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.           )

 

 

 

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CMS ENERGY CORPORATION

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

MAY 1, 2015

To Fellow Shareholders of CMS Energy Corporation:

 

The Annual Meeting of Shareholders of CMS Energy Corporation (“CMS” or the “Corporation”) will be held on Friday, May 1, 2015, at 9:00 A.M., Eastern Daylight Saving Time, at our corporate headquarters located at One Energy Plaza, Jackson, Michigan 49201. The purposes of the Annual Meeting are to:

 

 

The Board of Directors recommends a vote “FOR” proposals 1 through 3. The proxy holders will use their discretion to vote on any other matters that may arise at the Annual Meeting.

 

Our Annual Report to Shareholders for the year 2014, including the Form 10‑K with our consolidated financial statements, accompanies this Proxy Statement.

 

If you were a shareholder of record at the close of business on March 9, 2015, you are entitled to vote. Every vote is important. You can help minimize costs by promptly voting via telephone or Internet. You may also vote by signing and returning the enclosed proxy card or by casting a ballot in person at the Annual Meeting. We strongly encourage you to cast your proxy vote and exercise your right as a shareholder.

 

 

 

CMS Energy Corporation

One Energy Plaza

Jackson, Michigan 49201

March 30, 2015

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Important Notice Regarding the Availability of Proxy Materials for the

Annual Meeting of Shareholders to Be Held on May 1, 2015

This Proxy Statement and the Annual Report to Shareholders are available at

https://materials.proxyvote.com/125896.

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PROXY STATEMENT

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TABLE OF CONTENTS 

 

 

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PROXY STATEMENT

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GENERAL INFORMATION ABOUT THE

2015 ANNUAL MEETING AND VOTING

The Board of Directors (the “Board”) of CMS Energy Corporation (“CMS” or the “Corporation”) solicits your proxy for our Annual Meeting of Shareholders to be held on May 1, 2015. We are releasing this Proxy Statement and the enclosed proxy card to shareholders on or about March 30, 2015.

The terms “we” and “our” as used in this Proxy Statement generally refer to CMS and its principal subsidiary, Consumers Energy Company (“Consumers”). While established, operated and regulated as separate legal entities and publicly traded companies, CMS and Consumers historically have had the same individuals serve as members of both Boards and Committees of the Boards and adopted coordinated director and executive compensation arrangements and plans as well as auditing relationships. The two companies also historically have significant overlap in executive management. Thus, in certain contexts in this Proxy Statement, the terms “we” and “our” refer to each of CMS and Consumers and satisfy their respective disclosure obligations. In addition, the disclosures frequently reference “Boards” and “Committees” and similar plural presentations to reflect these parallel structures of CMS and Consumers.

Q:   What are the purposes of this Annual Meeting?

A:   At the Annual Meeting, our shareholders will be asked to:

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Q:   Who is entitled to vote at the Annual Meeting?

A:   Only shareholders of record at the close of business on March 9, 2015, are entitled to vote at the Annual Meeting. As of March 9, 2015 (“Record Date”), the Corporation’s outstanding securities entitled to vote consisted of a total of 275,979,065 shares of common stock, $.01 par value, of the Corporation (“Common Stock” or “CMS Common Stock”). Each outstanding share is entitled to one vote on each matter that comes before the Annual Meeting. All shares represented by valid proxies will be voted at the Annual Meeting.

Q:   What is the difference between a shareholder of record and a “street name” holder?

A:   If your shares are registered directly in your name with Wells Fargo Bank, National Association, Shareowner Services Division (“Wells Fargo”), our transfer agent, you are considered the shareholder of record for those shares.

If your shares are held in a stock brokerage account or by a bank or other nominee you are considered the beneficial owner of the shares and your shares are said to be held in “street name.” Street name holders generally cannot vote their shares directly and must instead instruct the brokerage firm, bank or other nominee how to vote their shares using the method described under “How do I vote my shares?” below. If you hold your shares in a brokerage account but you fail to return your voting instruction card to your broker, stock exchange rules will determine whether your broker may vote your shares without first receiving instructions from you on an item being presented to shareholders for approval at the Annual Meeting.

Q:   How do I vote my shares?

A:   If you hold your shares in your own name as a shareholder of record, you may vote by telephone, Internet, mail or by casting a ballot in person at the Annual Meeting.

You can help minimize costs by voting via telephone or Internet.

If your shares are voted by proxy, the shares will be voted as you instruct. If you sign and return your proxy card, but do not give any specific voting instructions on your proxy card, your shares will be voted as the Board recommends. Your shares will also be voted as recommended by the Board, in its discretion, on any other business that is properly presented for a vote at the Annual Meeting.

If your shares are held in street name, you must vote your shares in the manner prescribed by your brokerage firm, bank or other nominee. Your brokerage firm, bank or other nominee should provide a voting instruction form for you to use in directing it how to vote your shares.    You will not be able to vote your shares in person at the Annual Meeting unless you obtain a legal proxy from your brokerage firm, bank or other nominee.

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Q:   Who may attend the Annual Meeting and are there any requirements I must meet in order to attend in person?

A:   Any shareholder of record as of March 9, 2015 may attend. You will be asked to register upon arrival and will be required to present proof of current stock ownership (such as a recent account statement) and government‑issued photo identification (such as a driver’s license) prior to being admitted.

If your shares are held in street name and you do not obtain a legal proxy but still want to attend the Annual Meeting (and not vote your shares in person), you may provide other evidentiary material, such as broker statements or a letter from your broker proving ownership as of the Record Date. CMS reserves the right to restrict admission if evidentiary material is not definitive proof of proper and timely ownership.

Q:   Can I change my vote after I have voted or can I revoke my proxy?

A:   Yes. If you are a shareholder of record, you can revoke your signed proxy card at any time before it is voted at the Annual Meeting, either by signing and returning a proxy card with a later date or by attending in person and changing your vote at the Annual Meeting. If you have voted your shares by telephone or Internet, you can revoke your prior telephone or Internet vote by recording a different vote, or by signing and returning a proxy card dated as of a date later than your last telephone or Internet vote, but prior to the close of the ballots at the Annual Meeting.

If your shares are held in street name, you may submit new voting instructions to your broker, bank or other nominee.

Q:   What constitutes a quorum at the Annual Meeting?

A:   The presence of the holders of a majority of the outstanding shares of Common Stock in person or by proxy at the Annual Meeting will constitute a quorum, which is needed to transact any business. Abstentions and broker discretionary votes are counted towards establishing a quorum, as discussed in more detail below.

Q:   How are votes counted for each item?

A:   Your confidential vote is received and counted by the tabulator and inspector of election. Your vote will not be disclosed except as required by law or in other limited circumstances. The determination of approval of corporate action by the shareholders is based on votes “for” and “against.” In general, abstentions are not counted as “for” or “against” votes but are counted in the determination of a quorum.

With respect to Proposal 1, the election of each director nominee requires approval from a majority of the votes cast by the shares present in person or represented by proxy at the Annual Meeting and entitled to vote on the election of directors (see Corporate Governance, Majority Voting Standard later in this Proxy Statement for additional information about the application of this standard). On Proposals 2 and 3, approval requires votes “for” by a majority of the votes cast by the holders of shares entitled to vote thereon.

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Under the New York Stock Exchange, Inc. (“NYSE”) listing standards, if your broker, bank or other nominee holds your shares in its name and does not receive voting instructions from you, your broker, bank or other nominee has discretion to vote these shares on “routine” matters only and will not be able to vote on non‑routine items. For purposes of the Annual Meeting, we understand that the proposal relating to the ratification of the appointment of our independent registered public accounting firm will be treated as a routine item, but all other proposals will be non‑routine items. On routine items, broker discretionary votes are counted toward determining the outcome of those items. Broker discretionary votes are counted toward establishing a quorum.

Q:   What does it mean if I get more than one set of proxy materials?

A:   You may receive multiple copies of proxy materials if your shares are registered differently (i.e. trust, joint, name spelling variation, etc.) and/or if they are in more than one account (i.e. broker, bank, transfer agent, etc.).  Please vote all of the proxies that you receive and consider consolidating accounts.    

