DEF 14A
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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  

Filed by a Party other than the Registrant  

Check the appropriate box:

 

   Preliminary Proxy Statement      Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

   Definitive Proxy Statement     

   Definitive Additional Materials     

   Soliciting Material Pursuant to §240.14a-12     

CME GROUP INC.

(Name of Registrant as Specified In Its Charter)

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

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No fee required.

 

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

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

 

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LOGO

NOTICE OF 2018 ANNUAL MEETING OF SHAREHOLDERS

Wednesday, May 9, 2018

10:00 a.m. Central Time

Auditorium at CME Group’s headquarters

20 South Wacker Drive

Chicago, Illinois 60606

March 20, 2018

Dear Shareholder:

You are invited to attend the 2018 annual meeting of shareholders of CME Group Inc.

Shareholders will vote on the following items:

Item 1: To elect fourteen directors that we refer to as “Equity directors.”

Item 2: To ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2018.

Item 3: To approve, by advisory vote, the compensation of our named executive officers.

Item 4: To elect three Class B-1 directors, two Class B-2 directors and one Class B-3 director.

Item 5: To elect five members to each of the Class B-1, Class B-2 and Class B-3 nominating committees.

Your vote is important. You are eligible to vote if you were a shareholder of record at the close of business on March 12, 2018.

Please ensure that your shares are represented at the meeting by promptly voting. Additional voting instructions begin on page 66.

 

If you or your legal proxy holder plan to attend the meeting in person, you must follow the admission procedures described on page 65. All attendees must have photo identification and proof of ownership of our stock as of the record date. Please note seating is limited and will be granted on a first come basis. You should allow sufficient time to clear security.

If you are unable to attend the meeting, please join the live webcast on our Investor Relations website at

http://investor.cmegroup.com/investor-relations under “Events.”

By order of the board of directors,

 

LOGO   LOGO  

Terrence A. Duffy

Chairman and Chief Executive Officer

 

Kathleen M. Cronin                

Senior Managing Director,

General Counsel & Corp. Secretary

 

 


Table of Contents

 

 

LOGO   Summary Information  

 

 

This summary highlights key elements of our proxy statement. For more complete information, you should review the entire proxy statement along with our 2017 Annual Report.

 

BUSINESS HIGHLIGHTS

The year 2017 was one of growth and achievement for CME Group. Total volume was more than 4.1 billion contracts traded, which generated $1.8 billion in cash earnings. In 2017, we reached record average daily volume of 16.3 million contracts, up 4% from 2016, despite a lower volatility environment. Year-end open interest was up 5% from the end of 2016, and we reached an all-time high record open interest during the year of 129.1 million contracts on June 14, 2017. The following are additional key performance metrics from 2017:

 

       

Record Average

Daily Volume

   Increase in Electronic Options Average Daily Volume    Aggregate Value of Declared Dividends   

Increase in CME Globex Volume Originating

Outside U.S.

       

 

16.3 million contracts

   25%    $2.1 billion    10%

For a more detailed discussion on our financial performance, see our 2017 Annual Report.

 

ANNUAL MEETING PROPOSALS AND BOARD RECOMMENDATIONS

 

Proposal    Board Recommendation
Item 1: Election of Equity Directors    FOR each of the nominees
Item 2: Ratification of Ernst & Young as our Auditors    FOR
Item 3: Approval, by advisory vote, on the compensation of our named executive officers    FOR
Item 4: Election of Class B-1, Class B-2 and Class B-3 Directors    No recommendation
Item 5: Election of Class B-1, Class B-2 and Class B-3 Nominating Committee Members    No recommendation

Beginning on or after March 20, 2018, we distributed to our shareholders (1) a copy of the proxy statement, 2017 Annual Report and proxy card(s) or voting instruction form, (2) an Important Notice Regarding the Availability of Proxy Materials, with instructions to access the proxy materials and vote online or (3) for shareholders who have elected to receive materials electronically, an email with instructions on how to access the materials and vote online.

Additional information regarding the logistics of the annual meeting is available beginning on page 65.

 

 
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Table of Contents

 

LOGO    Table of Contents  

 

 

  ELECTION OF EQUITY DIRECTORS

       

Item 1 – Election of Equity Directors

    3  

Director Nominations and Qualifications

    3  

Required Vote

    4  

Equity Directors up for Election

    5  

Director Attributes

    8  
 

  GOVERNANCE

       

Corporate Governance

    9  

Governance Highlights

    9  

Corporate Governance Materials

    9  

Director Attendance

    9  

Director Independence

    10  

Public Directors

    10  

Board Leadership Structure

    11  

Board’s Role in Risk Oversight

    11  

Executive Sessions

    12  

Annual Assessment of Board, Committee and Individual Director Performance

    12  

Reporting Concerns to the Audit Committee

    12  

Contacting the Board of Directors

    12  

Shareholder Engagement

    12  

Board Committees

    13  
 

  AUDIT

       

Item  2 – Ratification of the Appointment of Ernst & Young LLP as our Independent Registered Public Accounting Firm for 2018

    16  

The Audit Committee has Pre-Approval Processes for Non-Audit Services

    16  

Principal Accountant Fees and Services

    17  

Audit Committee Financial Experts

    17  

Required Vote

    17  

Report of the Audit Committee

    18  
 

ADVISORY VOTE ON THE COMPENSATION OF NAMED EXECUTIVE OFFICERS

       

Item  3 – Advisory Vote on the Compensation of our Named Executive Officers

    19  

Factors to Consider

    19  

Required Vote

    19  
 
 

ELECTION OF CLASS B-1, CLASS B-2 AND CLASS B-3 DIRECTORS

       

Item  4 – Election of Class B-1, Class B-2 and Class B-3 Directors

    20  

Class B-1 Director Nominees

    20  

Class B-2 Director Nominees

    21  

Class B-3 Director Nominees

    22  
 

ELECTION OF CLASS B-1, CLASS B-2 AND CLASS B-3 NOMINATING COMMITTEES

       

Item  5 – Election of Class B-1, Class B-2 and Class B-3 Nominating Committees

    23  

Class B-1 Committee Nominees

    23  

Class B-2 Committee Nominees

    25  

Class B-3 Committee Nominees

    26  
 

CD&A AND COMPENSATION MATTERS

       

Compensation Committee Matters

    27  

Compensation Discussion and Analysis

    29  

Compensation Committee Report

    45  

Executive Compensation

    46  

Chief Executive Officer Pay Ratio

    57  

Director Compensation

    58  
 

OTHER BUSINESS

       

Security Ownership of CME Group Common Stock

    61  

Other Business

    63  

Certain Business Relationships with Related Persons

    63  

Charitable and Civic Contributions

    64  

Section 16(a) Beneficial Ownership Reporting Compliance

    64  
 

GENERAL INFORMATION ABOUT THE MEETING

    65  
 

APPENDIX A – CATEGORICAL INDEPENDENCE STANDARDS

    72  
 

 

 

The board of directors of CME Group Inc. is providing this proxy statement in connection with the annual meeting of shareholders to be held on Wednesday, May 9, 2018, at 10:00 a.m. Central Time, in the auditorium at CME Group’s corporate headquarters, 20 South Wacker Drive, Chicago, Illinois. The terms the “company,” “we,” “us” and “our” refer to CME Group and its subsidiaries. Shares of our Class A common stock are listed on the Nasdaq Global Select Market (NASDAQ) under the trading symbol “CME.” Our principal offices are located at 20 South Wacker Drive, Chicago, Illinois 60606. Our phone number is 312.930.1000.

Further information about CME Group can be found at http://www.cmegroup.com. Information made available on our website does not constitute a part of this proxy statement. Additional information regarding the availability of materials referenced in this proxy statement is available on page 71.

 

 
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LOGO   ITEM 1—Election of Equity Directors  

 

 

You are being asked to vote on the election of fourteen Equity director nominees to hold office until the 2019 annual meeting.

 

 

OUR BOARD RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE EQUITY DIRECTOR NOMINEES

Our directors are elected each year. Each director’s term will last until the 2019 annual meeting and until his or her successor is duly elected and qualified.

We have implemented a majority vote standard for the Equity directors, except in the event of a contested election.

The Equity directors are nominated by the board based on the recommendation of the nominating committee for election by our Class A and Class B shareholders voting together (Equity directors) under Item 1. All Equity director nominees, except for Ms. Lucas, are presently CME Group directors. An additional six directors will be elected by our Class B shareholders (Class B directors) under Item 4. We have no reason to believe that any of the nominees will be unable or unwilling to serve if elected.

Effective as of the annual meeting, Messrs. Melamed and Sandner, two long-time members of the board, will retire. The company sincerely thanks them for their years of leadership and their historic contributions to our business, the industry and our community.

The biographies for the Equity director nominees begin on page 5 and for the Class B director nominees on page 20.

References to terms of our board of directors in their biographies include service on the board of CME Group (formerly known as Chicago Mercantile Exchange Holdings Inc.) from its formation in 2001 and service on the board of its wholly-owned subsidiary, Chicago Mercantile Exchange Inc. (CME). CME Group became a public company in December 2002. The boards of our other exchange subsidiaries: Board of Trade of the City of Chicago, Inc. (CBOT), New York Mercantile Exchange, Inc. (NYMEX) and Commodity Exchange, Inc. (COMEX) also are composed of the same members as the CME Group board of directors. Ages are as of March 12, 2018. Information on public directorships is for the past five years.

DIRECTOR NOMINATIONS AND QUALIFICATIONS

The policy of the board of directors is to remain an interactive, independent, thoughtful, highly qualified and collegial combination of individuals with diverse knowledge, skills and experience, so that the directors, working together, possess the competencies required to effectively carry out the board’s responsibilities.

In considering candidates for the board, the nominating committee, composed entirely of directors who are independent under applicable listing standards, considers the entirety of each candidate’s credentials. With respect to the nomination of continuing directors for re-election, the individual’s contributions to the board are also considered. In assessing new candidates for the board, we do not have specific minimum qualifications that an individual must meet to be considered. The board and its nominating committee seek members having the characteristics essential for effectiveness as a member of our board, including but not limited to:

 

    Integrity, objectivity, sound judgment and leadership;

 

    The relevant expertise and experience required to offer advice and guidance to the Chairman and Chief Executive Officer and other members of senior management;

 

    The ability to make independent analytical inquiries;

 

    The ability to collaborate effectively and contribute productively to the board’s discussions and deliberations;

 

    A commitment to enhancing long-term shareholder value;

 

    An understanding of the company’s business, strategy and challenges;

 

    The willingness and ability to devote adequate time and effort to board responsibilities and to serve on committees at the request of the board;

 

    Is not a Disqualified Person (as defined in our corporate governance principles); and

 

    Whether the individual meets the composition requirements of the Commodity Futures Trading Commission (CFTC) and the applicable listing standards.

 

 
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LOGO    ITEM 1—Election of Equity Directors (Continued)  

 

 

On an annual basis, the governance committee and the nominating committee meet jointly to assess the current and future needs of the board and will make recommendations to the board in the event they identify a need to recruit for an additional member of the board. The board believes it is essential that its members represent diverse viewpoints. In addition to the foregoing criteria, the nominating committee is committed to ensuring each pool of qualified candidates from which board nominees are chosen includes candidates who bring racial and/or gender diversity.

The nominating committee may solicit candidates from its current directors and, if deemed appropriate, retain for a fee recruiting professionals to identify and evaluate candidates. The nominating committee also will consider a nominee for Equity director recommended by shareholders if the recommendation is submitted in writing, accompanied by a description of the proposed nominee’s qualifications, and other relevant biographical information and evidence of consent of the proposed nominee to serve as a director if elected. Recommendations should be addressed to the nominating committee, Attention: Corporate Secretary, CME Group Inc., 20 South Wacker Drive, Chicago, Illinois 60606. In considering a shareholder recommendation, the nominating committee may seek input from an independent advisor, legal counsel and/or other directors, as appropriate, and will reach a conclusion using its standard criteria. A copy of our nominating committee’s charter is available on our website.

Ms. Lucas was identified by certain members of our nominating committee. Mr. Siegel is currently a Class B-1 director and is being included on the slate as an Equity director as he brings with him extensive knowledge and experience relating to the governance and oversight of our clearing house.

In February 2017, the board approved amendments to its bylaws primarily to implement “proxy access” to permit a shareholder, or a group of up to 20 shareholders, owning three percent or more of the company’s outstanding common stock continuously for at least three years to nominate and include in the company’s proxy materials director candidates constituting up to the greater of two individuals or 20% of the number of Equity directors, provided that the shareholder(s) and the nominee(s) satisfy the requirements specified in the bylaws.

The holders of the Class B-1, Class B-2 and Class B-3 common stock elect members of nominating committees for their respective class, which are responsible for nominating candidates for election by their class. See Item 5 beginning on page 23 for more information. Our certificate of incorporation requires that director candidates for election by a class of Class B common stock own, or be recognized under our rules as the owner of, at least one share of that class.

For more information concerning our current directors’ qualifications, see the Director Attributes table on page 8.

REQUIRED VOTE

Each Equity director candidate must receive a number of “FOR” votes that exceed the number of “AGAINST” votes to be elected.

 

 
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LOGO   ITEM 1—Election of Equity Directors (Continued)  

 

 

EQUITY DIRECTORS UP FOR ELECTION AT THE 2018 ANNUAL MEETING

 

Terrence A. Duffy

Age: 59

Director since: 1995

 

       

 

The Honorable Mr. Duffy has served as our Chairman and Chief Executive Officer since November 2016. Previously, he served as our Executive Chairman & President since 2012 and as our Executive Chairman since 2006, when he became an officer of the company. He served as Chairman of the board since 2002 and as our Vice Chairman from 1998 until 2002. Mr. Duffy has been a member of our board since 1995. He was President of TDA Trading, Inc. from 1981 to 2002 and has been a member of CME since 1981. Mr. Duffy was appointed by President Bush and confirmed by the U.S. Senate in 2003 as a member of the Federal Retirement Thrift Investment Board, a position he held until 2013. Mr. Duffy currently serves as Co-Chair of the Mayo Clinic Greater Chicago Leadership Council. He is a Vice Chairman of the CME Group Foundation, whose mission is to enhance economic opportunity, health and education, especially for disadvantaged youth. He is also a member of the Economic Club of Chicago, the Executives’ Club of Chicago and the President’s Circle of the Chicago Council on Global Affairs. Since 2003, Mr. Duffy has been recognized as one of the top 100 Irish Business Leaders by Irish America Magazine. Mr. Duffy attended the University of Wisconsin-Whitewater. In 2007, he received a Doctor of Humane Letters from DePaul University.

 

Timothy S. Bitsberger

Age: 58

Director since: 2008

 

       

 

Mr. Bitsberger has served as Managing Director and Portfolio Specialist on the Account Management Team at The TCW Group since March 2017, where he is responsible for communicating investment strategies, performance and outlook to clients. Previously, he served as Managing Director, Official Institutions FIG Coverage Group of BNP PNA, a subsidiary of BNP Paribas, from December 2010 to November 2015, as a senior consultant with Booz Allen Hamilton from May 2010 to November 2010 and was with BancAccess Financial from December 2009 to April 2010. He also served as Senior Vice President and Treasurer of Freddie Mac from 2006 to 2008. Mr. Bitsberger also was with the U.S. Treasury Department from 2001 to 2005, serving first as their Deputy Assistant Secretary for federal finance and more recently as the Assistant Secretary for financial markets. He was confirmed by the U.S. Senate as the Assistant Secretary in 2004.

 

Charles P. Carey

Age: 64

Director since: 2007

 

     

Previous Public Directorship:

BM&FBOVESPA S.A.

 

Mr. Carey served as our Vice Chairman from 2007 to 2010 in connection with our merger with CBOT Holdings, Inc. Prior to our merger, Mr. Carey served as Chairman of CBOT since 2003, as Vice Chairman from 2000 to 2002, as First Vice Chairman during 1993 and 1994 and as a board member of CBOT from 1997 to 1999 and from 1990 to 1992. Mr. Carey is a principal in the firms of Henning & Carey Trading Co. and HC Technologies LLC (formerly known as Henning-Carey Proprietary Trading LLC). He has been a member of CBOT since 1978 and was a member of the MidAmerica Commodity Exchange from 1976 to 1978. Mr. Carey previously served on the board of CBOT Holdings, Inc. until our merger in 2007. Mr. Carey serves as a Vice Chairman of the CME Group Foundation.

 

Dennis H. Chookaszian

Age: 74

Director since: 2004

 

 

Public Directorships:

Career Education Corporation

Maxar Technologies (solely listed in Canada)

Pillarstone Capital REIT (registered securities only)

 

 

Previous Public Directorships:

Allscripts Healthcare Solutions, Inc.

LoopNet, Inc.

Prism Technologies Group, Inc.

 

Mr. Chookaszian served as Chairman of the Financial Accounting Standards Advisory Council from 2007 to 2011. From 1999 until 2001, Mr. Chookaszian served as Chairman and CEO of mPower, Inc., a financial advice provider focused on the online management of 401(k) plans. Mr. Chookaszian served as Chairman and CEO of CNA Insurance Companies from 1992 to 1999. During his 27-year career with CNA, Mr. Chookaszian held several management positions at the business unit and corporate levels, including President and COO from 1990 to 1992 and CFO from 1975 to 1990. Mr. Chookaszian is a registered certified public accountant.

 

 

 
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LOGO    ITEM 1—Election of Equity Directors (Continued)  

 

 

Ana Dutra

Age: 53

Director since: 2015

 

       

 

Ms. Dutra has served as the President and CEO of The Executives’ Club of Chicago, a world-class senior executives organization focused on the development, innovation and networking of current and future business and community leaders, since September 2014. Ms. Dutra formerly served as CEO of Mandala Global Advisors, a global management consulting company, from 2013 to September 2014. Prior to that she was a Proxy Officer and CEO of Korn/Ferry Consulting from 2007 until 2013. Ms. Dutra serves as a director of Greeley and Hansen, Humantelligence, the International Women’s Forum, Lurie Children’s Hospital of Chicago, Chicago Philharmonic Society, Governor State University and Academy for Urban School Leadership and is a member of the Kellogg Alumni Advisory Board, the Economic Club of Chicago, the Committee of 200 and the Chicago Council on Global Affairs. She previously served as a director of the Executives’ Club of Chicago.

 

Martin J. Gepsman

Age: 65

Director since: 1994

 

       

 

Mr. Gepsman served as Secretary of the board from 1998 to 2007. He has been a member of CME for more than 30 years. Mr. Gepsman has also been an independent broker and trader since 1985.

 

Larry G. Gerdes

Age: 69

Director since: 2007

 

     

Previous Public Directorships:

Access Plans, Inc.
Transcend Services, Inc.

 

Mr. Gerdes has served as our Lead Director since August 2017. He has served as CEO of Pursuant Health (formerly known as SoloHealth), a private health-care company in Atlanta since February 2014, as its Executive Chairman of the board since November 2013, as its Chairman since 2012 and as a board member since 2007. He also has served as a general partner of Sand Hill Financial Company, a venture capital partnership, since 1983. Mr. Gerdes is also a general partner of Gerdes Huff Investments. Mr. Gerdes formerly served as Chairman and CEO of Transcend Services, Inc., concluding with the sale of that company in April 2012, and as a director of Access Plans, Inc. from 2001 until its sale in June 2012. Mr. Gerdes is a major shareholder and President of Friesland Farms, LLC. Mr. Gerdes is a member of the Dean’s Advisory Council for The Kelley School of Business at Indiana University and serves as trustee for Monmouth College. Mr. Gerdes previously served on the board of CBOT Holdings, Inc. until our merger in 2007.

 

Daniel R. Glickman

Age: 73

Director since: 2001

 

       

 

Mr. Glickman served as our Lead Director from August 2014 to August 2017. Mr. Glickman has served as Executive Director of the Aspen Institute’s Congressional Program since 2011 and as Vice President of the Aspen Institute since 2012. Mr. Glickman also has served as Senior Fellow for the Bipartisan Policy Center since 2010. From 2004 to 2010, Mr. Glickman served as Chairman and CEO of the Motion Picture Association of America, Inc. Mr. Glickman previously served as Director of the Institute of Politics at Harvard University’s John F. Kennedy School of Government from 2002 to 2004 and served as Senior Advisor in the law firm of Akin, Gump, Strauss, Hauer & Feld, from 2001 to 2004. He also served as U.S. Secretary of Agriculture from 1995 through 2001 and as a member of the U.S. Congress, representing a district in Kansas, from 1977 through 1995. Mr. Glickman serves as co-chair of the global agriculture and development initiative of the Chicago Council on Global Affairs, as a board member of the Foundation for Food and Agriculture Research (established in the 2014 Farm Bill by Congress) and Chairman of the International Advisory Board of APCO Worldwide (a public relations firm based in Washington, DC). Mr. Glickman also serves on a number of non-profit advisory boards with a focus on agriculture and food supply and is a strategic advisor to the Russell Group.

