IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDERS MEETING TO BE HELD ON APRIL 29, 2015.

 

THE COMPANY’S ANNUAL REPORT, LETTER TO SHAREHOLDERS, NOTICE OF MEETING, PROXY STATEMENT AND PROXY CARD ARE AVAILABLE AT www.mhfi.com/proxy/2015.

General Information			1
Board of Directors and Corporate Governance			7
Director Independence			7
Additional Information Regarding Director Independence			8
Annual Meeting Attendance			9
Leadership Structure of the Board of Directors			9
Role of Board of Directors in Risk Oversight			10
Process for Identifying and Evaluating Directors and Nominees			11
Specific Experience, Qualifications, Attributes and Skills of Directors			11
Director Nominees			12
Corporate Governance Materials			24
Committees of the Board of Directors			25
Nominating and Corporate Governance Committee			25
Processes and Procedures for Determining Director Compensation			26
Audit Committee			26
Compensation and Leadership Development Committee			27
Processes and Procedures for Determining Executive Compensation			27
Compensation Committee Report			28
Membership and Meetings of the Board and Its Committees			29
Compensation Committee Interlocks and Insider Participation			29
Director and Officer Indemnification and Insurance			30
Audit Committee Report			31
Transactions with Related Persons			32
Executive Compensation			34
Executive Summary			34
Compensation Discussion and Analysis			40
Executive Compensation Tables
2014 Summary Compensation Table			56
2014 Grants of Plan-Based Awards Table			59
Outstanding Equity Awards at 2014 Fiscal Year-End			60
Option Exercises and Stock Vested in 2014			62
Pension Benefits			63
2014 Pension Benefits Table			63
2014 Non-Qualified Deferred Compensation Table			66
Potential Payments Upon Termination or Change-in-Control			68

2014 Director Compensation			77
Ownership of Company Stock			80
Company Stock Ownership of Management			80
Company Stock Ownership of Certain Beneficial Owners			81
Section 16(a) Beneficial Ownership Reporting Compliance			83
Independent Registered Public Accounting Firm’s Fees and Services			83
Items of Business to be Acted on at the Annual Meeting			84

Item 1.		Election of Directors			84
Item 2.		Proposal to Approve the Performance Goals Under the Company’s 2002 Stock Incentive Plan, as amended and restated			84
Item 3.		Proposal to Approve, on an Advisory Basis, the Executive Compensation Program for the Company’s Named Executive Officers			92
Item 4.		Proposal to Ratify the Appointment of the Company’s Independent Registered Public Accounting Firm			93
Item 5.		Shareholder Proposal – Independent Board Chairman			94
Item 6.		Other Matters			97

Appendix A			A-1
2002 Stock Incentive Plan, as amended and restated

 

Why did I receive this Proxy Statement?

 

The Board of Directors of McGraw Hill Financial, Inc. (the “Company,” “we” or “us”) is soliciting proxies for the 2015 Annual Meeting of Shareholders (the “Annual Meeting” or “Meeting”) to be held on Wednesday, April 29, 2015, at the Conrad New York Hotel, 102 North End Avenue, New York, New York 10282, at 11:00 a.m. (EDT) and at any adjournment of the Meeting. When the Company asks for your proxy, we must provide you with a Proxy Statement that contains certain information specified by law. This Proxy Statement summarizes the information you need in order to vote at the Meeting.

 

The Company’s Annual Report, Letter to Shareholders, Notice of Meeting, Proxy Statement and proxy card are being mailed to shareholders beginning on or about March 18, 2015.

 

What will I vote on?

 

The following items:

 

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election of 12 Directors;

 

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approval of the performance goals under the Company’s 2002 Stock Incentive Plan, as amended and restated;

 

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approval, on an advisory basis, of the executive compensation program for the Company’s named executive officers, as described in this Proxy Statement;

 

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ratification of the appointment of the Company’s independent Registered Public Accounting Firm for 2015;

 

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one shareholder proposal, provided the proposal is properly presented at the Meeting; and

 

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other matters that may properly be brought before the Meeting.

Will there be any other items of business on the agenda?

 

We do not expect any other items of business at the Annual Meeting. Nonetheless, if there is an unforeseen need, your proxy will give discretionary authority to the persons named on the proxy to vote on any other matters that may be properly brought before the Meeting. These persons will use their best judgment in voting your proxy.

 

Who can vote?

 

Shareholders as of the close of business on the record date, which is March 9, 2015, may vote at the Annual Meeting.

 

How many votes do I have?

 

You have one vote at the Meeting for each share of common stock you held on the record date.

 

What does it mean to be a “shareholder of record?”

 

If, on the record date, your shares were registered directly in your name with the Company’s transfer agent, Computershare, then you are a “shareholder of record,” also known as a “registered shareholder.”

 

What does it mean to beneficially own shares in “street name?”

 

If, on the record date, your shares were held in an account at a broker, bank or other holder of record (collectively referred to as “broker”), then you are the beneficial owner of shares held in “street name” and these proxy materials are being forwarded to you by that broker. The broker holding your account is considered the shareholder of record for purposes of voting at the Annual Meeting.

 

How do I vote my shares of Company common stock?

 

If you are a shareholder of record, you can vote in the following ways:

 

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By Internet. Follow the Internet voting instructions included on the proxy card you received. You may vote at any time up until 11:59 p.m. (EDT) on April 28, 2015.

 

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By Telephone. Follow the telephone voting instructions included on the proxy card you received. You may vote at any time up until 11:59 p.m. (EDT) on April 28, 2015.

 

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By Mail. If you received a printed copy of the proxy materials from us by mail, you may vote by mail by marking, dating and signing your proxy card in accordance with the instructions on it and returning it by mail in the pre-addressed reply envelope provided with the proxy materials. The proxy card must be received prior to the Annual Meeting.

 

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In Person. You may vote your shares in person at the Annual Meeting. The Company will give you a ballot at the Annual Meeting. Even if you plan to attend the Annual Meeting, we urge you to vote in advance by Internet, telephone or mail so that your vote will be counted in the event you later decide not to attend the Annual Meeting.

 

If you are a beneficial owner, you can vote in the following ways:

 

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As the beneficial owner, you have the right to direct your broker on how to vote the shares in your account. Your broker should give you instructions for voting your shares by Internet, telephone or mail. As a beneficial owner, you are invited to attend the Annual Meeting, but you may not vote your shares in person at the Annual Meeting unless you request and obtain a valid proxy from your broker giving you the legal right to vote the shares at the Annual Meeting.

How will my shares be voted if I do not give specific voting instructions when I deliver my proxy?

 

Shareholders of Record. If you are a shareholder of record and you return a signed proxy card without indicating your vote for some or all of the matters, your shares will be voted as follows for any matter you did not vote on:

 

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for the nominees to the Board listed on the proxy card;

 

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for approval of the performance goals under the Company’s 2002 Stock Incentive Plan, as amended and restated;

 

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for approval, on an advisory basis, of the executive compensation program for the Company’s named executive officers;

 

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for the ratification of the appointment of the Company’s independent Registered Public Accounting Firm for 2015; and

 

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against the shareholder proposal.

 

Beneficial Owners. As noted above, as the beneficial owner of shares held in street name, your broker is required to vote your shares in accordance with your instructions. If you do not give instructions, one of two things can happen depending on whether the proposal is considered “routine” or “non-routine” under the rules of the New York Stock Exchange (the “NYSE”):

 

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If the proposal is considered “routine” under the rules of the NYSE, the broker may vote your shares in its discretion.

 

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If the proposal is considered “non-routine” under the rules of the NYSE, the broker may not vote your shares without your instructions. When a broker refrains from voting your shares because the broker has not received your instructions, it is called a “broker non-vote.”

 

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Item 4 in this Proxy Statement (ratification of the appointment of the Company’s independent Registered Public Accounting Firm for 2015) will be considered routine under the rules of the NYSE and the broker may vote your shares for this Item in its discretion. The broker is not entitled to vote your shares on the other Items unless the broker has received instructions from you.

 

What should I do if I want to attend the Annual Meeting?

 

All shareholders and employees of the Company may attend the Annual Meeting. When you arrive at the Annual Meeting, you may be asked to present photo identification, such as a driver’s license, to be admitted. McGraw Hill Financial, Inc. employees wishing to attend the Annual Meeting can present their current employee identification card to be admitted.

 

Shareholders of Record. If you are a shareholder of record, you will find an admission ticket attached as part of the proxy card sent to you. If you plan to attend the Annual Meeting, please bring this portion of the proxy card with you to the Meeting. If you opted to receive your proxy materials electronically, please print out the admission ticket you will find online and bring it with you.