If you are a shareholder of record receiving multiple sets of materials and wish to consolidate accounts, please contact Wells Fargo at 1-855-598-2714.

If your shares are held in street name and you are receiving multiple sets of materials and wish to consolidate accounts, please contact your brokerage firm, bank or other nominee.

Q:   What is “householding” and how does it affect me?

A:   We have adopted a procedure called “householding” which has been approved by the Securities and Exchange Commission (“SEC”).   Householding is intended to reduce printing costs, mailing costs and fees by eliminating the mailing of duplicate copies of the Annual Report and Proxy Statement to any household at which two or more shareholders reside.  Under this procedure, a single copy of the Annual Report and Proxy Statement will be sent to such households if the shareholders at such households consent, unless one of the shareholders at the address notifies us that they wish to receive additional copies, at which time separate sets of documents will be promptly delivered to you. Consent for householding will remain in effect until revoked.  Shareholders who participate in householding will continue to receive separate proxy cards. 

You may revoke your consent to household at any future date by submitting a written request to Broadridge Householding Dept, 51 Mercedes Way, Edgewood, NY 11717, or making an oral request by telephone to 1-800-542-1061. 

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If you share an address and would like a single copy of our Annual Report or Proxy Statement please notify CMS by making a request to our Corporate Department at CMS Energy Corporation, One Energy Plaza, Jackson, Michigan 49201, 1-517-788-0298.

If your shares are held in street name, you can request information about householding by contacting your brokerage firm, bank or other nominee.

Q:  Can I elect to receive and view CMS’ Annual Report and Proxy Statement electronically?

A:   If you are a shareholder of record and you received printed proxy materials, you may elect to receive future proxy materials electronically. To do so you must provide your consent and enroll in this service by following the instructions listed on your proxy card.  By consenting to electronic delivery, you are stating that you currently have, and expect to have, access to the Internet. If you do not currently have, or do not expect to have, access to the Internet, please do not elect to have documents delivered electronically. If you choose to receive future proxy materials electronically, you will receive an e-mail message next year containing the Internet address to view materials. Your enrollment will be effective until revoked.  

If your shares are held in street name you should contact your brokerage firm, bank or other nominee and inquire about their electronic delivery options. All Shareholders can view, search and print the current year’s Proxy Statement and Annual Report at www.cmsenergy.com/investor-relations.

 

Q:   Who pays the cost of soliciting proxies?

A:   The cost of solicitation of proxies will be borne by CMS. Proxies may be solicited by directors, officers and other employees of CMS or its subsidiaries or affiliates, personally or by telephone, facsimile, Internet, or mail, none of whom will receive compensation for their solicitation efforts. We have arranged for Morrow & Co., LLC, 470 West Avenue, Stamford, Connecticut 06902, to solicit proxies in such manner, and it is anticipated that the cost of such solicitations will amount to approximately $10,000, plus incidental expenses. We may also reimburse brokers, dealers, banks, voting trustees or other record holders for postage and other reasonable expenses of forwarding proxy materials to the beneficial owners of CMS Common Stock held of record by such brokers, dealers, banks, voting trustees or other record holders.

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Q:   How does a shareholder recommend a person for election to the Boards for the next Annual Meeting?

A:   Shareholders can submit recommendations of nominees for election to the Boards. Shareholder recommendations will be provided to the Governance and Public Responsibility Committees (the “Governance Committees”) for consideration. The information that must be included and the procedures that must be followed by a shareholder wishing to recommend a director candidate for the Boards’ consideration are the same as would be required under our Bylaws if the shareholder wished to nominate that candidate directly. You may access the Bylaws at www.cmsenergy.com/corporategovernance. Accordingly, any recommendation submitted by a shareholder regarding a director candidate must be submitted within the time frame provided in the Bylaws for director nominations and must include (a) a statement from the proposed nominee that he or she has consented to the submission of the recommendation and (b) such other information about the proposed nominee that would be required by our Bylaws to be included in a notice to CMS were the shareholder intending to nominate such proposed nominee directly. Shareholders should send their written recommendations of nominees c/o the Corporate Secretary, CMS Energy Corporation or Consumers Energy Company, One Energy Plaza, Jackson, Michigan 49201.

 

CORPORATE GOVERNANCE

Background

 

The Boards have adopted Amended and Restated Corporate Governance Principles (“Principles”) that reflect corporate and Board practices as well as SEC rules and NYSE listing standards. The Principles describe the role of the Boards and their Committees, the role of the Chairman of the Board (“Chairman”), the role of the Chief Executive Officer (“CEO”), the composition and meeting procedures of the Boards and their Committees, as well as Board and Committee compensation and self‑evaluation matters. The Governance Committees are responsible for overseeing and reviewing the Principles at least annually and recommending any proposed changes to the Boards for approval. The Boards have adopted Charters for each of their standing Committees, except the Executive Committees, that detail their purposes and duties, composition, meetings, resources and authority as well as other aspects of Committee activities. Each Committee reviews its Charter annually and recommends changes to the Governance Committees for review and recommendation to the Boards for approval.

The current versions of our Principles, the Charters of our standing Committees (other than the Executive Committees), and other corporate governance information, including our Employee and Director Codes of Conduct, are available through our website at www.cmsenergy.com/corporategovernance.

 

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Boards of Directors

 

The Boards provide oversight with respect to our overall performance, strategic direction and significant corporate policies. They approve major initiatives, advise on key financial and business objectives, and monitor progress with respect to these matters. Directors are kept informed of our business by various reports and documents provided to them on a regular basis, including operating and financial reports made at Board and Committee meetings by our CEO, Chief Financial Officer (“CFO”) and other officers. The Boards have five standing Committees, the principal responsibilities of which are described under Board and Committee Information below.

 

Board Leadership Structure

 

The Principles provide that the Boards have determined, for the present time, it is in the best interests of the Corporation and its shareholders to keep the offices of CEO and Chairman separate to enhance oversight responsibilities. The Boards believe that this leadership structure promotes independent and effective oversight of management on key issues relating to long‑range business plans, long‑range strategic issues and risks. The Principles also provide that at any time when the Chairman is not considered independent under NYSE listing standards and our Principles, a Presiding Director will be chosen by the independent directors to coordinate the activities and preside at the executive sessions attended only by the independent members of the Boards.

Risk Oversight

 

The Boards’ risk oversight process includes regular reports from senior management on areas of material operational, legal, regulatory, financial, strategic, compliance and reputational risk. The Boards receive an annual risk management review from the Corporation’s Executive Director of Risk in addition to the risk oversight functions performed by the various Committees of the Boards. These include: (1) a review by the Audit Committees of the risks associated with the Corporation’s operating and financial activities which could impact its financial and other disclosure reporting as well as a review of the Corporation’s policies on risk assessment, controls and accounting risk exposure; (2) the Audit Committees’ review and approval of risk management policies; (3) a review by the Compensation and Human Resources Committees (“Compensation Committees”) of the potential risks associated with the Corporation’s executive compensation policies and practices; and (4) the Compensation Committees’ review of management’s assessment of the likelihood that the Corporation’s incentive compensation plans will have a material adverse impact on the Corporation.

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Compensation Risk

 

Management annually undertakes a comprehensive review of the compensation policies and practices throughout the organization in order to assess the risks presented by such policies and practices. Following this year’s review, we have determined that such policies and practices are not reasonably likely to have a material adverse effect on the Corporation. Management’s analysis and determination were reported to and reviewed by the Compensation Committees.

 

Director Independence

 

Each Board has determined that the following Directors, comprising all of the non-employee Directors, are “independent” under the NYSE listing standards and our more stringent independence standards included in our Principles: Mr. Barfield, Ms. Butler, Mr. Darrow, Mr. Ewing, Mr. Gabrys, Mr. Harvey, Mr. Joos, Mr. Lochner, Ms. Soto, Mr. Way, Ms. Wright and Mr. Yasinsky. The Independence Standards adopted by the Boards as part of our Principles, can be found on our website at www.cmsenergy.com/corporategovernance. These Independence Standards identify, among other things, material business, charitable and other relationships that could interfere with a Director’s ability to exercise independent judgment.  The Boards identified the following relationships which they deemed were immaterial to such directors’ independence:

Each member of each Audit Committee is independent as defined in the NYSE listing standards and the applicable rules and regulations of the SEC.

