Additional Proxy Soliciting Materials (definitive) (defa14a)
May 29 2019 - 9:09AM
Edgar (US Regulatory)
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:
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material under § 240.14a-12
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MarketAxess Holdings Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy
Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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(1)
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Title of each class of securities to which transaction applies:
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(2)
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Aggregate number of securities to which transaction applies:
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(3)
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set
forth the amount on which the filing fee is calculated and state how it was determined):
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(4)
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Proposed maximum aggregate value of transaction:
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Fee paid previously with preliminary materials.
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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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(1)
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Amount Previously Paid:
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(2)
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Form, Schedule or Registration Statement No.:
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T +1 212 813 6000
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55 Hudson Yards 15th Floor
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F +1 212 813 6060
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New York, NY 10001
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marketaxess.com
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United States of America
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May 29, 2019
Dear Valued
Stockholders:
On behalf of the Board of Directors (the Board) and the Compensation Committee (the Committee) of MarketAxess
Holdings Inc. (MarketAxess or the Company), we are writing to request your support at the 2019 Annual Meeting of Stockholders to be held on June 5, 2019 (the Annual Meeting) by voting according to the
Boards recommendations on all proposals.
In particular, we request your support on Proposal 3, the Advisory Vote on Executive Compensation
(Say-on-Pay
Proposal).
With respect to
say-on-pay,
we note that
Glass, Lewis & Co., LLC issued a report recommending that stockholders vote FOR the Companys advisory
say-on-pay
proposal. However,
Institutional Shareholder Services (ISS) is recommending a vote AGAINST the
say-on-pay
proposal. In particular, in making its recommendation, ISS
is focused on the Companys decision to award a multi-year equity grant to the Chief Executive Officer, Richard M. McVey (the CEO), in connection with the extension of his employment agreement in November 2018 (the CEO
Performance Award). We disagree with ISSs concerns about the size of the award, and its evaluation of the awards design and rationale.
We ask our stockholders
to view our executive compensation program for 2018 based on
the merits of the program as described below and in our 2019 Proxy Statement. Some of the key points we address in further detail in this letter include:
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The Company has a track record of strong financial performance as evidenced by ten consecutive years of record
financial results, which has carried into the first quarter of 2019.
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As discussed below, we believe that our record financial results, and the ongoing strength of our stock price,
are directly attributable to our CEOs vision and leadership and his ability to drive innovative market solutions that lead to higher trading volumes, greater market share and deeper client penetration.
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We have had strong and consistent alignment, as determined by ISS, between CEO pay and Company performance, as
measured by total shareholder return (TSR). This alignment has resulted in a FOR vote of no less than 94.8% in each of the last five years for our advisory
say-on-pay
proposal.
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The CEO Performance Award does not represent a change to the structure of the CEOs compensation. We have
successfully used multi-year equity awards in 2011 and 2015, and we have balanced each grant with reduced annual performance awards, which we intend to do for the CEO Performance Award as well.
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The CEO Performance Award is 100% performance-based and the stock price appreciation targets for each tranche of
the award keep the CEOs focus on increasing shareholder value. Moreover, the five-year cliff-vesting feature of the award ensures that shareholder alignment and any payout occur over the long-term. The CEO will realize value from the award
only if he is still employed by the Company in five years.
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I. Companys Performance
Incentivizing the continued individual performance of the CEO, and enhancing the Companys overall performance, were the key drivers for
the CEO Performance Award. Under the leadership of the CEO, the Company has a proven track record for both long- and short-term past performance. In addition, the Companys performance since the grant date of the CEO Performance Award has been
exemplary.
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a)
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Companys Past Performance:
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ISS recognizes in its 2019 report that the Company is a top quartile performer in every performance category,
including Return on Invested Capital, Return on Equity, Return on Assets, and ISS Economic Value Added (EVA) measures for margins, spread, sales and capital, as compared to ISSs peer group for the Company.