 

Beneficial Owners. If you are a beneficial owner, please bring proof of ownership to be admitted to the Annual Meeting. A recent brokerage statement or letter from your broker is an example of proof of ownership.

 

For safety and security reasons, no cameras, large bags, briefcases, packages, recording equipment or other electronic devices will be permitted in the Annual Meeting.

 

 

How do I vote my shares in the Company’s Dividend Reinvestment Plan?

 

If you participate in the Company’s Dividend Reinvestment Plan, any proxy you give will also govern the voting of all shares you hold in this Plan, unless you give us other instructions.

 

How do I vote my shares in the Company’s Employee Stock Purchase Plan?

 

If you participate in the Company’s Employee Stock Purchase Plan, any proxy you give will also govern the voting of any shares you hold in

this Plan. Any Plan shares for which we do not receive instructions from the employee will not be voted. Plan shares cannot be voted in person at the Meeting.

 

How do I vote my shares in the Company’s 401(k) Savings and Profit Sharing Plans?

 

If you received this Proxy Statement because you are an employee of the Company who participates in one of the Company’s 401(k) Savings and Profit Sharing Plans and you have shares of common stock of the Company allocated to your account under one of these Plans, you may vote your shares held in these Plans as of March 9, 2015 by mail, by telephone or via the Internet. Instructions are provided on the proxy card you received from Computershare. Computershare must receive your instructions by 2:00 p.m. (EDT) on April 27, 2015 in order to communicate your instructions to the Plans’ Trustee, who will vote your shares. Any Plan shares for which we do not receive instructions from the employee will be voted by the Trustee in the same proportion as the shares for which we have received instructions. Plan shares cannot be voted in person at the Meeting.

 

Can I revoke or change my vote?

 

Yes. If you are a shareholder of record, you have the right to revoke your proxy at any time before the Annual Meeting by sending a signed notice to the Corporate Secretary, c/o Office of the General Counsel, McGraw Hill Financial, Inc., 55 Water Street, New York, New York 10041-0003. If you want to change your vote before the Meeting, you must deliver a later dated proxy by telephone, via the Internet or in writing. You may also change your proxy by voting in person at the Meeting.

 

If you are a beneficial owner, please refer to the information forwarded by your broker for procedures on revoking or changing your proxy.

 

What are the requirements to conduct business at the Annual Meeting?

 

In order to conduct business at the Annual Meeting, we must have a quorum. This means at least a majority of the outstanding shares entitled to vote must be present in person or represented by proxy at the Annual Meeting. You are

 

part of the quorum if you have voted by proxy. As of the record date, 274,084,154 shares of Company common stock were outstanding and eligible to vote.

 

Are abstentions and broker non-votes part of the quorum?

 

Yes. Abstentions and broker non-votes count as “shares present” at the Annual Meeting for purposes of determining a quorum.

 

What are the costs of soliciting these proxies and who will pay them?

 

The Company will pay all costs of soliciting these proxies. In addition, some of our officers and employees may solicit proxies by telephone or in person. We will reimburse brokers for the expenses they incur in forwarding the proxy materials to you. The Company has retained Georgeson Inc. to assist us with the solicitation of proxies for a fee not to exceed $18,000, plus reimbursement for out-of-pocket expenses.

 

How many votes are required for the approval of each Item?

 

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Item One – A nominee will be elected as a Director if he or she receives a majority of the votes cast at the Annual Meeting. A majority of votes cast means that the number of shares voted “for” a Director’s election exceeds the number of votes cast “against” that Director’s election. If an incumbent Director who has been nominated for re-election fails to receive a majority of the votes cast in an uncontested election, New York law provides that the Director continues to serve as a Director in a hold-over capacity. The Company’s By-Laws provide that, in such circumstances, the Director is required to promptly tender his or her resignation to the Board of Directors. The Board’s Nominating and Corporate Governance Committee is then required to make a recommendation to the Board as to whether to accept or reject the tendered resignation. The Board will act on the tendered resignation and will publicly disclose its decision and rationale within 90 days following certification of the election results. If a Director’s resignation is accepted by the Board, the Board may fill the

vacancy or decrease the size of the Board. Abstentions and broker non-votes, if any, will not be counted either for or against the election of a Director nominee.

 

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Item Two – The affirmative vote of the holders of a majority of the votes cast is required to approve the performance goals under the Company’s 2002 Stock Incentive Plan, as amended and restated. Abstentions and broker non-votes, if any, will not be counted either for or against this proposal.

 

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Item Three – The affirmative vote of the holders of a majority of the votes cast is required to approve, on an advisory basis, the executive compensation program for the Company’s named executive officers, as described in this Proxy Statement. Abstentions and broker non-votes, if any, will not be counted either for or against this proposal.

 

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Item Four – The affirmative vote of the holders of a majority of the votes cast is required to ratify the appointment of the Company’s independent Registered Public Accounting Firm for 2015. Abstentions and broker non-votes, if any, will not be counted either for or against this proposal.

 

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Item Five – The affirmative vote of the holders of a majority of the votes cast is required to approve the shareholder proposal. Abstentions and broker non-votes, if any, will not be counted either for or against this proposal.

 

Who will count the vote?

 

Votes at the Annual Meeting will be counted by two independent inspectors of election appointed by the Board.

 

How do I submit a shareholder proposal for the 2016 Annual Meeting?

 

The Company’s 2016 Annual Meeting is scheduled for April 27, 2016. There are two different deadlines for submitting shareholder proposals. First, if a shareholder wishes to have a proposal considered for inclusion in next year’s Proxy Statement, he or she must submit the proposal in writing so that we receive it by 5:00 p.m. (EST) on November 19, 2015. Proposals should be addressed to the Corporate Secretary, c/o Office of the General Counsel, McGraw Hill Financial, Inc., 55 Water Street, New York,

 

New York 10041-0003. If you submit a proposal, it must comply with applicable laws, including Rule 14a-8 of the Securities Exchange Act of 1934.

 

In addition, the Company’s By-Laws provide that any shareholder wishing to nominate a candidate for Director or to propose any other business at the Annual Meeting must give the Company written notice no earlier than December 30, 2015 and no later than January 29, 2016. This notice must comply with applicable laws and the Company’s By-Laws. Copies of the By-Laws are available to shareholders free of charge on request to the Corporate Secretary, c/o Office of the General Counsel, McGraw Hill Financial, Inc., 55 Water Street, New York, New York 10041-0003. You may also download the By-Laws from the Corporate Governance section of the Company’s Investor Relations Website at http://investor.mhfi.com.

 

May I view future proxy materials online instead of receiving them by mail?

 

Yes. Shareholders may provide their consent to electronic delivery of Proxy Statements and Annual Reports instead of receiving them by postal mail. If you elect this feature, you will receive an e-mail notice which will include the Web address for viewing the materials online. The e-mail notice will also include instructions so you can vote your proxy online or by telephone. If you have more than one account, you may receive separate e-mails for each account. Costs normally associated with electronic delivery, such as usage and telephone charges, as well as any costs incurred in printing documents, will be your responsibility.

 

During the 2015 proxy voting period, the Internet voting systems will automatically provide shareholders the option to consent to electronic delivery of future years’ materials.

 

During the year, shareholders may provide their consent to electronic delivery by going to the appropriate website:

 

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Shareholders of record go to www.computershare.com/investor

 

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Beneficial owners go to https://enroll.icsdelivery.com/mhfi

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Owners of shares through one of the Company’s 401(k) Savings and Profit Sharing Plans go to www.mhfibenefits.com

 

What are the benefits of electronic delivery?

 

Electronic delivery benefits the environment and saves the Company money by reducing printing and mailing costs. It will also make it convenient for you to view your proxy materials and vote your shares online. If you have shares in more than one account, it is also an easy way to eliminate receiving duplicate copies of proxy materials.

 

What are the costs of electronic delivery?

 

The Company charges nothing for electronic delivery. You may, of course, incur expenses associated with Internet access such as telephone charges or charges from your Internet service provider.

 

How do I opt-out of electronic delivery?

 

At any time, shareholders may revoke their consent to electronic delivery and resume postal mail delivery of the Proxy Statement and Annual Report by going to the appropriate website:

 

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Shareholders of record go to www.computershare.com/investor

 

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Beneficial owners go to https://enroll.icsdelivery.com/mhfi

 

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Owners of shares through one of the Company’s 401(k) Savings and Profit Sharing Plans go to www.mhfibenefits.com

 

Will I receive a print copy of the Company’s Annual Report?

 

Unless you previously elected to view our Annual Report via the Internet, we mailed our 2014 Annual Report to shareholders beginning on or about March 18, 2015.