Each member of each Compensation Committee satisfies the independence tests set forth in the NYSE listing standards, the regulations under Section 162 of the Internal Revenue Code (“IRC”) and Section 16 of the Securities Exchange Act of 1934 (the “Exchange Act”).

 

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Majority Voting Standard

 

Under the Boards’ majority voting standard, as contained in the CMS Articles of Incorporation and the Principles, any director nominee who receives less than a majority of the votes cast by the Corporation’s shareholders at a regular election shall promptly tender his or her resignation. For this purpose, a majority of the votes cast means that the number of shares voted “for” a director must exceed 50% of the votes cast with respect to that director, without regard to the effect of abstentions. Upon receipt of such a tendered resignation, the Governance Committees shall consider and recommend to the Boards whether to accept or decline the resignation. The Boards will act on the Governance Committees’ recommendation within 90 days following certification of the shareholder vote, and contemporaneously with that action will cause the Corporation to publicly disclose the Boards’ decision whether to accept or decline such director’s resignation offer (and the reasons for rejecting the resignation offer, if appropriate). The director who tenders his or her resignation pursuant to the standard will not be involved in either the Governance Committees’ recommendation or the Boards’ decision to accept or decline the resignation. Due to complications that arise in the event of a contested election of directors, this standard would not apply in that context, and the underlying plurality vote requirement of Michigan law would control any contested director elections.

 

Codes of Ethics

 

CMS has adopted a code of ethics, titled “CMS Energy 2015 Code of Conduct and Guide to Ethical Business Behavior” (the “Employee Code”) that applies to its CEO, CFO and Chief Accounting Officer (“CAO”), as well as all other officers and employees of the Corporation and its subsidiaries, including Consumers. CMS and Consumers have also adopted a code of ethics titled “Board of Directors Code of Conduct” (the “Directors’ Code”) that applies to the members of the Boards. The Governance Committees annually review the codes of ethics and recommend changes to the Boards, as appropriate. The Employee Code is administered by the Chief Compliance Officer (“CCO”), who reports directly to the Audit Committees. The Audit Committees oversee compliance with the codes of ethics for employees and directors. Any alleged violation of the Directors’ Code by a director will be investigated by disinterested members of the Audit Committees, or if none, by disinterested members of the Boards. The Governance Committees would recommend appropriate action to the Boards in the event a determination is made that a director violated the Directors’ Code. Any waivers of, or exceptions to, a provision of the Employee Code that applies to our CEO, CFO, CAO or persons performing similar functions and any waivers of, or exceptions to, a provision of our Directors’ Code will be disclosed on our website at www.cmsenergy.com/complianceandethics. No such waivers or exceptions were granted in 2014. The Employee Code and the Directors’ Code are posted on our website at www.cmsenergy.com/complianceandethics.

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Board Communication Process

 

CMS and Consumers shareholders, employees or third parties can communicate with the Boards, Committees of the Boards, the independent directors as a group, or an individual director, including our Chairman, by sending written communications c/o the Corporate Secretary, CMS Energy Corporation or Consumers Energy Company, One Energy Plaza, Jackson, Michigan 49201. The Corporate Secretary will forward such communications to the Boards, or the appropriate Committees, group of directors or individual director. Further information regarding shareholder, employee or other third‑party communications with the Boards or their Committees, the independent directors or individual members of the Boards can be accessed on our website at www.cmsenergy.com/corporategovernance.

In addition, the Corporation has an on‑going outreach program to develop and maintain communication with its largest institutional shareholders in regards to governance and compensation issues. The Corporation values these discussions and the Board considers the pertinent feedback when evaluating corporate governance and compensation issues.

Any shareholder, employee or third party who wishes to submit a compliance concern to the Boards or applicable Committees, including complaints regarding accounting, internal accounting controls or auditing matters to the Audit Committees, may do so by any of the following means:

All such communications will be reviewed by the CCO (who reports directly to the Audit Committees of the Boards) prior to being forwarded to the Boards or applicable Committees or directors.

 

Related Party Transactions

 

CMS, Consumers or one of their subsidiaries may occasionally enter into transactions with related parties. “Related Parties” include directors or executive officers, beneficial owners of more than 5% of CMS Common Stock, family members of such persons, and entities in which such persons have a direct or indirect material interest. We consider a related party transaction to have occurred when a Related Party enters into a transaction in which the Corporation is

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participating, the transaction amount is more than $10,000 and the Related Party has or will have a direct or indirect material interest (“Related Party Transaction”).

In accordance with our Employee Code and our Directors’ Code, Related Party Transactions must be pre‑approved by the Audit Committees. In drawing its conclusion on any approval request, the Audit Committees consider the following factors:

The policies and procedures relating to the Audit Committees’ approval of Related Party Transactions are found in the Employee Code and Directors’ Code which are available on our website at www.cmsenergy.com/complianceandethics.

There are no Related Party Transactions to report.

 

No Pledging or Hedging

 

In accordance with our Employee Code and the Directors’ Code (collectively, the “Codes”), CMS’ and Consumers’ employees and directors may not engage in pledging or purchasing on margin CMS securities, “trading” of CMS securities or selling “short” CMS securities or buying or selling puts or calls, hedges or other derivative securities relating to CMS securities, including compensatory awards of equity securities or CMS securities otherwise held, directly or indirectly, by those persons. For purposes of these Codes, “trading” means a combination or pattern of substantial or continuous buying and selling of securities with the primary objective of realizing short‑term gains. Selling “short” is a technique in which investors bet on a stock price falling by selling securities they do not own with the understanding that they will buy them back, hopefully at a lower price.

 

Board and Committee Information

 

The CMS Board met 8 times and the Consumers Board met 7 times during 2014. Our Principles state the expectation that each director will attend all scheduled board and committee meetings of which he or she is a member, as well as the Annual Meeting of Shareholders. All CMS and Consumers Directors serving during 2014 attended more than 75% of the Board and assigned

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committee meetings.  The then‑current Board members, except Messrs. Barfield and Yasinsky, attended the 2014 Annual Meeting of Shareholders.

The Boards each have five standing Committees including an Audit Committee, Compensation Committee, Executive Committee, Finance Committee and Governance Committee. The members and the responsibilities of the standing Committees of the Boards are listed below. Each Committee is composed entirely of “independent” directors, as that term is defined by the NYSE listing standards and the Principles described above. Committees may also invite members of management to attend as they determine appropriate.  Mr. Russell routinely attends committee meetings.

On a regularly‑scheduled basis, the non‑employee directors meet in executive session (that is, with no employee directors present) and may invite such members of management to attend as they determine appropriate. At least once each year, the independent directors meet in executive session in conformance with the NYSE listing standards. In 2014, the CMS independent directors met 5 times and the Consumers independent directors met 4 times.  Mr. Joos presided over the executive sessions of independent directors.

 

Board, Committee and Director Evaluations

According to our Principles, each year the Boards and each of their standing Committees conduct a performance evaluation of their respective previous year’s performance. The Boards also conduct individual director peer evaluations periodically.

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Standing Committee Membership Summary

 

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*     Committee Chair

†     Joined the Committee in January 2015.

(1)    The Charter which sets forth the Committees’ various duties is available on our website at www.cmsenergy.com/corporategovernance.

(2)  Not standing for re-election in 2015.

 

Audit Committees

Meetings during 2014: CMS 8; Consumers 7

Messrs. Barfield and Gabrys, and Ms. Wright qualify as “audit committee financial experts” as such term is defined by the SEC.

The primary functions of the Audit Committees are (subject to the conditions noted in the Report of the Audit Committees later in this Proxy Statement) to oversee the integrity of CMS’ and Consumers’ consolidated financial statements and financial information, the financial reporting process and the system of internal accounting and financial controls and to retain CMS’ and Consumers’ independent auditors. The Audit Committees pre‑approve all audit and non‑audit services provided by the independent auditors, assess the independent auditors’ qualifications and independence and review the independent auditors’ performance. The Audit Committees also oversee compliance with applicable legal and regulatory requirements and with the Corporation’s codes of ethics, and oversee our risk management policies, controls and exposures. In addition, the Audit Committees review the performance of the internal audit function and prepare the Report of the Audit Committees for inclusion in the Proxy Statement.