 

 

 
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LOGO   ITEM 1—Election of Equity Directors (Continued)  

 

 

Deborah J. Lucas

Age: 59

Director since: n/a

 

       

 

Ms. Lucas has served as the Sloan Distinguished Professor of Finance at the MIT Sloan School of Management since 2011 and as the Director of the MIT Golub Center for Finance and Policy from 2012. Her current research focuses on government financial institutions and financial policy, and she teaches courses on fixed income securities and derivatives. She serves on advisory boards for the Federal Reserve Bank of New York, the Urban Institute, and the Census Bureau. She is a trustee of the NBER pension plans, an associate editor for several academic journals, and a member of the Shadow Open Market Committee and the Financial Economics Roundtable. Previous appointments include assistant and associate director at the Congressional Budget Office; professor at Northwestern University’s Kellogg School; chief economist at the Congressional Budget Office, and senior staff economist at the Council of Economic Advisers. She has been a director on several corporate and non-profit boards.

 

Alex J. Pollock

Age: 75

Director since: 2004

 

       

 

Mr. Pollock has served as the Distinguished Senior Fellow and Director of Financial Systems Studies at the R Street Institute in Washington, DC since January 2016. He previously served as Resident Fellow of the American Enterprise Institute in Washington, DC from 2004 to January 2016 and as President and CEO of the Federal Home Loan Bank of Chicago from 1991 through 2004. He was previously President and CEO of Community Federal Savings. Mr. Pollock serves on the non-profit board of Great Lakes Higher Education Corporation and on the Board of the Great Books Foundation. Mr. Pollock served as our Lead Director from August 2012 through August 2014.

 

Terry L. Savage

Age: 73

Director since: 2003

 

       

 

Ms. Savage is a nationally-syndicated financial columnist, author and President of Terry Savage Productions, Ltd., which provides speeches, columns and videos on personal finance for corporate and association meetings, publications and national television programs and networks. Ms. Savage is a registered investment advisor and commodity trading advisor. She was a member of CME from 1975 to 1980.

 

William R. Shepard

Age: 71

Director since: 1997

 

       

 

Mr. Shepard has been a member of CME for more than 40 years. Previously, he served as our Second Vice Chairman from 2002 to 2007. Mr. Shepard is founder and President of Shepard International, Inc., a futures commission merchant.

 

Howard J. Siegel

Age: 61

Director since: 2000

 

       

 

Mr. Siegel has been a member of CME since 1977. In 1978, Mr. Siegel began his trading career at Moccatta Metals in their Class B arbitrage operations and served as an order filler until 1980. From there, he went on to fill orders and trade cattle from 1980 until 1982. At that time, Mr. Siegel became a partner and an officer in a futures commission merchant that cleared at CME until selling his ownership interest in 1990. For more than 30 years, Mr. Siegel has been an independent trader on our CME exchange. He continues to actively trade electronically in our agricultural product suite. Mr. Siegel is the Secretary and Treasurer of the CME Group Foundation. He also serves on our risk committee, co-chairs our clearing house risk committee and is the chair of our interest rate swaps committee.

 

 

 

 
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LOGO   ITEM 1—Election of Equity Directors (Continued)  

 

 

Dennis A. Suskind

Age: 75

Director since: 2008

 

 

Public Directorships:

Bridgehampton National Bank

(Vice Chairman)

Navistar, Inc.

 

 

Previous Directorship:

Liquid Holdings Group, Inc.

 

Mr. Suskind is a retired General Partner of Goldman Sachs & Co. During his tenure in trading, Mr. Suskind served as Vice Chairman of NYMEX, Vice Chairman of COMEX, a member of the board of the Futures Industry Association, a member of the board of International Precious Metals Institute, a member of the boards of the Gold and Silver Institutes in Washington, DC and was an inaugural member of the Future Industry Association’s Hall of Fame. He is the President of the board of the Hampton Classic Horse Show and of the board of the Stein Eriksen Lodge Hotel. He previously served as the President of the Arthur Ashe Institute for Urban Health for fifteen years. He also served on the board of NYMEX Holdings, Inc. until our merger in 2008.

 

DIRECTOR ATTRIBUTES

We believe all our board members have an inquisitive and objective perspective, practical wisdom and mature judgment. In addition, the following highlights the key characteristics the board believes qualifies its Equity director nominees and current Class B directors to serve the interests of our shareholders. This summary, however, is not meant to be a complete description of all the skills and attributes of our board members. Additional details on our individual directors and director nominees are set forth in their individual biographies. The Class B nominees are nominated by a separate nominating committee. Therefore, the board has not assessed the attributes of the Class B nominees who are not currently members of the board.

 

 

ATTRIBUTE

 

      

 

DIRECTOR AND DIRECTOR NOMINEES WITH ATTRIBUTES

 

 

Industry Experience

     
Possesses an understanding of our markets as a result of trading our products, serving as an officer of a firm which trades our products or working in the financial services industry.      

Terrence A. Duffy

Jeffrey M. Bernacchi

Timothy S. Bitsberger

Charles P. Carey

Elizabeth A. Cook

 

Martin J. Gepsman

Gedon Hertshten

Ronald A. Pankau

Alex J. Pollock

Terry L. Savage

 

William R. Shepard

Howard J. Siegel

Dennis A. Suskind

David J. Wescott

 

Government Relations/Regulatory/Public Policy

         

Experience interacting with our regulators and members of government or prior service in government.

 

     

Terrence A. Duffy

Timothy S. Bitsberger

Charles P. Carey

 

Daniel R. Glickman

Deborah J. Lucas

Ronald A. Pankau

 

Alex J. Pollock

Dennis A. Suskind

 

Management Experience

         
Experience as a chief executive officer, president or senior vice president of a company or a significant subsidiary, operating division or business unit.      

Terrence A. Duffy

Timothy S. Bitsberger

Dennis H. Chookaszian

Ana Dutra

 

Larry G. Gerdes

Daniel R. Glickman

Gedon Hertshten

 

Ronald A. Pankau

Alex J. Pollock

Dennis A. Suskind

 

Financial Expertise

         

Experience as a chief financial officer or similar financial oversight experience and meets the definition of a financial committee expert.

 

      Dennis H. Chookaszian   Larry G. Gerdes    

 

Professional Accreditations

         
Possesses an advanced degree.      

Jeffrey M. Bernacchi

Dennis H. Chookaszian

Ana Dutra

 

Larry G. Gerdes

Daniel R. Glickman

 

Deborah J. Lucas

Alex J. Pollock

 

Risk Management Experience

         
Experience in overseeing risk management processes and procedures.      

Charles P. Carey

Dennis H. Chookaszian

 

Gedon Hertshten

William R. Shepard

 

Dennis A. Suskind

David J. Wescott

 

Other Public Company Directorship

         
Experience serving as a director of another publicly traded company.      

Charles P. Carey

Dennis H. Chookaszian

Larry G. Gerdes

 

Daniel R. Glickman

Gedon Hertshten

Deborah J. Lucas

 

Alex J. Pollock

Terry L. Savage

Dennis A. Suskind

 

 
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LOGO   Corporate Governance  

 

 

CME Group is committed to good corporate governance. By aligning our governance approach with best practices, our company is able to strengthen board and management accountability, promote long-term shareholder value and sustain continued success.

The board of directors has established corporate governance principles which provide a framework for our effective governance. Our governance committee regularly reviews trends and best practices in corporate governance. The office of the secretary advises our board of directors and management in an effort to strengthen existing governance practices and develop new policies that make us a better company. Below is an overview of the company’s governance highlights and materials.

GOVERNANCE HIGHLIGHTS

 

    Annual election of directors

 

    Majority voting for Equity directors

 

    Proxy access bylaw provision for Equity director positions

 

    Commitment to the inclusion of qualified diverse candidates in any searches for director nominees

 

    Confidential shareholder voting

 

    Quarterly executive sessions of independent directors

 

    Board and committee evaluations and individual peer director evaluations

 

    Active risk oversight by the full board, a risk committee and other committees with oversight responsibilities based on areas of focus and expertise

 

    Independent lead director

 

    Policy restricting the pledging of shares of our Class A common stock

 

    Orientation for newly elected board members

CORPORATE GOVERNANCE MATERIALS

You can access the following governance materials by visiting http://investor.cmegroup.com/investor-relations under “Corporate Governance.”

 

    Corporate Governance Principles

 

    Board of Directors Conflict of Interest Policy

 

    Board Code of Ethics

 

    CME Group Charter

 

    CME Group Bylaws

 

    Employee Code of Conduct

 

    Charters for committees composed solely of board members

 

    Guide to Conducting Business for Third Parties of CME Group

Each of these documents is also available in print upon written request made to the Office of the Secretary, CME Group Inc., 20 South Wacker Drive, Chicago, Illinois 60606.

Our employee code of conduct is applicable to all our employees, including our Chairman and Chief Executive Officer, our Chief Financial Officer and our other senior financial officers.

DIRECTOR ATTENDANCE

The board held seven meetings during 2017. All incumbent directors attended more than 75% of the combined total meetings of the full board and the committees on which he or she served during 2017, except for Mr. Wescott.

We strongly encourage, but do not require, our directors to attend the annual meeting. Last year, 18 of the 20 directors on the board at that time attended the annual meeting of shareholders.

 

 
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LOGO    Corporate Governance (Continued)  

 

 

DIRECTOR INDEPENDENCE

The experience and diversity of our directors has been, and continues to be, critical to our success. Our corporate governance principles require that the board be composed of at least a majority of independent directors. Additionally, in accordance with applicable listing standards, the members of our audit, compensation, governance and nominating committees must be independent. For a director to be considered independent, the board must affirmatively determine that the director has no direct or indirect material relationship with CME Group. The board has adopted categorical independence standards, which are attached to this proxy statement as Appendix A, to assist it in making its determinations regarding independence. These standards conform to and exceed the independence criteria specified in the listing standards of NASDAQ. They specify the criteria by which the independence of our directors will be determined, including relationships and transactions between each director, director nominee, any member of his or her immediate family, his or her affiliates, charitable organizations with which he or she is affiliated, and us.

The board believes all of its non-executive directors act independently of, and effectively monitor and oversee the actions of, management. Based on our categorical independence standards, at its meeting held in February 2018, the governance committee made a preliminary assessment of the independence of the directors and director nominees and based on such assessment made a recommendation to our board regarding their independence. Some of our directors are members of our exchanges, which provides them with access to our open outcry markets, lower trading fees, the ability to vote on certain matters relating to the operation of our open outcry markets and, for members of CME, the ability to elect six of our directors. Directors who are members of our exchanges may make payments directly to us or indirectly to us through our clearing firms in connection with their trading activity on an exchange. To ensure that such payments did not exceed the monetary thresholds set forth in the listing standards of NASDAQ, the governance committee reviewed the directors’ and their affiliated clearing firms’ trading activities and relationships with our exchanges as part of its independence determination. The governance committee and the board noted that all payments relating to trading fees were made in the ordinary course of our business, were on terms consistent with those prevailing at the time for corresponding transactions by similarly situated unrelated third parties and were not in excess of the applicable payment thresholds.

After considering information provided by our current directors and other nominees in our annual questionnaires, the payments made to us relating to trading activities, as well as additional information gathered by our office of the secretary, the governance committee recommended and the board determined that all current directors and nominees for Equity and Class B director be classified as independent with the exception of the following:

 

    Mr. Duffy based on his employment relationship with CME Group.

 

    Mr. Melamed based on his consulting relationship with CME Group.

 

    Mr. Sandner based on the consulting arrangement that will take effect upon his retirement from the board.

PUBLIC DIRECTORS

As the parent company of four self-regulatory organizations, we are required to ensure we meet the core principles of the CFTC which, among other things, require that we have processes and procedures to address potential conflicts of interest that may arise in connection with the operation of our exchanges. Significant representation of individuals who do not have relationships with our exchanges, referred to as “public directors” in the CFTC regulations, play an important role in our processes to address potential conflicts of interest. The board has assessed which directors would be considered public directors based upon their lack of relationship with our exchanges and the industry per the CFTC regulations. The following individuals meet the definition of “public director”:

 

Timothy S. Bitsberger

Dennis H. Chookaszian

Ana Dutra

Larry G. Gerdes

Daniel R. Glickman

 

Deborah J. Lucas

Alex J. Pollock

Terry L. Savage

Dennis A. Suskind

Additionally, our market regulation oversight committee is composed solely of public directors.

 

 
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LOGO   Corporate Governance (Continued)  

 

 

BOARD LEADERSHIP STRUCTURE

Mr. Duffy has served as our Chairman and Chief Executive Officer since November 2016. Our board leadership structure includes an independent Lead Director and our active board members of which more than a majority are considered independent. Mr. Gerdes has served as our independent Lead Director since August 2017 when he succeeded Mr. Glickman who held the position from August 2014. The independent Lead Director is appointed by the board based on the recommendation of the governance committee for a one-year term and has the following responsibilities:

 

    Presides at meetings of the board if the Chairman is unavailable and at executive sessions of the board’s independent directors.

 

    Presides at the board’s annual evaluation of the Chairman’s achievement of his goals and objectives.

 

    Communicates to the Chairman the results of meetings at which he presides.

 

    Receives direct communications from directors and/or shareholders in cases where the Chairman is unavailable or where direct communication with the Chairman may not be appropriate.

 

    Confers with the Chairman, in the Chairman’s discretion, in regards to board agendas, scheduling and information distribution.

 

    Has the authority to call a special meeting of the board in accordance with our bylaws.

Our governance documents provide the board with the flexibility to select the appropriate leadership structure for CME Group. In making leadership determinations, the board considers many factors, including the specific needs of the business and what is in the best interests of our shareholders. A combined Chairman and Chief Executive Officer position provides us with a single leader who communicates the company’s business and strategy to our shareholders, customers, employees, regulators and the public. The board believes its current leadership structure allows it to effectively operate, represent the rights of our shareholders and create long-term value and provides a well-functioning and effective balance between strong management leadership and appropriate safeguards and oversight by an independent Lead Director and non-employee board members. The board reserves the right to make changes to its governance structure in the future as it deems appropriate.

BOARD’S ROLE IN RISK OVERSIGHT

While senior management has primary responsibility for managing the company’s risk on a day-to-day basis, the board has the responsibility for overseeing our risk management activities and the overall programs designed to identify, assess, manage and monitor risks and opportunities, such as the company’s Enterprise Risk Management (ERM) program. The board oversees the business of the company, including the risk management programs and results, to ensure that the long-term interests of the shareholders are being served. The board has an active role, as a whole and also at the committee level, in overseeing management of our risks, with its focus on the risks facing the company.

Our business exposes us to clearing, compliance, financial, operational, reputational and strategic risks. Our ERM program promotes and facilitates the evolution and alignment of consistent and transparent risk management practices at CME Group. Through the ERM program, we take a comprehensive approach to risk management and endeavor, in an ongoing manner, to ensure the enterprise risks are identified, assessed, measured, prioritized and updated.

The risk committee is primarily responsible for reviewing, assessing and providing oversight of our risk management practices with respect to those risks enumerated in its charter and assisting the board in its oversight of the effectiveness of our policies and processes to identify, manage and plan for risks. The risk committee approves the ERM framework, the risk universe and reviews and recommends to the board the various levels of acceptable appetite for managing key risks associated with the company’s business and strategy. The risk committee also receives regular quarterly reports on the control functions relating to information security, compliance and business continuity.

In addition to the risk committee, the board also assigns oversight of risks to other committees, such as the clearing house oversight and compensation committees. This structure is designed to increase the effectiveness of our board’s oversight by taking into account the background and experience of the various board committees, including their interactions with management. Each committee reports on its activities to the full board. The appendix to the charter of the risk committee provides additional detail on the allocation of risk oversight responsibilities to the various committees. The charter for the risk committee is available on our website.

 

 
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LOGO    Corporate Governance (Continued)  

 

 

Our universe of risks is reported to the board and senior management on a quarterly basis along with updates of any developments that could affect our risk profile or other aspects of our business. Risk management and mitigation is ongoing, and the importance assigned to identified risks can change and new risks can emerge during the year as the company develops and implements its strategy.

Our ultimate objective is to help preserve and protect our enterprise value and to help increase the likelihood of achieving our objectives while maintaining or enhancing our reputation. In doing so, the board understands it may not be practicable or cost-effective to eliminate or mitigate certain risks, that it may be necessary to accept certain risks to achieve our goals and objectives and that the processes, procedures and controls employed to address certain risks may be limited in their effectiveness.

EXECUTIVE SESSIONS

Our corporate governance principles require our independent directors to meet in executive session (without management and non-independent directors) on a quarterly basis. These sessions are chaired by the independent Lead Director. The chair of the executive session may, at his discretion, invite our Chairman and Chief Executive Officer, other non-independent directors or other members of management to participate in a portion of such executive session, as appropriate.

ANNUAL ASSESSMENT OF BOARD, COMMITTEE AND INDIVIDUAL DIRECTOR PERFORMANCE

As provided in our corporate governance principles, the board annually reviews its own performance, structure and processes in order to assess how effectively it is functioning. The assessment is implemented and administered by the governance committee through an annual board self-evaluation survey. Our process also includes individual peer director evaluations. All of our board established committees, except for the executive committee, conduct an annual self-assessment.

REPORTING CONCERNS TO THE AUDIT COMMITTEE

We have engaged an independent, third party, EthicsPoint, for the purpose of receiving complaints, including complaints relating to accounting, internal control over financial reporting or auditing matters. Concerns received via EthicsPoint relating to financial matters are automatically referred to the chairman of the audit committee and will be handled in accordance with the procedures adopted by the audit committee. A copy of these procedures is available on our website.

CONTACTING THE BOARD OF DIRECTORS

Shareholders may contact the board of directors, including a committee of the board or the independent directors as a group, by using the following address:

CME Group Inc.

Attn: Board of Directors c/o Office of the Secretary

20 South Wacker Drive

Chicago, Illinois 60606

Email: directors@cmegroup.com

All communications received will be compiled by the office of the secretary and submitted to the governance committee on a quarterly basis or more frequently as appropriate. Emails received via directors@cmegroup.com are screened for junk commercial email and general solicitations. If a communication does not involve an ordinary business matter as described below and if a particular director is named, the communication will be forwarded to that director.

In order to expedite a response to ordinary business matters, the governance committee has authorized management to receive, research and respond, if appropriate, on behalf of our directors, including a particular director or its non-executive directors, to any communication regarding a product of an exchange or transactions by a clearing firm or a member of an exchange, referred to as an “ordinary business matter.” Any director may review any such communication or response thereto.

SHAREHOLDER ENGAGEMENT

Shareholders who invest in our company and elect the board of directors are entitled to open and meaningful information about our business, strategies, corporate governance and senior management compensation practices so they can make informed decisions and knowledgeably participate in the proxy voting process. The board thoughtfully considers the opinions expressed by shareholders through their votes, periodic meetings and other communications and believes that shareholder engagement leads

 

 
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LOGO   Corporate Governance (Continued)  

 

 

to enhanced governance practices. These engagements may cover governance, compensation and other matters to ensure that management and the board understand and address the issues that are important to our shareholders.

As owners of our company, you are encouraged to contact us through our provided communication channels to provide your feedback. If you have a corporate governance or compensation matter that you would like to discuss with the board or a particular committee, you may send an email to officeofthesecretary@cmegroup.com.

BOARD COMMITTEES

The responsibilities of each committee composed entirely of board members are summarized in this proxy statement and described in more detail in each committee’s written charter. Copies of these charters are available on our website. In addition, the board has established clearing house risk committees, which are designed to include key market participants as members.

In the following descriptions, the chairman is designated with a “C,” the independent members are designated with an “I,” public directors are identified with a “P” and audit committee financial experts with an “F.” Members of the committee are as of the date of the proxy statement.

 

Audit Committee

NUMBER OF MEETINGS IN 2017: 11

   

 

The audit committee is a separately-designated standing committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (Exchange Act), and assists the board in fulfilling its oversight responsibilities with respect to the integrity of our financial statements, the qualifications and independence of our independent registered public accounting firm, the performance of our internal audit functions and our external auditors and the effectiveness of our internal control over financial reporting.

 

The committee performs this function by monitoring our financial reporting process and internal control over financial reporting and by assessing the audit efforts of the external and internal auditors. The committee has ultimate authority and responsibility to appoint, retain, compensate, evaluate, and where appropriate, replace the external auditors.

 

 

 

Dennis H. Chookaszian (C,I,P,F)

Jeffrey M. Bernacchi (I)

Larry G. Gerdes (I,P,F)

Terry L. Savage (I,P)

Dennis A. Suskind (I,P)

Clearing House Oversight Committee

NUMBER OF MEETINGS IN 2017: 7

   

 

The clearing house oversight committee was created in May 2016. The purpose of the committee is to provide oversight of the risk management activities and the senior management of the clearing house, including oversight with respect to the effectiveness of the risk management program.