 

What is “householding?”

 

We have adopted “householding,” a procedure under which beneficial owners who have the same address and last name and do not participate in electronic delivery of proxy materials will receive only one copy of our Annual Report and Proxy Statement unless one or more of these shareholders notifies us that they wish to

 

continue receiving individual copies. This procedure reduces duplicate mailings and thus reduces our printing costs and postage fees. Shareholders who participate in householding will continue to receive separate proxy cards. Householding does not affect dividend check mailings.

 

How do I request a separate paper or e-mail copy of the Proxy Statement or Annual Report at no charge?

 

If you wish to receive a separate paper or e-mail copy of the 2014 Annual Report or this Proxy Statement at no charge, please call us toll-free at (866) 436-8502, or send an e-mail to investor.relations@mhfi.com, or write to: Investor Relations, McGraw Hill Financial, Inc., 1221 Avenue of the Americas, New York, New York 10020-1095. We will promptly deliver to you the documents you requested. Please make your request for documents on or before April 15, 2015 to facilitate timely delivery of the documents to you prior to the Annual Meeting.

Where can I find the voting results?

 

We expect to announce preliminary voting results at the Annual Meeting. We will also publish voting results in a Form 8-K which we will file with the SEC on or before May 5, 2015. To view this Form 8-K online, log on to the Company’s Investor Relations Website at http://investor.mhfi.com, and click on the SEC Filings link located in the Digital Investor Kit.

 

Can shareholders and other interested parties communicate directly with our Board? If so, how?

 

Yes. You may communicate directly with one or more members of the Board by writing to the Corporate Secretary, c/o Office of the General Counsel, McGraw Hill Financial, Inc., 55 Water Street, New York, New York 10041-0003, or by sending an e-mail to the Corporate Secretary at corporate.secretary@mhfi.com. The Corporate Secretary will then forward all questions or comments directly to our Board or a specific Director, as the case may be.

 

The Company’s business and affairs are overseen by our Board pursuant to the New York Business Corporation Law and our Restated and Amended Certificate of Incorporation and By-Laws. We currently have 13 Directors, all of whom, with the exception of Mr. Harold McGraw III, are being nominated at this Annual Meeting for a one-year term which will expire at the Annual Meeting in 2016. (See Item 1 on page 84.)

 

On February 25, 2015, Mr. McGraw informed the Board of his decision not to stand for re-election as a Director at this Annual Meeting. Mr. McGraw has been Non-Executive Chairman of the Board since his retirement from the Company on November 1, 2013. Prior to his retirement, he had been Chairman of the Board since 2000, President and Chief Executive Officer of the Company since 1998 and a Director of the Company for 27 years. In recognition of Mr. McGraw’s many significant contributions to the Company, the Board will confer upon him the honorary title of Chairman Emeritus when he retires as a Director on April 29, 2015.

 

The Company’s normal retirement age for Directors is 72. Based on the recommendation of the Nominating and Corporate Governance Committee, this policy has been waived with respect to Sir Winfried Bischoff, who turned 73 this year. Accordingly, Sir Winfried Bischoff is one of the 12 Directors who has been nominated by the Board for election to a one-year term of office that will expire at the next Annual Meeting or until his successor is elected and otherwise qualifies for service.

 

Director Independence

 

The Board has determined that all of the Company’s current Directors, with the exception of Messrs. Harold McGraw III (the Company’s Non-Executive Chairman), Douglas L. Peterson (the Company’s President and Chief Executive Officer) and Robert P. McGraw (the brother of Harold McGraw III), have met the independence requirements of the New York Stock Exchange based upon the application of objective categorical standards adopted by the Board. In addition,

Ms. Lorimer was considered to be independent as well during the portion of the 2014 year during which she served on our Board. To be considered independent, a Director must have no material relationship (other than as a Director) with the Company, or any of its subsidiaries, either directly or as a partner, shareholder or officer of an organization that has a material relationship with the Company or any of its subsidiaries. In making independence determinations, the Board broadly considers all relevant facts and circumstances. In accordance with the Company’s Corporate Governance Guidelines, a Director will not be an independent Director of the Company if:

 

(i)

such Director is, or has been within the last three years, an employee of the Company, or any of its subsidiaries, or has an immediate family member who is, or has been within the last three years, an executive officer of the Company, or any of its subsidiaries;

 

(ii)

such Director has received, or has an immediate family member who has received, during any 12-month period within the last three years, more than $120,000 in direct compensation from the Company, or any of its subsidiaries, other than Director and Committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service);

 

(iii)

(A) such Director is a current partner or employee of a firm that is the Company’s, or any of its subsidiaries’, internal or external auditor; (B) such Director has an immediate family member who is a current partner of such a firm; (C) such Director has an immediate family member who is a current employee of such a firm and personally works on the Company’s, or any of its subsidiaries’, audit; or (D) such Director or an immediate family member was within the last three years a partner or employee of such a firm and personally worked on the Company’s, or any of its subsidiaries’, audit within that time;

 

(iv)

such Director or an immediate family member is, or has been within the last three years, employed as an executive officer of another company where any present executive officer of the Company, or any of its subsidiaries, at the same time serves or served on the compensation committee of such other company; or

 

(v)

such Director is a current employee, or an immediate family member is a current executive officer, of another company that has made payments to, or received payments (exclusive of contributions to tax exempt organizations) from, the Company, or any of its subsidiaries, for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million, or 2% of the consolidated gross revenues of such other company.

 

For purposes of sub-paragraphs (i) through (v) above, an “immediate family member” includes a person’s spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law and anyone (other than domestic employees) who shares such person’s home. Individuals who are no longer immediate family members as a result of legal separation or divorce, or those who have died or become incapacitated are not taken into consideration with respect to the determination of a Director’s independence.

 

Additional Information Regarding Director Independence

 

In making its independence determinations with respect to our Directors, the Board considered the following transactions that the Company engages in from time to time with organizations in which our independent Directors serve as executive officers or otherwise have a material interest:

 

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BT Group plc. Sir Michael Rake is the Chairman of BT Group plc. BT Group plc provides the Company and its business units with various telecommunications services from time to time. The Company and its business units provide the following types of products

and services from time to time to BT Group plc: credit ratings services, data subscriptions and licensing of publications and equity research information and services.

 

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Cisco Systems, Inc. Ms. Rebecca Jacoby is the Chief Information Officer and Senior Vice President of Cisco Systems, Inc. Cisco Systems, Inc. provides the Company and its business units with network and telecommunications equipment and services from time to time. The Company and its business units provide the following types of products and services from time to time to Cisco Systems, Inc.: credit ratings services, index services and data subscriptions and licensing of publications.

 

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State Farm Mutual Automobile Insurance Company. Mr. Edward B. Rust, Jr. is the Chairman of the Board and Chief Executive Officer of State Farm Mutual Automobile Insurance Company. The Company and its business units provide the following types of products and services from time to time to State Farm Mutual Automobile Insurance Company: credit ratings services, index services, data subscriptions and licensing of publications, equity research information and services and syndicated research studies.

 

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Yale University. Ms. Linda Koch Lorimer is Vice President, Global and Strategic Initiatives, of Yale University. Ms. Lorimer was a Director of the Company through April 30, 2014, and did not stand for re-election at the 2014 Annual Meeting. The Company and its business units provide credit rating services from time to time to Yale University.

 

All of these transactions are entered into in the ordinary course of business and on terms that are substantially equivalent to those prevailing at the time for comparable transactions with other similarly situated customers or vendors of the Company.

 

In making its independence determinations with respect to our Directors, the Board reviews the materiality of these transactions not only from the standpoint of the applicable Director but also from the standpoint of the organizations in which they serve. Based on this review, the Board has concluded that these transactions do not, and in

 

the case of Ms. Lorimer, did not, interfere with the ability of each such Director to exercise independent judgment in carrying out his or her Board responsibilities.

 

Annual Meeting Attendance

 

It is the Company’s policy that, subject to illness or an unavoidable schedule conflict, all Directors will attend and be introduced at the Annual Meeting. All of our Directors attended the 2014 Annual Meeting.

 

Leadership Structure of the Board of Directors

 

The Company’s business and affairs are overseen by its Board of Directors which currently has 13 members. There is one management representative on the Board and, of the 12 remaining Directors, 10 are independent. As mentioned above, Mr. Harold McGraw III informed the Board on February 25, 2015 of his decision not to stand for re-election to the Board at this Annual Meeting.

 

The Board has standing Nominating and Corporate Governance, Audit and Compensation and Leadership Development Committees composed solely of outside independent Directors. The Chair of each Committee reports to the full Board as appropriate from time to time. In addition to these three standing Committees, the Board has an Executive Committee and a Financial Policy Committee.