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Compensation and Human Resources Committees

Meetings during 2014: CMS 5; Consumers 5

The primary functions of the Compensation Committees are to review and approve the Corporation’s executive compensation structure and policies and set the CEO compensation level. The Compensation Committees review and recommend to the Boards incentive compensation plans, review and approve the grant of stock and other stock‑based awards pursuant to the Corporation’s incentive plans and review and approve corporate financial and business goals and target awards, and the payment of performance incentives, pursuant to the Corporation’s annual incentive plans. The Compensation Committees also produce an annual report of the Compensation Committees to be included in the Corporation’s Proxy Statement as required by SEC rules and regulations. In addition, the Compensation Committees are responsible for reviewing and approving the CEO’s selection of candidates for officer positions and recommending such candidates to the Boards for annual or ad hoc election as officers, reviewing and approving officer stock ownership guidelines and compliance, reviewing and advising the Boards concerning the Corporation’s management succession plan and reviewing the Corporation’s organizational and leadership development plans and programs.

As part of the regular review process to determine if our compensation arrangements with our executive officers are appropriate, the Compensation Committees directly retained Pay Governance LLC (“Pay Governance”) as their independent executive compensation consultant. See the Objectives of Our Executive Compensation Program section of the Compensation Discussion and Analysis for additional information about the services provided to the Compensation Committees by Pay Governance.

 

Finance Committees

Meetings during 2014: CMS 3; Consumers 3

The primary functions of the Finance Committees are to review and make recommendations to the Boards concerning the financing and investment plans and policies of the Corporation. Their responsibilities include approving short‑ and long‑term financing plans, approving financial policies relating to cash flow, capital structure and dividends, recommending Board action to declare dividends, reviewing and approving potential project investments and other significant capital expenditures and monitoring the progress of significant capital projects.

 

Governance and Public Responsibility Committees

Meetings during 2014: CMS 6; Consumers 6

The primary functions of the Governance Committees are to establish and review the Principles, identify and recommend director candidates, consider resignations of directors, review the operation and performance of the Boards and Committees and review public responsibility matters. The Governance Committees also review the codes of ethics and recommend actions to

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the Boards in cases where directors have violated the Directors’ Code. The Governance Committees consider director candidates recommended by shareholders if they are: submitted in writing to the Corporate Secretary within the required time frame preceding the Annual Meeting; include the candidate’s written consent to serve; and include relevant information about the candidate as provided in the Bylaws and as determined by the Governance Committees. Shareholders can submit recommendations of nominees for election to the Boards by following the directions previously outlined in this Proxy Statement under the heading: GENERAL INFORMATION ABOUT THE 2015 ANNUAL MEETING AND VOTING.

Director candidates are sought whose particular background, experiences or qualities meet the needs of the Boards as may be determined by the Boards from time to time. The Boards also value high standards of integrity, business ethics and mature judgment, which add value, perspective and expertise to the Boards’ deliberations. The Governance Committees have not established any specific, minimum qualifications that must be met by director candidates or identified any specific qualities or skills that they believe our directors must possess. Although the Governance Committees have not established a formal policy on diversity, the Boards and the Governance Committees believe it is important that our directors represent diverse viewpoints and backgrounds. The Governance Committees take a wide range of factors into account in evaluating the suitability of director candidates, including business experience; leadership skills; and regulated utility, governance, accounting, finance, legal, information technology, compensation and human resources experience which will bring a diversity of thought, perspective, approach and options to the Boards. The Governance Committees do not have any single method for identifying director candidates but will consider candidates suggested by a wide range of sources. In 2014, the Governance Committees retained a search firm (Russell Reynolds Associates) to assist in the identification and assessment of potential director candidates, which identified Mses. Deborah H. Butler and Myrna M. Soto.  Mses. Butler and Soto were elected to the Boards effective January 22, 2015.  They are the only director nominees for the 2015 Annual Meeting of Shareholders who are standing for election by the shareholders for the first time.

 

Executive Committees

Meetings during 2014: None.

The primary function of the Executive Committees is to exercise the power and authority of the Boards as may be necessary during the intervals between meetings of the Boards, subject to such limitations as are provided by law or by resolution of the Boards.

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PROPOSAL 1: ELECT THE 11 DIRECTOR NOMINEES TO THE CORPORATION’S BOARD OF DIRECTORS

There are 11 nominees for election as directors of CMS and Consumers, to hold office until the next annual meeting and until their successors are elected and qualified. The Boards believe that the nominees will be available to serve, but in the event any nominee is unable to do so, the CMS proxy will be voted for a substitute nominee designated by the Boards or the number of directors constituting the full Boards will be reduced accordingly. All of the nominees are currently serving as directors and have accepted nomination and agree to serve if elected. Two current board members,  Kenneth L. Way and John B. Yasinsky,  are not standing for re‑election to the Boards, having attained the mandatory retirement age of 75, as set forth in the Principles. Consequently, effective with the Annual Meeting of Shareholders on May 1, 2015, the size of the Boards will be reduced by two members for a total of 11 members.

The name, age and business experience of each nominee follows, as well as a description of the specific experience, qualifications, attributes or skills of each nominee that led to the Boards’ conclusion that such nominee should serve as director. In addition to the qualifications listed below, board members are expected to attend at least one continuing education program annually,  sponsored by a recognized utility industry or corporate governance organization. All director nominees who served during 2014 attended at least one continuing education program. To assist the Boards in remaining current with their board duties, committee responsibilities and the many important developments impacting the Corporation, CMS participates in the NYSE‑Corporate Board Member Board Education Program. This NYSE program offers the Corporation’s directors access to a wide range of in‑person, peer‑based and webinar educational programs on corporate governance, committee duties, board leadership and industry developments. Also, the Corporation has an internal director education program. The internal program includes Corporate and industry information disseminated through orientation programs, business training modules and reports and CMS operational site visits. 

 

 

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The Board recommends a vote FOR the election of each director nominee.

 

 

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BENEFICIAL OWNERSHIP OF CMS COMMON STOCK

The following table shows those persons known to us as of March 9, 2015  to be the beneficial owners of more than 5% of CMS Common Stock:

 

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Each of these Schedule 13G and 13G/A filings indicates that these shares were acquired in a fiduciary capacity in the ordinary course of business for investment purposes. To the knowledge of our management, no other person or entity currently owns beneficially more than 5% of any class of our outstanding voting securities. The Schedules 13G and 13G/A filed by the holders identified above do not identify any shares with respect to which there is a right to acquire beneficial ownership. Except as otherwise noted, the persons named in the table above have sole voting and investment power with respect to all shares shown as beneficially owned by them.

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The following table shows the beneficial ownership of CMS Common Stock as of March 9, 2015 by the directors and named executive officers of both CMS and Consumers and by all directors and executive officers as a group:

 

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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires our directors, executive officers and beneficial owners of more than 10% of CMS Common Stock to file with the SEC reports of beneficial ownership and changes in such ownership of any of CMS or Consumers equity securities or related derivative securities. To management’s knowledge, based upon a review of reports filed with the SEC and representations received from our directors and executive officers, during 2014, CMS and Consumers directors, executive officers and more than 10% beneficial owners made all required Section 16(a) filings on a timely basis.

 

COMPENSATION DISCUSSION AND ANALYSIS

In this section, we describe and discuss our executive compensation program, including its objectives and elements, as well as determinations made by the Compensation Committees of the Boards regarding the compensation of our CEO, CFO and the three other most highly compensated executive officers of each of CMS and Consumers, who we collectively refer to as our “named executive officers” (“NEOs”). Included in the Compensation Discussion and Analysis is the following:

–    Performance and compensation program highlights

–    Details regarding NEO compensation and performance results

–    Role of each executive compensation element

 

 

Executive Summary

Objectives of the Compensation Program

The objectives of our executive compensation program are to:

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The Corporation’s 2014 Performance

The Corporation has delivered consistent EPS growth with a three‑year average growth rate of 7% and a five‑year average growth rate of 7%. As the chart below indicates, the Corporation has also delivered TSR above the median TSR of the Corporation’s Performance Peer Group for the one-year, three‑year and five‑year periods ending December 31, 2014.