 

 

 

William R. Shepard (C,I)

Ana Dutra (I,P)

Martin J. Gepsman (I)

Alex J. Pollock (I,P)

Howard J. Siegel (I)

Dennis A. Suskind (I,P)

Compensation Committee

NUMBER OF MEETINGS IN 2017: 6

   

 

The compensation committee assists the board in fulfilling its responsibilities in connection with the compensation of board members and senior management and oversees the compensation programs for our employees. It performs this function by establishing and overseeing our compensation programs, approving compensation for our executive officers, recommending to the board the compensation of board members who do not serve as our officers, overseeing the administration of our equity award plans and approving the filing of the Compensation Discussion and Analysis section, in accordance with applicable rules and regulations of the SEC, in our proxy statements.

 

 

 

Larry G. Gerdes (C,I,P)

Timothy S. Bitsberger (I,P)

Ana Dutra (I,P)

Martin J. Gepsman (I)

Daniel R. Glickman (I,P)

William R. Shepard (I)

Howard J. Siegel (I)

 

 
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LOGO    Corporate Governance (Continued)  

 

 

Executive Committee

NUMBER OF MEETINGS IN 2017: 1

   

 

The executive committee exercises the authority of the board when the board is not in session, except in cases where action of the entire board is required by our articles of incorporation, bylaws or applicable law. The committee may also review and provide counsel to management regarding material policies, plans or proposals prior to submission of such items to the board.

 

 

 

Terrence A. Duffy (C)

Charles P. Carey (I)

Daniel R. Glickman (I,P)

Leo Melamed

Ronald A. Pankau (I)

Alex J. Pollock (I,P)

John F. Sandner

Terry L. Savage (I,P)

William R. Shepard (I)

Finance Committee

NUMBER OF MEETINGS IN 2017: 4

   

 

The finance committee assists the board in fulfilling its oversight responsibilities with respect to our financial policies, strategies, capital structure and annual operating and capital budget.

 

 

 

William R. Shepard (C,I)

Charles P. Carey (I)

Dennis H. Chookaszian (I,P)

Larry G. Gerdes (I,P)

Ronald A. Pankau (I)

Alex J. Pollock (I,P)

Dennis A. Suskind (I,P)

David J. Wescott (I)

Governance Committee

NUMBER OF MEETINGS IN 2017: 8

   

 

The governance committee assists the board by making recommendations on our corporate governance practices. The committee reviews and recommends changes to our corporate governance principles and other policies in the area of corporate governance and establishes a culture of compliance and ethics within the organization through its oversight of the board’s governance policies and the employee code of conduct.

 

 

 

Daniel R. Glickman (C,I,P)

Dennis H. Chookaszian (I,P)

Larry G. Gerdes (I,P)

Alex J. Pollock (I,P)

Terry L. Savage (I,P)

Market Regulation Oversight Committee

NUMBER OF MEETINGS IN 2017: 6

   

 

The market regulation oversight committee assists the board with its oversight of the operation of our four exchanges that are self-regulatory organizations. The committee provides independent oversight of the policies and programs of such regulatory functions and their senior management and compliance officers to ensure effective administration of our self-regulatory responsibilities.

 

 

 

Timothy S. Bitsberger (C,I,P)

Ana Dutra (I,P)

Daniel R. Glickman (I,P)

Alex J. Pollock (I,P)

Dennis A. Suskind (I,P)

Nominating Committee

NUMBER OF MEETINGS IN 2017: 9

   

 

The nominating committee reviews qualifications of potential candidates for Equity director and recommends to the board the slate for election at our annual meetings.

 

 

 

Alex J. Pollock (C,I,P)

Martin J. Gepsman (I)

Larry G. Gerdes (I,P)

Daniel R. Glickman (I,P)

William R. Shepard (I)

 

 
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LOGO   Corporate Governance (Continued)  

 

 

Risk Committee

NUMBER OF MEETINGS IN 2017: 7

   

 

The primary purpose of the risk committee is to review, assess and provide oversight of the company’s risk management practices and to assist the board in its oversight of the effectiveness of the company’s policies and processes to identify, manage and plan for its clearing, compliance, financial, operational, reputational and strategic risks as described in more detail on page 11.

 

 

 

Dennis A. Suskind (C,I,P)

Jeffrey M. Bernacchi (I)

Timothy S. Bitsberger (I,P)

Dennis H. Chookaszian (I,P)

Elizabeth A. Cook (I)

Larry G. Gerdes (I,P)

Ronald A. Pankau (I)

Howard J. Siegel (I)

Strategic Steering Committee

NUMBER OF MEETINGS IN 2017: 5

   

 

The strategic steering committee assists and provides guidance to management and the board in fulfilling its responsibilities to oversee our long-range direction, corporate strategy and competitive position. The committee analyzes market trends, growth patterns and the impact of innovations that may create opportunity or risk for us.

 

 

 

Leo Melamed (C)

William R. Shepard (Vice C,I)

Terrence A. Duffy

Charles P. Carey (I)

Martin J. Gepsman (I)

Gedon Hertshten (I)

John F. Sandner (I)

Howard J. Siegel (I)

 

 
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LOGO   

ITEM 2—Ratification of the Appointment of Ernst & Young LLP as  

our Independent Registered Public Accounting Firm for 2018  

 

 

You are being asked to vote on the ratification of the appointment of Ernst & Young to serve as our independent registered public accounting firm for 2018. Ernst & Young served as our accounting firm for 2017.

 

OUR BOARD RECOMMENDS THAT YOU VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2018

The audit committee has appointed Ernst & Young as CME Group’s independent registered public accounting firm for 2018. We are not required to have the shareholders ratify the selection of Ernst & Young as our independent auditor. We nonetheless are doing so because we believe it is a matter of good corporate practice. If the shareholders do not ratify the selection, the audit committee will reconsider whether or not to retain Ernst & Young, but may choose to retain such independent auditor. Even if the selection is ratified, the audit committee, in its discretion, may change the appointment at any time during the year if it determines that such a change would be in the best interest of CME Group and its shareholders. Representatives of Ernst & Young will be present at the annual meeting, will have the opportunity to make a statement, and will be available to respond to appropriate questions by shareholders. In connection with the audit of our 2017 financial statements, we entered into an engagement letter with Ernst & Young, which sets forth the terms by which Ernst & Young would perform audit services for us and which did not include any limitations of liability for punitive damages. We expect to enter into a similar engagement letter with Ernst & Young for 2018.

Ernst & Young has served as the company’s auditor since 2002. In accordance with its charter, the audit committee considers annually whether there should be a rotation of the independent auditor. The audit committee has determined that it is in the interest of the company and its shareholders to continue the engagement with Ernst & Young and recommends that shareholders ratify the appointment.

THE AUDIT COMMITTEE HAS PRE-APPROVAL PROCESSES FOR NON-AUDIT SERVICES

The audit committee is responsible for the appointment, retention, compensation and oversight of our independent registered public accounting firm. The audit committee has adopted policies and procedures for pre-approving all services (audit and non-audit) performed by our independent registered public accounting firm. In accordance with such policies and procedures, the audit committee is required to pre-approve all audit and non-audit services to be performed by the independent registered public accounting firm in order to ensure that the provision of such services is in accordance with the rules and regulations of the SEC and does not impair the registered public accounting firm’s independence. Under the policy, pre-approval is generally provided for up to one year, any pre-approval is detailed as to the particular service or category of services and is subject to a specific budget. In addition, the audit committee may pre-approve additional services on a case-by-case basis. The audit committee has delegated specific pre-approval to the chairperson of the audit committee, provided the estimated fee of the proposed service does not exceed $100,000. The chairperson also has the authority to approve any actual or expected cost overruns relating to any pre-approved services provided the additional fees do not exceed $100,000. The chairperson must report any decisions made pursuant to these delegations to the audit committee at its next scheduled meeting. Periodically, but not less than quarterly, our controller provides the audit committee with a report of audit and non-audit services provided and expected to be provided by the independent registered public accounting firm. A copy of our audit and non-audit services policy is available on our website.

 

 
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LOGO  

ITEM 2—Ratification of the Appointment of Ernst & Young LLP as our  

Independent Registered Public Accounting Firm for 2018 (Continued)  

 

 

PRINCIPAL ACCOUNTANT FEES AND SERVICES

Fees paid to Ernst & Young for each of the last two fiscal years are listed in the following table.

 

Service Provided    2017        2016  
Audit(1)    $ 3,530,038        $ 3,549,975  
Audit-Related Fees(2)      160,000          54,171  
Tax Fees(3)      293,488          675,490  
All Other Fees(4)                
Total    $ 3,983,526        $ 4,279,636  

 

(1) Fees for professional services rendered for the integrated audit of the consolidated financial statements of CME Group and, as required, audits of various domestic and international subsidiaries and other agreed-upon procedures.

 

(2) Fees for assurance and related services, including consultation on accounting and internal control matters, financial compliance reports and agreed-upon procedures not required by regulation.

 

(3) Fees for services rendered for tax return preparation, tax advice and other international, federal and state projects. In 2017 and 2016, tax compliance and preparation fees were $43,342 and $316,978, respectively.

 

(4) Fees for services not included in the foregoing categories.

The audit committee has considered whether the provision of non-audit services is compatible with maintaining the registered public accounting firm’s independence. All of the projects included in the foregoing fee table were pre-approved by the audit committee in accordance with our audit and non-audit services policy.

AUDIT COMMITTEE FINANCIAL EXPERTS

The board has determined that Messrs. Chookaszian and Gerdes each meet the SEC’s definition of an audit committee financial expert.

REQUIRED VOTE

This item must receive a “FOR” vote from the holders of a majority of the shares of our Class A and Class B common stock present in person or represented by proxy and entitled to vote on this matter at the annual meeting, voting together as a single class, to be approved.

 

 
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LOGO    Report of the Audit Committee  

 

 

ROLES AND RESPONSIBILITIES. The audit committee reviews CME Group’s financial reporting process on behalf of the board. Management has the primary responsibility for establishing and maintaining adequate internal financial controls, for preparing the financial statements and for the public reporting process. Ernst & Young, our company’s independent registered public accounting firm for 2017, is responsible for expressing opinions on the conformity of the company’s audited financial statements with generally accepted accounting principles and on the company’s internal control over financial reporting. A copy of the audit committee charter, which has been adopted by our board of directors and further describes the role of the audit committee in overseeing our financial reporting process, is on our website under Investor Relations—Corporate Governance—Board Committees.

REQUIRED DISCLOSURES AND DISCUSSION. The audit committee has reviewed and discussed with management and Ernst & Young the audited financial statements for the year ended December 31, 2017 and Ernst & Young’s evaluation of the company’s internal control over financial reporting. The committee has also discussed with Ernst & Young the matters that are required to be discussed under the Public Company Accounting Oversight Board (PCAOB) standards. Ernst & Young has provided to the committee the written disclosures and the PCAOB-required letter regarding its communications with the audit committee concerning independence, and the committee has discussed with Ernst & Young that firm’s independence. The committee has concluded that Ernst & Young’s provision of audit and non-audit services to CME Group is compatible with Ernst & Young’s independence.

AUDIT COMMITTEE RECOMMENDS INCLUDING THE FINANCIAL STATEMENTS IN THE ANNUAL REPORT. Based on the review and discussions referred to above, the audit committee recommended to the board that the audited financial statements for the year ended December 31, 2017 be included in our 2017 Annual Report on Form 10-K for filing with the SEC. This report is provided by the following independent directors, who currently comprise the audit committee:

Dennis H. Chookaszian, Chairman

Jeffrey M. Bernacchi

Larry G. Gerdes

Terry L. Savage

Dennis A. Suskind

 

 
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LOGO   

ITEM 3—Advisory Vote on the Compensation  

of our Named Executive Officers  

 

 

You are being asked to vote on a non-binding advisory proposal on our executive compensation program for our named executive officers as described in our Compensation Discussion and Analysis beginning on page 29 and Executive Compensation tables beginning on page 46.

 

OUR BOARD RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE ADVISORY PROPOSAL ON

THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS

FACTORS TO CONSIDER

The board and the compensation committee are committed to sound governance practices and recognize the interest our shareholders have expressed on CME Group’s executive compensation program. As part of that commitment, and pursuant to Section 14A of the Exchange Act, our shareholders are being asked to approve an advisory resolution on the compensation of the named executive officers, as reported in this proxy statement.

This proposal, commonly known as the “say-on-pay” proposal, gives you the opportunity to endorse our 2017 executive compensation program and policies for the named executive officers through a vote “FOR” the approval of the following resolution:

RESOLVED, that the shareholders of CME Group approve, on an advisory basis, the compensation of CME Group’s named executive officers, as disclosed pursuant to the compensation disclosure rules of the SEC in the proxy statement for the CME Group 2018 annual shareholders meeting (which disclosure includes the Compensation Discussion and Analysis, the Executive Compensation tables and any related material).

This vote is not intended to address any specific item of compensation, but rather our overall compensation policies and procedures relating to the named executive officers. Accordingly, your vote will not directly affect or otherwise limit any existing compensation or award arrangement of any of the named executive officers. Because your vote is advisory, it will not be binding on the board. The board and the compensation committee, however, will take into account the outcome of the “say-on-pay” vote when considering future compensation arrangements.

REQUIRED VOTE

This item must receive a “FOR” vote from the holders of a majority of the shares of our Class A and Class B common stock present in person or represented by proxy and entitled to vote on this matter at the annual meeting, voting together as a single class, to be approved.

 

 
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LOGO   ITEM 4—Election of Class B-1, Class B-2 and Class B-3 Directors  

 

 

Our Class B-1 shareholders are being asked to vote for three Class B-1 directors, our Class B-2 shareholders are being asked to vote for two Class B-2 directors and our Class B-3 shareholders are being asked to vote for one Class B-3 director. Each Class B director’s term will last until the 2019 annual meeting and until his or her successor is duly elected and qualified.

 

OUR BOARD IS NOT PROVIDING ANY RECOMMENDATION AS TO HOW OUR CLASS B SHAREHOLDERS

SHOULD VOTE ON THE ELECTION OF CLASS B-1, CLASS B-2 AND CLASS B-3 DIRECTORS

If you own more than one share of Class B-1, Class B-2 or Class B-3 common stock, you must vote each class of your Class B-1 shares, Class B-2 shares and/or Class B-3 shares the same way. You may not split your vote. If you do so, your vote will be invalid.

CLASS B DIRECTOR NOMINEES

Ages of the nominees are as of March 12, 2018, and the nominee’s trading badge symbol is shown in parenthesis.

CLASS B-1 DIRECTOR NOMINEES (Class B-1 Shares only)

Vote “FOR” up to three nominees to be elected to the board of directors.

 

Jeffrey M. Bernacchi (JMB)

Director since: 2009

Age: 59

       

 

Mr. Bernacchi, a CME, CBOT, and NYMEX member, is an active independent trader of our markets and has been President and owner of JMB Trading Corp. since 1980 and managing member of Celeritas Capital, LLC since 2008. He serves on our risk and audit committees. He has participated in numerous risk management educational programs and as a long-time market participant has significant market risk management experience. Mr. Bernacchi is a member of the Federal Reserve Bank of Chicago’s Working Group on Financial Markets, PRMIA (Professional Risk Managers’ International Association), and ISACA, formerly known as the Information Systems Audit and Control Association. Mr. Bernacchi is also a member of Hyde Park Angels, a leading Chicago-based angel investment group.

 

Gedon Hertshten (GHF)

Director since: 2017

Age: 65

       

 

Mr. Hertshten started his career in the derivatives industry as an independent trader at the CBOT in 1978 and has been involved in the industry ever since. Following his successful trading career on various exchanges, he founded GH Financials Ltd. in 1993 in London, which operates two subsidiaries located in Chicago and Hong Kong. GH Financials is now a leading global provider of clearing and settlement services and is a clearing member of CME, CBOT, NYMEX and COMEX as well as other exchanges around the globe. Mr. Hertshten served on the board of directors of the LIFFE exchange in London from 1997 to 2005. In 2005, Mr. Hertshten founded the Hertshten Group, which is a growing global company with more than 600 employees involved in three areas: proprietary trading; commercial real estate investments, and insurance business. Today, Mr. Hertshten focuses on expanding the Hertshten Group’s global reach and developing new business ventures.

 

William W. Hobert (WH)

Prior service as a director: 2015-2017

Age: 54

       

 

Mr. Hobert founded WH Trading, LLC, a proprietary options and futures trading firm, in 1998. WH Trading serves as a market maker and liquidity provider in numerous asset classes at CME in both its open outcry and electronically traded markets. From 1988 to 1994, Mr. Hobert worked for Cooper-Neff and Associates as an FX options market maker on the floor of CME and in over-the-counter markets. In 1994, he founded Hobert Trading Inc. which is currently a member of WH Trading, LLC.

 

REQUIRED VOTE

The three nominees for Class B-1 director receiving the highest number of “FOR” votes will be elected.

 

 
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LOGO  

ITEM 4—Election of Class B-1, Class B-2 and Class B-3  

Directors (Continued)  

 

 

CLASS B-2 DIRECTOR NOMINEES (Class B-2 shares only)

Vote “FOR” up to two nominees to be elected to the board of directors.

 

 

Patrick W. Maloney (PAT)

Director since: n/a

Age: 56

 

       

 

Mr. Maloney has been a member of CME since 1985. Mr. Maloney has served as an independent floor broker in the Eurodollar option pit from 2007 to present. Mr. Maloney has served on numerous CME functional committees: pit committee 1997-1999, nominating committee 1995-1996, arbitration committee 1994-1995, booth space committee 1992-1996 and floor practices committee 1995-1997. Mr. Maloney currently serves on our political action committee.

 

 

Ronald A. Pankau (PAN)

Director since: 2011

Age: 61

 

       

 

Mr. Pankau has been an independent trader since 1981. He serves as the treasurer and secretary of our political action committee. He also is a member of our finance, executive and risk committees. He has participated in numerous risk management educational programs and as a long-time market participant has significant market risk management experience. Mr. Pankau also serves on our business conduct and pit supervision committees. He is the owner and CEO of JH Best and Sons, a steel fabricating plant.

 

 

David J. Wescott (COT)

Director since: 2003

1989-1996

Age: 60

 

       

 

Mr. Wescott has been a member of CME for more than 30 years. He is an investor in TradeForecaster Global Markets, an algorithmic trading and technology company. He is also a founder and partner in Nirvana Technology Solutions, a hosting company for the trading community through data center co-location, technology consulting, and 24-hour technology support. He has served as President of The Wescott Group LTD since 1991 and Managing Partner of The Dowd/Wescott Group LTD since 2006. Mr. Wescott has served, chaired, vice chaired, or co-chaired on several board and functional committees at CME and served as a past member of the CFTC Regulatory Coordination Advisory Committee under former Chairwoman Wendy Gramm. Mr. Wescott also devotes significant time to individual business opportunities.

 

 

James J. Zellinger (JZZ)

Director since: n/a

Age: 71

 

       

 

Mr. Zellinger has been a member of CME and CBOT since 1984. He has 53 years of experience in all phases of the futures industry—operations, trading, risk and sales—42 of them at the executive level. Mr. Zellinger is presently Senior Vice President of Wedbush, a futures commission merchant and securities broker dealer. Mr. Zellinger is a former General Partner of Hennessey and Associates and a former Vice President of Operations at Globex Corporation, where he was instrumental in setting procedures still in effect at CME’s Global Command Center. In addition to holding executive positions at Merrill Lynch, TransMarket, and Advantage Futures, Mr. Zellinger has served on numerous operations related exchange committees and is currently a member of the business conduct committee.

 

REQUIRED VOTE

The two nominees for Class B-2 director receiving the highest number of “FOR” votes will be elected.

 

 
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LOGO   

ITEM 4—Election of Class B-1, Class B-2 and Class B-3  

Directors (Continued)  

 

 

CLASS B-3 DIRECTOR NOMINEES (Class B-3 shares only)

Vote “FOR” one nominee to be elected to the board of directors.

 

 

Elizabeth A. Cook (LZY)

Director since: 2015

Age: 56

       

 

Ms. Cook has been a member of CME since 1983, starting her career in 1978 as a runner for Clayton Brokerage Inc. She is a member of the board’s risk committee. Ms. Cook actively participates as co-chair of the CME arbitration and floor conduct committees and serves on the board of the CME gratuity fund. In addition, she serves on CME’s membership and business conduct committees and continues her involvement as a CME PAC member. Ms. Cook is the founder and owner of MiCat Group LLC, a firm specializing in option execution services focusing on equities, FX and interest rates. She also serves as president of Lucky Star LLC, a commercial property management company. Ms. Cook is also on the board of Women in Listed Derivatives. Her external activities include National Association of Corporate Directors Governance Fellow, Private Directors Association, The Navy Seal Foundation, Ambassador for The ALS Association Greater Chicago Chapter and Honor Flight Chicago Director of Special Events.

