CME Group Seeks To Tie Executive Pay More Closely To Performance

CME Group Inc. (CME) on Wednesday outlined plans to tie executive pay more closely to performance amid a range of efforts intended to make the world's largest futures exchange company more shareholder-friendly.

Chicago-based CME plans to eliminate the use of stock options in long-term incentive packages allotted to senior executives and boost the percentage of "performance shares" that are linked to earnings and shareholder returns, the company's board told investors in a letter.

The steps follow plans to slim CME's 32-member board, previously described at its annual meeting last June, and a proposed shift to annual director elections.

CME is responding to investor desires amid a slide in its share price, which is off 29% since the onset of the financial crisis in September 2008. Its stock has been under pressure as major customers pared back derivatives trading and as the U.S. Federal Reserve cut benchmark rates to near zero, reducing the need for customers to hedge on CME's markets.

Rival NYSE Euronext (NYX) has fared worse, with its stock down 32% over the same period, while shares of energy-focused market operator IntercontinentalExchange Inc. (ICE) have risen 54%. The Dow Jones Industrial Average for the period climbed 13.6%.

This year CME aims to increase the proportion of performance shares to 50% of the long-term incentive award for executive officers, up from 25% previously. Such shares are linked to cash earnings targets and annual total shareholder returns relative to the Standard & Poor's 500. CME will no longer award stock options.

The moves put CME in line with a broader migration away from stock option awards, which carry little downside for executives whose companies run into trouble.

"When [options] go out of the money, you don't get hurt," said Peter Gleason, chief financial officer for the National Association of Corporate Directors. "We're seeing more use of performance shares where there's criteria for them to vest or be fully valued."

Institutional investors have largely backed a push for linking executive compensation more closely with their companies' fortunes, and CME has been exploring steps to lure more investors into its stock, including a possible stock split.

The company this month boosted its quarterly dividend to 50% of the prior year's cash earnings and will now consider an yearly variable dividend linked to full-year operating results.

-By Jacob Bunge, Dow Jones Newswires; 312 750 4117; jacob.bunge@dowjones.com

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