 

Total Shareholder Return

CMS vs. Performance Peer Group Median

 

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Based on these achievements, our Annual Incentive Compensation Plan paid out at 124% of target and our long‑term incentive (“LTI”) program paid out at 145% of target overall (160% of target for the performance‑based portion). The LTI performance‑based payout was based on awards granted in 2011, with the payout of such awards determined based on the Corporation’s relative TSR performance from January 2011 to January 2014.

The Corporation’s 2014 Annual Meeting resulted in an overwhelmingly high level of shareholder support for the Corporation’s shareholder advisory vote to approve executive

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compensation as described in the 2014 Proxy Statement.   Approximately 98% of votes cast were in favor of the proposal; very similar to the 2012 and 2013 advisory votes.

In addition, we were recognized by the Edison Electric Institute for long-term financial performance (top cumulative shareholder return) that was best among companies our size. 

 

Program Design

We have established our executive compensation program based on balance and simplicity:

 

 

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Best Practices

We annually review all elements of the Corporation’s executive compensation program, and, in addition to complying with required rules, we adopt current best practices where appropriate for our business and shareholders. As a result, we have:

The remainder of this Compensation Discussion and Analysis offers a detailed explanation of our NEO compensation program.

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Objectives of Our Executive Compensation Program

 

The Compensation Committees are responsible for approving the compensation program for our NEOs. The Compensation Committees act pursuant to a charter that is annually reviewed by our Boards and is available on our website.

As mentioned in the Executive Summary section of this Compensation Discussion and Analysis, the NEO compensation program is organized around four principles:

 

NEO Compensation Should Be Aligned With Increasing Shareholder Value

We believe that a substantial portion of total compensation should be delivered in the form of at-risk equity in order to further align the interests of our NEOs with the interests of our shareholders. Equity compensation is provided through the Performance Incentive Stock Plan (“Stock Plan”). In 2014,  our annual LTI cycle resulted in 75% of equity compensation provided to NEOs that was awarded in the form of performance‑based restricted stock, with vesting of such awards subject to the achievement of relative TSR performance and relative EPS growth goals,  each weighted equally, over a three‑year performance period. The remaining 25% of equity compensation provided to NEOs in 2014 was awarded in the form of tenure‑based restricted stock that generally vests on the third anniversary of the award date, subject to the NEO’s continued employment with the Corporation.

 

Our Compensation Program for NEOs Should Enable Us To Compete for and Secure Top Executive Talent

Shareholders are best served when we can attract, retain and motivate talented executives with compensation packages that are competitive and fair. We create a compensation package for NEOs that delivers base salary, annual incentives and long‑term incentives targeted at the 50th percentile of the market. For utility-specific roles, the market is defined by the Compensation Committees’ approved 22‑company Compensation Peer Group. The Compensation Peer Group consists of energy companies comparable in business focus and size to CMS with which we might compete for executive talent. For general industry roles, size-adjusted public utility sector and general industry data are developed as representative of the market. In 2014, the CEO’s  base salary, total cash compensation, target LTI, and total direct compensation were each comparable to the median of the Corporation’s Compensation Peer Group.

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Annually, the Compensation Committees engage a consultant to provide advice and information regarding compensation practices of the Compensation Peer Group as well as additional information from published surveys of compensation in the public utility sector and general industry.

During the Compensation Committees’ review of the CEO’s and other officers’ compensation levels, the Compensation Committees considered the advice and information received from Pay Governance LLC (“Pay Governance”), the Compensation Committees’ independent compensation consultant; however, the Compensation Committees were ultimately responsible for determining the form and amount of executive compensation. The Compensation Committees must direct and approve any work Pay Governance undertakes on behalf of the management of CMS or Consumers.    During the time that Pay Governance has been engaged as the compensation consultant, Pay Governance has not performed any services on behalf of the management of CMS or Consumers or otherwise was considered to have a conflict of interest regarding CMS or Consumers.

Compensation Peer Group data, where available by position, serves as the primary reference point for pay comparisons of utility-specific roles. Broader survey data and published proxy data are also provided by the compensation consultant as a point of reference for utility specific roles and comparisons of general industry roles (primarily for staff positions). Where available by position, Pay Governance gathers compensation data from Towers Watson’s Energy Services Executive Database (over 60 investor‑owned utilities) and Towers Watson’s General Industry Executive Database (over 400 participating companies), which it regresses based on CMS’ revenues to provide additional market context to the Compensation Peer Group. In selecting members of the Compensation Peer Group, financial and operational characteristics are considered. The criteria for selection of the Compensation Peer Group included comparable revenue, approximately $2.9 billion to $12.6 billion (ranging from approximately two‑fifth to two times that of CMS), relevant industry characteristics, business mix (revenue mix between regulated and non‑regulated operations) and availability of compensation and financial performance data.

While the Compensation Peer Group has remained substantially unchanged since 2010, CMS revenues and market capitalization have increased relative to its peers and a number of transactions within the utility sector have occurred, decreasing the number of companies in the group. As such, for evaluating 2014 compensation decisions, CMS modified the Compensation Peer Group so that median revenues for the group better reflected those of CMS and to ensure a more robust competitive comparison by expanding the number of companies in the Peer Group. The following additional companies were added to the Compensation Peer Group: Edison International, PPL Corporation, Entergy Corporation, Sempra Energy, Public Service Enterprise Group Incorporated,  Pinnacle West Capital Corporation, and Hawaiian Electric Industries, Inc.    In addition, NSTAR Electric Company and Progress Energy, Inc. were removed from the Compensation Peer Group due to their respective mergers in 2012. In 2014, the Compensation Peer Group was composed of the following 22 companies.

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The Compensation Committees recognize that there is a difference between the companies against which we compete for executive talent (the “Compensation Peer Group”) and the companies against which we compete for capital (the “Performance Peer Group”) and therefore use different peer groups for these two different purposes. For this reason, the Compensation Committees approved the use of the Compensation Peer Group shown above, for evaluating 2014 NEO compensation decisions and a larger peer group, the Performance Peer Group shown below,  as a reference for TSR performance and EPS growth. The Performance Peer Group is used to measure TSR performance and EPS growth for LTI program award vesting determination. The Compensation Committees’ rationale for using two peer groups is to provide appropriate comparative companies relative to the different attributes being evaluated for compensation and TSR performance and EPS growth purposes. In addition, the larger group for TSR performance and EPS growth is considered by the Compensation Committees to provide for better gradation of performance position.

For awards made in 2014, the Performance Peer Group was composed of the following 47 companies, each of which are included in either the S&P 500 or S&P Midcap 400 utilities indexes.

 

 

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NEO Compensation Should Reward Measurable Results

Base salary is reviewed annually and may be adjusted based on a variety of factors including each NEO’s overall performance and tenure. The CEO provides a recommendation of annual base salary adjustments and annual restricted stock awards for all officers, other than the CEO,  to the Compensation Committees. The Compensation Committees take the CEO’s recommendations, along with information provided by the compensation consultant (Compensation Peer Group and other market data from surveys) into consideration when making adjustments. CEO base salary is determined solely by the Compensation Committees.  Considerations include the market data, Compensation Peer Group data and overall Corporation and CEO performance.

Annual incentives, the other form of cash compensation, provide for award opportunities to each NEO under the CMS Incentive Compensation Plan for CMS and Consumers Officers (the “Annual Incentive Plan”). The Annual Incentive Plan pays incentives on the basis of performance for a one‑year period. Performance objectives under the Annual Incentive Plan are developed each year through an iterative process. Management, including executive officers, develops preliminary recommendations for review by the Compensation Committees’ and the establishment of final goals. For 2014, the Annual Incentive Plan targeted awards at 45% to 100% of each NEO’s base salary, but actual awards could range from zero to two times the target level depending on performance against specific targets. Incentives under the Annual Incentive Plan are paid if, and to the extent that, corporate goals, approved by the Compensation Committees, are attained.

The majority of equity compensation is also designed to reward measurable results and is based on a comparison of the Corporation’s TSR performance and EPS growth to the TSR and EPS growth performance of the Performance Peer Group. For 2014, 75% of the equity compensation granted to the NEOs was performance‑based with TSR and EPS growth each weighted equally.