 

 

Georgi Z. Komon Gold (GK)

Director since: n/a

Age: 68

       

 

Ms. Komon Gold has been a member of CME for 35 years. Ms. Komon Gold is the founder and managing partner of Mark IV Brokerage LLC, an active Eurodollar options group founded in 2002, and a founding partner of Smart Confirm clearing software. Prior to Mark IV Brokerage, Ms. Komon Gold was an active independent floor broker in the Eurodollar option pit and owner of GK Trading Group from 1985 to 2002. She has served on numerous CME committees, including Eurodollar options, arbitration, CME PAC, membership, Class B-3 nominating and education. Ms. Komon Gold also taught option trading courses for CME from 1985-1996. Ms. Komon Gold serves on the advisory board of the Solomon Fund for underprivileged children and is also actively involved with the Juvenile Diabetes Foundation and the search for a cure. She is a member of the Chicago Council on Global Affairs, 100 Women in Finance, Harvard Alumni Club and the Harvard Club of Chicago.

 

REQUIRED VOTE

The nominee for Class B-3 director receiving the highest number of “FOR” votes will be elected.

 

 
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LOGO  

ITEM 5—Election of Class B-1, Class B-2 and Class B-3  

Nominating Committees  

 

 

Our bylaws provide that holders of our Class B-1, Class B-2 and Class B-3 shares elect the members of their respective Class B nominating committees. The Class B nominating committees are not committees of our board of directors and serve only to nominate the slate of Class B directors for their respective classes. Each Class B nominating committee is composed of five members who serve for a term of one year. The existing members are responsible for selecting up to 10 candidates to stand for election as members of a particular Class B nominating committee. The five nominees with the greatest number of votes will serve on the applicable committee. Ages of the nominees are as of March 12, 2018.

 

 

OUR BOARD IS NOT PROVIDING ANY RECOMMENDATION AS TO HOW OUR CLASS B SHAREHOLDERS
SHOULD VOTE ON THE ELECTION OF CLASS B-1, CLASS B-2 AND CLASS B-3 NOMINATING COMMITTEES

NOMINEES FOR 2019 CLASS B-1 NOMINATING COMMITTEE

Vote “FOR” up to five nominees to be elected to the Class B-1 Nominating Committee.

 

Thomas A. Bentley (TAB), 62

 

 

Mr. Bentley has been a member of CME since 1981. Over his trading career, he has been a floor broker in live cattle since 1981 and a floor trader. Mr. Bentley trades through RCG Group and participates in the CME agriculture/live cattle markets. He also has participated in the Eurodollar and S&P futures markets. Mr. Bentley is a former member of the CME board of directors and has served on many CME exchange committees, including arbitration, nominating and membership. He owns one CME membership.

 

Bradley S. Glass (BRAD), 53

 

 

Mr. Glass has been a member of CME since 1987. Over his 30-year trading career, he has been a local floor trader in many markets, including currencies, Eurodollar, NASDAQ, pork bellies and lean hogs. He specializes in back months and spread market making for many futures products and has recently transitioned to the screen. Mr. Glass currently trades through Dorman Trading and participates in the CME agricultural, equity and interest rate markets. Mr. Glass has served on numerous CME exchange committees, including clearing house operations, membership and arbitration. He owns one CME membership.

 

Joseph H. Gressel (GPC), 68

 

 

Mr. Gressel has been a member of CME since 1976. Mr. Gressel trades through Gressel Produce & Commodities LLC. Over his trading career, he has been an electronic trader participating in the precious metals, CME agricultural and S&P markets. Mr. Gressel is the Chairman of Gressel Produce, engaging in electronic market making — mainly in dairy. He also is involved in precious metals trading of both futures and options. Mr. Gressel owns one CME membership and two GEM memberships.

 

Mark S. Kobilca (HTR), 63

 

 

Mr. Kobilca has been a member of CME since 1979. Over his trading career, he has been a trader, order filler and local trader on the floor. Mr. Kobilca trades through Dowd Wescott; participates in the live cattle, feeder cattle and lean hogs markets and also trades options on livestock. He owns one CME membership and one GEM membership.

 

Gary T. Lark (GTX), 66

 

 

Mr. Lark has been a member of CME since 1977. During the last five years, his primary business was trading commodity futures (mostly agricultural products), working with commercial accounts and managing outside accounts. Mr. Lark trades through Phillip Capital and participates in the live cattle, feeder cattle and bonds markets. Mr. Lark has served on the business conduct, probable cause, live cattle and live cattle pit committees. He owns one CME membership.

 

 

 
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LOGO    ITEM 5—Election of Class B-1, Class B-2 and Class B-3   Nominating Committees (Continued)  

 

 

W. Winfred (Fred) Moore II (FMOR), 68

 

 

Mr. Moore has been a member of CME since 1977. During his trading career, his primary business has been trading futures and options in agricultural commodities for his own account. Mr. Moore also facilitates commercial customer business in live cattle and feeder cattle with an emphasis in the options market. He has been a broker, floor trader, electronic trader and local trader. He trades through F-Mor, Inc. and participates in the live cattle, feeder cattle and hogs markets. He has served on the live cattle and business conduct committees and as chairman of the feeder cattle committee. He owns one CME membership.

 

William L. Polovin (BPO), 47

 

 

Mr. Polovin has been a member of CME since 1994. During his trading career, he has been a floor broker, floor trader and a local. Mr. Polovin has been a floor broker in hog options since 1997, a floor trader as a hog options local since 1994 and an electronic trader. Mr. Polovin specializes in lean hog option trading with participation in the live cattle and feeder cattle option markets. Mr. Polovin trades through INTL FC Stone Financial Inc. He has served on the lean hogs and agricultural options pit committees. He is the recognized owner of one CME membership.

 

James V. Sauter (TCP), 60

 

 

Mr. Sauter has been a member of CME since 1982. During his trading career, he has been a floor broker and local in the feeder cattle pit. He has traded cattle spreads and feeder cattle crushes. Mr. Sauter currently electronically trades cattle, feeder cattle and financial products through Advantage. Mr. Sauter has served on the feeder cattle committee and as Vice Chairman on the feeder cattle pit committee. He owns one CME membership.

 

Michael J. Small (SML), 57

 

 

Mr. Small has been a member of CME since 1985. Over his trading career, he has been an order filler in the 2nd option live cattle pit. Mr. Small trades through INTL FC Stone Financial Inc. and Trean and participates in the CME agricultural markets. Mr. Small has served on the live cattle futures pit committee and the CME/CBOT floor conduct committee. He owns one CME membership.

 

Michael G. Sundermeier (MIK), 58

 

 

Mr. Sundermeier has been a member since 1981. During his trading career, he was a broker, floor trader, electronic trader and local. Mr. Sundermeier retired from professional trading in 2011. His current primary business is part owner of a Culvers restaurant in Fort Mill, South Carolina and general stock investing. He trades agricultural futures and options on futures. Mr. Sundermeier served on the pit and live cattle committees. He owns one CME membership.

 

REQUIRED VOTE

The five nominees for the Class B-1 nominating committee receiving the highest number of “FOR” votes will be elected.

 

 
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LOGO   ITEM 5—Election of Class B-1, Class B-2 and Class B-3   Nominating Committees (Continued)  

 

 

NOMINEES FOR 2019 CLASS B-2 NOMINATING COMMITTEE

Vote “FOR” up to five nominees to be elected to the Class B-2 Nominating Committee.

 

Frank D. Catizone (FDC), 58

 

Mr. Catizone has been a member of CME since 1986. During his trading career, he was a floor broker in the Eurodollar quadrant and an electronic trader. Mr. Catizone currently trades through Dowd Wescott and participates in the Eurodollar and S&P mini products. He served on the LIBOR pit committee for 10 years and the nominating committee. He owns one IMM membership.

 

Richard J. Duran (RJD), 69

 

Mr. Duran has been a member of CME since 1979. Over his trading career, he has been an active trader, speculator and investor. He currently trades through Mocho Trading, a high frequency trading group. Mr. Duran was previously a trader and broker on the exchange floor and a partner in a clearing firm. He has served on numerous CME exchange committees, including the nominating and membership committees. He owns one IMM membership.

 

Yra G. Harris (YRA), 64

 

Mr. Harris has been a member of CME since 1977. During his trading career, he has been actively trading for his personal account as well as a blogger and consultant on industry matters. He currently participates in currencies, metals and all interest rate markets. Mr. Harris was previously a local and electronic trader as well as a floor trader and broker. He currently trades through Shepard International. Mr. Harris previously served as a member of the CME board of directors for six years and chaired many CME committees. In addition, he was a member of many CME exchange committees, including strategic planning, CME GLOBEX and business conduct. He owns one IMM membership.

 

Patrick J. Lahey (XDE), 39

 

Mr. Lahey has been a member of CME since 2015 and a member of CBOT since 2013. He previously was a member of the CME from 2002 to 2003 when he traded Eurodollar options on the CME floor. During his 18-year trading career, he has been a senior trader and partner in WH Trading’s Chicago office where he chairs the firm’s risk and futures committees. Mr. Lahey was previously the managing director of the WH Trading London office. He currently participates in the CME FX, interest rates and agricultural markets. Mr. Lahey is an electronic proprietary trader. He is the recognized owner of one IMM membership.

 

Patrick J. Mulchrone (PJM), 60

 

Mr. Mulchrone has been a member of CME since 1980. During his trading career, he has been a self-employed partner and electronic trader at Advantage Futures. He currently trades through Advantage Futures, LLC and participates in the currencies, Eurodollar and treasuries markets. Mr. Mulchrone has served on many CME exchange committees over the past 30 years, including the disciplinary and nominating committees and is a former member of the CME board. He owns one CME membership, one IMM membership, one IOM membership and one GEM membership.

 

Stuart A. Unger (UNG), 70

 

Mr. Unger has been a member of CME since 1975. During his trading career, he has developed and promoted futures business through Price Futures Group, which consists of brokers, branch offices and GIBs (Guaranteed Introducing Brokers). This business includes the futures industry worldwide with coordination targeting agriculture business, speculative, commercial and hedging type business. Mr. Unger has been a broker, floor trader and local. He currently trades through Price Futures Group. Mr. Unger participates in the cattle, Eurodollar and LIBOR markets. Mr. Unger has served on many CME exchange committees, including the nominating, floor practice and LIBOR pit committees. He owns one IMM membership.

 

Barry D. Ward (BDW), 54

 

Mr. Ward has been a member of CME since 1990. During his trading career, he has traded for his personal account and was involved with proprietary trading groups as both an equity owner and as a trader. Mr. Ward is a Managing Director at TJM Holdings, LLC. He currently participates in the Eurodollar futures and E-Mini S&P markets. Mr. Ward has served on the nominating and pit committees and was Pit Vice Chairman from 1998-2004. He owns one IMM membership.

 

REQUIRED VOTE

The five nominees for the Class B-2 nominating committee receiving the highest number of “FOR” votes will be elected.

 

 
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LOGO    ITEM 5—Election of Class B-1, Class B-2 and Class B-3   Nominating Committees (Continued)  

 

 

NOMINEES FOR 2019 CLASS B-3 NOMINATING COMMITTEE

Vote “FOR” up to five nominees to be elected to the Class B-3 Nominating Committee.

 

John F. Connors Jr. (CON), 48

   

 

Mr. Connors has been a member of CME since 2010. During his trading career, he has been a floor trader in the cattle, hog, feeder cattle and lumber options. Mr. Connors is the owner of PJ Trading LLC. He has served on the agricultural option pit committee for two years. Mr. Connors owns one IOM membership.

 

   

Joel P. Glickman (GLK), 62

   

 

Mr. Glickman has been a member of CME since 1983. He has 15 years of experience as a floor broker in the S&P and 24 years of experience as a local trader on CME Globex. Mr. Glickman is the principal of an electronic trading group trading primarily E-mini S&P and 5- and 10-year treasury notes. He has served on numerous committees. Mr. Glickman owns one IOM membership.

 

   

Spencer K. Hauptman (SPNC), 39

   

 

Mr. Hauptman has been a member of CME since 2002. Since May 2009, he has been a partner at Apex Brokerage Group, a brokerage group that executes customer orders in the Eurodollar options pit. He clears through Shatkin Arbor. Mr. Hauptman owns one IOM membership.

 

   

Kevin P. Heaney (FROG), 40

   

 

Mr. Heaney has been a member and seat owner since 2006. He is currently a partner at Galt Street Capital, LLC. He has previously been a partner/managing member of Constitution Capital where he executed orders in the Eurodollar options pit. He has been on the Class B-3 nominating committee since 2017. He owns one IOM membership.

 

   

Robert J. Kevil Jr. (REV), 37

   

 

Mr. Kevil has been a member of CME since 2006. During his trading career, he has been a broker in the feeder cattle, live cattle, hog and lumber options pits. He currently works with Rossi Services Inc. Mr. Kevil owns one IOM membership.

 

   

Stephen J. Leuer (LURE), 54

   

 

Mr. Leuer has been a member of CME since 1987. During his trading career, he has been a floor based broker and trader specializing in S&P futures and options. Mr. Leuer has been a broker, floor trader and electronic trader. He currently trades through X-Change Financial Access, LLC. He participates in the S&P futures, S&P options and E-mini S&P options. Mr. Leuer owns two IOM memberships.

 

   

Kimberly Marinaro

   

 

Ms. Marinaro started at the CME in 1992 working on the trading floor as a business manager for several brokerage groups after graduating from University of Illinois Urbana-Champaign. During her career, she has worked as Director of Marketing and Sales for the FX team for R.J. O’Brien and has served as the financial officer and business manager for 10 plus broker associations. Ms. Marinaro currently manages the business operations of trading groups as well as broker associations. Ms. Marinaro owns one IOM membership and one GEM membership.

 

   

Thomas G. Rossi (SSI), 54

   

 

Mr. Rossi has been a member of CME since 1986. During his trading career, he has executed customer orders in the live cattle option, feeder cattle option and hog option pits. Mr. Rossi currently fills orders in the agricultural options pit. He has served as vice chairman of the live cattle options pit committee since 1998. Mr. Rossi owns one IOM membership.

 

   

Richard S. Turim (RST), 66

   

 

Mr. Turim has been a member of CME since 1982. During his trading career, he has traded S&P 500 futures. Mr. Turim was a broker, a local and electronic trader. He clears through FC Stone. He has served on various committees, including the pit committee. Mr. Turim owns one IOM membership.

 

   

REQUIRED VOTE

The five nominees for the Class B-3 nominating committee receiving the highest number of “FOR” votes will be elected.

 

 
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LOGO   Compensation Committee Matters  

 

 

This section provides an overview of the role and responsibility of our compensation committee. We have an executive compensation program that is designed to tie pay to performance, balance rewards with prudent business decisions and risk management, and focus on both annual and long-term performance for the benefit of our shareholders. In designing our program, we also take into consideration our unique role in the financial services industry.

OUR COMPENSATION COMMITTEE PROVIDES OVERSIGHT OF OUR COMPENSATION PROGRAM FOR OUR SENIOR MANAGEMENT GROUP

The compensation committee is composed of seven independent directors. The primary responsibilities of the compensation committee are to review and approve compensation arrangements for our senior management group (our Chairman and Chief Executive Officer and the other members of our management team), to review and recommend compensation arrangements for the board of directors, to adopt incentive compensation plans in which senior management is eligible to participate and to oversee matters relating to employee compensation, employee benefit plans and employee incentive programs. A complete description of the committee’s responsibilities may be found in its charter, a copy of which is on our website.

There were six meetings of the committee in 2017. The committee typically meets in executive session for a portion of each regular committee meeting and may include members of management as appropriate. The committee provides regular reports to the board of directors on its activities.

THE COMMITTEE CONSIDERS THE RECOMMENDATIONS OF OUR CHAIRMAN AND CHIEF EXECUTIVE OFFICER IN APPROVING COMPENSATION FOR OUR OTHER EXECUTIVE OFFICERS

The committee is solely responsible for approving the compensation of our executive officers. The committee, however, takes into consideration the recommendations of our Chairman and Chief Executive Officer in approving compensation for executive officers other than himself.

THE COMMITTEE DELEGATES AUTHORITY TO OUR CHAIRMAN AND CHIEF EXECUTIVE OFFICER ON A LIMITED BASIS SUBJECT TO PRE-ESTABLISHED CRITERIA

Subject to pre-established guidelines for individual awards and aggregate value limitations, the committee delegates authority to the individual in the role of Chief Executive Officer to approve salary increases, equity awards and annual cash bonus awards for employees other than the executive officers. The committee reviews annual reports on the use of such delegation.

OUR PROGRAM IS DESIGNED TO CREATE LONG-TERM SHAREHOLDER VALUE WHILE DISCOURAGING EXCESSIVE RISK TAKING

We realize that it is not possible to grow and enhance long-term shareholder value without assuming some level of risk. This is true whether we decide to make an acquisition, introduce a new product or change our corporate strategy. Our compensation program is designed to provide appropriate incentives for creating long-term shareholder value and delivering on our financial and strategic goals while discouraging excessive risk taking.

Several elements of our program, which are discussed in more detail in the Compensation Discussion and Analysis section beginning on page 29, are designed to promote the creation of long-term value and thereby discourage behavior that leads to excessive risk taking. The following are the key elements of our program designed to address compensation risk:

 

    We utilize a mix of both fixed and variable compensation. Our fixed pay is intended to provide a stable income.

 

    A significant portion of our senior management group compensation is composed of long-term equity incentives and the senior management group is also subject to company stock ownership guidelines based on their level of responsibility.

 

    Our annual cash bonus plan for our senior management group and other senior employees as currently in effect will not pay out in the event we fail to achieve cash earnings at or above the threshold level of performance.

 

 
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LOGO    Compensation Committee Matters (Continued)  

 

 

    We set maximum guidelines for annual incentive and long-term incentive awards, thereby establishing and communicating potential payouts.

 

    All compensation of our senior management group is subject to the approval of the compensation committee, which includes the ability to decrease an award for failure to perform or inappropriate risk taking.

 

    We have adopted a recoupment policy, whereby employees at the level of managing director and above may be required to repay any previously granted annual bonus awards to the extent that all or a portion of such individual’s award was not actually earned due to a restatement of our financial results with the outcome being the achievement of the related performance metric was less than previously reported.

 

    We prohibit all of our employees and board members from engaging in any derivative transactions in our securities (hedging the economic risk of their ownership of our stock) and have adopted a policy restricting the pledging of our Class A shares by our board members and executive officers.

 

    As discussed below, the committee engages its independent compensation consultant to advise on executive compensation best practices and to provide counsel as it considers executive compensation programs and arrangements, as it deems appropriate.

OUR COMPENSATION COMMITTEE HAS ITS OWN INDEPENDENT COMPENSATION CONSULTANT

The committee has engaged Meridian Compensation Partners, LLC to serve as its independent advisor. During 2017, Meridian provided information on trends in executive compensation as well as general executive compensation advice.

Management also engages its own consultants to provide advice as it relates to compensation programs. Specifically in 2017, management engaged Exequity LLP to provide information on executive compensation practices and technical guidance on executive compensation matters.

Such consultant may attend compensation committee meetings and provide advice to the compensation committee. The committee at its discretion may also include its independent advisor in such reviews and decision-making processes, meeting either jointly or separately from management and management’s consultant.

The committee has assessed the independence of the advisors it engaged in 2017 relative to the factors identified by the SEC and NASDAQ.

OUR COMPENSATION COMMITTEE IS COMPOSED OF INDEPENDENT MEMBERS WITH LIMITED RELATIONSHIPS WITH THE COMPANY (COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION)

During 2017, none of the members of the compensation committee served at any time as an officer or employee of CME Group or received any compensation from us other than in the capacity as a member of the board or a committee thereof or compensation for service on the board of one of our wholly-owned subsidiaries. Except as described below regarding Mr. Shepard, none of the members of the compensation committee has any relationship with us other than service as a director or member of one of our exchanges or as an employee of one of our clearing or member firms. Mr. Shepard owns a minority interest in one of our clearing firms, which made net payments to us of approximately $115 million, and he owns a minority interest in a trading firm that made indirect payments to us through its clearing firm in excess of $120,000 in connection with trading activity conducted on our exchanges in 2017. Such fees are consistent with those prevailing at the time for corresponding activity by other similarly situated unrelated third parties. No member of the compensation committee is, or was during 2017, an executive officer of another entity, one of whose board or compensation committee members served as an executive officer of the company.

 

 
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This discussion provides you with a detailed description of our compensation program for our named executive officers. It also provides an overview of our compensation philosophy and our policies and programs, which are designed to achieve our compensation objectives, and an overview of our program as it relates to other members of our management team. These individuals along with our named executive officers are referred to as our senior management group.