 

The Company’s Corporate Governance Guidelines provide that the Board shall select annually the Chairman of the Board based upon such criteria as the Company’s independent Nominating and Corporate Governance Committee recommends and what the Directors believe to be in the best interests of the Company at a given point in time. This process shall include consideration of whether the roles of Chairman and Chief Executive Officer should be combined or separated based upon the Company’s needs and the strengths and talents of its executives at any given time.

 

Based on these criteria and as part of its ongoing review of the Board leadership structure and suc-

cession planning process, the Board determined that the positions of Chief Executive Officer and Chairman should be held by separate individuals. Accordingly, effective April 30, 2014, the Board appointed Mr. Douglas L. Peterson President and Chief Executive Officer and Mr. Harold McGraw III Non-Executive Chairman of the Board. In this role, Mr. McGraw has provided leadership to the Board by, among other things, chairing meetings of the Board and working with the Chief Executive Officer, the Presiding Director (discussed below) and the Corporate Secretary to: set Board calendars; determine agendas for Board meetings; ensure proper flow of information to Board members; facilitate effective operation of the Board and its Committees; help promote Board succession planning and the orientation of new Directors; and assist in consideration and Board adoption of the Company’s long-term and annual operating plans.

 

The Company’s Corporate Governance Guidelines further provide that, in the event that the Chairman of the Board is not an independent Director, the Board shall designate an independent Director to serve as Presiding Director. The position of Presiding Director is intended to provide a check and balance on the role and responsibilities of the Chief Executive Officer. The selection of the Presiding Director shall be made at a meeting (or that portion of a meeting) at which only independent Directors are present. The Board determined to continue to designate a Presiding Director for as long as Mr. McGraw served as Non-Executive Chairman in view of the fact that Mr. McGraw does not meet the New York Stock Exchange standards of independence due to his prior service as our President and Chief Executive Officer. Accordingly, on April 30, 2014, the Board appointed Mr. Edward B. Rust, Jr., the Chairman of the Nominating and Corporate Governance Committee, the Presiding Director of the Board for the period April 30, 2014 through April 29, 2015. As contemplated by our Corporate Governance Guidelines, the Presiding Director has the following responsibilities:

 

(i) be readily available to be consulted by any of the senior executives of the Company as to any concerns they may have about the Company; (ii) be readily available to all Directors to communicate

 

their issues and concerns to the Chairman or the Chief Executive Officer; (iii) be readily available to the Chief Executive Officer to offer counsel; (iv) preside at all meetings of the Board at which the Chairman is not present, including all meetings of non-management Directors and all executive sessions of the independent Directors; (v) authority to call meetings of the independent Directors including in the event of a crisis and/or the incapacitation of the Chief Executive Officer; (vi) communicate Directors’ feedback to the Chief Executive Officer from the meetings of the non-management Directors and from informal conversations with Directors; (vii) communicate Directors’ feedback to the Chairman and the Chief Executive Officer from the executive sessions of the independent Directors; (viii) review the proposed agenda for each upcoming Board meeting and the annual Board calendar; (ix) review and approve meeting schedules to assure there is sufficient time for discussion of all agenda items; (x) consult with the other Directors and advise the Chief Executive Officer about the quality and timeliness of the materials distributed to the Board; (xi) review and approve the materials and information sent to the Board; (xii) interview, along with the Chief Executive Officer, the Chairman and the Nominating and Corporate Governance Committee, candidates for the Board; and (xiii) assist the Nominating and Corporate Governance Committee with broad issues of corporate governance.

 

As a result of Mr. McGraw’s decision not to stand for re-election as a Director at this Annual Meeting, the Board will propose that Mr. Charles E. Haldeman, Jr. serve as Chairman of the Board following the 2015 Annual Meeting. Mr. Haldeman has been an independent Director of the Company since 2012. Further, consistent with the Company’s Corporate Governance Guidelines, the Board has determined that it is no longer necessary to continue to designate a Presiding Director following Mr. Haldeman’s appointment as an independent Chairman of the Board.

The Board believes that this leadership structure will continue to assure the appropriate level of management oversight and independence for the Company.

 

Role of Board of Directors in Risk Oversight

 

The Board of Directors administers its risk oversight role through its Committee structure and the Committees’ regular reports to the Board at each Board meeting. The Board’s Audit Committee meets frequently during the year and discusses with management, the Company’s chief audit executive and the Company’s independent external auditor: (a) current business trends affecting the Company; (b) the major risk exposures facing the Company; (c) the steps management has taken to monitor and control such risk factors; and (d) the adequacy of internal controls that could significantly affect the Company’s financial statements. The Chair of the Audit Committee provides the Board with a report concerning its risk oversight activities at each Board meeting.

 

In 2014, the Compensation and Leadership Development Committee established performance metrics that focused on net income, revenue and earnings per share growth, and established goals and payment schedules for each metric that were designed to provide a balance to motivate the achievement of the established goals without the need for inappropriate or excessive risk taking by providing a range of payment opportunities for achievement both below and above the target goals established for the short and long-term incentives. In addition, the Committee reviews and assesses plan design, performance metrics, and goals for the annual incentive plans within the Company’s business units to ensure that the designs of those annual incentive plans do not encourage inappropriate or excessive risk taking.

 

In 2014, the Compensation and Leadership Development Committee adopted amendments to the Company’s Pay Recovery Policy (the “Policy”). The amended Policy is more robust, expanding the compensation that may be clawed back to most variable compensation and

 

covering a greater number of executives. The amended Policy applies to incentive plan participants from Managing Director/Vice President levels across the Company and provides a claw-back opportunity for financial restatements and other circumstances where an executive’s behavior has resulted in damaging the Company’s reputation. The Committee approved the amended Policy effective January 1, 2015.

 

In 2015, management updated its prior review of the Company’s incentive compensation plans as well as the Company’s other compensation policies and practices. The findings and conclusions of the updated review are that the compensation policies and practices do not encourage excessive risk taking and are not reasonably likely to have a material adverse effect on the Company. Management reviewed its findings with the Committee. Pay Governance LLC, the Committee’s independent compensation advisor, concurred in these findings and conclusions.

 

Process for Identifying and Evaluating Directors and Nominees

 

The Nominating and Corporate Governance Committee reviews with the Board, on an annual basis, the appropriate skills and qualifications required of Board members in the context of the then-current composition of the Board. The Committee also recommends to the Board the general criteria for selection of proposed nominees for election as Directors and the slate of individuals who will constitute the nominees of the Board for election as Directors at each Annual Meeting. In addition to qualities of intellect, integrity and judgment, this assessment by the Committee takes into consideration diversity, background, senior management experience and an understanding of some combination of marketing, finance, technology, international business matters, government regulation, public policy and the global capital and commodity markets. The Committee makes

this determination in the context of an assessment of the perceived needs of the Board at that point in time.

 

The Board is responsible for selecting all members of the Board and for recommending such members for election by the shareholders. The Board delegates the screening process to the Committee with direct input from the Chairman of the Board or, if the Chairman is not an independent Director, the Presiding Director. The Committee evaluates all nominees for Director based on the above criteria, including nominees recommended by shareholders. Although the Committee considers diversity as a factor in assessing the appropriate skills and qualifications required of Board members, the Board does not have a formal policy with regard to diversity in identifying Director nominees. The Committee has sole authority to retain and terminate search firms to assist the Board in identifying and reviewing prospective Director nominees and to approve the fees and other retention terms of any such search firms.

 

Specific Experience, Qualifications, Attributes and Skills of Directors

 

The Nominating and Corporate Governance Committee has reviewed with the Board the specific experience, qualifications, attributes and skills of each Director nominee standing for re-election as a Director at this Annual Meeting. The Committee has concluded that each Director nominee has the appropriate skills and qualifications required of Board membership and that each possesses an in-depth knowledge of the Company’s complex global businesses and strategy. The Committee further believes that our Board is composed of well-qualified and well-respected Directors who are prominent in business, finance and the global capital and commodity markets. The experience and key competencies of each Director nominee, as reviewed and considered by the Committee, are discussed on pages 12 through 23 of this Proxy Statement.

