing $85,000 by the closing price of a share of Common Stock on April 21, 2006 and rounding to the next lower unit. The vesting date of this initial award will be the date of the Corporation’s annual meeting of shareholders in 2007.

Other Stock-Based Awards

The Plan gives the Board the authority, in its discretion, to grant to outside directors any other type of award that is denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to shares of Common Stock that the Board deems consistent with the purposes of the Plan. Such other stock-based awards may include, without limitation, purchase rights, shares awarded without restrictions or conditions, or securities or other rights convertible or exchangeable into shares of Common Stock. The Board will determine the terms and conditions, if any, of any other stock-based award granted under the Plan.

Miscellaneous

No award may be granted under the Plan after December 31, 2015.

The Board may terminate the Plan in whole or in part at any time and may from time to time amend the Plan as it may deem advisable. Any such action may be taken without shareholder approval, except to the extent that shareholder approval is required by law or by the rules of any stock exchange on which the Common Stock is listed.

If authorized by the Board, a participant may elect to defer receipt of deferred share units, restricted stock or other stock-based awards otherwise payable under the Plan, provided that such election is consistent with the requirements of the Internal Revenue Code.

Reasons for the Plan

In late 2004 and 2005, the Corporate Governance and Nominating Committee retained a human resources consulting firm to review the Corporation’s compensation package for outside directors and advise the Committee as to how that package compared to peer companies in both amount and components of the package. This same firm was retained by the Human Resources Committee as described on pages 35, 36 and 37. In 2004, the firm advised that the Corporation’s compensation package was well below the median of peer companies, and in response the Board increased the cash components of the compensation package in April 2005.

In 2005, the firm advised that while the Corporation’s cash compensation was now at approximately the median of peer companies, the equity component was still well below the median. In addition, the firm recommended that the Corporation broaden the types of equity awards that could be issued to directors beyond stock options to include those types of awards described above.

The Corporate Governance and Nominating Committee and then the Board considered these recommendations and determined to adopt the Plan subject to shareholder approval. An equity award of approximately $85,000 will bring total cash and equity compensation to approximately the median of peer companies, and the Board believes it is appropriate in 2006 to grant a type of award (deferred share unit) that cannot be sold or disposed of by a director until his or her Board service terminates. This type of award and required holding period should align more closely the interests of directors and shareholders.

Federal Income Tax Consequences

The following is a brief summary of the principal Federal income tax consequences of the grant and exercise of awards under present law.

Stock Options. A director will not recognize any taxable income for Federal income tax purposes upon receipt of a stock option. Upon the exercise of a stock option, the amount by which the fair market value of the shares received, determined as of the date of exercise, exceeds the option price will be treated as compensation received by the director in the year of exercise. If the option price of a stock option is paid in whole or in part with shares of the Corporation’s common stock, no income, gain or

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loss will be recognized by the director on the receipt of shares equal in value on the date of exercise to the shares delivered in payment of the option price. The fair market value of the remainder of the shares received upon exercise of the stock option, determined as of the date of exercise, less the amount of cash, if any, paid upon exercise will be treated as compensation income received by the director on the date of exercise of the stock option.

Except as described in “Other Tax Matters” below, the Corporation or one of its subsidiaries generally will be entitled to a deduction for compensation paid in the same amount treated as compensation received by the director.

Restricted Stock. A director who receives restricted stock will not recognize any taxable income for Federal income tax purposes in the year of the award, provided the shares are subject to restrictions (that is, they are nontransferable and subject to a substantial risk of forfeiture). However, a director may elect under Section 83(b) of the Internal Revenue Code to recognize compensation income in the year of the award in an amount equal to the fair market value of the shares on the date of the award, determined without regard to the restrictions. If the director does not make a Section 83(b) election, the fair market value of the shares on the date the restrictions lapse will be treated as compensation income to the director and will be taxable in the year the restrictions lapse. Except as described in “Other Tax Matters” below, the Corporation or one of its subsidiaries generally will be entitled to a deduction for compensation paid in the same amount treated as compensation income to the awardee.

Deferred Share Units. A director who receives deferred share units will not recognize any taxable income for Federal income tax purposes upon receipt of the award. Any shares of common stock received pursuant to the award will be treated as compensation income received by the director generally in the year in which the director receives such shares of Common Stock. The Corporation generally will be entitled to a deduction for compensation paid in the same amount treated as compensation income to the director.