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In addition, the Companys stock price performance has been superior compared to the market in the short-,
mid-
and long-term. In 2018, we continued to deliver long-term value for our stockholders as evidenced by ranking 103
rd
in five-year TSR (approximately 94
th
percentile) and 19
th
in
ten-year
TSR (approximately
99
th
percentile) of all 1,783 U.S. public companies with over $1 billion in market capitalization (as reported by FactSet).
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b)
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Companys Performance Since Grant:
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The Companys earnings for the first quarter of 2019 exceeded expectations. We believe this was due to
increased trading volume (up 13% to $526.2 billion over the prior comparable period in 2018) across all of the Companys core products. Trading volume from Open Trading, a long-term initiative of the CEO, improved dramatically to
$134.4 billion, an increase of 65.6% over the prior comparable period.
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In April 2019, the Company announced a strategic partnership with Virtu Financial to provide the Companys
clients with access for the trading of global exchange-traded funds (ETFs).
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The Companys performance has resulted in a strong increase in the price of MarketAxess stock, far exceeding
the performance of market indexes. Specifically, the price of MarketAxess shares has increased 39% since November 8, 2018 (the CEO Performance Award grant date), while the market indexes in the chart below have been relatively flat.
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Stock Price Performance Since
CEO Performance Award
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Price
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11/8/2018
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5/24/2019
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% Price Change
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MKTX
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$
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206.2
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$
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288.3
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39.8
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%
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NASDAQ
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7,530.9
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7,637.0
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1.4
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%
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Russell 1000
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1,550.3
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1,564.8
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0.9
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%
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S&P 500 Index
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2,806.8
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2,826.1
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0.7
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%
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2
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During the period immediately following the CEO Performance Award grant (November 8, 2018 through May 24,
2019), the Companys market capitalization has increased by over $3 billion, and our shares have outperformed all of the Companys ISS selected peers except for one.
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II. Key Features of the CEO Performance Award
The CEO Performance Award is comprised of performance-based restricted stock and
out-of-the-money
stock options, as summarized in the following chart:
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Item
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Value @ Grant
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Premium
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Target Price
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Vesting Date
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Performance Shares
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$
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2.75M
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125
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%
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$
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257.78
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November 8, 2023
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Performance Shares
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$
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2.75M
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135
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%
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$
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278.40
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November 8, 2023
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Stock Options
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$
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2.75M
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125
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%
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$
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257.78
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November 8, 2023
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Stock Options
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$
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2.75M
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135
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%
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$
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278.40
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November 8, 2023
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Total Grant Value =
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$
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11.0M
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The CEO Performance Award vests in full at the end of a five-year period. The stock options must be exercised
within six months of the vesting date or they will be forfeited in their entirety.
III. Our View of CEO Performance Award
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a)
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Overview and Rationale for CEO Performance Award
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In 2018, the Committee determined it was desirable to extend the CEOs employment agreement for an additional five-year term to secure his
employment with the Company and to provide a multi-year performance award to incentivize and reward future stock price appreciation, consistent with our past successful practice. The CEO was entering the final year of his then-current employment
agreement. The Committee considered the following factors in granting the award:
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Multi-Year Award History:
The Committee considered its prior multi-year awards to the CEO in 2011 and 2015
to have been a success as measured by the Companys financial results and stock performance in the years following the grant. The Committee reviewed whether the award served to retain, motivate and focus the CEO on the long-term success of the
Company. The Committee also favored the use of a multi-year equity award for the following reasons:
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Multi-year awards save significant amounts of accounting expense when our stock price increases (when compared to
same-sized
annual awards);
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They provide additional incentive for participants because more shares are awarded at the time of grant than
could be awarded in future years if the price of the Companys stock is higher;
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The vesting schedule requires the executive to hold the shares for a longer period of time, thereby increasing
alignment with the Companys stockholders; and
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Multi-year awards help retain the services of our key executives more than annual awards. The Company has granted
multi-year awards to other key executives of the Company over the last five years, all of whom are still employed by the Company.