 

The following corporate governance materials are available and can be viewed and downloaded from the Corporate Governance section of the Company’s Investor Relations Website at http://investor.mhfi.com: (i) the Company’s Amended and Restated Certificate of Incorporation; (ii) the Company’s By-Laws; (iii) the Company’s Corporate Governance Guidelines; (iv) Board Committee Charters for the Company’s Audit, Compensation and Leadership Development, Executive, Financial

Policy and Nominating and Corporate Governance Committees; (v) the Code of Business Ethics applicable to all Company employees; (vi) the Code of Ethics applicable to the Company’s Chief Executive Officer and Senior Financial Officers; (vii) the Code of Business Conduct and Ethics for Directors applicable to all the Company’s Directors; and (viii) the Audit Committee’s Policy concerning Employee Complaint Procedures Regarding Accounting and Auditing Matters.

 

The Company has standing Nominating and Corporate Governance, Audit and Compensation and Leadership Development Committees. The Chair of each Committee reports to the full Board as appropriate from time to time. Each Committee has a Charter that is reviewed by the Nominating and Corporate Governance Committee on a regular basis. In addition to these three standing Committees, the Board has an Executive Committee and a Financial Policy Committee. A brief description of the Nominating and Corporate Governance, Audit and Compensation and Leadership Development Committees follows.

 

Nominating and Corporate Governance Committee

 

The functions performed by the Nominating and Corporate Governance Committee include, among other matters:

 

•

recommending to the Board the general criteria for selection of Director nominees and evaluating possible candidates to serve on the Board;

 

•

recommending to the Board appropriate compensation to be paid to Directors;

 

•

determining whether any material relationship between a non-management Director and the Company might exist that would affect that Director’s status as independent;

 

•

making recommendations, from time to time, to the Board as to matters of corporate governance and periodically monitoring the Board’s performance; and

 

•

reviewing with the Board succession plans for the Chief Executive Officer and the direct reports to the Chief Executive Officer.

 

Additional information about the Nominating and Corporate Governance Committee follows:

 

•

The Committee has a Charter which can be viewed and downloaded from the Corporate Governance section of the Company’s Investor Relations Website at http://investor.mhfi.com.

 

•

All current members of the Committee are independent as defined in the rules of the New York Stock Exchange.

 

•

The Committee will consider nominees for Director recommended by shareholders. If a shareholder wishes to recommend a candidate for Director, the shareholder should submit a written nomination to the Nominating and Corporate Governance Committee by sending it to the Corporate Secretary, c/o Office of the General Counsel, McGraw Hill Financial, Inc., 55 Water Street, New York, New York 10041-0003. In general, a shareholder wishing to nominate a Director at an Annual Meeting must deliver written notice of the nomination to the Corporate Secretary no earlier than 120 days and no later than 90 days prior to the first anniversary of the preceding year’s Annual Meeting. The notice must: (a) set forth the name and address of the nominating shareholder, the number of shares owned by such shareholder, and any other information relating to such shareholder that would be required to be disclosed in a Proxy Statement in connection with a contested election for Directors pursuant to Section 14 of the Securities Exchange Act of 1934 (the “Exchange Act”); (b) set forth all information relating to the Director nominee that would be required to be disclosed in a Proxy Statement in connection with a contested election for Directors pursuant to Section 14 of the Exchange Act (including such person’s consent to being named as a nominee and to serving as a Director if elected), and a description of all compensation and other material relationships between the nominating shareholder and the Director nominee; and (c) include a completed questionnaire, representation and agreement signed by the Director nominee, copies of which may be obtained from the Company’s Secretary. These requirements are more fully described in the Company’s By-Laws. The By-Laws can be viewed and downloaded from the Corporate Governance section of the Company’s Investor Relations Website at http://investor.mhfi.com.

 

•

The Committee reviews with the Board on an annual basis the appropriate skills and characteristics required of Board members in the context of the then-current composition of the Board. In addition to qualities of intellect, integrity and judgment, this assessment takes into consideration diversity, background, senior management experience and an understanding of some combination of marketing, finance, technology, international business matters, government regulation, public policy and the global capital and commodity markets. The Committee makes this determination in the context of an assessment of the perceived needs of the Board at that point in time.

 

•

The Committee evaluates all nominees for Director based on these criteria, including nominees recommended by shareholders.

 

•

All nominees for Director included on the Company’s proxy card are currently serving as Directors of the Company.

 

•

The Committee may retain and terminate search firms to identify Director candidates. The Committee has the sole authority to approve the fees and other retention terms of any such firms.

 

Processes and Procedures for Determining Director Compensation

 

The Nominating and Corporate Governance Committee is comprised of four Directors, all of whom meet the independence requirements of the New York Stock Exchange. The Board of Directors appoints the Committee Chair and determines which Directors serve on the Committee.

 

The Committee is solely responsible for determining all matters concerning compensation for the independent members of the Board. It is not authorized to delegate its authority to determine Director compensation. All compensation recommendations by the Committee are submitted to the full Board for review and approval. Directors who are employees of the Company do not receive any compensation for their Board services.

The Committee has sole authority to directly retain external consultants and to commission surveys or analyses that it determines necessary to fulfill its responsibilities.

 

Executive officers play no role in determining the amount or form of Director compensation. The Committee annually reviews the competitiveness of the Company’s Director compensation based on pay practices among the Company’s proxy peer group. During 2014, the Committee engaged Pay Governance LLC to review this compensation survey data and advise the Committee on changes, if any, to Director compensation.

 

Audit Committee

 

The Company has an Audit Committee comprised of five Directors that has been established by the Board of Directors for the purpose of overseeing the accounting and financial reporting processes of the Company and the audits of the Company’s financial statements. The Board of Directors appoints the Committee Chair and determines which Directors serve on the Committee. The Audit Committee’s duties include, among other matters, assisting the Board’s oversight of:

 

•

the integrity of the Company’s financial statements;

 

•

the Company’s compliance with legal and regulatory requirements;

 

•

the Company’s enterprise risk management process;

 

•

the qualifications and independence of the Company’s independent Registered Public Accounting Firm; and

 

•

the performance of the Company’s internal and external auditors.

 

Additional information about the Audit Committee follows:

 

•

The Audit Committee Report, found on page 31 of this Proxy Statement, summarizes certain important actions of the Committee taken during the Company’s 2014 fiscal year.

 

•

The Committee has a Charter which can be viewed and downloaded from the Corporate Governance section of the Company’s Investor Relations Website at http://investor.mhfi.com.

 

•

All current members of the Committee are independent as defined in the rules of the New York Stock Exchange. In addition, all current members of the Committee are independent as defined by the following additional SEC independence criteria applicable to Audit Committee members:

 

•

No Audit Committee member may accept directly or indirectly any consulting, advisory or other compensatory fee from the Company.

 

•

No Audit Committee member may be an affiliated person of the Company.

 

•

The Board has determined that all members of the Audit Committee qualify as “financial experts” as defined in the rules of the SEC and the New York Stock Exchange. There is a brief listing of the qualifications of the Director nominees who are Committee members in their respective biographies found on pages 14 through 23 of this Proxy Statement. As noted above, the Board has determined that all of the Audit Committee’s “financial experts” are independent of the Company and its management.

 

Compensation and Leadership Development Committee

 

The Compensation and Leadership Development Committee’s duties include, among other matters:

 

•

establishing an overall total compensation philosophy for the Company;

 

•

establishing and approving the compensation to be paid to the Company’s senior management;

 

•

administering the Company’s incentive compensation plans;

 

•

establishing performance objectives and approving awards and payments in connection with the Company’s incentive compensation plans to ensure consistency with the Company’s financial and strategic plans and objectives; and

•

reviewing the succession and development plans for executives and other key talent below the direct reports to the Chief Executive Officer.

 

Additional information about the Compensation and Leadership Development Committee follows:

 

•

All current members of the Committee are independent as defined in the rules of the New York Stock Exchange.

 

•

The Committee has a Charter which can be viewed and downloaded from the Corporate Governance section of the Company’s Investor Relations Website at http://investor.mhfi.com.

 

Processes and Procedures for Determining Executive Compensation

 

The Compensation and Leadership Development Committee is comprised of five Directors, all of whom meet the independence requirements of the New York Stock Exchange. The Board of Directors appoints the Committee Chair and determines the composition of the Committee members.

 

The Committee is responsible for approving all matters concerning the Company’s total compensation philosophy, including conducting periodic reviews of the philosophy to ensure it supports the Committee’s objectives and shareholder interests. The Committee is responsible for administering and interpreting the Key Executive Short-Term Incentive Compensation Plan, the 2002 Stock Incentive Plan and all other compensation and benefits plans in which the Company’s senior management participate.