Other Tax Matters. The exercise by a director of a stock option or the lapse of restrictions on restricted shares or deferred share units following the occurrence of a Change in Control Event, in certain circumstances may result in (i) a 20% Federal excise tax (in addition to Federal income tax) to the director on certain payments of the Corporation’s Common Stock or cash resulting from such exercise or, in the case of restricted stock or deferred share units, on all or a portion of the fair market value of the shares or units on the date the restrictions lapse and (ii) the loss of a compensation deduction which would otherwise be allowable to the Corporation or one of its subsidiaries as explained above.

Vote Required for Approval

Approval of the Plan requires the affirmative vote of a majority of the votes cast on the proposal at the Annual Meeting by the holders of Common Stock voting in person or by proxy. The Pennsylvania Business Corporation Law provides that an abstention is not a vote cast. Therefore, an abstention will not have the effect of a vote for or against the proposal and will not be counted in determining the number of votes required for approval, though it will be counted in determining the presence of a quorum. If a broker or nominee voting a proxy limits the number of shares voted on the proposal or indicates that shares are not voted on the proposal, such “non-votes” will not be voted on the proposal and will not be counted in determining the number of votes required for approval.

With respect to Proxy Item 2, the Board of Directors recommends a vote FOR approval of the Director Equity Plan (2006).

SHAREHOLDER PROPOSAL (Proxy Item 3)

Set forth below is a shareholder proposal to remove from the By-Laws a shareholder-approved provision requiring a 75% shareholder vote to amend or repeal By-Law provisions relating to the Corporation’s Board of Directors if the amendment or repeal is not approved by the Board of Directors. This proposal is included in the Proxy Statement in accordance with the rules of the Securities and Exchange Commission and is not endorsed by the Board of Directors. The Board of Directors recommends that shareholders vote AGAINST approval of the shareholder proposal (Proxy Item 3).

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As indicated on page 10, the Board of Directors and the Corporation’s new Chairman, President and Chief Executive Officer, Robert P. Kelly, have committed to conduct during 2006 a thorough review of all corporate governance arrangements that relate to unsolicited takeover efforts. The Board has further determined that regardless of the results of this review, it will include in the Proxy Statement for the Corporation’s 2007 Annual Meeting a management proposal to declassify the Board of Directors and will recommend a shareholder vote in favor of that proposal.

Article Two, Section 16 of the By-Laws, which the shareholder proposal seeks to repeal, requires a vote of 75% of the outstanding shares to approve an amendment to the classified board provisions of the By-Laws only if the amendment has not been previously approved by the Board of Directors. Since the proposal to declassify the Board which will be presented at next year’s annual meeting will have been approved by the Board, the 75% vote requirement will not apply, and the proposal will be adopted if approved by a majority of the shares voted on the proposal.

Article Two, Section 16 requires the vote of 75% of the outstanding shares to amend or repeal Section 2, 3, 4, 5, 6 or 7 of Article Two, or Section 16 itself, unless the amendment or repeal has previously been approved by a majority of the Board of Directors. Section 3 of Article Two creates the classified board structure. Section 2 gives the Board the authority to fix the number of directors. Section 4 requires shareholders to give 90 days’ advance notice of director nominations. Section 6 requires a vote of 75% of the outstanding shares to remove directors without cause. Section 5 authorizes the Board to fill any Board vacancies arising between annual meetings. Section 7, which has no current significance, provides that Sections 2 through 6 of Article Two will not apply to any directors elected by holders of the Corporation’s preferred stock.

The Corporate Governance and Nominating Committee of the Board, which consists entirely of independent directors, has studied the proposal. The Committee notes that the shareholder proposal is unnecessary as regards declassification of the Board of Directors because the 75% vote requirement will not apply to the declassification proposal which the Board has committed to present to shareholders in 2007. The remaining By-Law provisions subject to Article Two, Section 16, as well as Article Two, Section 16 itself, will be included in the study of corporate governance provisions which the Board has committed to undertake in 2006. The Committee and the Board believe that as regards these provisions, the shareholder proposal is premature.

For the reasons indicated above, the Board of Directors unanimously recommends that the shareholders vote AGAINST approval of the shareholder proposal (Proxy Item 3). The proposal, and the statement of the proponent in support of the proposal, are quoted below. The Corporation assumes no responsibility for the content of these materials.