The table below illustrates the manner in which: (a) the overall mix of total compensation was allocated between performance and non‑performance‑based elements for each NEO; (b) performance‑based compensation was allocated between annual and long‑term elements; and (c) total compensation was allocated between cash and equity.

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2014 Total Compensation Mix Table(1)

 

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Our Compensation Program Should Be Fair and Competitive

We strive to create a compensation program that is fair, both internally and externally.  This is accomplished by evaluating each NEO’s individual performance and by comparing the compensation that is provided to our NEOs to:

Use of Tally Sheets.  At least annually, the Compensation Committees review tally sheets for each of the NEOs. These tally sheets reflect all components of compensation, including base

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salary, short‑term (annual) and long‑term incentive compensation, retirement benefits, deferred compensation benefits, death benefits, and benefits or payments that would be payable in connection with a termination of employment or change‑in‑control. Tally sheets are provided to the Compensation Committees to show how various compensation and benefit amounts are interrelated and how a change in one component of compensation impacts other components and to enable the Compensation Committees to quantify amounts payable upon various termination scenarios.

The overall purpose of these tally sheets is to consolidate all of the elements of actual and potential future compensation of our NEOs, as well as information about wealth accumulation.  Using tally sheets, an analysis can be made of both the individual elements of compensation (including the compensation mix) and the aggregate total amount of actual and projected compensation. Tally sheet information is used in various aspects of the analysis and compensation decision‑making process including consideration of the management team’s internal pay equity.

 

The Elements of Our Executive Compensation Program

This section describes the various elements of our compensation program for NEOs, together with a discussion of various matters relating to those items, including why we chose to include the items in the compensation program.

 

Cash Compensation

Cash compensation is paid in the form of base salary and annual incentive. Our 2014 compensation program for NEOs was designed so that, subject to performance, the percentage of target cash compensation for our NEOs is comparable to NEOs of the Compensation Peer Group. That strategy resulted in cash-based compensation (as a percentage of total compensation) representing approximately 38%  for the CEO and 52% to 59% for the other NEOs (excluding the November 2014 restricted stock award to Ms. Poppe). The components making up the cash portion of total compensation are described in more detail below.

Base Salary.  Base salary is included in the NEO’s annual compensation package because we believe it is appropriate that some portion of NEO compensation be provided in a form that is fixed and liquid. Each January, the Compensation Committees determine the NEO base salary. Changes in base salary on a year‑over‑year basis are primarily dependent on comparison to market data and past performance and expected future contributions of each individual. The annual increases in base salaries for NEOs in 2014 were as follows: Mr. Russell 3.3%; Mr. Webb 0%; Mr. Malone 11.4%; Mr. Butler 3.6%; Ms. Poppe 2.9%; Ms. Reynolds 2.7%; and Mr. Mengebier 2.7%. Mr. Malone’s salary increase recognizes his additional responsibilities associated with the Corporation’s flat organizational structure.   

Annual Incentive Plan.  Performance‑based incentives are included as an element of compensation because they permit us to provide an incentive to our NEOs to accomplish

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specific annual goals that represent performance priorities for CMS and provide additional cash compensation only if performance goals approved by the Compensation Committees are achieved. Generally, the threshold, target and maximum performance goals are set so that the relative difficulty in achieving the target level is consistent from year to year. For 2014, the Annual Incentive Plan was based on our success in meeting established EPS and OCF goals described later in this Compensation Discussion and Analysis. The performance goals are set to provide consistent earnings growth and cash flow and are based on historical and forecasted financial performance, and analysis of peer performance goal guidelines.  Under the Annual Incentive Plan, which is intended to meet the requirements of IRC Section 162(m), the maximum amount that can be awarded to any one person is $2.5 million in any one performance year; however, this amount is not reachable by the current payout formulas established for each executive.

The Annual Incentive Plan allows the Compensation Committees to exercise “negative discretion” to reduce or eliminate payouts under the Annual Incentive Plan, but does not allow discretion to increase payouts. The Compensation Committees did not exercise negative discretion in 2014.

Target incentives under the Annual Incentive Plan were approved in January 2014 by the Compensation Committees. In determining the amount of target incentives under the Annual Incentive Plan, the following factors were considered:

Actual payments under the Annual Incentive Plan can range, on the basis of performance, from 15% (threshold) to 200% (maximum) of the target incentive. In addition, under the parameters for the 2014 Annual Incentive Plan, there is a minimum payout if either a threshold EPS performance goal of $0.12 less than target is achieved or a threshold OCF performance goal of $100 million less than target is achieved and there is a maximum payout if EPS performance of $0.12 more than target is achieved and OCF performance of $200 million more than target is achieved.

Under the 2014 Annual Incentive Plan, the annual award will be reduced by 10% if there is no award earned under the operational metrics of the Consumers Incentive Plan and the award will be increased by 10% (but in no event shall the award exceed the maximum of the target annual incentive) if the maximum payout is achieved under the operational metrics of the Consumers Incentive Plan (potential adjustment referred to as “Consumers Incentive Plan modifier”). This potential adjustment provides linkage of executive compensation with the Corporation’s performance goals related to safety, reliability and customer value. No adjustments to the 2014 Annual Incentive Plan were made as the Consumers Incentive Plan

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achieved 9 of the 11 operational goals, which did not result in the maximum payout being achieved.

Plan Performance Factor. We refer to EPS and OCF performance under the Annual Incentive Plan as the “Plan Performance Factor.” Under the Annual Incentive Plan, EPS is determined in accordance with Generally Accepted Accounting Principles (“GAAP”), excluding asset sales, changes in accounting principles from those used in the budget, large restructuring and severance expenses greater than $5 million, legal and settlement costs or gains related to previously sold assets, and regulatory recovery for prior year changes. Under the Annual Incentive Plan, OCF is also determined in accordance with GAAP with adjustments to include changes in power supply cost recovery from budget (disallowances excluded), changes in pension contribution, and gas‑price changes (favorable or unfavorable) related to gas cost recovery in January and February of the following performance year. For 2014, EPS performance constituted 70% of the Plan Performance Factor and OCF performance constituted the remaining 30% of the Plan Performance Factor. The Compensation Committees believe that the allocation between EPS and OCF performance aligns our performance objectives with our Peer Group and the Corporation’s utility‑focused strategy.

Actual 2014 EPS was $1.77, which exceeded the target of $1.74, resulting in achievement of 102% of target and a 125% payout for this metric. OCF was $1,491 million, which was above the target of $1,450 million, resulting in achievement of 103% of target and a 121% payout for this metric.   The 2014  Plan Performance Factor, reflecting achievement levels of both of these performance goals, resulted in a 124% award level payout.

Annual Award Formula. Annual awards for each eligible officer are based upon a standard award percentage of the officer’s base salary for the performance year and are calculated and made as follows:

Individual Award = Base Salary X Standard Award Percentage X Plan Performance Factor X Consumers Incentive Plan modifier.

The Standard Award Percentages for officers are determined annually by the Compensation Committees as discussed above. For 2014, there were no increases to the standard award percentages for NEOs. Standard Award Percentages of base salary for NEOs in 2014 were as follows:

 

 

 

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Equity Compensation

We have generally followed a practice of making all equity awards to our officers on a single date each year. We do not have any program, plan or practice to time annual equity awards to our executives in coordination with the release of material non‑public information. In 2014, equity awards were made in January and are planned to be made in January on an on‑going basis. This enables the Compensation Committees to review total compensation holistically at one time and adjust the levels of various compensation elements and compensation mix as necessary for each individual.

Stock Plan.  As previously indicated, we provide a substantial portion of NEO compensation in the form of equity awards because we believe that such awards serve to align the interests of NEOs and our shareholders. Equity awards to our NEOs are made pursuant to our Stock Plan, which was approved by shareholders in May 2014, and took effect June 1, 2014. The Stock Plan permits awards in the form of stock options, incentive options, stock appreciation rights, restricted stock, restricted stock units, phantom shares and performance units.  The minimum vesting period under the stock plan is 36 months for restricted stock and 36 months for stock options and stock appreciation rights.