 

The Committee has sole authority to retain and terminate all external consultants and to commission surveys or analyses that it determines necessary to fulfill its responsibilities. Additionally, the Committee has sole authority to approve the fees of the external consultants. The Committee utilizes the services of Pay Governance LLC as its external compensation advisor for all matters concerning the Company’s senior management compensation programs. Pay Governance LLC provides no other executive compensation consulting or other services to the Company or its management. Pay Governance LLC works in

 

cooperation with Company management on matters that come before the Committee but always in its capacity as the Committee’s independent advisor and representative. The Committee has entered into a consulting agreement with Pay Governance LLC that specifies the nature and scope of its responsibilities, which include: (1) reviewing Committee agendas and supporting materials in advance of each meeting and raising questions or issues with management and the Committee Chair, as appropriate; (2) at the Committee’s direction, working with management on major proposals in advance of finalization by, and presentation to, the Committee; (3) reviewing drafts of the Company’s Compensation Discussion and Analysis and the Compensation Committee Report and related tables for inclusion in the Company’s Proxy Statement each year; (4) evaluating the chosen compensation peer group and survey data for competitive comparisons; (5) reviewing comparative data on the compensation of the Chief Executive Officer and providing independent analyses and recommendations on the Chief Executive Officer’s compensation to the Committee Chair; and (6) proactively advising the Committee on best practices for Board governance of executive compensation.

 

The Committee annually reviews and approves the corporate goals and objectives for the Chief Executive Officer’s compensation, evaluates the Chief Executive Officer’s performance in light of those goals and objectives, establishes the Chief Executive Officer’s total compensation and refers its recommendations to the independent Directors of the Board of Directors for ratification.

 

The Committee annually reviews and approves the individual compensation actions for the direct reports to the Chief Executive Officer. Below this level, the Committee approves the overall design of the total executive compensation program and delegates the discretion to approve individual compensation decisions to the Chief Executive Officer. The other named executive officers, who are identified on page 34 of this Proxy Statement, recommend compensation actions for the senior executives in their organizations and these compensation actions are then approved by the Chief Executive Officer.

During 2014, Pay Governance LLC was also engaged by the Nominating and Corporate Governance Committee to advise on compensation paid to the non-employee Directors. In this capacity, Pay Governance LLC works solely for the Board and provides no services to management.

 

In accordance with the Committee’s policy on assessing advisor independence, the Committee determined in 2014 that there were no conflicts of interest or issues related to independence that would impact the advice to the Committee from the firm of Pay Governance LLC and the representatives of Pay Governance LLC who advise both the Committee on executive compensation matters and the Nominating & Corporate Governance Committee on Director compensation matters. For a further discussion of the independence assessment policy, see page 42 of this Proxy Statement.

 

Compensation Committee Report

 

The Compensation and Leadership Development Committee has reviewed and discussed with Company management the Compensation Discussion and Analysis found on pages 34 through 55 of this Proxy Statement, and based on this review and discussion, the Compensation and Leadership Development Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s Proxy Statement.

 

The foregoing report has been furnished on behalf of the Board of Directors by the members of its Compensation and Leadership Development Committee.

 

Sidney Taurel (Chair)

Sir Winfried Bischoff

William D. Green

Charles E. Haldeman, Jr.

Edward B. Rust, Jr.

 

Each Director and certain of our executive officers have entered into an indemnification agreement with the Company which provides indemnification for judgments and amounts paid in settlement and related expenses to the fullest extent permitted under the applicable provisions of the New York Business Corporation Law (“NYBCL”). This indemnification will be reduced to the extent that a Director or executive officer is indemnified by the Company’s Directors’ and Officers’ liability insurance.

 

The Company has for many years had an insurance program in place that provides Directors’ and Officers’ liability insurance coverage. The Company’s current insurance coverage was purchased for the period May 15, 2014 to May 15, 2015 for a premium of approximately $3,073,000. This insurance is provided by a consortium of carriers, which includes: Illinois National Insurance Company; Federal Insurance Co.; Great American Insurance Co.; Freedom Specialty Insurance Co.; AXIS Insurance Company; Travelers Casualty & Surety Company of America; and Arch Insurance Co. This program also includes additional capacity dedicated to provid-

ing excess coverage for Directors and certain of our executive officers when the Company cannot indemnify them. The additional capacity is provided by the following consortium of carriers: RLI Insurance Company; National Liability & Fire Insurance Company; Continental Casualty Company; Berkeley Insurance Company; XL Specialty Insurance Company; and Illinois National Insurance Company.

 

The Company also maintains a fiduciary liability insurance program that covers Directors and employees who serve as fiduciaries for our employee benefit plans. This coverage, subject to a number of standard exclusions and certain deductibles, indemnifies the Directors and employees from alleged breaches of fiduciary or administrative duties, as defined in the Employee Retirement Income Security Act of 1974 or similar laws or regulations outside the United States. The Company’s current fiduciary liability coverage was purchased for the period May 15, 2014 to May 15, 2015 for a premium of approximately $272,000. This insurance is provided by a consortium of carriers, which includes Illinois National Insurance Company; Arch Insurance Co.; and XL Specialty Insurance Company.

 

The Audit Committee (the “Committee”) reviews the Company’s financial reporting process on behalf of the Board. All of the members of the Committee are independent Directors as defined in the rules of the New York Stock Exchange. Management has the primary responsibility for the financial statements and the reporting process, including the system of internal controls. The Board has adopted a written Charter for the Audit Committee.

 

In this context, the Committee has met and held discussions with management and the Company’s Independent Registered Public Accounting Firm, Ernst & Young LLP (“EY”). Management represented to the Committee that it is responsible for the financial reporting process, including the system of internal controls, for the preparation of the Company’s consolidated financial statements in accordance with generally accepted accounting principles and for the report on the Company’s internal controls over financial reporting. The Committee has reviewed and discussed the consolidated financial statements with management and EY, which review included a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements. The Committee also discussed with management the process used to support the certifications required by the Sarbanes-Oxley Act of 2002 and to support management’s annual report on the Company’s internal controls over financial reporting. The Committee discussed with EY the integrated audit results as required by the Public Company Accounting Oversight Board (“PCAOB”), rules of the Securities and Exchange Commission, and other applicable regulations.

 

In addition, the Committee has reviewed and discussed with EY the firm’s independence from the Company and its management. The Committee received from EY the written disclosures and the letter regarding its independence as required by the PCAOB’s applicable requirements.

 

The Committee is directly responsible for the appointment, compensation, retention and over-

sight of the work of EY for the purposes of preparing or issuing the audit report or performing the audit of the Company. The Committee has also considered whether the provision of services by EY, not related to the audit of the financial statements, is compatible with maintaining EY’s independence. The Committee pre-approves all fees for services provided by EY.

 

The Committee evaluates EY’s performance, taking into consideration the following factors: management’s perception of expertise and past performance, external data relating to audit quality, independence, appropriateness of fees and global reach relative to the Company’s business. The Committee periodically reviews and evaluates the performance of EY’s lead audit partner, ensures the audit partner rotation as required by law and, through the Committee Chair as representative of the Committee, reviews and considers the selection of the lead audit partner.

 

The Committee discussed with EY the overall scope and plans for its respective audits. The Committee met with the internal auditors and EY, with and without management present, to discuss the results of their examinations, the evaluations of the Company’s internal controls and the overall quality of the Company’s financial reporting.

 

In reliance on the reviews and discussions referred to above, the Committee recommended to the Board that the audited financial statements be included in the Company’s Form 10-K for the year ended December 31, 2014, as filed with the Securities and Exchange Commission. The Committee and the Board believe that the continued retention of EY to serve as the Company’s Independent Registered Public Accounting Firm is in the best interest of the Company and its shareholders and have recommended that shareholders ratify the appointment of EY as the Company’s Independent Registered Public Accounting Firm for 2015.

 

Sir Michael Rake (Chair)

Charles E. Haldeman, Jr.

Hilda Ochoa-Brillembourg

Edward B. Rust, Jr.

Richard E. Thornburgh

 

Under SEC rules, we are required to disclose material transactions with the Company in which “related persons” have a direct or indirect material interest. Related persons include any Director, nominee for Director, executive officer of the Company, any immediate family members of such persons, and any persons known by the Company to be beneficial owners of more than five percent of the Company’s voting securities. The term “transaction” is broadly defined under SEC rules to include any financial transaction, arrangement or relationship, including any indebtedness transaction or guarantee of indebtedness.

 

Based on information available to us and provided to us by our Directors and executive officers and other than the items referred to below, we do not believe that there were any such material transactions in effect since January 1, 2014, or any such material transactions proposed to be entered into during 2015.

 

For security reasons, during the period that Mr. Harold McGraw III served as our President and Chief Executive Officer, he was required to use Company provided aircraft for all air travel. Mr. McGraw’s arrangement as Non-Executive Chairman permitted him to continue to use, through May 16, 2014, Company provided aircraft under the same guidelines that applied to him prior to his retirement as President and Chief Executive Officer.