KEY TOPICS COVERED IN OUR COMPENSATION DISCUSSION AND ANALYSIS

 

    Opportunity for Shareholder Feedback, below

 

    Executive Summary, page 30

 

    Chief Executive Officer Total Pay vs. Performance, page 32

 

    Philosophy and Objectives, page 33

 

    Peer Group, page 34

 

    Principal Elements of our Compensation Program, page 36

 

    2017 Named Executive Officer Bonus Awards, page 38

 

    2017 Named Executive Officer Equity Awards, page 40

 

    Stock Ownership Guidelines, Hedging Policy, Tally Sheets and Recoupment Policy, page 43

 

2017 NAMED EXECUTIVE OFFICERS

Terrence A. Duffy, Chairman and Chief Executive Officer

John W. Pietrowicz, Chief Financial Officer

Bryan T. Durkin, President

Sean P. Tully, Global Head of Financial and OTC Products

Kevin D. Kometer, Chief Information Officer

Kimberly S. Taylor, Former President Clearing and Post-Trade Services

For the biographies of our current executive officers, including the named executive officers, please see Item 1. Business — Employees — Executive Officers beginning on page 14 of our 2017 Annual Report on Form 10-K, filed with the SEC on February 28, 2018.

Opportunity for shareholder feedback

The compensation committee carefully considers feedback from our shareholders regarding the compensation program for our senior management group. We believe the changes made in recent years to enhance the performance orientation of our program have been well received by shareholders, as evidenced by our “say-on-pay” vote results.

At our 2017 annual meeting of shareholders, approximately 95% of shareholders voted FOR the approval of our non-binding advisory vote approving the compensation of our named executive officers.

Shareholders who wish to directly communicate with members of the compensation committee may do so using directors@cmegroup.com as discussed on page 12 of this proxy statement.

You should read this section in conjunction with the advisory vote we are conducting on the compensation of our named executive officers under Item 3 on page 19 as it contains information that is relevant to your voting decision.

 

 
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EXECUTIVE SUMMARY

Our business

CME Group is where the world comes to manage risk. Through its exchanges, CME Group offers the widest range of global benchmark products across all major asset classes, including futures and options based on interest rates, equity indexes, foreign exchange, energy, agricultural products and metals. CME Group provides electronic trading globally on its CME Globex platform. The company also offers clearing and settlement services across asset classes for exchange-traded and over-the-counter derivatives through its clearing house, CME Clearing. CME Group’s products and services are designed to provide businesses around the world with the means to effectively manage risk. We also provide hosting, connectivity and customer support for electronic trading through our co-location services. Our CME Direct platform offers side-by-side trading of exchange-listed and privately negotiated markets. We provide clearing and settlement services for exchange-traded contracts, as well as for cleared swaps, and provide regulatory reporting solutions for market participants through our global repository services in the United States, United Kingdom, Canada and Australia. Finally, we offer a wide range of market data services—including live quotes, delayed quotes, market reports and a comprehensive historical data service.

For more information on our business, see Business and Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2017 Annual Report and the business highlights in the Summary Information on page 1.

2017 compensation highlights for our named executive officers

The compensation committee took the following compensation actions with respect to our named executive officers during 2017 or related to 2017 performance:

 

    Awarded base salary increases to certain named executive officers to better align their compensation to market competitive levels as described on page 37.

 

    Awarded bonuses to our named executive officers based on our achievement of 2017 cash earnings at 106.4% of the target goal as described beginning on page 38. For 2017, we set a cash earnings goal that required significant effort on behalf of our management.

 

    Certified results for the September 2014 and March 2015 awards of performance shares based on net income margin growth relative to the diversified financial services index of the S&P 500 and total shareholder return relative to the S&P 500 for the 2015-2017 performance period. Due to outstanding achievement against both goals, 183.3% of the target number of shares were earned and became vested in March 2018 as described on page 41.

 

    Awarded performance-granted restricted shares to Mr. Duffy based on the company’s 2017 relative total shareholder return achievement at the 75.2 percentile of the S&P 500. This award is time-vested and the number of shares subject to the award was determined based on the achievement of the performance targets and granted in March 2018. The performance-granted restricted shares are described on page 42.

 

    Awarded equity grants to our named executive officers in September 2017 to enable longer-term retention while also increasing the focus on longer-term value creation. The 2017 equity awards were comprised of 50% time-vested restricted stock and 50% performance shares, as described on page 40.

 

    Awarded performance shares to our named executive officers in September 2017 with goals tied to our growth in net income margin as compared to the diversified financial services index of the S&P 500 and total shareholder return as compared to the S&P 500 measured over a three-year period (2018-2020), as described on page 40.

 

    In 2017, at least 50% of target total compensation for each of our named executive officers was considered performance-based, as it was directly tied to cash earnings, relative net income margin growth or relative stock performance goals.

 

    Approved terms of a retirement agreement with Ms. Taylor, our former President Clearing and Post-Trade Services. Ms. Taylor retired from the company on December 31, 2017. The details of the retirement agreement can be found on page 54.

 

 
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Key elements of the program are designed to ensure pay for performance

Our overall goals and philosophy are complemented by several specific elements that are designed to align the compensation for our senior management group with performance and position the company for creating long-term shareholder value including:

 

    Our annual bonus is tied to our generation of cash earnings. To the extent we fail to achieve cash earnings at the threshold level, representing 25% below the target, no bonuses would be paid to our senior management group. The bonus opportunities for our named executive officers are set forth on page 38. We believe the cash earnings metric is a key component to measuring our growth and contributes directly to deriving value for our shareholders as it is the metric used for determining our regular quarterly dividend payments.

 

    The aggregate amount of our bonus pool is subject to an overall cap when we achieve cash earnings at the maximum level, representing 20% above the established target. We believe this cap provides transparency to our investors as to our compensation exposure and the expected expense is accrued on a quarterly basis based on actual cash earnings performance.

 

    In addition to verifying the annual achievement of cash earnings for purposes of our bonus program, our compensation committee also considers other elements of our performance, such as our net income, total shareholder return, earnings per share and return on equity, as appropriate.

 

    Our annual long-term incentive awards for our senior management group are comprised of 50% time-vested restricted shares and 50% performance shares. The performance shares have a three-year performance period with growth in net income margin relative to the diversified financial services index of the S&P 500 and total shareholder return relative to the S&P 500 as the performance metrics. These performance metrics, when combined with the cash earnings performance metric in our annual bonus plan, focus our senior management group on financial and operational measures of success and shareholder results. The annual equity award opportunities for our named executive officers are set forth on page 40.

 

    Our senior management group is subject to stock ownership guidelines as discussed on page 43.

 

    To ensure alignment with our shareholders, we have a policy that prohibits all employees and board members from engaging in any hedging or other derivative transactions with respect to CME Group stock as well as a policy which restricts pledging of our Class A common stock by our board members and executive officers.

Overview of pay and performance alignment

One of the guiding principles of our compensation program is to focus on achievement that benefits us and our shareholders. In support of that objective, a significant portion of the pay package for our named executive officers is delivered in the form of stock-based compensation, the value of which rises and falls in alignment with our stock performance.

The following graphic depicts the alignment of the total pay of the individual serving as Chief Executive Officer at the end of the applicable year with our total shareholder return and cash earnings achievement for each of the last five years (Mr. Gill for 2013 - 2015 and Mr. Duffy for 2016 - 2017). Total shareholder return (TSR) is shown on a year-over-year, indexed basis. Specifically, an investment of $100 (with reinvestment of all dividends) is assumed to have been made in our Class A common stock on December 31, 2013 and its performance is tracked through December 31, 2017.

Chief Executive Officer pay, as depicted in the following graphic, is the sum of reported pay elements set forth in the Summary Compensation Table for each of the last five years except for the values of stock option, restricted stock, and performance share awards which are included as follows:

 

    The value of stock option awards is shown as (1) the value realized at exercise for any options exercised during the year as reported in the Option Exercises and Stock Vested table, and (2) the value of all outstanding, in-the-money stock options at year end measured as the positive difference between our stock price at year end minus the option exercise price.

 

    The value of restricted stock awards is shown as (1) the value realized on vesting for any shares that vested during the year as reported in the Option Exercises and Stock Vested table, and (2) the value of all outstanding restricted shares at year end measured using our stock price at year end.

 

 
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    The value of performance share awards is shown as (1) the value realized on vesting for any earned shares that vested during the year as reported in the Option Exercises and Stock Vested table, and (2) the market value of the shares actually earned at the completion of the performance period but have not yet vested, as reported in the Outstanding Equity Awards at Fiscal Year End table, and as certified by the committee based on achievement of the performance goals.

While the Summary Compensation Table discloses the fair value of stock option, restricted stock and performance share awards on the grant date in the manner required by the SEC (for purposes of allocating the accounting expense over the requisite service period), we feel those values do not reflect the value actually received as a result of actual stock and financial performance. We believe the value of stock option, restricted stock and performance share awards as shown in this section better reflects the true alignment of our Chief Executive Officer’s pay with our stock performance. As the graphic shows, our Chief Executive Officer’s total actual pay plus the unrealized value of his outstanding equity awards at year end has been aligned with TSR over the last five years, which accords with the primary objectives of our executive compensation program.

On balance, Chief Executive Officer pay shows alignment with both stock performance and cash earnings given the focus on these measures in our incentive opportunities.

 

 

LOGO

 

 
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Chief Executive Officer Total Pay

 

      2013     2014     2015     2016     2017  

 

Summary Compensation Table

                                        

 

Salary

  

 

$

 

1,000,000

 

 

 

 

$

 

1,000,000

 

 

 

 

$

 

1,000,000

 

 

 

 

$

 

1,500,000

 

 

 

 

$

 

1,500,000

 

 

 

Non-Equity Incentive Plan Compensation

  

 

$

 

1,106,564

 

 

 

 

$

 

1,176,000

 

 

 

 

$

 

1,599,309

 

 

 

 

$

 

2,898,443

 

 

 

 

$

 

3,467,511

 

 

 

Change in Pension Value

  

 

$

 

 

 

 

 

$

 

71,395

 

 

 

 

$

 

24,903

 

 

 

 

$

 

36,555

 

 

 

 

$

 

42,850

 

 

 

All Other Compensation

  

 

$

 

146,073

 

 

 

 

$

 

175,103

 

 

 

 

$

 

229,541

 

 

 

 

$

 

343,641

 

 

 

 

$

 

418,210

 

 

 

Option Exercises and Stock Vested

                                        

 

Option Awards: Value Realized on Exercise

  

 

$

 

2,054,210

 

 

 

 

$

 

3,564,950

 

 

 

 

$

 

1,876,521

 

 

 

 

$

 

655,385

 

 

 

 

$

 

 

 

 

Restricted Stock Awards: Value Realized on Vesting

  

 

$

 

1,072,870

 

 

 

 

$

 

1,091,866

 

 

 

 

$

 

1,350,293

 

 

 

 

$

 

1,803,676

 

 

 

 

$

 

3,931,664

 

 

 

Performance Stock Awards: Value Realized on Vesting

  

 

$

 

83,976

 

 

 

 

$

 

100,229

 

 

 

 

$

 

128,784

 

 

 

 

$

 

3,753,218

 

 

 

 

$

 

3,804,071

 

 

 

Total Actual Pay

  

 

$

 

5,463,693

 

 

 

 

$

 

7,179,543

 

 

 

 

$

 

6,209,351

 

 

 

 

$

 

10,990,918

 

 

 

 

$

 

13,164,306

 

 

 

Outstanding Equity Awards at Fiscal Year End(1)

                                        

 

Option Awards: Unrealized Gain

  

 

$

 

6,505,734

 

 

 

 

$

 

3,735,145

 

 

 

 

$

 

2,556,803

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

Restricted Stock Awards: Market Value of Shares That Have Not Vested

  

 

$

 

2,647,633

 

 

 

 

$

 

3,181,560

 

 

 

 

$

 

2,917,139

 

 

 

 

$

 

5,092,356

 

 

 

 

$

 

6,053,043

 

 

 

Performance Stock Awards: Market Value of Performance Shares Earned but Not Vested

  

 

$

 

313,055

 

 

 

 

$

 

235,809

 

 

 

 

$

 

2,812,768

 

 

 

 

$

 

3,517,714

 

 

 

 

$

 

4,193,096

 

 

 

Performance Stock Awards: Value of Performance-based Restricted Stock Earned but Granted after Year End

  

 

$

 

250,000

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

750,000

 

 

 

 

$

 

15,000

 

 

 

Total Unrealized Value of Outstanding Equity Awards(1)

  

 

$

 

9,716,422

 

 

 

 

$

 

7,152,514

 

 

 

 

$

 

8,286,710

 

 

 

 

$

 

9,360,070

 

 

 

 

$

 

10,261,139

 

 

 

Percent Change in Total Unrealized Value of Outstanding Equity Awards

  

 

 

 

 

 

 

 

 

(26

 

)% 

 

 

 

 

16

 

 

 

 

 

13

 

 

 

 

 

10

 

 

Change in Total Unrealized Value of Outstanding Equity Awards

  

 

$

 

 

 

 

 

$

 

(2,563,908

 

 

 

$

 

1,134,196

 

 

 

 

$

 

1,073,360

 

 

 

 

$

 

901,069

 

 

 

Chief Executive Officer

  

 

 

 

Gill

 

 

 

 

 

 

Gill

 

 

 

 

 

 

Gill

 

 

 

 

 

 

Duffy

 

 

 

 

 

 

Duffy

 

 

 

(1) These values do not reflect compensation delivered each year but rather a snapshot of the value of all unexercised stock options, unvested restricted shares, and unvested but earned performance shares as of each year end. The type of equity award granted impacts the timeframe for realizing the value: stock options may be outstanding for up to 10 years given the 10-year option term, restricted shares may be outstanding for up to four years given the four-year vesting schedule, and performance shares, which have been tied to either a one- or three-year performance period, are included as outstanding only when they are deemed earned at the completion of the performance period. Stock options and restricted stock are included in each year end snapshot until the year in which the option is exercised or the restricted shares vest, at which point the actual value received is reported in the Total Actual Pay section above. In 2012, we began granting performance shares tied to a three-year performance period and time-vested restricted stock to our senior management group and ceased granting stock options.

PHILOSOPHY AND OBJECTIVES OF OUR COMPENSATION PROGRAM

The elements of our executive compensation program are designed to:

 

    Pay for performance. Focus on company and individual achievement for the benefit of CME Group and its shareholders through the incorporation of a significant portion of annual compensation for our senior management group that varies based on company and individual performance.

 

    Reward growth and profitability without undue risk. Motivate and reward our employees to achieve results in support of our strategic initiatives and to encourage profitability and growth while discouraging excessive risk taking.

 

    Hire and retain top caliber executives. Our compensation and benefits program is competitively designed to attract and retain the best talent.

 

    Align with shareholder value. The interests of our senior management group are linked to those of our shareholders through the risks and rewards of the ownership of our stock. The overall design of the program, while competitive, should also be at a reasonable cost to our shareholders.

Our program is designed to be consistent with best practices

The compensation committee designs our compensation program to motivate our senior management group to lead our entire company toward achieving short- and long-term financial and strategic goals, in addition to increasing shareholder value, all without encouraging excessive risk taking. The committee continually evaluates what it considers to be best practices in executive

 

 
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compensation, and modifies our program to support our strategies and provide an appropriate balance of risk and reward. The following highlights our current compensation practices that we believe drive performance and focus our senior management group on the creation of long-term value:

 

    We tie pay to performance. In 2017, at least 50% of the target total compensation opportunity for our named executive officers was tied to specific cash earnings, relative net income margin growth or relative total shareholder return performance goals.

 

    We set objective targets tied to company performance for our cash bonus that must be met at the threshold level in order to fund the bonus pool.

 

    We mitigate undue risk, including utilizing caps on potential payouts and clawback provisions.

 

    We have reasonable post-employment and change of control provisions.

 

    We use employment contracts on a limited basis. Contracts are generally structured to include a three- to five-year term, do not provide for excessive severance payments or include “golden parachute” tax gross ups.

 

    We have adopted stock ownership guidelines and restrictions on hedging and pledging transactions to ensure our executives’ interests are linked to those of our shareholders.

 

    We provide only modest perquisites.

 

    Our compensation committee reviews the reasonableness of our compensation by reviewing “tally” sheets and wealth accumulation reports.

USE OF COMPETITIVE DATA AND COMPARISON PRACTICES

Benchmarking practices

We are a complex organization that seeks to attract talent from a broad group of companies primarily located in the financial services industry and within the technology sector. Because no individual company or single group of companies is exactly comparable to CME Group, when reviewing competitive data, we consider a broad set of data from a number of sources. We believe that reviewing a combination of published survey compensation data in addition to publicly available compensation data (e.g. proxy statements) provides a valid reference point for the range of pay among companies with whom we compete for executive talent.

We broadly target compensation opportunities at the median (50th percentile) of the market, in total and for each component of pay for target performance levels. However, we believe that benchmarking does not provide a complete basis for establishing compensation. Therefore, we do not use the market statistics rigidly, nor do we apply any specific formula to the data. We also review the range of values around the median, including the 25th and 75th percentiles.

We use the competitive compensation data for several purposes as it relates to the named executive officers and other employees. We use it to assess the competitiveness of total compensation for individual members of senior management and other employees on an annual basis, and we use it to develop and evaluate total compensation programs and guidelines for senior management and other employees on a more ad hoc basis. When making decisions about senior management pay we analyze compensation relative to the market median levels, and may make adjustments for market conditions and special considerations as appropriate in the context of our pay for performance philosophy. The compensation committee, within its discretion, may make alterations based on its evaluation of the benchmarking data, as it deems appropriate, to ensure that our senior management compensation is performance-based and competitive in nature.

CME Group compensation peer group

In September 2017, the committee conducted a review of our peer group companies with the goal of ensuring the peers remain relevant and comparable in terms of size and industry. Following this review, the committee approved changes to the peer group, including the removal of Dun & Bradstreet Corporation and Yahoo Inc. and the addition of CBOE Holdings Inc. and E*Trade

 

 
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Financial Corporation. The following peer group was used for benchmarking our program for senior management and members of our board in late 2017.

 

CBOE Holdings Inc.    Equifax Inc.
E*Trade Financial Corporation    Fiserv Inc.
Franklin Resources Inc.    IntercontinentalExchange Inc.
Invesco Ltd.    MasterCard Inc.
Moody’s Corp.    Nasdaq OMX Group Inc.
Northern Trust Corp.    Paychex Inc.
Schwab (Charles) Corp.    S&P Global, Inc.
T. Rowe Price Group Inc.    TD AMERITRADE Holding Corp.
Western Union Co.     

In selecting the peer group for executive compensation purposes, we targeted the following industries: exchanges, financial services, technology, transaction services and other technology-driven financial companies. We selected companies within these sectors of similar size as measured by revenue and market capitalization. The companies within the peer group generally range between 0.5 and 2.5 times CME Group in terms of revenues or market capitalization. At the time of the committee’s annual review of our peer group in 2017, CME Group was positioned at the 31st percentile of the peer group on revenue and at the 88th percentile on market capitalization.

Comparison of Chief Executive Officer pay to other named executive officers

The differences between the allocation of compensation of the individual serving in the role of Chief Executive Officer and the other named executive officers are primarily the result of the differences in the role and responsibilities of the individual within the organization, the level of competitive demand for the individual’s talent in the industry and the results of our benchmarking studies for similarly situated positions in the marketplace. We have not adopted a policy whereby the compensation of the individual serving in the role of Chief Executive Officer or any other named executive officer must be a certain multiple higher or lower than any of the other named executive officers. As previously discussed, we broadly target total compensation levels at the median (50th percentile) of our peer group.

Role of individual performance in the program

While consideration of compensation data to ensure that our compensation is competitive is a critical component of compensation decisions, individual performance is factored into setting compensation in the following ways:

 

    Base salary adjustments are based on an assessment of the individual’s performance in the preceding year, changes in his or her responsibilities as well as a comparison with market data for comparable positions in our peer group and within the industry.

 

    Our incentive targets for annual bonus and equity opportunities are based on the individual’s role and responsibilities in the organization in achieving our annual goals as well as the competitive market data for similarly situated positions in the marketplace.

 

    Individual performance and the achievement of specific goals is taken into consideration by the compensation committee in determining whether to use its discretion in approving annual bonuses and equity awards at, above or below the target level.

 

 
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PRINCIPAL ELEMENTS OF OUR COMPENSATION PROGRAM

The principal components of our executive compensation program and the purpose of each component are presented in the following table.