Award of Restricted Stock. At the present time, we believe that performance‑based restricted stock is an effective form of equity compensation because of the alignment it creates with shareholders. After the vesting, there is no holding period requirement as long as specific stock ownership guidelines have been met by the NEO  (see Corporate Governance as it Relates to Executive Compensation, Stock Ownership Guidelines, below). The Stock Plan also contains a clawback provision (see Corporate Governance as it Relates to Executive Compensation, Clawback Provisions, below).

Since 2011, three‑quarters of the restricted stock awards have been delivered as performance‑based and one‑quarter as tenure‑based, to deliver a substantial portion of each NEO’s compensation in the form of at‑risk compensation. The performance criteria for the performance‑based restricted stock awards is a comparison of the TSR performance and EPS growth of the Corporation to the TSR performance and EPS growth of the Performance Peer Group, each weighted equally, utilizing the following relative pay/performance schedule:

 

 

If CMS’ TSR performance or EPS growth is less than 0% for the three‑year period, the total payout for the three‑year period cannot exceed 100% of the total award based on relative TSR performance or EPS growth to the Performance Peer Group. The 20‑day stock price averages preceding and including the award date and preceding and including the three‑year

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anniversary of the award date are used to determine the relative TSR performance.  The EPS growth is determined over the three-year performance period beginning with the start of the fiscal year of the grant and ending at the close of the third fiscal year.  The 2014 tenure‑based awards vest if the NEO remains employed by the Corporation on the three‑year anniversary of the date of the award, subject to prorated vesting upon an earlier retirement or termination due to disability.

In 2014, the performance‑based, TSR, restricted stock awards granted in 2011 completed the three‑year performance period. Our TSR for that three‑year period (from January 2011 to January 2014) was 55% while the median TSR for our Performance Peer Group was 44%, placing CMS, by comparison, in the 74th percentile. This resulted in the 2011 performance‑based restricted stock vesting at 160% of target.

In determining the amount of equity compensation that is provided to each NEO in a given year, we consider factors such as retention and incentive practices, the relative percentages of cash and equity paid by the Compensation Peer Group and other market data. The Compensation Committees receive restricted stock award recommendations from the CEO for NEOs other than the CEO based upon these factors, which the Compensation Committees review and approve or modify. CEO restricted stock awards are determined based principally on overall CEO performance and Compensation Peer Group data. Increases in 2014 equity awards were intended to better align equity awards with the market.

The Compensation Committees, desirous of recognizing Ms. Poppe’s significant contributions and incenting Ms. Poppe to remain with and continue contributing at the Corporation in the future, awarded Ms. Poppe a grant of restricted stock that cliff vests in full five years from the date of grant, provided Ms. Poppe continues to be employed by CMS on that date.

Option Granting Practices.  There have been no stock option grants since August 2003 and there are no outstanding options. The Compensation Committees periodically consider the use of stock options as part of the current compensation package for officers but have determined not to include stock options for LTI at this time.    If a stock option were to be granted, the stock plan prohibits:

Perquisites

As part of our competitive compensation plan, our NEOs are eligible for limited perquisites provided by or paid for by us, which include an annual mandatory executive physical examination, retired executive survivor benefits and relocation expenses. Perquisites provided to our NEOs are reviewed on a regular basis. In 2014, we paid no relocation expenses to NEOs.

 

 

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Post‑Termination Compensation

Severance and Change‑in‑Control Benefits.    Certain NEOs are eligible to receive severance payments and other benefits if the officer’s employment terminates for a qualifying event or circumstance as well as change‑in‑control benefits upon a qualifying event or circumstance after there has been a change‑in‑control of CMS. For additional information regarding severance and change‑in‑control benefits, including a definition of key terms and a quantification of benefits that would have been received by our NEOs had a qualifying termination or change‑in‑control occurred on December 31, 2014, see Potential Payments upon Termination or Change‑in‑Control, below.

We believe that these severance and change‑in‑control arrangements are an important part of our executive compensation program and will help to secure the continued employment and dedication of our NEOs, notwithstanding any concern they may have regarding their own continued employment, prior to or following a change‑in‑control. These agreements are useful for recruitment and retention, as nearly all members of the Compensation Peer Group have comparable agreements in place for their senior employees.

 

Deferred Compensation Plans

We have two deferred compensation plans that allow certain employees, including our NEOs, to defer receipt of base salary and/or incentive payments: Deferred Salary Savings Plan (“DSSP”) and the Annual Incentive Plan. The Annual Incentive Plan allows for deferral of up to 100% of the annual incentive award. CMS does not match incentive amounts that are deferred pursuant to the Annual Incentive Plan. Participants have only an unsecured contractual commitment from us to pay the amounts due under both the DSSP and the Annual Incentive Plan. None of the NEOs elected to defer their 2014 annual incentive awards. For additional information regarding the DSSP, see DSSP, under Narrative to 2014 Nonqualified Deferred Compensation Table, below.

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We offer these plans to be competitive with market practice and to permit highly taxed employees to defer the obligation, at their discretion, to pay taxes on certain elements of compensation that they are entitled to receive. The provisions of the DSSP and the Annual Incentive Plan permit them to do this while also receiving investment returns on deferred amounts. We believe these benefits are useful as retention and recruitment tools as many of the Compensation Peer Group companies provide similar plans to their senior employees.

 

Tax‑Qualified Pension and Retirement Plans

The Corporation sponsors tax‑qualified pension and retirement savings plans that cover a broad group of employees.

 

Supplemental Executive Retirement Plans (“SERP”)

The Corporation maintains two supplemental executive retirement plans that allow certain employees, including eligible NEOs, to receive benefits in excess of the benefits that would be payable under the Pension Plan and DCCP.

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We believe that our pension and retirement plans and the SERPs are a useful part of the NEO compensation program and assist in the retention of our senior executives since benefits increase for each year that these executives remain employed by us and continue their work on behalf of our shareholders. We have considered the issue of potential overlap between the two long‑term focused plans (SERPs and equity compensation) and concluded that both are appropriate elements. The SERPs are designed to provide a predictable retirement income, and the equity plan is performance-based and variable and is designed to align the interests of NEOs with our shareholders. Further, both long-term focused plans are market practice and supportive of the philosophy to provide a competitive NEO compensation program.

 

Employees’ Savings Plans

Under the Employees’ Savings Plan for Consumers and affiliated companies, a tax‑qualified defined contribution retirement savings plan (the “Savings Plan”), participating employees, including NEOs, may contribute a percentage of their regular earnings into their Savings Plan accounts. For additional information regarding the Savings Plan, see Savings Plan, under Narrative to 2014 All Other Compensation Table, below.

We maintain the Savings Plan for our employees, including our NEOs, because we wish to encourage our employees to save some percentage of their cash compensation for their eventual retirement. The Savings Plan permits employees to make such savings in a manner that is relatively tax‑efficient.

 

Corporate Governance as it Relates to Executive Compensation

Stock Ownership Guidelines

We have established stock ownership guidelines for our officers. These guidelines require our officers to maintain or establish an equity stake in CMS and thereby more closely link their interests with those of our shareholders. These stock ownership guidelines provide that, within five years of becoming an officer or promotion to a higher ownership requirement, each officer must own shares of Common Stock with a value of one to five times base salary, depending on his or her position. Shares of performance‑based restricted stock are not counted toward stock ownership guidelines.

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The following table illustrates the required NEO stock ownership guidelines:

 

 

All NEOs met these guidelines as of December 31, 2014. Failure of an officer to comply with the guidelines shall result in the following:

 

No Pledging or Hedging of Stock

We prohibit our officers and directors from pledging or purchasing on margin Common Stock, engaging in selling short our Common Stock or engaging in hedging or offsetting transactions regarding our Common Stock.

 

Clawback Provisions

The Compensation Committees have approved “clawback” provisions for certain compensation and benefit plans. These provisions provide the Compensation Committees the discretion to require the forfeiture and return of past benefits or awards if there is a restatement of financial results. The Compensation Committees may also, at their discretion, require a return of a benefit or award in the event of a mistake or accounting error in the calculation of such benefit or award.