SHAREHOLDER PROPOSAL:

The following proposal (Proxy Item 3) was submitted by the California Public Employees’ Retirement System, P.O. Box 942708, Sacramento, CA 94229-2708, which as of November 8, 2005 owned approximately 2,300,000 shares of Common Stock:

“SHAREHOLDER PROPOSAL

“RESOLVED, that the shareowners of Mellon Financial Corporation (“Company”) amend the Company’s By-Laws, in compliance with applicable law, to delete Article II Section 16, which requires a seventy-five percent of outstanding shares supermajority vote to change certain provisions of Article II of the Company’s By-Laws relating to directors including Section 2 (relating to the number of directors); Section 3 (relating to the classified board structure); Section 4 (relating to board of director nominations); Section 5 (relating to the filling of board vacancies); Section 6 (relating to the removal of directors); Section 7 (relating to directors elected by preferred class of stocks); and Section 16 itself (relating to supermajority voting requirements for certain By-Law amendments).

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“SUPPORTING STATEMENT

“Is accountability by the Board of Directors important to you as a shareowner of the Company? As a trust fund with more than 1.4 million participants, and as the owner of approximately 2,300,000 shares of the Company’s common stock, the California Public Employees’ Retirement System (CalPERS) thinks accountability is of paramount importance. This is why we are sponsoring this proposal which, if passed, would make the Company more accountable to shareowners by removing supermajority voting requirements that make it extremely difficult to, among other things, declassify the Company’s board of directors and remove directors.

“As it currently stands, the affirmative vote of seventy-five percent of the outstanding shares of the Company is required for shareowners to approve an amendment to the By-Laws to, among other things, declassify the Company’s board of directors or remove directors. When you consider abstentions and broker non-votes, such a supermajority vote can be almost impossible to obtain. For example, a proposal to declassify the board of directors filed at Goodyear Tire & Rubber Company failed to pass even though approximately 90 percent of votes cast were in favor of the proposal. While it is often stated by corporations that the purpose of supermajority voting requirements is to provide corporations the ability to protect minority shareowners, supermajority requirements are most often used, in CalPERS’ opinion, to block initiatives opposed by management and the board of directors but supported by most shareowners. The Goodyear Tire & Rubber Company vote is a perfect illustration.

“CalPERS believes that good corporate governance procedures and practices, and the level of accountability they impose, are closely related to financial performance. It is intuitive that, when directors are accountable for their actions, they perform better. CalPERS also believes that shareowners are willing to pay a premium for shares of corporations that have excellent corporate governance, as illustrated by a recent study by McKinsey & Co. If the Company were to remove its supermajority voting requirements, it would be a strong statement that this Company is committed to good corporate governance and its long-term financial performance. Considering the Company’s five year stock performance is a negative 20%, action is warranted. We urge your support FOR this proposal.”

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE “AGAINST” APPROVAL OF THE SHAREHOLDER PROPOSAL.

Vote Required

Approval of the shareholder proposal (Proxy Item 3) would require the affirmative votes of the holders of 75% of the outstanding shares of Common Stock. An abstention or a broker non-vote with respect to the shareholder proposal would have the same effect as a vote against the proposal.

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COMPENSATION COMMITTEE REPORT

Introduction and Changes in 2006

The Corporation’s Human Resources Committee (the “Committee”) consists of six directors, each of whom is an independent director under the rules of the New York Stock Exchange. Among the Committee’s duties is the responsibility for establishing the compensation of the senior managers of the Corporation and its subsidiaries, including the compensation of Mr. Kelly and the named executive officers. The Committee also reviews programs to facilitate the selection and development of key managers.

Under the guidance of the Committee, the Corporation’s compensation policies are designed to accomplish the goal of managing the Corporation towards increased profitability and shareholder value. Accordingly, three principles underlying the Corporation’s compensation policy for all senior managers, including Mr. Kelly and the named executive officers, are (i) aligning the financial interests of senior managers with those of the Corporation’s shareholders, (ii) paying for corporate and individual performance and (iii) creating compensation arrangements that are both competitive and attractive to senior managers. These principles are reflected in the structure of the Corporation’s compensation program for senior managers, which consists of three basic components: base salary, annual awards under the Profit Bonus Plan (the “Bonus Plan”) and awards under the Long-Term Profit Incentive Plan (the “Long-Term Plan”). Through this structure, the Committee places emphasis on the “at risk” elements of compensation for senior managers and elements of compensation tied to corporate performance objectives. The combination of base salaries together with the incentive components of the Bonus Plan and the Long-Term Plan are relied on to achieve a competitive compensation package.