 

Compensation Component   Key Characteristics   Purpose   Where Reported in More Detail
Base Salary   Fixed compensation component. Reviewed annually, and adjusted, if and when appropriate.   Intended to compensate the
executive competitively with the
market based upon their job
duties and level of responsibility.
  Summary Compensation Table on
page 46 under “Base Salary” and
described on page 37.
Performance-Based Bonus   Variable compensation component. Opportunity based upon our performance measured by cash earnings. Individual awards based on bonus opportunities and individual performance.   Intended to motivate and reward
the executive’s contribution to
achieving our short-term/annual
goals.
  Summary Compensation Table
under “Non-Equity Incentive Plan
Compensation,” Grants of Plan-
Based Awards
on page 48 under
“Estimated Future Payouts Under
Non-Equity Incentive Plan
Awards” and described on
page 37.
Long-Term Incentives   Variable compensation component. Amounts actually realized will depend upon company financial/stock performance. Individual awards based on equity opportunities and individual performance.   Intended to motivate and reward
the executive’s contribution to
achieving our long-term
objectives and increasing
shareholder value and to serve as
a retention mechanism.
  Summary Compensation Table
under “Stock Awards,” Grants of
Plan-Based Awards
under the
columns referencing equity
awards, Option Exercises and
Stock
Vested on page 51 and
described on page 39.
Health and Welfare Plans and Retirement Plans   Fixed component of pay.   Intended to provide benefits that
promote employee health and
support employees in attaining
financial security.
  Summary Compensation Table
under “Change in Pension Value
and Non-Qualified Deferred
Compensation Earnings” and “All
Other Compensation,” Pension
Benefits
on page 51 and
Non-Qualified Deferred
Compensation
on page 42.
Post-Employment Compensation   Fixed compensation component.   Intended to provide a temporary
income source following
termination (other than for cause)
including in the case of a
change-in-control to ensure
continuity of management during
that event.
  Potential Payments to Named
Executive Officers
on page 53 and
described on page 43.

We do not maintain formal targets for the allocation of total compensation through each of the foregoing elements. We believe that members of our senior management who have more direct responsibility for the performance of CME Group should have a greater percentage of their compensation tied to the performance of CME Group. In accordance with this philosophy:

 

    Base salary should decrease as a percentage of overall compensation as employees gain more responsibility with more direct influence over our performance.

 

    Employees in positions that most directly influence performance should have a larger percentage of their compensation tied to CME Group’s performance through equity awards with a portion of the equity awards tied to corporate performance goals.

 

    Actual awards of incentive compensation should be closely aligned with the performance of CME Group.

 

 
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The following are the approximate average percentages the elements represent out of the total compensation for our named executive officers for 2017 as set forth in the Summary Compensation Table:

 

Base Salary    Annual Cash Bonus(1)    Annual Equity(2)    Other  Compensation(3)
14%    22%    54%    10%

 

(1) Annual cash bonus is composed of amounts listed in the Summary Compensation Table under “Non-Equity Incentive Plan Compensation.”

 

(2) Annual equity value shown is composed of amounts listed in the Summary Compensation Table under “Stock Awards.”

 

(3) Other compensation is composed of amounts listed in the Summary Compensation Table under “Change in Pension Value and Non-Qualified Deferred Compensation Earnings” and “All Other Compensation” columns.

Description of each element of compensation

Base salary

We generally target base salary at the 50th percentile of the competitive market relative to each position’s duties and level of responsibility. Each year the compensation committee reviews the base salaries of the senior management group taking into consideration their total compensation. In general, the evaluation of base salaries involves a review of a variety of factors:

 

    The nature and responsibility of the position.

 

    The impact, contribution, expertise and experience of the individual.

 

    Competitive market information regarding salaries to the extent available and relevant.

 

    The importance of retaining the individual along with the competitiveness of the market for the individual’s talent and services.

 

    Recommendations of the Chairman and Chief Executive Officer (except in the case of his own compensation).

Mr. Pietrowicz received a base salary increase from $450,000 to $500,000 effective January 1, 2017, and from $500,000 to $550,000 effective January 1, 2018, to better align his compensation with market levels. Mr. Durkin’s salary was increased from $700,000 to $800,000 effective January 1, 2017, and from $800,000 to $900,000 effective January 1, 2018, in connection with his responsibilities as President. Mr. Kometer received a salary increase effective January 1, 2017 from $425,000 to $450,000 to better align his compensation with market levels.

Bonus

Our annual bonus program is designed to provide incentives to the named executive officers and other members of senior management to drive annual performance based on our strategic goals as approved by the board. In support of our pay-for-performance philosophy, the bonus plan is only funded when we achieve cash earnings at or above the threshold level. We use cash earnings as our funding metric because we believe it provides a transparent view of CME Group’s performance during the year. Cash earnings is also the metric used in our dividend policy, which provides that our dividend target for our regular quarterly dividends is set at approximately 50% to 60% of the prior year’s cash earnings.

On an annual basis, the cash earnings target is approved by our compensation committee. The cash earnings target is established to motivate our named executive officers toward operational excellence and superior financial performance and is designed to be challenging to meet, while remaining achievable with concentrated effort and focus. Annual bonuses will only be paid to our senior management group to the extent we achieve cash earnings at or above the threshold level, which was set at 75% of the target performance goal for 2017. The annual bonus pool is subject to a cap when we achieve cash earnings at the maximum level, which is set at 120% of the established target goal. It is anticipated that the achievement of the maximum level of cash earnings would be exceptional, requiring extraordinary effort on the part of our senior management.

 

 
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Our cash earnings are calculated using the following formula for the purpose of the annual bonus.

 

Cash Earnings Calculation for Annual Bonus

Net Income

+ Depreciation

+ Stock-Based Compensation*

+ Amortization on Purchased Intangibles*

- Capital Expenditures

= Cash Earnings

+/- Net Interest Expense*

= Bonus Incentive Plans Cash Earnings Target as approved by compensation committee

*Adjusted on an after tax basis

The following shows our cash earnings goals and actual achievement for 2017 for purposes of our annual bonus program:

 

Threshold    Target    Maximum    Actual
$1.236 billion    $1.648 billion    $1.977 billion    $1.754 billion

The compensation committee has discretion to make equitable adjustments to the cash earnings performance calculation to reflect effects of external events outside the control of our senior management group, such as unforeseen litigation or changes in accounting or taxation standards. Such adjustments may also reflect effects of unusual or significant strategic events that are within the control of our senior management that were not contemplated at the time the goal was established and that were undertaken with an expectation of improving our long-term financial performance, such as acquisitions or strategic relationships. In 2017, the committee approved adjustments for certain non-performance items, such as deferred tax and foreign exchange fluctuation impacts, consistent with prior practice.

2017 bonus awards

Annual bonus opportunities are based upon CME Group’s achievement of cash earnings and are awarded in consideration of the individual’s performance during the year. The committee approved the bonuses for the named executive officers for 2017 based on our achievement of cash earnings and in recognition of the previously discussed accomplishments set forth on page 1.

The table below shows the payout opportunities and actual bonus payments for 2017 as well as a comparison to actual 2016 cash bonuses for the named executive officers.

 

2017 Named Executive Officer Bonus Awards  
Name   

Bonus
Plan

Target as

% of

Salary

   

Bonus

Plan

Target

    

Bonus
Plan

Maximum

as%

of Salary

   

Bonus Plan

Maximum

     2017
Annual
Bonus
as % of
Salary
    2017
Annual
Bonus
(1)
     2016
Annual
Bonus
    

Percentage

 

Change(2)

 
Terrence A. Duffy      175   $ 2,625,000        350   $ 5,250,000        231   $ 3,467,511      $ 2,898,443        20
John W. Pietrowicz      100     500,000        200     1,000,000        132     659,208        581,179        13  
Bryan T. Durkin      125     1,000,000        250     2,000,000        165     1,317,781        904,056        46  
Sean P. Tully      100     450,000        200     900,000        132     594,431        579,192        3  
Kevin D. Kometer      100     450,000        200     900,000        132     593,795        548,891        8  
Kimberly S. Taylor(3)      100     700,000        200     1,400,000                   904,056        N/A  

 

(1) Under the terms of our bonus program, bonus awards are calculated utilizing base salary paid during the applicable plan year.

 

(2) Messrs. Pietrowicz, Durkin and Kometer received base salary increases effective January 1, 2017 as discussed on page 37. Messrs. Duffy and Durkin received an increase to their annual bonus target opportunity effective January 1, 2017 as discussed on page 39. No other named executive officers received increases to base salary or bonus target opportunities in 2017.

 

(3) As a result of her retirement, Ms. Taylor did not receive a bonus payment with respect to 2017.

Our 2017 actual annual cash earnings results were 106.4% of the target level performance. As such, bonuses for the named executive officers were approved by the committee at approximately 132% of their individual bonus target opportunities. The

 

 
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bonuses for all named executive officers, other than Ms. Taylor, were delivered at the level determined by cash earnings performance, without any additional discretion applied by the committee.

Effective in 2017, Mr. Duffy’s target bonus opportunity was increased to 175% of his base salary as a result of his revised employment agreement. Mr. Durkin’s target bonus opportunity was increased to 125% of his base salary in connection with the increased responsibilities related to his role as President. The details of the revised employment agreement for Mr. Duffy can be found beginning on page 53.

Equity

Long-term grants of equity are important to reflect an alignment with shareholder value creation and a competitive mix of long- and short-term incentives. Our equity program is designed to reward and encourage the success and contributions of our employees, including our named executive officers, which leads to value creation for CME Group and our shareholders.

Since 2012, the annual equity awards for members of our senior management group have been delivered in the form of performance shares and time-vested restricted stock. This mix of equity vehicles enables us to focus employees on stock performance, provides for employee retention and directly aligns employee interests with shareholder value creation.

Equity grant practices

The following is a summary of our equity grant practices and the role of the committee in approving awards:

 

    Our annual equity awards are granted on September 15th or in the event the 15th is not a business day, the closest business day thereto.

 

    At a meeting prior to the annual grant date, the committee approves the awards for the senior management group based upon the target equity opportunities and recommendations from the Chairman and Chief Executive Officer using a pre-set calculation of a percentage of base salary and a recent closing price. Actual awards are granted based on the previously approved calculation and the closing price on the actual grant date. The committee receives a report of the actual awards at a subsequent meeting.

 

    The committee has delegated authority to the individual in the role of Chief Executive Officer to approve annual, sign-on, retention and initiative-based equity awards to employees below our senior management group other than our chief accounting officer, within parameters set by the committee. The committee is provided with an annual report on awards granted under such delegated authority.

 

    Our Omnibus Stock Plan and our Director Stock Plan prohibit the granting of options or stock appreciation rights below the market value on the date of grant, the repricing of existing awards, and payment of dividends on performance-based shares prior to the achievement of performance goals. Dividends relating to outstanding shares of unvested time-based restricted stock are accrued and paid out at vesting.

The equity targets for our named executive officers were established based upon a review of the nature of the responsibility of the position of the executive within CME Group, the competitive market data derived through our benchmarking practices and the ability of the employee to impact the overall growth and performance of CME Group based upon his or her role within the company. As discussed in more detail on page 34, we generally target total compensation in the 50th percentile of our peer group. Through competitive compensation analysis, we compare equity compensation on a standalone basis as well as part of an executive’s overall total compensation.

The committee has the discretion to adjust the annual equity awards to distinguish for individual performance. The annual equity awards for the named executive officers were made at the target levels for 2017 and were comprised of 50% performance shares and 50% time-vested restricted stock.

 

 
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The table below shows the annual equity award opportunities for our named executive officers and actual awards made in 2017.

 

2017 Named Executive Officer Equity Awards  
Name     

Annual

Equity Award

Target as

% of

Base Salary

      

Annual

Equity

Award Target

      

Actual

Annual

Equity Award

as % of

Target

      

Actual

Annual Equity

Award(1)

 
Terrence A. Duffy        350%        $ 5,250,000          100%        $ 5,250,000  
John W. Pietrowicz        300%          1,500,000          100%          1,500,000  
Bryan T. Durkin        300%          2,400,000          100%          2,400,000  
Sean P. Tully        300%          1,350,000          100%          1,350,000  
Kevin D. Kometer        300%          1,350,000          100%          1,350,000  
Kimberly S. Taylor        300%          2,100,000          100%          2,100,000  

 

(1) The valuation methods used for award determination reflected above differ from those used in the Summary Compensation Table.

In connection with Mr. Duffy’s revised employment agreement related to his expanded role as Chairman and Chief Executive Officer, his equity award target opportunity was increased to 350% of base salary effective for 2017. The details of Mr. Duffy’s employment agreement can be found beginning on page 53.

Performance shares tied to 2018-2020 performance

The September 2017 performance share award criteria were divided with 50% based on growth in net income margin relative to the diversified financial services index of the S&P 500 and 50% based on total shareholder return relative to the S&P 500, measured over 2018 through 2020. Following the three-year performance period, the award will be settled in unrestricted shares of stock, based upon achievement of the following performance metrics:

 

Relative Net Income Margin Growth Performance
% of Target Award Earned
     

Relative TSR Performance

% of Target Award Earned

Below
25th Percentile
  25th Percentile   50th Percentile   75th Percentile      

Below 25th

Percentile

  25th Percentile   50th Percentile   75th Percentile
0   50%   100%   200%     0   50%   100%   200%

The details of the performance share awards granted in September 2017 tied to 2018-2020 growth in net income margin relative to the diversified financial services index of the S&P 500 and total shareholder return relative to the S&P 500 are as follows:

 

Annual Performance Shares Awarded in 2017  
Name    Award Date      Performance Metric   

 

Performance Share Payout
Opportunity (in Shares)

 
         Threshold      Target      Maximum  
Terrence A. Duffy      9/15/2017      2018-2020 Net Income Margin Growth      4,999        9,997        19,994  
       9/15/2017      2018-2020 TSR      4,999        9,997        19,994  
John W. Pietrowicz      9/15/2017      2018-2020 Net Income Margin Growth      1,428        2,856        5,712  
       9/15/2017      2018-2020 TSR      1,428        2,856        5,712  
Bryan T. Durkin      9/15/2017      2018-2020 Net Income Margin Growth      2,285        4,570        9,140  
       9/15/2017      2018-2020 TSR      2,285        4,570        9,140  
Sean P. Tully      9/15/2017      2018-2020 Net Income Margin Growth      1,286        2,571        5,142  
       9/15/2017      2018-2020 TSR      1,286        2,571        5,142  
Kevin D. Kometer      9/15/2017      2018-2020 Net Income Margin Growth      1,286        2,571        5,142  
       9/15/2017      2018-2020 TSR      1,286        2,571        5,142  
Kimberly S. Taylor      9/15/2017      2018-2020 Net Income Margin Growth      2,000        3,999        7,998  
       9/15/2017      2018-2020 TSR      2,000        3,999        7,998  

 

 
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Performance shares tied to 2015-2017 performance

Certain members of our senior management group received performance share awards in September 2014 and March 2015 for the performance period 2015 through 2017, with 50% based on growth in net income margin relative to the diversified financial services index of the S&P 500 and 50% based on total shareholder return relative to the S&P 500. The company achieved 67th percentile growth in net income margin relative to the diversified financial services index of the S&P 500 for the performance period, exceeding the target goal of 50th percentile. The company achieved 93rd percentile total shareholder return relative to the S&P 500 for the performance period, exceeding the target goal of 50th percentile and the maximum goal of 75th percentile. Performance on both of these metrics resulted in an above-target payout of 183.3% of the total target performance shares being earned.

The following table shows total payout opportunities of the previously granted annual performance shares tied to 2015 through 2017 performance based on the range of performance against the established metrics, and actual shares earned when performance was certified by the committee in early 2018.

 

Annual Performance Shares Tied to 2015-2017 Performance  
                Performance Share Payout
Opportunity (in Shares)
   

Actual Shares
Earned

 
Name   Award Date      Performance Metric(1)   Threshold     Target     Maximum    
Terrence A. Duffy     9/15/2014      2015-2017 Net Income Margin Growth     3,915       7,830       15,660       13,050  
      9/15/2014      2015-2017 TSR     3,915       7,830       15,660       15,660  
John W. Pietrowicz(2)     9/15/2014      2015-2017 Net Income Margin Growth     840       1,680       3,360       2,800  
      9/15/2014      2015-2017 TSR     840       1,680       3,360       3,360  
      3/16/2015      2015-2017 Net Income Margin Growth     341       681       1,362       1,135  
      3/16/2015      2015-2017 TSR     341       681       1,362       1,362  
Bryan T. Durkin     9/15/2014      2015-2017 Net Income Margin Growth     2,193       4,385       8,770       7,308  
      9/15/2014      2015-2017 TSR     2,193       4,385       8,770       8,770  
Sean P. Tully(2)     9/15/2014      2015-2017 Net Income Margin Growth     685       1,370       2,740       2,283  
      9/15/2014      2015-2017 TSR     685       1,370       2,740       2,740  
      3/16/2015      2015-2017 Net Income Margin Growth     328       656       1,312       1,093  
      3/16/2015      2015-2017 TSR     328       656       1,312       1,312  
Kevin D. Kometer     9/15/2014      2015-2017 Net Income Margin Growth     1,371       2,741       5,482       4,568  
      9/15/2014      2015-2017 TSR     1,371       2,741       5,482       5,482  
Kimberly S. Taylor     9/15/2014      2015-2017 Net Income Margin Growth     2,193       4,385       8,770       7,308  
      9/15/2014      2015-2017 TSR     2,193       4,385       8,770       8,770  

 

(1) The committee certified performance results associated with the annual awards tied to 2015-2017 performance on March 12, 2018. Based on the committee’s certification, the pre-established goals were achieved above the target levels established for each metric, resulting in 183.3% of the target shares to be paid. These shares became vested on March 15, 2018.

 

(2) Under our equity program, eligible employees, including members of our senior management group, typically receive annual equity awards in September of each year. Employees promoted to the senior management group after the September awards are made are eligible for a prorated promotional award in March. Messrs. Pietrowicz and Tully received awards in March 2015 as a result of promotion.

Initiative-based equity awards

In addition to annual equity awards, certain members of senior management may be eligible to receive initiative-based equity awards based upon their contributions to select key corporate initiatives. Participation in such awards is at the recommendation of the individual serving in the role of Chief Executive Officer, subject to approval by the compensation committee. We did not grant any such initiative-based awards to our named executive officers in 2017.

 

 
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Performance-based grant of restricted stock

In lieu of participation in our initiative-based equity program, Mr. Duffy is eligible to receive an annual grant of time-vested restricted stock with a value of up to 100% of his base salary based upon the achievement of outstanding performance as measured based on cash earnings and total shareholder return over the prior year:

 

Outstanding Cash Earnings Performance Award   

 

    Outstanding TSR Performance Award
      For each 0.1%
Above 120%
of Goal
   At or Above
130% of
Goal
               For each 0.1%
Above 75th
Percentile
   At or Above
85th
Percentile
Value of Performance Award as % of base salary    0.5%    50%      Value of Performance Award as % of base salary    0.5%    50%

For 2017, our actual cash earnings performance was 106.4% of the target goal and our total shareholder return performance was at the 75.2 percentile of the S&P 500. As a result of the outstanding performance on relative total shareholder return in 2017, the committee approved an award of time-vested restricted shares for Mr. Duffy, which was granted on March 15, 2018 with a value of 1% of his base salary, and will vest over a four-year period, with 25% vesting one year after the grant date and 25% vesting on each anniversary date thereafter.

The following table shows the total payout opportunity of these performance-granted time-vested restricted stock awards based on the range of performance against the established metrics, and the actual number of shares granted after performance results were certified by the committee in early 2018.

 

2017 Performance-Based Grants of Restricted Stock  
Name    Award Date      Performance Metric    Performance Share Payout
Opportunity (in Shares)
     Actual Shares
Earned
 
         Threshold      Target      Maximum     
Terrence A. Duffy(1)      N/A      2017 Cash Earnings      44        N/A        4,536         
       3/15/2018      2017 TSR      44        N/A        4,536        92  

 

(1) The compensation committee certified performance results associated with the 2017 cash earnings goal and the 2017 TSR performance relative to the S&P 500 goal on February 7, 2018 and approved the award to be granted on March 15, 2018. Based on the committee’s certification, the pre-established goal associated with the TSR performance was achieved, and 2% of the maximum TSR payout opportunity was earned.

Performance-granted restricted shares were awarded to Mr. Duffy on March 15, 2017 associated with the 2016 achievement of total shareholder return performance at the 85.4 percentile of the S&P 500. The committee certified the performance and approved the award of time-vested restricted shares on February 8, 2017. This award of 6,012 shares has a four-year vesting schedule, with 25% vesting one year after the grant date and 25% vesting on each anniversary thereafter.

Health and Welfare Plans and Retirement Plans

All eligible employees, including the named executive officers, participate in our benefit programs. We provide health and wellness benefits, including medical and dental coverage, disability insurance benefits based on two-thirds of base salary and life insurance benefits based on three times base salary. In addition, employees are eligible to participate in our qualified retirement plans, which consist of our 401(k) savings plan and our cash balance pension plan.

In addition to the qualified retirement plans, employees whose pay exceeds the compensation limits for qualified benefit plans set by the Internal Revenue Service participate in a non-qualified deferred compensation plan which provides for “make-whole” contributions. For more information on our deferred compensation plans, see Non-Qualified Deferred Compensation Plans beginning on page 52.

Qualified and non-qualified retirement benefits provided to the named executive officers are set forth in the following tables: Pension Benefits and the Non-Qualified Deferred Compensation Plans on pages 51 and 52, respectively.