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We believe these awards have been an integral component of a compensation program that has
appropriately incentivized the Companys executives to focus on the Companys long-term success.
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b)
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Size of CEO Performance Award
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The CEO Performance Award was issued with a grant date fair value of $11 million. A financial reporting services provider specializing in
complex securities valuation was hired by the Committee to value the four different award tranches using a Monte Carlo simulation (ISS calculates the award at $13.3M using its own formula). The grant value is spread over a
5-year
attribution period, as summarized in the chart below.
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CEO Performance Award -
Future Attribution
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Value
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Attribution
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($ in thousands)
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Total Award Value
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11,000
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Year-End 2018 (2 months)
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367
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Each Year-End 2019-2022
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2,200
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Year-End 2023 (10 months)
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1,833
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Over the past four years, the CEOs total direct compensation (TDC) has remained virtually
constant, as shown in the chart below.
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Base Salary
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Cash Incentive
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Total Cash
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Jan 2015
Equity Award
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Nov 2018
Equity Award
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Annual Award
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TDC
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YOY
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($ in thousands)
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2015
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500
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2100
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2600
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1600
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3200
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7400
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2016
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500
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2100
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2600
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1600
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3200
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7400
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0
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%
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2017
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500
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1890
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2390
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1600
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3010
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7000
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-5
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%
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2018
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500
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1890
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2390
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1600
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367
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2743
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7100
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1
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%
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Moreover, the Committee does not anticipate significant changes in the CEOs TDC during the term of the
CEO Performance Award. Based on that assumption, the CEO Performance Award will comprise approximately 30% of the CEOs projected annual TDC for 2019 and is expected to represent between 45% and 50% of his projected annual equity grant for the
next five years. The Committee believes this amount sensibly balances its desire to provide appropriate long-term, retention incentives with the flexibility to adjust the CEOs annual equity award each year. ISS own
pay-for-performance
analytics, which assess our CEOs TDC every year in the context of TSR, considers that our pay is aligned with our performance for 2018,
as it has been for every year since ISS began reviewing the degree of alignment.
As discussed, the aggregate $11 million grant date fair value of the CEO Performance Award will be spread over five years of annual
compensation. Accordingly, the amount of equity the Committee
4
would otherwise grant to the CEO in future years will be reduced by $2.2 million for each future
12-month
period. For 2015 to 2018, the Committee
deducted $1.6 million per year from the CEOs annual equity award to reflect the attribution of the previous multi-year award granted to the CEO in January 2015. For 2018, the Committee additionally deducted $367,000 (see the chart above)
from the CEOs annual equity award to reflect the attribution of the CEO Performance Award for a partial year (Nov Dec 2018). There are also several other design features of this award that align with the interests of the Companys
stockholders, including the following:
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Performance-Based Nature of Award:
The award was designed to be 100% performance based, entirely premium
priced, and includes a minimum consecutive number of trading days (20) before a price target can be satisfied.
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Premium Pricing:
The premium priced performance targets were set at 125% and 135% of MarketAxess
closing stock price on the grant date. At the time the CEO Performance Award was made in November 2018, the Companys stock price was $206.22, which was 7% lower than its
all-time
high of $222.28. With
stock price hurdles at $257.78 and $278.40, the hurdles were set well above our stocks
all-time
high.
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Value Creation for Stockholders
: Given the awards premium pricing and the Companys approximate
valuation of $7.76 billion on the grant date, the award structure requires the Companys market capitalization to increase by $1.94 billion before the CEO satisfies the 125% hurdle and $2.7 billion before he satisfies the 135%
hurdle. The Committee views these goals as providing significant value to stockholders before the CEO realizes any award value.