 

When using Company provided aircraft for personal travel, Mr. McGraw was required to reimburse the Company for the equivalent of first class commercial airfare for himself and for each passenger traveling with him. If the incremental cost of personal travel to the Company exceeded $200,000 in any calendar year (excluding, for this purpose, the cost of travel to Board meetings of third party companies), in lieu of reimbursement equivalent to first class commercial airfare, Mr. McGraw was required to reimburse the Company for the full incremental cost of such travel. Mr. McGraw and the Company entered into an Aircraft Time Sharing Agreement, dated as of September 15, 2004,

which provided for such reimbursement. This Agreement was approved by the Compensation and Leadership Development Committee and the Nominating and Corporate Governance Committee of the Company’s Board of Directors. During 2014, Mr. McGraw made payments to the Company of $30,581 under this Agreement.

 

On July 31, 2014, the Company completed the sale of its aircraft to Mr. Harold McGraw III for a purchase price of $20 million, which is modestly higher than an independent appraisal obtained by the Company. This transaction was approved by the Nominating and Corporate Governance Committee of the Company’s Board of Directors after consultation with members of the Financial Policy Committee.

 

On June 25, 2014, the Company repurchased 0.5 million shares of the Company’s common stock from the personal holdings of Mr. Harold McGraw III. The shares were purchased at a discount of 0.35% from the June 24, 2014 New York Stock Exchange closing price pursuant to a private transaction with Mr. McGraw. The Company repurchased these shares with cash for $41 million at an average price of $82.66 per share. This transaction was approved by the Nominating and Corporate Governance Committee of the Company’s Board of Directors after consultation with members of the Financial Policy Committee.

 

Mr. Whit McGraw, the son of Mr. Harold McGraw III, is employed by the Company as an executive in its S&P Capital IQ business unit. During 2014, Mr. Whit McGraw received cash compensation of $420,000 (which included a base salary of $200,000 and an incentive payment of $220,000) as well as equity compensation consisting of performance share units (“PSUs”) and stock options with an aggregate grant date fair value of $80,000. In addition, Mr. Whit McGraw participated in our employee benefit plans on the same basis as other similarly situated employees. His compensation (including base salary and long-term and short-term incentive opportunities) is reviewed on an annual basis in accordance with the Company’s regular pay practices.

 

In 2014, the Company’s Nominating and Corporate Governance Committee reviewed and considered transactions with related persons under the Company’s written policy that requires the Committee to review and approve any related person transactions. Under the policy, as in effect during 2014, management presented to the Committee specific information with respect to any such transaction expected to be entered into or continued during that calendar year at the Committee’s first regularly scheduled meeting in 2014. After reviewing this information, the Committee approved such transactions only if the following two conditions were met: (1) the transaction was in the best interests (or not inconsistent with the best interests) of the Company and its shareholders; and (2) the transaction was entered or was proposed to be entered into by the Company on terms that were comparable to those that would be obtained in an arm’s-length transaction with an unrelated third party. The policy required any additional related person transactions proposed to be entered into subsequent to the Committee’s first 2014 meeting to be presented to the Committee for approval or ratification at a subsequent meeting of the Committee.

Effective as of February 25, 2015, the Company’s Board of Directors amended our related person transactions policy to provide that all related persons are required to promptly notify our Corporate Secretary of any proposed related person transaction. Following notice to our Corporate Secretary, the proposed transaction is then presented to the Nominating and Corporate Governance Committee for its review and consideration at the next Committee meeting. Any ongoing and previously approved related person transactions will be reviewed by the Committee on an annual basis. In reviewing any proposed (or previously approved and ongoing) related person transaction, the Committee must consider all relevant facts and circumstances, including, without limitation, the commercial reasonableness of the terms, the benefit and perceived benefit, or lack thereof, to the Company, opportunity costs of alternate transactions, the materiality and character of the related person’s direct or indirect interest, and the actual or apparent conflict of interest of the related person. Approval of a related person transaction (or ratification of a previously approved and ongoing related person transaction) will be given only if it is determined by the Committee that such transaction is in (or not inconsistent with) the best interests of the Company and its shareholders.

 

This section contains information on various aspects of compensation of the Company’s “named executive officers.” The named executive officers of the Company for 2014 include the Chief Executive Officer (“CEO”), Mr. Douglas L. Peterson, and the Chief Financial Officer (“CFO”), Mr. Jack F. Callahan, Jr. The named executive officers also include the Company’s three most highly compensated executive officers other than the CEO and CFO who were serving as executive officers on December 31, 2014, namely: Mr. Neeraj Sahai (President, Standard & Poor’s Ratings Services); Mr. John L. Berisford (Executive Vice President, Human Resources); and Ms. Imogen Dillon Hatcher (President, S&P Capital IQ). On

February 10, 2015, Mr. Berisford informed the Company of his decision to leave the Company and ceased serving in an executive officer capacity effective as of such date. Mr. Berisford remained in a non-executive capacity with the Company through March 13, 2015. In addition, the named executive officers of the Company include Mr. Louis Eccleston, who served as President, S&P Capital IQ, and Chairman of the Board, S&P Dow Jones Indices, through July 14, 2014, and Mr. Kenneth M. Vittor, who served as Executive Vice President and General Counsel of the Company through August 4, 2014. Both Messrs. Eccleston and Vittor remained in a non-executive capacity with the Company through December 31, 2014.

 

Compensation Philosophy

 

Our compensation philosophy is to reward our executives for shareholder value by linking a significant portion of pay to one or more performance metrics tied to value creation. We implement our compensation practices within

the framework of pay-for-performance and in a manner that we believe helps us attract the highest quality talent to our executive ranks and retain these individuals by rewarding excellence in leadership and success in the implementation of our business strategy while driving shareholder value.

 

In addition to the above strong financials, other highlights include:

 

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Strong international growth and acceleration of growth in developing markets, e.g., China, Singapore, Latin America and the Middle East

•

Sale of McGraw Hill Construction to Symphony Technology Group for $320M

 

•

New risk program commenced in Standard & Poor’s Ratings Services, focused on resolving regulatory issues and delivering changes to address new regulatory frameworks

 

Changes to Performance Management and Short-Term Incentive Plans

 

In 2014, the Company made several strategic enhancements to the incentive plans. These included formalized measuring of management against individual qualitative and quantitative goals, behaviors and competencies. At the beginning of each year, enterprise goals, aligned with the Company’s strategic plan, are set and cascaded down through the organization. This process starts with the CEO, flows to each business leader and is then cascaded respectively to all levels of the organization, driving an aligned enterprise. The goals reflect financial targets inclusive of short-term operating goals, long-term value creation, human capital initiatives, and risk and compliance expectations. Supporting this new process, we implemented a company-wide performance evaluation system to enable full transparency of goal setting, goal tracking and performance assessment with performance feedback. In addition, as described on page 46 of this Proxy Statement, we implemented a new bonus formula to have bonus awards directly linked to both financial and individual performance.

 

Compensation Actions for 2014 Short-Term Bonuses

 

The Compensation and Leadership Development Committee was pleased with the Company’s strong financial and strategic performance during 2014, as summarized on page 43 of this Proxy Statement, and the achievements of our management team, as summarized on pages 44 through 46 of this Proxy Statement. These achievements contributed to this strong performance and have positioned the Company for continued growth. However, the Committee believes that annual bonus compensation paid to our management should align with shareholder interests and, therefore, should, in view of the sizable legal settlements related to Standard & Poor’s Ratings Services that were reached this year, be reduced to reflect these settlements’ negative impact on the Company’s

results, even if the underlying events largely transpired prior to the hiring of many members of the current management team.

 

Specifically, after considerable review, the Committee in consultation with management determined that the 2014 actual performance factor for the Company should be reduced by 25% from the actual funding of 161.7% to calculate cash incentive payments to our management team, consisting of our named executive officers and our other executives and presidents of various business units. For amounts of actual cash incentive payments received by our named executive officers for 2014, see a discussion of the 2014 Short-Term Bonus Plan on pages 46 through 48 of this Proxy Statement and the 2014 Summary Compensation Table on page 56 of this Proxy Statement. The Committee and management view the 25% reduction of the Company performance achievement factor as an appropriate balance between accounting for the negative impact of the settlements and rewarding our management team for its and the Company’s otherwise strong performance. In addition, because these settlements related to our Standard & Poor’s Ratings Services business, the Committee and management also decided that it would be appropriate to reduce the funding for the cash bonuses payable to the Standard & Poor’s Ratings Services Executive Committee’s members by 15%.

 

New for 2015: Changes to Long-Term Incentive Plans

 

The Company reviews the long-term incentive (“LTI”) program every year, and this year we have decided to make the following change: instead of performance share units and stock options, our named executive officers will receive a combination of performance share units and restricted stock units. Specifically, this change shifts from 70%-30% performance shares / options to 70%-30% performance share units / restricted stock units. The rationale for this switch is to reduce dilution, align with market practice, and to acknowledge input from shareholders. LTI is intended to cover multiple years and to relate directly to stock price growth.

 

2014 Say-on-Pay and Engagement with Shareholders

 

The Company received an 88% favorable vote for “say-on-pay” last year. Although this indicated strong support for our executive compensation program, the Company thinks it is important to continue engaging shareholders. We did so this year by holding an Investor Day, and the input from this and other discussions were taken into account, including the decision to change our mix of LTI as noted on page 38 of this Proxy Statement. In addition, Messrs. Callahan and Berisford met with a number of shareholders during the year to discuss our executive compensation program.

 

The Compensation and Leadership Development Committee of our Board of Directors (the “Committee”) oversees our compensation program for senior executives on behalf of our Board. Information about the Committee and its members who are Director nominees can be found on pages 27 and 28 and pages 12 through 22 of this Proxy Statement.

 

This Compensation Discussion and Analysis (“CD&A”) describes our named executive officer compensation program, the basis for the com-

pensation paid to our named executive officers for 2014 and the approved compensation opportunities for our named executive officers for 2015. Our CD&A and the Executive Summary found on pages 34 through 55 of this Proxy Statement include adjusted financial information. Please see our 2014 year-end earnings release filed on Form 8-K dated February 13, 2015 for exhibits that reconcile the differences between the non-GAAP measures in the CD&A and comparable financial measures calculated in accordance with U.S. GAAP.

 

For our named executive officers other than the CEO, we review the range of market compensation between the 25th and 75th percentiles for the companies in the compensation surveys described below to develop an understanding of market practice for each position. In general, we design our executive compensation program to pay median levels of compensation for target levels of achievement, to pay below median for achievement below target, and to pay above median compensation for significantly higher levels of achievement versus target goals.

 

We review compensation market data in setting base salaries and short-term and long-term incentive opportunities for our named executive officers. However, we do not limit or increase individual incentive payments based solely on

these market reference points; we also consider factors such as the critical skills and experience of the named executive officer and the strategic importance of his or her role to the Company.

 

For purposes of setting compensation targets for 2014 and 2015, the Committee was provided with information from two compensation surveys in which the Company participates: the McLagan Financial Services Survey and the Towers Watson General Industry Executive Compensation Survey. Pay Governance LLC also provided competitive data for our proxy peer group. The Towers Watson survey does not identify the specific companies that reported compensation information. The McLagan survey included the following companies:

 

In 2013, we adopted a new peer group of specialty finance companies following our divestiture of McGraw-Hill Education. In 2014, the Committee reviewed this peer group and eliminated

SLM Corporation since it had divested much of its core financial services operations during the year. The following companies make up the Company’s current peer group:

 

NEO Pay Decisions

 

DOUG PETERSON: PRESIDENT AND CEO

 

Mr. Peterson joined the Company in September 2011 as President, Standard & Poor’s Ratings Services (“S&P Ratings”). He was promoted to his current role in November 2013.

 

 

2014 Key Achievements:

 

•

Under Mr. Peterson’s leadership, the Company had strong financial performance by exceeding our Revenue, Operating Profit and EPS goals. Our share price increased by 14% since January 1, 2014.

 

•

The Company out-performed the S&P 500 and its peer group in return to shareholders.

 

•

Held inaugural Investor Day for the Company, and met with over 100 investors during the course of 2014.

 

•

Filled a number of key leadership roles in 2014, including a new General Counsel, President of S&P Capital IQ, President of S&P Ratings and Chief Strategy Officer.

 

NEO

 

JACK CALLAHAN: CHIEF FINANCIAL OFFICER

 

Mr. Callahan joined the Company in his current role in December 2010.

 

 

2014 Key Achievements:

 

•

Led execution of a Productivity Plan to deliver $100 million plus cost savings by the end of 2016.

 

•

Prioritized potential target business development opportunities based on strategic fit, synergies and ability to execute.

 

•

Under Mr. Callahan’s leadership, the Company experienced strong balance sheet and capital management performance in 2014.

 

 

JOHN BERISFORD: EXECUTIVE VICE PRESIDENT, HUMAN RESOURCES

 

Mr. Berisford joined the Company in January 2011 as Executive Vice President, Human Resources.

 

 

2014 Key Achievements:

 

•

Established new career framework and job structure to align pay to the market.

 

•

Implemented new performance management and development processes.

 

•

Elevated succession planning process to drive talent capability transparency for the top 150 executives.

 

IMOGEN DILLON HATCHER: PRESIDENT, S&P CAPITAL IQ

 

Ms. Dillon Hatcher joined the Company in April 2014 as Chief Commercial Officer, S&P Capital IQ. She was promoted to her current role in July 2014.

 

 

2014 Key Achievements:

 

•

Initiated and led the strategic reset design for S&P Capital IQ.

 

•

Developed the 2015 and beyond game plan “Connectedness” to deliver a customer back approach to the market.

 

 

NEERAJ SAHAI: PRESIDENT, S&P RATINGS

 

Mr. Sahai joined the Company in January 2014 in his current role.

 

 

2014 Key Achievements:

 

 

•

Established dedicated global infrastructure practice to enable S&P Ratings’ position as leading rating agency in the sector and a key voice in the global debate on the new paradigm in infrastructure funding.

 

•

Initiated a sales transformation initiative to drive a S&P Ratings client-centric, credit risk services company.

 

•

Initiated a new Regional-Country Operating Model in EMEA and APAC to augment our external focus and drive international growth.

 

 

For a discussion regarding payments and benefits received by Messrs. Eccleston and Vittor, see pages 55, 75 and 76 of this Proxy Statement.

 

Base Salaries

 

NEO (1)		2014 Base Salary				2015 Base Salary				% Increase
D. L. Peterson		$	900,000			$	1,000,000				11.1	%
J. F. Callahan, Jr.		$	750,000			$	750,000				—
J. L. Berisford (2)		$	550,000				—				—
I. Dillon Hatcher		$	400,000			$	450,000				12.5	%
N. Sahai		$	800,000			$	800,000				—

---

(1)

Messrs. Eccleston and Vittor did not receive any base salary increases for 2015 as they ceased serving as executives of the Company in 2014.

(2)

Due to Mr. Berisford’s departure from the Company effective March 13, 2015, he is not eligible for a 2015 base salary increase.

Base Salary Determination

 

Our Committee independently evaluates the performance of the CEO and establishes the CEO’s base salary so that, together with his target annual incentive opportunity and stock-based long-term incentive awards, his total annual target compensation is competitive against market data for financial services and general industry.

 

Short-Term Incentive Plan

 

Short-Term Incentive Cash Compensation

 

NEO		2014 Target Bonus				2014  Actual  Bonus				% of Target Paid				2015 Target Bonus
D. L. Peterson		$	1,100,000			$	1,333,737				121	%		$	1,500,000
J. F. Callahan, Jr.		$	600,000			$	800,000				133	%		$	600,000
J. L. Berisford (1)		$	400,000			$	400,000				100	%			—
I. Dillon Hatcher		$	442,740			$	500,000				113	%		$	500,000
N. Sahai		$	700,000			$	900,000				129	%		$	800,000
L. Eccleston		$	500,000			$	557,094				111	%			—
K. M. Vittor		$	400,000			$	450,000				113	%			—

---

(1)

Due to Mr. Berisford’s departure from the Company effective March 13, 2015, he is not eligible to participate in the 2015 Short-Term Incentive Plan.

 

Short-Term Incentive Plan Design

 

New Bonus Formula for 2014

• The STIC is designed to comply with Section 162(m) of the Internal Revenue Code by containing maximum performance goals for our CEO and other covered employees.   • Overall bonus pool is funded based on the achievement of Company performance goals combined with business unit goals for our business unit Presidents.   • Individual bonus amounts are determined based on the achievement of the Company and, as appropriate, business goals (70%) and individual strategic goals (30%).   • The Company performance component for 2014 was tied to Company Revenue and Net Income growth.   • The individual component is allocated based on an assessment of each participant’s achievement against strategic or developmental goals established at the beginning of the year.   • The maximum bonus opportunity is capped at the lesser of 200% of each participant’s target bonus or the maximum payout produced by the applicable Section 162(m) performance goals.