CME Group Seeks To Tie Executive Pay More Closely To Performance
February 22 2012 - 4:52PM
Dow Jones News
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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