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Performance Must be Sustained to Achieve Value
: All stock options and performance shares earned pursuant
to the CEO Performance Award are subject to five-year cliff vesting. Specifically, the shares must maintain their value until 2023 for the CEO to receive the targeted (or greater) amounts. The CEO cannot dispose of either options or performance
shares prior to the vesting date (November 8, 2023) to capitalize on any
run-up
of the stock price, short term or otherwise. Likewise, in the event of a stock price decline, the CEO has no ability to sell the
shares prior to November 2023, compared to our stockholders who may elect to dispose of shares at any time. Finally, the CEO must remain as an employee or director throughout the vesting period, except in the event of certain involuntary
terminations.
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Short Option Term
: The premium priced stock options were designed to be highly performance oriented, as
(i) they have only a five and half year term, and (ii) they must be exercised within six months of the vesting date in November 2023 or they will be forfeited. Options terms of ten years are far more typical in the market. ISS concurs on
this point, stating the option term is relatively short. The purpose of this shortened term is intentional and multi-fold, to: (i) increase the awards leverage, (ii) reduce stockholder dilution, and (iii) require
relatively stronger annual price appreciation in order to realize value.
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Other Best Practice Features
: Our executive compensation program incorporates practices that protect the
interests of our stockholders and are consistent with high standards of risk
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management, including claw-back and double-trigger change of control vesting provisions applicable to equity awards, strict prohibitions on our named executive officers and all other employees
from hedging or pledging any of our stock, stock ownership guidelines for our named executive officers and no excise tax
gross-ups.
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IV. Size of Grant in the Context of the Peer Group
The Committee believes it has targeted the right level of TDC for the CEO based on individual and Company performance. The Company has a market
capitalization in excess of $10 billion and is no longer a
Mid-Cap
company according to ISS definition. In the ISS report, however, 50% (9 out of 18) of the other companies in the
Companys ISS peer group have a market capitalization that is 1/10
th
or less of the Companys current market capitalization.
Even applying ISS peer group, we estimate that our CEOs most recent TDC of $7.1 million (comprised of roughly
$2.5 million in cash and $4.6 million in equity) would rank 6th of the 19 companies in ISS peer group. The 75
th
percentile TDC for ISS peers is $8 million, which is higher
than the TDC of the CEO. As such, the Committee believes this positioning is justified, as the Companys stock price has significantly exceeded the returns of most of the market, as well as most of our ISS peers, in the short and long-term.
In conclusion,
WE RECOMMEND YOU VOTE FOR OUR
SAY-ON-PAY
PROPOSAL (PROPOSAL NO. 3).
As outlined above and in our 2019 Proxy Statement, we are steadfastly committed to aligning our executives compensation
with the interests of our stockholders and the performance of the Company, and we strongly believe that our 2018 named executive officers compensation program appropriately aligned our executives compensation with the interests of
stockholders.
We also note that the Committee and the Board approved the CEO Performance Award because it rewards the CEO for stockholder
value creation while allowing for a balanced approach to
year-end
performance compensation. As the Company has demonstrated in the past and noted above, an attributed portion of the CEO Performance Award will
be deducted from the CEO annual compensation in each of the next five years. In addition, as long as the stock price continues to increase, this is a cost-effective way for the Company to grant (and expense) shares.
Accordingly, we ask that our stockholders please consider the information set forth in this letter and our 2019 Proxy Statement and
vote
FOR our
Say-on-Pay
Proposal (Proposal No.
3)
. Even if voting instructions for your proxy have already been given, you may change your
vote at any time before our Annual Meeting by providing revised voting instructions to your proxy or by voting at the meeting.
If you
would like any further information, please contact Georgeson LLC, our proxy solicitors, at (212)
440-9800,
Attn: Bill Fiske / Ed Greene.
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Stephen Casper
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John Steinhardt
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Non-Employee
Director
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Non-Employee
Director
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Lead Independent Director
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Compensation Committee Chair
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