 

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Shareholder’s Advisory Vote to Approve Executive Compensation

As part of the Compensation Committees’ on‑going review of executive compensation, we considered the affirmative 2014 shareholder advisory vote (approximately 98% of the votes cast) to approve executive compensation as described in last year’s Proxy Statement and determined that the current philosophy, objectives and compensation elements continue to be appropriate. As such, the Compensation Committees did not make any changes to our executive compensation programs in response to the 2014 shareholder vote. Despite the overwhelmingly high level of shareholder support, we continue to monitor best practices and emerging trends and engage with our large institutional holders regarding compensation elements. In response to the shareholder advisory vote for an annual frequency (87.9% of votes cast) from the Corporation’s 2011 Annual Meeting, the Boards approved and adopted a one year annual frequency for future advisory votes by shareholders to approve executive compensation.

 

Tax Deductibility of Compensation

IRC Section 162(m) limits the tax deductibility of compensation in excess of $1 million paid to a corporation’s CEO and to the other three highest compensated executive officers (other than the CFO) unless such compensation qualifies as performance‑based and is paid pursuant to a plan which is approved by shareholders of the Corporation. The Annual Incentive Plan awards and performance‑based restricted stock are intended to qualify as performance‑based compensation. Because the Compensation Committees also recognize the need to retain flexibility to make compensation decisions that may not meet the standards of Section 162(m), the Compensation Committees may approve nondeductible compensation if necessary or desirable to achieve the goals of our compensation philosophy.

 

COMPENSATION AND HUMAN RESOURCES

COMMITTEES REPORT

The Compensation Committees of the Boards of Directors of CMS and Consumers (the “Boards”) oversee CMS’ and Consumers’ compensation program on behalf of the Boards. In fulfilling their oversight responsibilities, the Compensation Committees reviewed and discussed with management the Compensation Discussion and Analysis set forth in this Proxy Statement.

In reliance on the review and discussions referred to above, the Compensation Committees recommended to the Boards that the Compensation Discussion and Analysis be included in CMS’ and Consumers’ Annual Report on Form 10‑K for the fiscal year ended December 31, 2014, CMS’ Proxy Statement on Schedule 14A relating to CMS’ 2015 Annual Meeting of Shareholders and Consumers’ Information Statement on Schedule 14C, each of which will be or has been filed with the SEC.

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COMPENSATION AND HUMAN RESOURCES COMMITTEES

William D. Harvey (Chair)

Deborah H. Butler (1)

Kurt L. Darrow

Stephen E. Ewing

Kenneth L. Way

John B. Yasinsky

 

(1) Ms. Butler was elected to the Boards, Compensation and Human Resources Committees and Finance Committees effective January 22, 2015.

 

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2014 COMPENSATION TABLES

2014 Summary Compensation Table

The following table contains compensation information for the NEOs of CMS and Consumers for the last three fiscal years.

2014 Summary Compensation Table

 

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(1)The amounts represent the aggregate grant date fair value of the awards, which, with respect to those awards with a performance component, is based upon probable outcome of the performance conditions, determined pursuant to the Financial Accounting Standards Board Accounting Standards Codification Topic 718 Compensation—Stock Compensation (ASC 718) and take into account the expected Common Stock dividend yield associated with the 2012, 2013

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and the 2014 awards. See Note 13, Stock‑Based Compensation, to the Consolidated Financial Statements included in CMS’ Annual Report on Form 10‑K for the year ended December 31, 2014, for a discussion of the relevant assumptions used in calculating the aggregate award date fair value pursuant to ASC 718. The TSR vesting condition related to the performance‑based restricted stock awards is considered a market condition and not a performance condition under ASC 718. Accordingly, there is no grant date fair value below or in excess of the amounts reflected in the table above that could be calculated and disclosed based on achievement of market conditions.  The EPS growth vesting condition is a performance condition under ASC 718.  The 2014 grant date fair value for performance shares was $1,373,619 for Mr. Russell; $346,885 for Mr. Webb; $243,743 for Mr. Malone; $225,000 for Mr. Butler; $75,000 for Ms. Poppe; $161,257 for Ms. Reynolds and $150,000 for Mr. Mengebier.

The grant date fair value for EPS growth performance-based restricted stock, assuming the maximum of the performance goals, would have been $2,747,238 for Mr. Russell; $693,770 for Mr. Webb; $487,486 for Mr. Malone; $450,000 for Mr. Butler; $150,000 for Ms. Poppe; $322,514 for Ms. Reynolds and $300,000 for Mr. Mengebier.

(2)The amounts reported in this column for 2014 consist of cash incentive awards earned in 2014 under our Annual Incentive Plan.

(3)This column does not reflect compensation paid to the NEO. This column represents the aggregate annual increase, as of December 31, 2012, December 31, 2013, and December 31, 2014, in actuarial values of each of the NEO’s benefits under our Pension Plan and DB SERP. The actuarial values are pursuant to Financial Accounting Standards Board Accounting Codification Topic 715, Plan Accounting‑Defined Benefit Plans (ASC 715), and take into account discount rates and implementation of the new mortality table. These two changes and assumptions have caused a material increase in the pension value from prior years. 

See Note 12, Retirement Benefits, to the Consolidated Financial Statements included in CMS’ Annual Report on Form 10‑K for the year ended December 31, 2014, for a discussion of the relevant assumptions used in determining these amounts. Mr. Butler and Ms. Poppe do not participate in the Pension Plan or DB SERP. Mr. Malone does not participate in the DB SERP.

(4)Detail supporting all other compensation for 2014 is reflected in the 2014 All Other Compensation Table, below.

(5)Ms. Poppe and Ms. Reynolds were not NEOs prior to 2014.  As of March 1, 2015, Mr. Malone and Ms. Poppe are each Senior Vice Presidents of CMS and Consumers.

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Narrative to 2014 Summary Compensation Table

 

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2014 All Other Compensation Table

We provide our NEOs with additional benefits that we believe are reasonable, competitive and consistent with CMS’ and Consumers’ overall executive compensation program. The following table contains information regarding these other benefits for 2014.

2014 All Other Compensation Table

 

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Narrative to 2014 All Other Compensation Table

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2014 Grants of Plan-Based Awards

The following table summarizes non‑equity and equity awards made to our NEOs during 2014.

2014 Grants of Plan‑Based Awards Table

 

 

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2014 Outstanding Equity Awards

The following table provides information regarding unvested restricted stock awards for each of the NEOs at December 31, 2014.

Outstanding Equity Awards at Fiscal Year‑End 2014 Table

 

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Mr. Russell:  239,937 (1/26/15); 226,798 (1/24/16); 139,717 (1/22/17); and 105,712 (3/21/17)

Mr. Webb:  71,055 (1/26/15); 62,690 (1/24/16); 35,282 (1/22/17); and 26,696 (3/21/17)

Mr. Malone:  47,659 (1/26/15); 44,254 (1/24/16); 24,795 (1/22/17); and 18,760 (3/21/17)

Mr. Butler:  43,327 (1/26/15); 40,565 (1/24/16); 22,888 (1/22/17); and 17,318 (3/21/17)

Ms. Poppe:  14,030 (1/26/15); 11,802 (1/24/16); 7,631 (1/22/17); 15,000 (1/24/2017); 5,774 (3/21/17); and 20,000 (11/13/19)

Ms. Reynolds:  17,333 (1/26/15); 16,965 (1/24/16); 16,401 (1/22/17); and 12,410 (3/21/17) 

Mr. Mengebier:  28,160 (1/26/15); 25,815 (1/24/16); 15,255 (1/22/17); and 11,542 (3/21/17)

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For performance‑based restricted stock awards, in lieu of dividends, recipients receive additional performance‑based shares of restricted stock that will vest/forfeit based on CMS’ performance and are included above.

The 2014 performance-based portion of the grants  were equally divided between TSR performance and EPS growth and have two different vesting dates respectively (1/22/17 and 3/21/2017).

 

2014 Stock Vested

The following table provides information concerning the vesting of stock during 2014 for each NEO.

2014 Stock Vested Table

 

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2014 Pension Benefits and DB SERP

The following table provides information concerning defined benefit plans as of December 31, 2014 for each NEO.

2014 Pension Benefits and DB SERP Table

 

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