In addition, and in furtherance of the Corporation’s goal of aligning the financial interests of the Corporation’s senior management and shareholders, in 2003 the Corporation implemented stock ownership guidelines pursuant to which senior managers, over time, are required to achieve and maintain holdings of the Corporation’s Common Stock. See footnote 4 on page 14 for further information.

Awards under the Corporation’s incentive plans are tied to corporate, business unit and individual performance. The accomplishment of the goals and objectives of the Corporation’s operating and strategic plans is the basis for making awards under the Bonus Plan and the Long-Term Plan and, except where performance goals have been set under the Long-Term Plan, there is no formal weighting of various factors. Together, the plans provide the Committee with the flexibility to grant awards in a manner that is believed by the Committee to encourage managers to continually focus on building high quality profitability and long-term shareholder value.

Changes In Long-Term Incentive Awards For 2006

The Corporation re-designed its long-term incentive program for 2006 to sharpen alignment with the objectives of creating superior shareholder value and attracting, retaining, and motivating key management talent. Previously, the Corporation delivered long-term incentives to participants through grants of stock options and performance accelerated restricted stock. In 2006, the Corporation is using the following three vehicles to deliver long-term incentive awards:

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The 19 peer companies are those listed in footnote 1 on page 15.

In 2006 Mr. O’Hanley and Mr. Canter will continue to receive stock options with reload rights and performance accelerated restricted stock as provided in their employment agreements.

Compensation Arrangements with Robert P. Kelly

In negotiating compensation arrangements with Mr. Kelly, the Committee’s goals were to achieve a compensation package that is both reasonable and competitive in the current compensation environment and one that is consistent with the Corporation’s compensation policies described above. The Committee believes it achieved these goals. It retained as advisors both a human resources consulting firm and outside counsel, each of whom is not regularly utilized by the Corporation. It was important to the Committee that the compensation arrangements be competitive not only in amount but also in terms of the design and components of the compensation package. A significant portion of the package is “at risk” and thus dependent on the performance of the Corporation that will benefit all shareholders. The Committee also wanted the compensation arrangements to be documented through a letter agreement that provides, among other things, for the same change in control severance agreement and the same long-term incentive award structure as the Corporation’s other most senior managers receive. This was also accomplished, and the letter agreement between Mr. Kelly and the Corporation has been filed as an exhibit to the Corporation’s Current Report on Form 8-K, dated January 31, 2006.

Actions in 2005

Base Salary

Mr. McGuinn and Mr. Elliott were each entitled to annual review in 2005 of his base salary by the Committee under the terms of his employment contract with the Corporation. As a result of such review, Mr. McGuinn received a salary increase of $25,000 per year, and Mr. Elliott received a salary increase of $15,000 per year, each effective in May, 2005. In its 2005 review of Mr. McGuinn’s and Mr. Elliott’s salaries, the Committee reviewed compensation data based on a survey of executive officers holding comparable positions at 19 other companies similar to the Corporation in terms of its various business lines. Changes were made to the composition of this “peer group” in early, 2005 in order to more closely reflect changes in the Corporation’s business mix and to reflect the Corporation’s size. Of these comparable institutions, eight are included in the KBW 50 Index used in the Performance Graph on page 15. Each of Messrs. O’Hanley, Lamere and Canter was entitled to annual review of his base salary under the terms of his employment contract. As a result of such review, no salary action was taken for Messrs. O’Hanley, Lamere or Canter in 2005. Mr. Lamere did receive a $30,000 salary increase effective January 1, 2006. See pages 22 to 26 for a summary of the employment agreements of the named executive officers.

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Long-Term Plan Awards

In 2005, the Committee reviewed the long-term incentive component of total compensation for Messrs. McGuinn and Elliott and awarded them stock options and restricted stock grants which are described below. In conducting its review, the Committee reviewed compensation data based on a survey of comparable executive officers of 19 other financial institutions similar to the Corporation in terms of its various lines of business and size. As noted above, changes were made to the composition of these comparative institutions in early 2005 in order to more closely reflect changes in the Corporation’s business mix and to reflect the Corporation’s size. Of these comparative institutions, eight are included within the KBW Index used for the Performance Graph on page 15. Based on the comparative compensation data reviewed by the Committee, the Committee believed that the value of the “at risk” component of compensation represented by these options and restricted stock grants, coupled with the Corporation’s annual cash compensation (measured in terms of base salary and cash bonus), achieved the needed competitive positioning of the Corporation’s senior executive compensation package while creating a significant incentive for the executives and aligning their financial interests with those of the Corporation’s shareholders. The number of options and amount of restricted stock previously granted to each executive together with total compensation as reflected in the comparative compensation data referenced above were considered in determining the number of shares covered by each award.