PERQUISITES AND OTHER PERSONAL BENEFITS

We provide limited perquisites and other personal benefits to our senior management that we believe are moderate and consistent with our overall compensation program. We provide monthly parking benefits to a subset of our senior management

 

 
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group, including Mr. Duffy and Ms. Taylor until her retirement from the company. Additionally, all of our senior level employees are entitled to an annual physical examination. The aggregate value of all perquisites received by each named executive officer in 2017 did not exceed $10,000. To the extent that perquisites result in imputed income to the individual, we do not provide gross-up payments to cover the personal income tax due on such imputed income.

POST-EMPLOYMENT COMPENSATION

Our employment contracts contain reasonable provisions and ensure continuity of leadership

Our philosophy is to enter into employment contracts and retention agreements on a very selective basis in light of the particular facts and circumstances involved in the individual employment relationship, such as whether the employment arrangement would be necessary to recruit and/or retain necessary talent with compensation terms that we believe are in accordance with our overall compensation program. Employment agreements typically are for a period of three to five years, include non-compete and non-solicitation provisions, do not provide for cash severance payments in excess of two times annual base salary, do not provide for gross-up payments (except in connection with certain self-insured supplemental life insurance payments that would be paid to Mr. Duffy’s beneficiaries under his agreement) and include a requirement that the executive execute a release agreement before becoming entitled to receive severance payments. All contractual compensation terms within the employment agreements for our senior management group are reviewed and approved by the compensation committee. We believe that our existing employment contract with Mr.Duffy contains compensation terms in line with our overall compensation program and philosophy. A description of the agreement is set forth in the section entitled Potential Payments Upon Termination or Change-in-Control—Employment Agreements and other Compensation Arrangements with Named Executive Officers beginning on page 53.

We have reasonable change-in-control and other termination provisions

Change-in-control provisions assist us with retention during rumored and actual change of control activity when management continuity is key to preserving the value of the business. We also provide other severance benefits in connection with terminations other than for misconduct. We believe these benefits allow us to facilitate changes with key employees, as needed, and to ensure minimal disruption to the business in exchange for non-competition and non-solicitation benefits for CME Group along with a general release.

A description of our severance policies and practices and the estimated amounts that would be payable to our named executive officers under certain circumstances are set forth under the section entitled Potential Payments Upon Termination or Change-in-Control beginning on page 53.

OTHER COMPENSATION POLICIES

We have established stock ownership guidelines to ensure alignment of interests with our shareholders

The committee has established the following stock ownership guidelines for the members of our senior management group:

 

    The Chairman and Chief Executive Officer: shares with a value equal to at least a multiple of five times base salary.

 

    Other named executive officers: shares with a value equal to at least a multiple of three times their respective base salary.

Each individual has five years from the date of hire or promotion to achieve their ownership guideline. As of the 2017 review, all of our named executive officers had satisfied the guidelines.

The compensation committee monitors compliance with these stock ownership guidelines on an annual basis. Generally, shares that are deemed “owned” for purposes of Section 16 of the SEC regulations are counted towards satisfaction of these guidelines. Shares are valued based upon the greater of (i) the fair market value at the time of the assessment and (ii) the actual value at the time of acquisition or, in the case of restricted stock or performance shares, at the time of vesting.

 

 
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We prohibit derivative transactions and hedging of ownership risk of our securities and have adopted a policy restricting the pledging of our Class A shares

To ensure alignment of interests between our employees and board members and our shareholders and to further ensure that such individuals share in the risks and rewards of the ownership of our stock, we prohibit our employees and members of the board from engaging in any derivative or hedging transactions relative to their ownership of our stock. The board also has adopted a policy prohibiting pledging of our Class A shares. In connection with the adoption of the policy, the board elected to grandfather in the existing pledging arrangements of certain directors based on the fact that:

 

    The aggregate number of shares pledged was significantly less than 0.1% of our outstanding Class A common stock.

 

    The secured parties each had undertaken not to sell such pledged shares during any period in which the board members were restricted from trading under our compliance policies.

 

    The board members agreed to own shares not subject to any pledging arrangement with a value that meets their applicable stock ownership guidelines.

 

    The pledging arrangements were related to such individual’s derivatives trading activities at CME Group.

Since the approval of the policy, only one of the grandfathered arrangements remains in existence.

Our compensation committee and board annually review the total compensation of our senior management

To ensure the committee members are informed of the potential compensation levels of our senior management group, the committee reviews on an annual basis all components of their compensation package and total compensation. This review includes annual base salary, annual cash bonus, value of annual equity awards, in-the-money value of all historic equity grants including monetized gains, the value of retirement contributions under our qualified and non-qualified plans, and potential change-in-control payments. The committee provides an annual report on the results of this review to the board during an executive session. For more information on the operation of our compensation committee see page 27.

We have implemented a recoupment policy

In furtherance of our philosophy to ensure the interests of our senior management are aligned with those of our shareholders, effective as of 2010, the compensation committee recommended and the board approved a recoupment policy. This policy provides the board with the discretion to recoup annual bonus payments to our employees at the level of managing director and above in the event of a financial restatement, the effect of which is that such incentive payments were not otherwise earned by an individual under our bonus programs based upon the restated calculation of our cash earnings or any other performance metric in effect at the time. In July 2015, the SEC proposed rules to implement the recoupment provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. We plan to amend our recoupment policy as necessary to comply with the final rules.

 

 
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LOGO    Compensation Committee Report  

 

 

The compensation committee reviewed and discussed the Compensation Discussion and Analysis with our management. After such discussions, the committee recommended to the board of directors that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference into our 2017 Annual Report on Form 10-K.

The Compensation Committee—2017

Larry G. Gerdes, Chairman

Timothy S. Bitsberger

Ana Dutra

Martin J. Gepsman

Daniel R. Glickman

William R. Shepard

Howard J. Siegel

 

 
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SUMMARY COMPENSATION TABLE

The following table provides information regarding the compensation earned during the year ended December 31, 2017 by our named executive officers. In 2017, “salary” accounted for approximately 14% of the total compensation of the named executive officers as a whole and “non-equity incentive plan compensation” accounted for approximately 22% of such total compensation.

 

Name and Principal Position    Year      Salary ($)     

Stock
Awards

($)(1)

     Non-Equity
Incentive
Plan
Compensation
($)
(2)
    

Change in
Pension

Value and

Non-Qualified
Deferred
Compensation
Earnings

 

($)(3)

     All Other
Compensation
($)
(4)
     Total ($)  

Terrence A. Duffy

Chairman and

Chief Executive Officer(5)

     2017        1,500,000        6,714,284        3,467,511        42,850        418,210        12,142,855  
     2016        1,500,000        4,969,693        2,898,443        36,555        343,641        9,748,332  
     2015        1,250,000        2,580,113        1,999,136        25,465        294,475        6,149,189  

John W. Pietrowicz

Chief Financial Officer

     2017        500,000        1,704,004        659,208        50,652        81,157        2,995,021  
     2016        450,000        1,490,732        581,179        38,343        88,608        2,648,862  
     2015        450,000        1,233,922        715,839        18,443        76,140        2,494,344  

Bryan T. Durkin

President

     2017        800,000        2,726,645        1,317,781        97,322        151,323        5,093,071  
     2016        700,000        2,319,131        904,056        96,904        162,834        4,182,925  
     2015        700,000        1,444,783        1,119,517        26,564        150,270        3,441,134  

Sean P. Tully

Global Head of Financial and

OTC Products(6)

     2017        450,000        1,533,699        594,431        33,094        75,450        2,686,674  
     2016        450,000        1,490,732        579,192        26,421        74,654        2,620,999  
                                                              

Kevin D. Kometer

Chief Information Officer(7)

     2017        450,000        1,533,699        593,795        62,664        72,301        2,712,459  

Kimberly S. Taylor

Former President Clearing &

Post-Trade Services

     2017        700,000        2,385,701               68,085        2,031,782        5,185,568  
     2016        700,000        2,319,131        904,056        53,303        165,776        4,142,266  
     2015        700,000        1,444,783        1,119,517        20,988        140,715        3,426,003  

 

(1) The amounts reflected in the “Stock Awards” column reflect the aggregate grant date fair value computed in accordance with Financial Accounting Standards Board ASC Topic 718 without giving effect to estimated forfeitures. See note 15 of the notes to consolidated financial statements of CME Group Inc. and subsidiaries for more details on the assumptions made in the valuation of stock awards. The fair value of the restricted stock grants was calculated using the closing price on March 15, 2017 of $124.74 and September 15, 2017 of $131.29. The fair value of performance shares based on TSR relative to the S&P 500 was calculated using a value of $188.01 for December 31, 2017, which was derived from a Monte-Carlo simulation. The fair value of performance shares based on growth in net income margin relative to the diversified financial services index within the S&P 500 was calculated using the closing price on December 29, 2017 of $146.05. This column includes the following aggregate amounts with respect to performance share awards granted to our named executive officers in 2017 based on achievement of target performance levels: Mr. Duffy: $3,339,598; Mr. Pietrowicz: $954,075; Mr. Durkin: $1,526,654; Mr. Tully: $858,868; Mr. Kometer: $858,868, and Ms. Taylor: $1,335,906. Assuming the maximum performance levels were achieved with respect to performance share awards, the aggregate value of performance share awards granted to our named executive officers in 2017 is as follows: Mr. Duffy: $4,799,660; Mr. Pietrowicz: $1,371,194; Mr. Durkin: $2,194,103; Mr. Tully: $1,234,363; Mr. Kometer: $1,234,363, and Ms. Taylor: $1,919,960.

 

(2) The amounts included in the “Non-Equity Incentive Plan Compensation” column reflect awards to the named executive officers under our bonus plans, which are discussed on page 37 under the “Bonus” heading. No other bonuses were paid.

 

(3) The amounts reflected in the “Change in Pension Value and Non-Qualified Deferred Compensation Earnings” column reflect only the change in the pension value during the particular year. Under our non-qualified deferred compensation plans, participants may invest in one or more market investments that are available from time to time. This is the only return that they receive and, therefore, no above-market earnings are reflected in this table. For more information on our deferred compensation plans, see the section entitled Non-Qualified Deferred Compensation Plans on page 52.

 

 
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LOGO    Executive Compensation (Continued)  

 

 

(4) Amounts included in the “All Other Compensation” column for 2017 are as follows:

 

      401(k)
Company
Contribution
     Supplemental
Plan
(8)
     Other(9)      Total  
Terrence A. Duffy    $ 7,950      $ 408,460      $ 1,800      $ 418,210  
John W. Pietrowicz      8,013        71,794        1,350        81,157  
Bryan T. Durkin      4,558        144,965        1,800        151,323  
Sean P. Tully      8,100        66,135        1,215        75,450  
Kevin D. Kometer      7,375        63,711        1,215        72,301  
Kimberly S. Taylor      7,938        132,965        1,890,879        2,031,782  

 

(5) As discussed under the section entitled Potential Payments upon Termination or Change-in-Control—Employment Agreements and other Compensation Arrangements with Named Executive Officers on page 53, we have agreed to self-insure supplemental life and long-term disability coverage for Mr. Duffy and to gross up his beneficiaries for any additional taxes incurred as a result of the supplemental life coverage. Because no actual payments were made or liabilities incurred as a result of this coverage, no amounts have been included in Mr. Duffy’s compensation in respect of such coverage.

 

(6) Mr. Tully was not a named executive officer prior to 2016.

 

(7) Mr. Kometer was not a named executive officer prior to 2017.

 

(8) The items included in the “Supplemental Plan” column are 401(k) make-whole and pension make-whole contributions. Make-whole contributions are company contributions for individuals whose compensation has exceeded the statutory compensation limit identified in Section 401(a)(17) of the Code and thus must be excluded from consideration in qualified retirement plans.

 

(9) The items included in the “Other” column include life insurance premiums paid by us for the benefit of the named executive officer and payments made to Ms. Taylor in connection with her retirement. Ms. Taylor was paid the following termination-related payments: $100,000 upon signing of the retirement agreement, $1,750,000 severance payment pursuant to her retirement agreement and $39,079 for an accrued and unused vacation balance in accordance with company policy. The terms of Ms. Taylor’s retirement agreement are discussed in detail under Taylor Retirement Agreement on page 54.

 

 
Notice of Annual Meeting of Shareholders and 2018 Proxy Statement          47  


Table of Contents

 

 

LOGO   Executive Compensation (Continued)  

 

 

GRANTS OF PLAN-BASED AWARDS

The following table shows the possible payouts to our named executive officers in 2017 for awards made under the Amended and Restated CME Group Incentive Plan for Named Executive Officers (Messrs. Duffy, Durkin, Tully, Kometer and Ms. Taylor) and our bonus plan for other employees (Mr. Pietrowicz) and the equity awards granted under our Omnibus Stock Plan in 2017. For additional information on our equity and bonus programs, see the section of this proxy statement entitled Compensation Discussion and Analysis.

 

    
Name   Type of
Award
(1)
 

Grant

Date

 

Approval

Date

 

Estimated Future Payouts Under

Non-Equity Incentive Plan Awards(2)

   

Estimated Future Payouts

Equity Incentive Plan Awards(3)

   

All Other

Stock Awards:

Number of

Shares of

Stock

   

Grant Date

Fair Value of

Stock

Awards

 
        Threshold     Target     Maximum     Threshold
(#)
    Target
(#)
    Maximum
(#)
     
Terrence A. Duffy   Bonus   n/a   n/a   $ 984,375     $ 2,625,000     $ 5,250,000                                  
    RS   3/15/17   2/8/17                 6,012     $ 749,937  
    PS-TSR   12/31/17   9/6/17           4,999       9,997       19,994         1,879,536  
    PS-NI   12/31/17   9/6/17           4,999       9,997       19,994         1,460,062  
    RS   9/15/17   9/6/17                                                     19,992       2,624,750  
John W. Pietrowicz   Bonus   n/a   n/a     187,500       500,000       1,000,000            
    PS-TSR   12/31/17   9/6/17           1,428       2,856       5,712         536,957  
    PS-NI   12/31/17   9/6/17           1,428       2,856       5,712         417,119  
    RS   9/15/17   9/6/17                                                     5,712       749,928  
Bryan T. Durkin   Bonus   n/a   n/a     375,000       1,000,000       2,000,000            
    PS-TSR   12/31/17   9/6/17           2,285       4,570       9,140         859,206  
    PS-NI   12/31/17   9/6/17           2,285       4,570       9,140         667,449  
    RS   9/15/17   9/6/17                                                     9,140       1,199,991  
Sean P. Tully   Bonus   n/a   n/a     168,750       450,000       900,000            
    PS-TSR   12/31/17   9/6/17           1,286       2,571       5,142         483,374  
    PS-NI   12/31/17   9/6/17           1,286       2,571       5,142         375,495  
    RS   9/15/17   9/6/17                                                     5,140       674,831  
Kevin D. Kometer   Bonus   n/a   n/a     168,750       450,000       900,000            
    PS-TSR   12/31/17   9/6/17           1,286       2,571       5,142         483,374  
    PS-NI   12/31/17   9/6/17           1,286       2,571       5,142         375,495  
    RS   9/15/17   9/6/17                                                     5,140       674,831  
Kimberly S. Taylor   Bonus   n/a   n/a     262,500       700,000       1,400,000              
    PS-TSR   12/31/17   9/6/17           2,000       3,999       7,998         751,852  
    PS-NI   12/31/17   9/6/17           2,000       3,999       7,998         584,054  
    RS   9/15/17   9/6/17                                                     7,996       1,049,795  

 

(1) “Bonus” refers to 2017 annual bonus opportunity, “PS-TSR” refers to performance shares tied to total shareholder return relative to the S&P 500, “PS-NI” refers to performance shares tied to growth in net income margin relative to the diversified financial services index within the S&P 500 and “RS” refers to time-vested restricted stock awards. Performance shares are granted at the target level and adjusted based on actual performance.

 

(2) The amounts shown in the “Threshold,” “Target” and “Maximum” columns reflect the bonus opportunity for our named executive officers based upon their annual bonus target as discussed on page 38 under the “2017 bonus awards” heading and are dependent upon the level of cash earnings achieved.

 

(3) Under our equity program, eligible employees, including members of our senior management group, typically receive annual equity awards in September of each year. Employees promoted to the senior management group after the September awards are made are eligible for a prorated promotional award in March. On September 6, 2017, our compensation committee met and approved our annual equity awards for our executive officers based on our pre-established formulas under our equity program as described on page 39. These awards of performance shares and time-vested restricted stock were made on September 15, 2017. The amounts in the “Threshold,” “Target” and “Maximum” columns reflect the performance share opportunity awarded in 2017 tied to total shareholder return relative to the S&P 500 during 2018-2020, and growth in net income margin relative to the diversified financial services index within the S&P 500 during 2018-2020.

 

 
48        Notice of Annual Meeting of Shareholders and 2018 Proxy Statement


Table of Contents

 

 

LOGO    Executive Compensation (Continued)  

 

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END

The following table summarizes the number of securities underlying outstanding plan awards as of December 31, 2017 for each named executive officer.

 

            Option Awards     Stock Awards  
Name   Grant Date    

Number of

Securities

Underlying

Unexercised

Options

Exercisable(1)

   

Option

Exercise

Price

   

Option

Expiration

Date

   

Number of

Shares

of Stock

That Have Not

Vested(1)

   

Market
Value of

Shares of

Stock That
Have Not
Vested
(2)

   

Equity

Incentive

Plan Awards:

Number of

Unearned

Shares,

Units or Other
Rights

That have

Not Vested(1)

   

Equity

Incentive

Plan Awards:

Market or

Payout

Value of

Unearned

Shares,

Units or Other
Rights
That Have

Not Vested(2)

 
Terrence A. Duffy     12/31/2017           $                 $       9,998 (3)    $ 1,460,208  
      9/15/2017                         19,992       2,919,832              
      3/15/2017                         6,012       878,053              
      12/31/2016                                     10,296 (4)      1,503,731  
      9/15/2016                         15,441       2,255,158              
      12/31/2015                                     6,562 (5)      958,380  
      12/31/2014                                     28,710 (6)      4,193,096  
John W. Pietrowicz     12/31/2017                                     2,856 (3)      417,119  
      9/15/2017                         5,712       834,238              
      12/31/2016                                     3,088 (4)      451,002  
      9/15/2016                         4,632       676,504              
      12/31/2015                                     2,362 (5)      344,970  
      9/15/2015                         2,362       344,970              
      3/16/2015                         682       99,606       2,497 (7)      364,687  
      12/31/2014                                     6,160 (6)      899,668  
      9/15/2014                         840       122,682              
      9/15/2011       5,000       54.37       9/15/2021                          
      9/15/2010       12,060       54.30       9/15/2020                          
      3/15/2010       1,740       62.83       3/15/2020                          
      9/15/2009       4,160       56.87       9/15/2019                          
Bryan T. Durkin     12/31/2017                                     4,570 (3)      667,449  
      9/15/2017                         9,140       1,334,897              
      12/31/2016                                     4,804 (4)      701,624  
      9/15/2016                         7,206       1,052,436              
      12/31/2015                                     3,676 (5)      536,880  
      9/15/2015                         3,674       536,588              
      12/31/2014                                     16,078 (6)      2,348,192  
      9/15/2014                         2,192       320,142              
Sean P. Tully     12/31/2017                                     2,572 (3)      375,641  
      9/15/2017                         5,140       750,697              
      12/31/2016                                     3,088 (4)      451,002  
      9/15/2016                         4,632       676,504              
      12/31/2015                                     1,838 (5)      268,440  
      9/15/2015                         1,838       268,440              
      3/16/2015                         656       95,809       2,405 (7)      351,250  
      12/31/2014                                     5,023 (6)      733,609  
      9/15/2014                         685       100,044              
      9/15/2011       4,120       54.37       9/15/2021                          

 

 
Notice of Annual Meeting of Shareholders and 2018 Proxy Statement          49  


Table of Contents

 

 

LOGO    Executive Compensation (Continued)  

 

 

            Option Awards     Stock Awards  
Name   Grant Date    

Number of

Securities

Underlying

Unexercised

Options

Exercisable(1)

   

Option

Exercise

Price

   

Option

Expiration

Date

   

Number of

Shares

of Stock

That Have Not

Vested(1)

   

Market
Value of

Shares of

Stock That
Have Not
Vested
(2)

   

Equity

Incentive

Plan Awards:

Number of

Unearned

Shares,

Units or Other
Rights

That have

Not Vested(1)

   

Equity

Incentive

Plan Awards:

Market or

Payout

Value of

Unearned

Shares,

Units or Other
Rights
That Have

Not Vested(2)

 
Kevin D. Kometer     12/31/2017                                     2,572 (3)      375,641  
      9/15/2017                         5,140       750,697              
      12/31/2016                                     2,918 (4)      426,174  
      9/15/2016                         4,374       638,823              
      12/31/2015                                     2,232 (5)      325,984  
      9/15/2015                         2,232       325,984              
      12/31/2014                                     10,050 (6)      1,467,803  
      9/15/2014                         1,370       200,089              
      9/15/2011       5,720       54.37       9/15/2021                          
      9/15/2010       10,420       54.30       9/15/2020                          
      9/15/2009       7,180       56.87       9/15/2019                          
      9/15/2008       3,825       67.36       9/15/2018                          
      6/16/2008       5,100       83.88       6/16/2018                          
Kimberly S. Taylor(8)     12/31/2015                                     3,676 (5)      536,880  
      12/31/2014                                     16,078 (6)      2,348,192  

 

(1) Subject to acceleration or termination in certain circumstances, stock option and restricted stock awards generally vest over a four-year period, with 25% vesting one year after the grant date with an additional 25% vesting on each anniversary date thereafter. Performance awards and special awards may have differing vesting schedules specific to the award purpose.

 

(2) Market value was determined using the closing price on December 29, 2017 of $146.05.

 

(3) Reflects performance shares awarded in September 2017 tied to TSR relative to the S&P 500 during 2018-2020, and growth in net income margin relative to the diversified financial services index within the S&P 500 during 2018-2020, which will vest in full, if earned, following the completion of the three-year performance period; payout value shown assumes achievement of the threshold performance level.

 

(4) Reflects performance shares awarded in September 2016 tied to TSR relative to the S&P 500 during 2017-2019, and growth in net income margin relative to the diversified financial services index within the S&P 500 during 2017-2019, which will vest in full, if earned, following the completion of the three-year performance period; payout value shown assumes achievement of the threshold performance level.

 

(5) Reflects performance shares awarded in September 2015 tied to TSR relative to the S&P 500 during 2016-2018, and growth in net income margin relative to the diversified financial services index within the S&P 500 during 2016-2018, which will vest in full, if earned, following the completion of the three-year performance period; payout value shown assumes achievement of the threshold performance level.

 

(6) Reflects performance shares awarded in September 2014 tied to TSR relative to the S&P 500 during 2015-2017, and growth in net income margin relative to the diversified financial services index within the S&P 500 during 2015-2017. Payout value shown reflects actual performance results whereby 200% of target TSR shares and 166.67% of target growth in net income margin shares were earned. These performance shares vested in March 2018.

 

(7) Reflects performance shares awarded in March 2015 tied to TSR relative to the S&P 500 during 2015-2017, and growth in net income margin relative to the diversified financial services index within the S&P 500 during 2015-2017. Payout value shown reflects actual performance results whereby 200% of target TSR shares and 166.67% of target growth in net income margin shares were earned. These performance shares vested in March 2018.

 

(8) The outstanding awards included in the table above for Ms. Taylor consist of unvested performance share awards as of December 31, 2017. Pursuant to the terms of Ms. Taylor’s retirement agreement, her outstanding performance share awards that would have otherwise vested if she had remained with the company through the 18-month period immediately following her retirement date remain eligible to vest and will vest or be forfeited based on actual performance results. Also, pursuant to the terms of her agreement, unvested restricted shares that would have otherwise vested during such 18-month period were to become vested at December 31, 2017 upon Ms. Taylor’s execution of a release of claims in favor of the company and are included in the Option Exercises and Stock Vested Table. The terms of Ms. Taylor’s agreements are discussed in more detail under Potential Payments upon Termination or Change-in-Control—Employment Agreements and other Compensation Arrangements with Named Executive Officers on page 53 and Taylor Retirement Agreement on page 54.

 

 
50        Notice of Annual Meeting of Shareholders and 2018 Proxy Statement


Table of Contents

 

 

LOGO   Executive Compensation (Continued)  

 

 

OPTION EXERCISES AND STOCK VESTED

The following table summarizes stock option exercises by our named executive officers and the vesting of their stock awards in 2017.

 

     Option Awards        Stock Awards  
Name  

Number of Shares

Acquired on Exercise

       Value Realized
on Exercise
       Number of Shares
Acquired on Vesting
       Value Realized
on Vesting
 
Terrence A. Duffy            $          59,202 (1)       $ 7,735,735  
John W. Pietrowicz     5,175          291,974          10,768          1,371,542  
Bryan T. Durkin     9,200          138,368          22,901          2,910,780  
Sean P. Tully                       6,066          781,917  
Kevin D. Kometer     4,125          57,131          11,297          1,440,372  
Kimberly S. Taylor     54,025          4,271,357          31,331 (2)         4,141,982  

 

(1) Includes 11,514 restricted shares that became vested on December 31, 2017 pursuant to the terms of Mr. Duffy’s employment agreement, discussed in more detail on page 53.

 

(2) Includes 8,430 restricted shares that became vested on December 31, 2017 pursuant to the terms of Ms. Taylor’s retirement agreement, subject to a release of claims in favor of the company. The value of these shares was determined using the closing stock price on December 29, 2017 of $146.05. The terms of Ms. Taylor’s agreement are discussed in more detail under Taylor Retirement Agreement on page 54.

PENSION BENEFITS

We maintain a non-contributory defined benefit cash balance pension plan for eligible employees. To be eligible, an employee must have completed a continuous 12-month period of employment with us and have reached the age of 21. Our funding goal is to have the pension plan 100% funded on a projected benefit obligation basis, while also satisfying any minimum required contributions and maximizing tax deductible contribution requirements.

Participants are fully vested in their accounts after three years of service. Once an employee becomes a participant in the pension plan, their notional pension account is credited with an amount equal to an age-based percentage of that individual’s earnings plus the greater of 4% interest or the December yield on one-year constant maturity yield for U.S. Treasury notes. During 2017, the pension plan interest rate was 4%. The pension account is portable and vested balances may be paid out in a lump sum when participants end their employment with us. Alternatively, upon retirement, a participant may elect to receive the balance in the account in the form of one of various monthly annuities.

The following is the schedule of employer contributions based on age and percentage of pensionable pay (including base salary, regular annual bonuses and merit lump sum payments) under our pension plan. Pensionable pay is limited by the Code, which imposed a limit of $270,000 in 2017:

 

Age    Employer Contribution Percentage  
Under 30      3
30–34      4  
35–39      5  
40–44      6  
45–49      7  
50–54      8  
55 or greater      9  

 

 
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The following table below sets forth the estimated payments under our pension plan for our named executive officers upon retirement based upon the present value of the benefits expected to be paid in the future.

 

Name      Number of Years
Credited Service
    

Present Value of

Accumulated Benefit(1)

       Payments During
Last Fiscal Year
 
Terrence A. Duffy        10      $ 267,948        $         —  
John W. Pietrowicz        13        296,119           
Bryan T. Durkin        35 (2)       837,165           
Sean P. Tully        5        123,944           
Kevin D. Kometer        20        409,546           
Kimberly S. Taylor        28        514,855           

 

(1) In calculating the present value of the accumulated benefit, the following assumptions were used: assumed retirement age of 65; discount rate of 3.7% as of December 31, 2017; and projected future investment crediting rate assumption of 4% as of December 31, 2017. The normal retirement age as defined in our pension plan is 65 years of age with 5 years of service. Under the terms of our pension plan, years of service for purposes of the plan are credited beginning on the first day of the calendar quarter on or after attaining one year of service with CME Group. Therefore, years of credited service under the plan are less than an employee’s actual period of service with CME Group.

 

(2) Includes Mr. Durkin’s prior service with the CBOT and benefits previously accrued under the legacy CBOT pension plan.

NON-QUALIFIED DEFERRED COMPENSATION PLANS

All of our senior level employees, including our named executive officers, are eligible to defer up to 50% of their annual base salary and up to 100% of their bonus into our Senior Management Supplemental Deferred Savings Plan. The contributions made by our named executive officers under this plan in 2017 are shown in the table below under “Executive Contributions.” Deferrals may be invested in one or more market-based investments offered by the plan from time to time at the choice of the individual. The return on their investment choice is the only return they will receive on the contributions under the plan. We do not provide any guaranteed rate of return. There is no limitation on their ability to change investments. Distributions will be on a fixed date, at termination or six months after termination depending upon the time of the distribution election and the requirements of applicable law.

The deferred savings plan also includes 401(k) make-whole and pension make-whole contributions. Make-whole contributions are company contributions for individuals whose compensation has exceeded the statutory compensation limit identified in the Code and thus must be excluded from consideration in qualified retirement plans. These amounts are included in the table below under “Registrant Contributions.” In addition to the Senior Management Supplemental Deferred Savings Plan, some named executive officers below may have a balance in the Supplemental Executive Retirement Plan, which is a legacy CME Group nonqualified plan that was frozen on January 1, 2006. Though no further contributions were made to this plan since that time, there are still returns on investments within this plan that are included in the table below. The aggregate balance at year end in the table below includes any balance the named executive officer may have in this plan as well as the Senior Management Supplemental Deferred Savings Plan.

 

        Executive
Contributions in
Last Fiscal  Year
(1)
       Registrant
Contributions in
Last Fiscal  Year
(2)
       Aggregate
Earnings in
Last Fiscal  Year
(3)
      

Aggregate
Withdrawals/

Distributions

       Aggregate
Balance at
12/31/17
 
Terrence A. Duffy      $        $ 408,460        $ 96,416        $        $ 3,302,929  
John W. Pietrowicz        220,151          71,794          264,805          103,551          1,733,630  
Bryan T. Durkin                 144,965          193,362                   1,482,089  
Sean P. Tully                 66,135          36,643                   281,378  
Kevin D. Kometer                 63,711          187,104                   1,087,780  
Kimberly S. Taylor        366,014          132,965          1,090,712                   7,476,851  

 

(1) All amounts included under “Executive Contributions” are also included in the “Salary” or “Non-Equity Incentive Plan Compensation” columns of the Summary Compensation Table on page 46.

 

 
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(2) The amounts included under the “Registrant Contributions” column consist of: 401(k) make-whole and pension make-whole contributions and are included in the “All Other Compensation” column of the Summary Compensation Table.

 

(3) “Aggregate Earnings” are based on the investment selection of the individuals from one or more market-based investments that the plan offers from time to time and are the only return on contributions made by the named executive officer and CME Group. “Aggregate Earnings” represent amounts earned on contributions made in 2017 as well as prior contributions. Such earnings are not included in the Summary Compensation Table because they were not above market.

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL

In 2017, we had an employment agreement in place with Mr. Duffy. The contractual commitments under this agreement are summarized in the following table. For our named executive officers other than Mr. Duffy, their employment relationships are governed by our policies and practices that we have in place for other employees from time to time, including members of senior management. In addition, for the named executive officers other than Mr. Duffy, their post-employment benefits are governed by the Senior Management Severance Protection Agreements that were put in place in 2016 and described on page 55. In addition, as described on page 54, we entered into a retirement agreement with Ms. Taylor in 2017 governing her retirement from the company. Estimated termination payments to our named executive officers under our employment and severance protection agreements and general policies are shown in the table beginning on page 56.

Employment Agreements and other Compensation Arrangements with Named Executive Officers

Duffy Employment Agreement

As discussed in the Compensation Discussion and Analysis section, our philosophy is to enter into employment contracts or other agreements on a very selective basis in light of the particular facts and circumstances involved in the individual employment relationship. The following is a summary of the key terms of our employment agreement with Mr. Duffy, which was most recently amended on December 7, 2016. The summary is qualified in its entirety by the complete text of the employment agreement which was filed with the SEC on a Current Report on Form 8-K on December 9, 2016.

Agreement Term: December 31, 2020.

Minimum Base Salary: $1,500,000 per year.

Annual Bonus and Equity Compensation: Effective January 1, 2016, the annual target opportunity under our bonus incentive plan was increased to 150% of base salary paid in the plan year. Effective January 1, 2016, for our equity incentive plan, the annual target grant date value opportunity was increased to 300% of base salary.

Effective January 1, 2017, the annual target opportunity under our bonus incentive plan was increased to 175% of base salary paid in the plan year. Effective January 1, 2017, for our equity incentive plan, the annual target grant date value opportunity was increased to 350% of base salary.

Termination Provisions: In the event of a termination of employment by the company without cause, as defined in the agreement, in addition to his accrued benefits, the executive is entitled to a one-time lump sum severance payment equal to two times his then current base salary, subject to the executive’s timely execution and delivery of a general release. Additionally, upon such a termination all outstanding unvested time-vesting equity awards that were granted after November 4, 2010 will automatically vest and in the case of stock options and stock appreciation rights will remain exercisable for a period of four years from the date of termination (but not beyond the maximum term of the award). Also upon such a termination, all outstanding performance-based equity awards shall become vested or be forfeited solely based on actual performance measured over the full performance term.

In the event of executive’s death or disability, as defined in the agreement, all unvested time-vesting equity awards granted after November 4, 2010 will vest and in the case of stock options and stock appreciation rights will remain exercisable for a period of four years from the date of the event (but not beyond the maximum term of the award) and all performance-based equity awards shall become vested at the target level and become payable within 30 days following the date of death or termination for disability.

Change of Control: In the event of a change of control, as defined in the agreement, prior to termination of employment, all of the executive’s unvested time-vesting equity awards shall become vested and all of the executive’s performance-based equity awards shall become vested or be forfeited solely based on actual performance measured over the full performance term (unless a more

 

 
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favorable treatment is provided in the agreement evidencing the particular award or applies to the award pursuant to the operation of the applicable plan under which the award was granted, in which case such more favorable treatment will apply). If executive is involuntarily terminated without cause within 60 days prior to a change of control, all of his unvested time-vesting equity awards that would have been outstanding had he been employed on the date of the change of control will become vested and all performance-based equity awards shall become vested or be forfeited solely based on actual performance measured over the full performance term (unless a more favorable treatment is provided in the agreement evidencing the particular award or applies to the award pursuant to the operation of the applicable plan under which the award was granted, in which case such more favorable treatment will apply).

Non-Compete Provision: The agreement also contains a provision prohibiting the executive during the term of his employment, and for one year thereafter, from being employed in an executive or managerial capacity by, or providing, whether as an employee, partner, independent contractor, consultant or otherwise, any services of an executive or managerial nature, or any services similar to those provided by him to the company, to a competing business.

Treatment of Equity at Expiration: On December 31, 2017, all outstanding unvested time-vesting equity awards granted to the executive after November 4, 2010 and before November 11, 2015 became vested and all of performance-based equity awards shall become vested or be forfeited solely based on actual performance measured over the full performance term, in connection with the executive’s timely execution and delivery of a general release.

If employed by the company on December 31, 2020, all outstanding unvested time-vesting equity awards granted to the executive after November 11, 2015 will vest and all of performance-based equity awards shall become vested or be forfeited solely based on actual performance measured over the full performance term, which vesting is subject to executive’s timely execution and delivery of a general release.

Additional Benefits: In the event of executive’s disability or following any termination of employment by him voluntarily or by the company without cause, the executive will also be entitled to receive insurance and health benefits until the earlier to occur of (i) the fourth anniversary of the expiration or termination, as applicable, or (ii) the date the executive is covered by comparable insurance and health benefits.

In the event that life insurance coverage results in taxable income to executive’s beneficiaries, CME Group will provide a gross up.

Taylor Retirement Agreement

In November 2017, we entered into a retirement agreement with Ms. Taylor, our former President Clearing and Post-Trade Services, governing her retirement from the company. Pursuant to the agreement, Ms. Taylor remained employed with the company through December 31, 2017. She received her base salary though her retirement date, payment of any accrued and unused vacation, a payment of $100,000 upon the signing of the retirement agreement, and a severance payment of $1,750,000 following her departure. Ms. Taylor’s outstanding restricted stock grants that would have otherwise vested if she had remained with the company through the 18-month period immediately following her retirement date became vested and she will continue to vest in any performance-vesting awards during such 18-month period based on actual performance results. In addition, during the 18-month period following her retirement, the company will provide paid healthcare coverage. The severance payment, continued health care coverage and the vesting of Ms. Taylor’s equity awards were subject to execution of a release of claims in favor of the company.

The description above is only a summary of the terms of the retirement agreement and is qualified in its entirety by the complete text of the retirement agreement which was filed with the SEC on a Current Report on Form 8-K on November 30, 2017.

 

 
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Severance Protection Agreements

In December 2016, the committee approved enhancements to the severance benefits offered to our named executive officers (other than Mr. Duffy who is party to the agreement described above) to better align severance benefits with competitive levels, strengthening leadership continuity during organizational change. We entered into severance protection agreements with the named executive officers other than Mr. Duffy which provide for the following benefits in the event of a termination without cause (as defined in the agreement) through December 31, 2018, subject to the executive executing a release of claims in favor of the company:

 

    a lump sum severance payment equal to 150% of the executive’s annual base salary;

 

    accelerated vesting of time-vesting restricted shares scheduled to vest during the 18-month period following termination;

 

    continued eligibility to vest in performance shares for which the performance period ends during the 18-month period following termination (with vesting to be based on actual performance results);

 

    company payment of COBRA premiums for 18 months following termination; and,

 

    six months of outplacement services.

The description above is only a summary of the terms of the severance protection agreements and is qualified in its entirety by the complete text of the form agreement filed with the SEC on a Current Report on Form 8-K on December 9, 2016.

Other CME Policies and Practices

The following is a summary of our other plans in place that provide for benefits upon termination of employment and/or in the event of a change of control.

Annual Performance Bonuses. In accordance with the terms of our bonus plans, in the event an employee dies or becomes disabled, he or she or his or her beneficiaries will be entitled to receive a pro rata bonus, subject to actual performance.

Equity Plans. We make equity grants to our employees under the Omnibus Stock Plan. All of the outstanding awards for our named executive officers follow the terms and conditions of the Omnibus Stock Plan. The terms of the employment agreement for Mr. Duffy governs his equity awards.

In the event of death, the employee’s beneficiaries would vest in any outstanding equity awards, with outstanding performance shares vesting at the target level. In the event of termination due to disability, outstanding restricted stock awards become vested and outstanding performance shares become vested at the target level. Awards automatically vest upon a change of control (as defined in the Omnibus Stock Plan), with performance shares vesting at the greater of actual performance at the time of the change of control or the target level.

 

 
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POTENTIAL PAYMENTS TO NAMED EXECUTIVE OFFICERS

The following table sets forth the estimated benefits and payments upon termination of our named executive officers as of year-end, under various circumstances. These payments assume a termination or change of control effective upon December 31, 2017 in accordance with their contractual provisions in effect at such time. Unless otherwise specified, payments and benefits that would be generally available to all employees, including accrued benefits, are not included in the amounts below.

 

     Termination Due to:  
     Involuntary
for Cause
    Voluntary     Voluntary for
Good Reason
   

Involuntary

Not for Cause

   

Change In

Control

    Death     Disability  
Terrence A. Duffy    

Total Cash Severance(1)

  $         —     $     $ 3,000,000     $ 3,000,000     $ 3,000,000     $     $  

Value of Equity Subject to Accelerated Vesting(2)

                18,090,191       18,090,191       18,090,191       18,090,191       18,090,191  

Continuation of Health & Welfare Benefits(3)

          149,365       149,365       149,365       149,365            

Other Accrued Pay and Benefits(4)

                                  3,467,511       3,467,511  
Total:   $     $ 149,365     $ 21,239,556     $ 21,239,556     $ 21,239,556     $ 21,557,702     $ 21,557,702  
John W. Pietrowicz    

Total Cash Severance(1)

  $     $     $     $ 750,000     $ 750,000     $     $  

Value of Equity Subject to Accelerated Vesting(2)

                      2,783,129       5,768,537       5,768,537       5,768,537  

Continuation of Health & Welfare Benefits(3)

                                         

Other Accrued Pay and Benefits(4)

                                  659,208       659,208  
Total:   $     $     $     $ 3,533,129     $ 6,518,537     $ 6,427,745     $ 6,427,745  
Bryan T. Durkin    

Total Cash Severance(1)

  $     $     $     $ 1,200,000     $ 1,200,000     $     $  

Value of Equity Subject to Accelerated Vesting(2)

                      4,694,631       9,403,867       9,403,867       9,403,867  

Continuation of Health & Welfare Benefits(3)

                      34,655       34,655              

Other Accrued Pay and Benefits(4)

                                  1,317,781       1,317,781  
Total:   $     $     $     $ 5,929,286     $ 10,638,522     $ 10,721,648     $ 10,721,648  
Sean P. Tully    

Total Cash Severance(1)

  $     $     $     $ 675,000     $ 675,000     $     $  

Value of Equity Subject to Accelerated Vesting(2)

                      2,364,696       5,165,935       5,165,935       5,165,935  

Continuation of Health & Welfare Benefits(3)

                      34,655       34,655              

Other Accrued Pay and Benefits(4)

                                  594,431       594,431  
Total:   $     $     $     $ 3,074,351     $ 5,875,590     $ 5,760,366     $ 5,760,366  
Kevin D. Kometer    

Total Cash Severance(1)

  $     $     $     $ 675,000     $ 675,000     $     $  

Value of Equity Subject to Accelerated Vesting(2)

                      2,883,173       5,638,114