The value of the overall long-term incentive awards granted to each of Mr. McGuinn and Mr. Elliott decreased by approximately 35% from 2004. The grant date value of the 2005 performance accelerated restricted stock awards decreased by approximately $3.0 million for Mr. McGuinn and by approximately $1.8 million for Mr. Elliott from 2004, while the value of the options granted increased. This increase was in part the result of a change in the method by which the Corporation determined the value of options for purposes of calibrating the number of options to be granted. The change was made to align the Corporation’s grant methodology with new accounting rules for valuing equity-based compensation and with methodologies used to value awards in major compensation surveys and databases. This change in methodology resulted in a lower value per option and a higher number of options granted.

(See the table for “Option Grants in 2005” on page 19 for further information regarding options granted in 2005). Options granted to Mr. McGuinn and Mr. Elliott in 2005 did not contain reload rights.

In May of 2005, Messrs. McGuinn and Elliott also received grants of performance accelerated restricted stock. The shares are restricted against transfer for seven years and, in the case of Mr. Elliott, will only be earned prior to the expiration of seven years from the date of grant if performance goals established by the Committee are met or on death, disability, a Change in Control Event (as defined in the Long-Term Plan) or in accordance with a seven-year vesting schedule upon retirement after age 55. See clause (g) on page 23 for information regarding the performance accelerated restricted stock held by Mr. McGuinn. The performance goals require that for years after 2004 both an earnings per share target and a return on common equity target must be met. If the performance goals are met for a particular year, the restrictions against transfer will then lapse as to one-third of the amount granted to each executive. The executive has full voting rights with respect to the shares, and dividends are payable at the same rate and at the same time as paid to other holders of the Corporation’s Common Stock. The above performance goals for 2005 were not achieved, and the restrictions against transfer did not lapse for 2005 with respect to any of Mr. McGuinn’s or Mr. Elliott’s awards of performance accelerated restricted stock. The performance goals were achieved for 2004.

In connection with its consideration of stock option and performance accelerated restricted stock awards for 2005 for senior managers, the Committee retained a human resources consulting firm not regularly utilized by the Corporation. This same firm was retained by the Corporate Governance and Nominating Committee as described on page 30.

Performance accelerated restricted stock was also granted to other senior managers of the Corporation in 2005. For certain managers, including Messrs. O’Hanley, Lamere and Canter, the performance goals are not the corporate goals referred to above, but are specifically targeted to performance measures of the businesses for which the manager is responsible. Performance goals were achieved in 2005 for the performance accelerated restricted stock granted from 2003 through 2005 to Mr. O’Hanley and Mr. Lamere, and a portion of such performance accelerated restricted stock held by Mr. Canter. As a

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result, restrictions lapsed with respect to 25% of such performance accelerated restricted stock held by Mr. O’Hanley and Mr. Lamere and 12.5% of such performance accelerated restricted stock held by Mr. Canter.

The Committee reviews the performance of senior managers annually and if preestablished performance goals are met, determines within its discretion whether the exercise date for certain previously granted options should be accelerated. Otherwise, these options are only exercisable during the final 60 days of their ten-year term. As provided for in the Long-Term Plan, the exercise of these accelerated options is intended to include the payout of a deferred cash incentive award to the optionee in an amount equal to the exercise price for such options. The optionee must use the cash award to pay the option exercise price of the accelerated options. The performance goals for the acceleration of these options and the payment of the deferred cash incentive award were achieved by the Corporation in 2004. Accordingly, the options were accelerated and deferred cash incentive awards were paid to Messrs. O’Hanley, Lamere and Canter in 2005 (these amounts are shown in “LTIP Payouts” in the Summary Compensation Table on page 16). Neither Mr. McGuinn nor Mr. Elliott held any such options or deferred cash incentive awards in 2005.

Options with such deferred cash incentive awards have not been granted since 1999. These options will not be a material ongoing element of senior executive compensation, and only a limited number remains outstanding.

Bonus Plan Awards

The Committee considered and approved bonus awards for 2005 for the Corporation’s senior managers, including Mr. McGuinn and the other named executive officers. Bonus awards for 2005 were paid entirely in cash. In making awards under the Corporation’s Bonus Plan for 2005, the Committee again examined the performance of the Corporation and its senior managers. In connection with its consideration of bonus awards for 2004 and 2005 for senior managers, the Committee retained the human resources consulting firm referenced above.

The starting point for determining bonus awards was a matrix that reflected each manager’s position and overall performance evaluation and, if applicable, the provisions of his employment agreement. With respect to Messrs. O’Hanley, Lamere and Canter, the matrix that had been used in 2004 was adjusted in the case of certain individual performance levels to reflect (i) the 2005 operating income plan as compared to 2004 operating income and (ii) 2005 operating income performance against the 2005 plan. Individual and organization/business unit performance were then considered in determining final award amounts for 2005. This review focused on the individual performance of each officer for full year 2005. The Committee completed a formal, written performance evaluation for Mr. McGuinn utilizing the criteria of Strategy, Financial Results, Building Capability (management development and succession), CEO Leadership and Board and Governance Leadership Performance on a weighted basis and received input from the full Board on the evaluation. In determining Mr. McGuinn’s Bonus Plan award for 2005, the Committee evaluated him within the context of the year experienced by the Corporation with respect to its 2005 operating plan, as well as his performance evaluation and his leadership in planning and executing the strategic and operating initiatives of the Corporation. For 2005, Mr. McGuinn received a Bonus Plan award of $1,500,000 which was $56,000 more than the Bonus Plan award he received for 2004. Each other named executive officer was evaluated based in significant measure upon performance in the following areas: Results-Based Goals, Shared Values and Leadership Competencies.

Deductibility of Executive Compensation

Section 162(m) of the Internal Revenue Code limits the deductibility of executive compensation for certain officers of public companies. Section 162(m) generally disallows the ordinary business expense deduction for compensation in excess of $1,000,000 paid to a company’s chief executive officer and each of the next four most highly compensated executive officers. Compensation in excess of $1,000,000 qualifies for the ordinary business expense deduction if it qualifies as “performance based compensation” under Section 162(m). Of the three basic components of the Corporation’s compensation program for senior managers discussed above, base salary and awards under the Bonus Plan do not qualify as “performance based compensation” while certain currently outstanding awards under the Long-Term Plan (i.e., stock options and deferred cash incentive awards) do qualify, and others (i.e., performance accelerated restricted stock and time-based restricted stock) do not qualify, as “performance based compensation.” The Committee intends that Performance Shares qualify as “performance based compensation.”

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In redesigning the Corporation’s long-term incentive program for 2006, the Committee considered the impact of Section 162(m) and believes that 80% of a participant’s total long-term incentive value (i.e., stock options and performance shares) will qualify as “performance based compensation.” In 2006, the Committee will examine the issue of deductibility of executive compensation within the context of the Corporation’s compensation policies and the overall operation of the Corporation’s compensation plans and will consider what additional actions should be taken, if any, to operate the compensation plans in a tax effective manner.

The Human Resources Committee of the Board of Directors presents the foregoing Report.

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CORPORATE GOVERNANCE AND NOMINATING COMMITTEE REPORT

The Corporate Governance and Nominating Committee (“Nominating Committee”) consists of five directors, each of whom is an independent director under the rules of the New York Stock Exchange (“NYSE”). The Charter of the Nominating Committee is available at the Corporation’s website at www.mellon.com/governance/committees.html.

One of the most important responsibilities of the Nominating Committee under its Charter is in advance of the annual shareholders’ meeting each year to recommend persons to be nominated by the Board of Directors for election as directors of the Corporation. The Nominating Committee will consider candidates recommended by shareholders, and a shareholder desiring to make such a recommendation should follow the procedures set forth on pages 7 and 8 of this Proxy Statement. The Nominating Committee does not have any formal policies with regard to the consideration of shareholder-recommended candidates other than that any such person will be considered at the same time and under the same criteria used to evaluate all other candidates.

The criteria for the nomination of directors are set forth in the Corporation’s Board Policies and are as follows:

“The Corporate Governance and Nominating Committee will consider for selection as Directors those persons: