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.          )

 

 

 

 

2019

Notice of Annual Meeting of Stockholders

and Proxy Statement

 

 

 

 

April 4, 2019

Dear Cboe Stockholder:

We cordially invite you to attend the 2019 Annual Meeting of Stockholders (the “Annual Meeting”) of Cboe Global Markets, Inc. to be held on Thursday, May 16, 2019, at 9:00 a.m., local time, on the fourth floor of our principal executive offices located at 400 South LaSalle Street, Chicago, Illinois, 60605.

At the Annual Meeting, you will be asked to do the following:

    elect 13 directors to the Board of Directors to hold office until the next Annual Meeting of Stockholders or until their respective successors have been elected and qualified; 

    approve, in a non-binding resolution, the compensation paid to our executive officers;

    ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the 2019 fiscal year; and 

    transact any other business that may properly come before the meeting and any adjournments and postponements of the meeting.

Enclosed with this letter are a formal notice of the Annual Meeting, a proxy statement and a form of proxy.

Please carefully review the form of proxy that you receive to confirm that it reflects all of your shares of our stock. If you hold stock in different accounts, you may need to complete multiple proxy cards to vote all of your shares.

If you plan to attend the Annual Meeting in person, please note that you will be required to provide acceptable documentation to gain access to the meeting.  See the information under the heading “What do I need to do to attend the Annual Meeting?” in the attached proxy statement.  If you cannot attend the Annual Meeting in person, a live webcast of the Annual Meeting will be provided on the Investor Relations section of our website at http://ir.Cboe.com, however, please submit your vote in advance.  See the information under the heading “Will the Annual Meeting be webcast?” in the attached proxy statement.

Whether or not you plan to attend the Annual Meeting, it is important that your shares be represented and voted. Please submit your proxy by Internet or telephone, or complete, sign, date and return the enclosed proxy using the enclosed postage-paid envelope. The enclosed proxy, when returned properly executed, will be voted in the manner directed in the proxy.

We hope that you will participate in the Annual Meeting, either in person or by proxy.

 

Cboe Global Markets, Inc.

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

The 2019 Annual Meeting of Stockholders (the “Annual Meeting”) of Cboe Global Markets, Inc. will be held on Thursday, May 16, 2019, at 9:00 a.m., local time, on the fourth floor of our principal executive offices located at 400 South LaSalle Street, Chicago, Illinois, 60605, for the following purposes:

You are entitled to vote at the Annual Meeting and any adjournments or postponements of the meeting if you were a stockholder of record at the close of business on March 19, 2019. We also cordially invite you to attend the meeting.

Your vote is important. Whether or not you plan to attend the meeting, please vote as soon as possible.  For additional details, please see the information under the heading “How do I vote?” in the attached proxy statement.

 

April 4, 2019

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE STOCKHOLDER MEETING TO BE HELD ON MAY 16, 2019:

The notice of the Annual Meeting and proxy statement are available on the Investor Relations section
of our website at http://ir.Cboe.com/annual-proxy.

 

TABLE OF CONTENTS

 

 

 

 

 

 

 

We are furnishing this Proxy Statement to you in connection with a solicitation of proxies by the Board of Directors of Cboe Global Markets, Inc., a Delaware corporation, for use at the Cboe Global Markets, Inc. 2019 Annual Meeting of Stockholders on Thursday, May 16, 2019 at 9:00 a.m., local time, and at any adjournments or postponements thereof. The approximate date on which this Proxy Statement and the accompanying form of proxy are first being sent to stockholders is April 4, 2019.

 

Except as otherwise indicated, the terms “the Company,” “Cboe Global Markets,” “we,” “us” and “our” refer to Cboe Global Markets, Inc.  When we use the term “Cboe Options,” we are referring to Cboe Exchange, Inc., a wholly owned subsidiary and predecessor entity of Cboe Global Markets.  On February 28, 2017 (the “Effective Date”), we closed our acquisition of Bats Global Markets, Inc. (“Bats”).

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

CORPORATE GOVERNANCE

PROPOSAL 1 - ELECTION OF DIRECTORS

Board Composition

Our Third Amended and Restated Certificate of Incorporation provides that our Board will consist of not less than 11 and not more than 23 directors. Our Board currently has 13 directors. Each director is elected annually to serve until the next Annual Meeting of Stockholders or until his or her successor is elected or appointed and qualified, except in the event of earlier death, resignation or removal. There is no limit on the number of terms a director may serve on our Board.

General

At the Annual Meeting, our stockholders will be asked to elect the 13 director nominees set forth below, each to serve until the 2020 Annual Meeting of Stockholders. All of the director nominees have been recommended for election by our Nominating and Governance Committee and approved and nominated for election by our Board.  In addition, with respect to Mr. Tilly, his employment agreement provides that the Company will nominate him as a director for stockholder approval at each annual meeting during his employment with us. All of the director nominees were elected as directors by stockholders at the 2018 Annual Meeting of Stockholders.

All of the nominees have indicated their willingness to serve if elected. If any nominee is unable or unwilling to serve as a director at the time of the Annual Meeting, then shares represented by properly executed proxies will be voted at the discretion of the persons named in those proxies for such other person as the Board may designate. We do not presently expect that any of the nominees will be unavailable. Your proxy for the Annual Meeting cannot be voted for more than 13 nominees.

Qualifications and Experience

The Board believes that the skills, qualifications and experiences of the director nominees make them all highly qualified to serve on our Board, both individually and as providing complementary skills on our Board. 6 of our director nominees, 4 of whom are women and 2 of whom are racially diverse, bring an effective mix of diverse perspectives. In addition, our Board’s composition represents a balanced approach to director tenure and age, 8 of the 13 nominees have tenures less than 10 years and the ages range from 50 to 73, allowing the Board to benefit from the experience of longer-serving directors combined with fresh perspectives from newer directors. The following table shows the

specific qualifications and experiences the Board and the Nominating and Governance Committee considered for each nominee. 

Nominees

Set forth below is biographical information for each of the directors nominated to serve on our Board for a one-year term until the 2020 Annual Meeting of Stockholders, as well as the reasons why the Board believes each candidate is well suited to serve as a director. The terms indicated for service include the service on the board of Cboe Options prior to our demutualization and our initial public offering in 2010. 

In addition, as indicated below, certain director nominees also serve on certain boards of directors and committees of Cboe Futures Exchange, LLC (“CFE”), Cboe SEF, LLC (“SEF”) and our securities exchanges, which include Cboe Options, Cboe C2 Exchange, Inc. (“C2”), Cboe BZX Exchange, Inc., Cboe BYX Exchange, Inc., Cboe EDGA Exchange, Inc. and Cboe EDGX Exchange, Inc. (collectively, the “securities exchanges”).

 

Each director nominee must receive the affirmative vote of a majority of the votes cast with respect to his or her election in order to be elected. Each nominee has tendered his or her resignation, contingent on failing to receive a majority of the votes cast in this election and acceptance by the Board. In the event any director fails to receive a majority of votes cast, the Nominating and Governance Committee will consider and make a recommendation to the Board as to whether to accept the resignation. Abstentions and broker non-votes will not be counted as votes cast and therefore will not affect the vote. 

The Board recommends that the stockholders vote FOR each of the director nominees.

Board Structure

Independence

Our Bylaws require that, at all times, no less than two-thirds of our directors will be independent. The Nominating and Governance Committee has affirmatively determined that all of our current directors, except Mr. Tilly, are independent under Cboe BZX Exchange’s (“BZX”) and Nasdaq Global Select Market’s (“Nasdaq”) listing standards for independence. In addition, James R. Boris, Christopher T. Mitchell and Samuel K. Skinner, who did not stand for reelection as directors in 2018, were determined to be independent through May 17, 2018.  

All of the directors on each of the Audit, Compensation and Nominating and Governance Committees are independent. Each of these Committees reports to the Board as they deem appropriate, and as the Board may request.

Lead Director

The Board has an independent Lead Director, Mr. Sunshine. Our Corporate Governance Guidelines require that an independent director serve as our Lead Director. The Lead Director is elected by the Board, upon the recommendation of the Nominating and Governance Committee.  The Charter of the Lead Director, Appendix A to our Corporate Governance Guidelines, provides that the Lead Director’s responsibilities include, among other items:

    Chair all meetings of the non-employee and independent directors of the Board, including the executive sessions;

    Approve agendas for Board meetings and consult with the Chairman on other matters pertinent to us and the Board;

    Serve as a liaison between the Chairman and the independent Directors;

    Approve meeting schedules to assure that there is sufficient time for discussion of all agenda items;

    Advise and consult with the Chairman and CEO on the general scope and type of information to be provided in advance of Board meetings;

    In collaboration with the Chairman and CEO, consult with the appropriate members of senior management about what information pertaining to our finances, operations, strategic alternatives and compliance is to be sent to the Board; and

    To perform other duties as the Board may determine.

Chairman and CEO Roles

Since 2017, in connection with the closing of the acquisition of Bats, we combined the roles of Chairman and CEO, with Mr. Tilly serving as the Chairman and CEO.  Mr. Tilly was also appointed President effective January 14, 2019.  The Board carefully considers its Board leadership structure and the benefits of continuity in leadership roles and continues to believe that the combined roles of Chairman and CEO at this time enhances the Company’s strategic alignment and supports Cboe Global Markets’ ability to deliver stockholder value.

The Board periodically reviews the leadership structure and may make changes in the future based upon what the Board believes to be in the best interests of the Company and stockholders at the time. At certain points in our history, the Chairman and CEO roles have been held by the same person, and at other times, the roles have been held by different individuals. Under our Bylaws, the Chairman may, but need not be, our CEO, and the Board believes it is important to retain its flexibility to allocate the responsibilities of the offices of the Chairman and CEO in any way that is in the best

interests of the Company and stockholders at a given point in time based upon then-prevailing circumstances. The Board believes that the decision as to who should serve in those roles, and whether the offices should be combined or separate, should be assessed periodically by the Board, and that the Board should not be constrained by a rigid policy mandate when making these determinations.

In addition, our Board has implemented the following elements in order to ensure independent oversight for us and for our Board:

    requiring the Board to consist of at least two-thirds independent directors who meet regularly without management and solely with non-employee and independent directors,

    establishing independent Audit, Compensation and Nominating and Governance Committees, and

    appointing an independent Lead Director.

Board Oversight of Risk

The Board is responsible for overseeing our risk management processes. The Board is responsible for overseeing our general risk management strategy, the risk mitigation strategies employed by management and the significant risks facing us, including competition, reputation and technology risks. The Board stays apprised of particular risk management matters in accordance with its general oversight responsibilities. The Board has delegated to the Committees (as defined below) oversight over the following specific areas and all Committees report to the full Board on a routine basis and when a matter rises to the level of a material or enterprise level risk.    For more information about Committee responsibilities, see “Committees of the Board” below.  

 

In addition to our Board, our management is responsible for daily risk management.  More specifically, we utilize a three lines of defense approach to enterprise risk management.  The first line of defense is our business, which is responsible for the performance, supervision and monitoring of our policies and control procedures.  The second line of defense is our compliance and risk management departments that provide an independent oversight by assessing risk, advising management, monitoring and reporting on any identified deficiencies or gaps.  This second line of defense includes representatives of each of our departments who attend periodic enterprise risk management meetings at which an established matrix of identified risks is reviewed to evaluate the level of potential risks facing us and to identify any new risks. This group, along with our Chief Risk Officer, provides information and recommendations to the Risk Committee as necessary.  The third line of defense is our internal audit department, which provides an additional assurance that significant processes and related controls are designed and operating effectively.   We believe this

division of risk management responsibilities is an effective approach for addressing the enterprise risks that we face.

Board Oversight of Information Security

The Board recognizes that our business depends on the integrity, performance, security and reliability of our technology systems and devotes time and attention to the oversight of cybersecurity and information security risk.    In particular, the Board and Risk Committee each receives updates and reports on information security from management, including from the Company’s Chief Risk Officer and Chief Information Security Officer. More specifically, the Risk Committee receives presentations throughout the year on cybersecurity, information technology, data privacy and information related to third-party assessments of the Company’s information security program.  The Risk Committee also receives quarterly reports regarding the overall status of the Company’s information security program and shall review and approve any changes to the related charter.  

Board and Committee Meeting Attendance

There were 7 meetings of the Board during 2018. Each director attended at least 75% of the aggregate number of meetings of the Board and meetings of Committees of which the director was a member during 2018.

Independent Directors Meetings

Periodically, the independent directors meet separately in executive session without management. The Lead Director presides over these meetings. The independent directors met in executive session 6 times during 2018.

Annual Meeting Attendance

We encourage members of the Board to attend our annual meeting of stockholders. All of our current directors attended the 2018 Annual Meeting of Stockholders. Meetings of the Board and its Committees are being held in conjunction with the Annual Meeting. We expect all current directors will attend the Annual Meeting.

Committees of the Board

Overview

Our Board has the following six standing committees (each, a “Committee” and collectively, the “Committees”):

    the Audit Committee,

    the Compensation Committee,

    the Executive Committee,

    the Finance and Strategy Committee,

    the Nominating and Governance Committee; and

    the Risk Committee.

Other than the members of the Executive Committee required to be on such Committee pursuant to our Bylaws, each of the members of the Committees was recommended by the Nominating and Governance Committee for approval by the Board for service on that Committee. Each of the

Committees has a charter, which is available on the Corporate Governance page of our Investor Relations section of our website at: http://ir.Cboe.com. 

The following table is a listing of the composition of our standing Committees during 2018 and as of March 19, 2019, including the number of meetings of each Committee during 2018.

= Chair = Member

Audit Committee

The Audit Committee consists of 4 directors, all of whom are independent under BZX and Nasdaq listing rules, as well as under Rule 10A‑3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Audit Committee consists exclusively of directors who are financially literate. In addition, Mr. Parisi has been designated as our audit committee financial expert and meets  the SEC definition of that position.

The Audit Committee’s responsibilities include:

    engaging our independent auditor and overseeing its compensation, work and performance,

    reviewing and discussing the annual and quarterly financial statements and related press releases with management and the independent auditor, and

    reviewing transactions with related persons for potential conflict of interest situations.

The Audit Committee also meets with our independent auditor in executive session without management present and our independent auditor may communicate directly, as needed, with members of the Audit Committee and the Board at large.

Compensation Committee

The Compensation Committee consists of 4 directors, all of whom are independent under BZX and Nasdaq listing rules. The Compensation Committee has primary responsibility to approve or make recommendations to the Board for:

    all elements and amounts of compensation for the executive officers, including any performance goals,

    reviewing succession plans relating to the CEO and our other executive officers,

    the adoption, amendment and termination of cash and equity-based incentive compensation plans,

    approving any employment agreements, severance agreements or change in control agreements with executive officers, and

    the level and form of non-employee director compensation and benefits.

Nominating and Governance Committee

Overview

The Nominating and Governance Committee consists of 5 directors, all of whom are independent under BZX and Nasdaq listing rules. The Nominating and Governance Committee’s responsibilities include making recommendations to the Board on:

    persons for election as director,

    a director to serve as Chairman of the Board and an independent director to serve as Lead Director,

    any stockholder proposals and nominations for director,

    the appropriate structure, operations and composition of the Board and its Committees,

    the Board and Committee annual self-evaluation process, and

    the contents of the Corporate Governance Guidelines, Code of Business Conduct and Ethics and other corporate governance policies and programs.

Criteria for Directors

We believe that each of the individuals serving on our Board has the necessary skills, qualifications and experiences to address the challenges and opportunities we face. The Nominating and Governance Committee is responsible for considering and recommending to the Board nominees for election as director, including considering each incumbent director’s continued service on the Board. The Committee annually reviews the skills and characteristics required of directors in the context of the current composition of the Board, our operating requirements and the long-term interests of our stockholders. In evaluating director candidates, the Committee takes into consideration many factors, including the individual’s educational and professional background, whether the individual has any special experience in a relevant area, personal accomplishments and cultural experiences. In addition, the Committee may consider such other factors it deems appropriate when conducting its assessment of director candidates.

Annual Board and Committee Self-Evaluations

The Board believes that a robust annual evaluation process is a critical part of its governance practices.  The Nominating and Governance Committee is responsible for establishing and overseeing the Board’s and Committees’ annual self-evaluations to determine whether the Board and the Committees are functioning effectively and to identify potential areas of improvement. The annual self-evaluation process includes the following:

 

In addition to the annual evaluation process, the Board and Committees meet in regular executive sessions, which provides the directors with opportunities to reflect and provide feedback on an ongoing basis to determine whether the Board and the Committees are functioning effectively and to identify potential areas of improvement. 

Diversity

While we do not currently have a formal diversity policy, our Corporate Governance Guidelines provide that the Nominating and Governance Committee will seek to recommend to the Board candidates for director with a diverse range of experiences, qualifications and skills in order to provide varied insights and competent guidance regarding our operations, with a goal of having a Board that reflects diverse backgrounds, experience and viewpoints. We believe that we benefit from having directors with a diversity of skills, characteristics, backgrounds and cultural experiences.

Stockholder Nominations

The Nominating and Governance Committee will consider stockholder recommendations for candidates for our Board and will consider those candidates using the same criteria applied to candidates suggested by management. Stockholders may recommend candidates for our Board by contacting the Corporate Secretary of Cboe Global Markets, Inc. at 400 South LaSalle Street, Chicago, Illinois 60605.

In addition, stockholders may formally nominate candidates for our Board to be considered at an annual meeting of stockholders through the process described below under the heading “Stockholder Proposals.”

Executive Committee

The Executive Committee has the authority to exercise the powers and authority of the Board when the convening of the Board is not practicable, except as limited by its charter, the Company’s Bylaws and applicable law.

Finance and Strategy Committee

The Finance and Strategy Committee’s responsibilities include approving or making recommendations to the Board regarding the budget, capital allocation, strategic plans, and acquisition or investment opportunities.

Risk Committee

The Risk Committee is generally responsible for, among other things, overseeing the risk assessment and risk management of the Company, including risk related to cybersecurity, information technology and the Company’s compliance with laws, regulations, and its policies.     

Compensation Committee Interlocks and Insider Participation

No member of the Compensation Committee is a current or former officer or employee of ours. In addition, there are no compensation committee interlocks with other entities with respect to any member of the Compensation Committee. 

Stockholder Engagement

Cboe Global Markets and its Board are committed to fostering long-term and institution-wide relationships with stockholders and maintaining their trust and goodwill. As a result, each year we interact with stockholders through a variety of engagement activities. These engagements routinely cover strategy and performance, corporate governance, executive compensation and other current and emerging issues to ensure that our Board and management understand and address the issues that are important to our stockholders.

Our key stockholder engagement activities in 2018 included attending investor and industry conferences, conducting investor road shows in major U.S. cities and hosting meetings at our

corporate headquarters.  Some of these conferences also featured webcasts and replays of the presentations so that our stockholders could listen remotely.  In 2018, we engaged with holders of approximately 40 percent of our common stock outstanding.     

In 2018 and early 2019, we also conducted an outreach specifically focused on corporate governance,  executive compensation and proxy season trends and issues, targeting our top ten stockholders that represent nearly 45 percent of institutional holdings.  Through these discussions we gained valuable feedback, and this feedback was shared with the Board and its relevant Committees.  We  also took steps to address any areas of improvement, including by incorporating some of the disclosure suggestions into this Proxy Statement.    

In addition, our quarterly earnings calls are open to the general public and feature a live webcast. The Annual Meeting, to be held in Chicago, also includes a live webcast, so all of our stockholders may listen to the meeting remotely if they are unable to attend the meeting in person.

Communications with Directors

As provided in our Corporate Governance Guidelines, stockholders and other interested parties may communicate directly with our independent directors or the entire Board. Our policy and procedures regarding these communications are located in the Investor Relations section of our website at http://ir.Cboe.com. 

CORPORATE SOCIAL RESPONSIBILITY

The Board of Directors recognizes that operating in a socially responsible manner helps promote the long-term interests of our stockholders, organization, associates, industry and community.  Our guiding principles help us deliver on our corporate mission and strategy, including good citizenship.   

Being a good citizen means that we hold ourselves accountable for the integrity of the markets and to the communities we serve, seek to help resolve conflicts and build consensus, inform those impacted before taking action, lead by example and serve as part of the solution.  More specifically, being good citizens to the communities we serve means that we are committed to being environmentally conscious.  Additionally, being good citizens also means that we strive to support our associates and better serve our industry and community through our human capital development, volunteerism and policies.

 

director compensation

Compensation Philosophy and Summary

The cash and stock retainers, committee meeting attendance fees, committee chair retainers and additional Lead Director fee paid to our non-employee directors are designed to be part of a competitive total compensation package when compared to market practices.  The director fees are generally designed to be paid at competitive levels that are near the median of director fees of our peer groups, which are discussed in further detail below in the “Executive Compensation — Compensation Discussion and Analysis”  section.  Typically, early in each year, the Compensation Committee considers a review of competitive market data analysis for Board compensation from Meridian Compensation Partners, LLC, our independent compensation consultant,  and recommends  changes, if any, to the Board for approval.    The compensation of our non-employee directors is based upon a compensation year beginning and ending in May at the time of our Annual Meeting of Stockholders.

2018 Elements of Director Compensation Program

The following table reflects the compensation, including any enhancements, for the Board term ending with the 2018 Annual Meeting of Stockholders and for the Board term ending with the Annual Meeting in 2019:  

 

In early 2018, the Board increased the stock retainer to more closely align with the Broader Financial and Technology Industry peer group compensation median.  The Board also adjusted the stock retainer, and not the cash retainer, to better align with our peer groups’  pay mix and to continue to align our directors’ interests  with our stockholders.  In addition, following the creation of the Risk Committee in late 2017, the Board approved the Risk Committee chair cash retainer in early 2018.        

 

2018 Director Compensation

The compensation of our non-employee directors for the year ended December 31, 2018 for their service is shown in the following table.

Director Stock Ownership and Holding Guidelines

The Compensation Committee has adopted stock ownership and holding guidelines, which provide that each non-employee director should own stock equal to three times the cash annual retainer for directors within three years of joining the Board. For purposes of this ownership and holding requirement, (a) shares owned outright or in trust and (b) restricted stock, including shares that have been granted but are unvested, are included. In addition, each non-employee director is required to hold all of their shares until the guidelines are met, except for sales of shares to pay taxes with respect to the vesting or exercising of equity grants. Other than Mr. Parisi and Ms. Sommers, who were first elected to our Board in 2018, each of the non-employee incumbent directors has met the ownership requirement as of December 31, 2018.

Director Hedging and Pledging Policies

Under our Insider Trading Policy, our directors are prohibited from entering into transactions involving options to purchase or sell our common stock or other derivatives related to our common stock. Our Insider Trading Policy also prohibits directors from entering into any pledges or margin loans on shares of our common stock. None of the directors have existing pledges or margin loans on shares of our common stock.

 

executive Compensation

PROPOSAL 2 - ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION

In accordance with Section 14A of the Exchange Act, the Board is providing our stockholders with an advisory vote to approve executive compensation. This advisory vote, commonly known as a “say-on-pay” vote, is a non-binding vote to approve the compensation paid to our named executive officers as disclosed in this proxy statement in accordance with SEC rules. The Board has adopted a policy of providing for annual “say-on-pay” votes in accordance with the results of our last stockholder advisory vote.

As discussed in the “Compensation Discussion and Analysis” section, our executive compensation program is designed to meet the following objectives:

    attract and retain talented and dedicated executives,

    motivate our executives to achieve corporate goals that create value for our stockholders, and

    align the compensation of our executive officers with stockholder returns.

The Compensation Committee has implemented the following best practices applicable to our executive officers in order to achieve these objectives:

    a high proportion of performance-based compensation with limits on all incentive award payouts,

    stock ownership and holding guidelines,

    double trigger change in control provisions for severance benefits in employment agreements and Executive Severance Plan,

    prohibition on hedging,

    prohibition of pledging,

    elimination of tax gross-up payments in the event of a change in control, and

    clawbacks of incentive compensation.

We believe that the compensation paid to the named executive officers is appropriate to align their interests with those of our stockholders to generate stockholder returns. Accordingly, the Board recommends that our stockholders vote in favor of the say-on-pay vote as set forth in the following non-binding resolution:

RESOLVED, that our stockholders approve, on an advisory basis, the compensation paid to our named executive officers, as disclosed in this Proxy Statement, including under the heading “Compensation Discussion and Analysis,” the accompanying compensation tables and the corresponding narrative discussion.

As this is an advisory vote, the outcome of the vote is not binding on us with respect to executive compensation decisions, including those relating to our named executive officers. Our Compensation Committee and Board value the opinions of our stockholders. The Compensation Committee and Board will consider the results of the say-on-pay vote and evaluate whether any actions should be taken in the future.

Non-binding approval of our executive compensation program requires that a majority of the shares cast on this matter be cast in favor of the proposal. Abstentions and broker non-votes will not be counted as votes cast and therefore will not affect the vote.

The Board recommends that the stockholders vote FOR approval, in a non-binding resolution, of the compensation paid to our executive officers.

COMPENSATION DISCUSSION AND ANALYSIS

This Compensation Discussion and Analysis section is intended to provide our stockholders with an understanding of our compensation practices and philosophy, material elements of our executive compensation program and the decisions made in 2018 with respect to the total compensation awarded to, earned by or paid to each of the following 2018 “named executive officers”  or “NEOs”:

*Titles are as of December 31, 2018.

 

This Compensation Discussion and Analysis section is organized as follows:

Executive Summary

The design of our executive compensation program, including compensation practices and independent oversight, is intended to align management’s interests with those of our stockholders and pay for our performance. Compensation awarded in 2018 reflects another year of record results and our continued successful integration with Bats. 

Compensation Governance Practices

2018 Compensation Program Overview

The following is a brief summary of our 2018 executive compensation program.

 

    Market-competitive base salary.

    High proportion of named executive officers’ total compensation was composed of performance-based compensation. 

    Annual cash incentive for 2018 was based on corporate performance (weighted 75%) measured against pre-established adjusted EBITDA, net revenue and synergies goals and individual performance (weighted 25%) measured against pre-established individual strategic goals.

    Long-term incentive for 2018  was comprised of 50% time-based restricted stock units (“RSUs”) and 50% performance-based restricted stock units (“PSUs”), with performance contingent on achievement of relative total shareholder return and earnings per share goals

    Market competitive retirement, medical, life and disability arrangements that are generally available to all employees.

2018 Business Highlights 

The following is a brief summary of our 2018 business highlights as they relate to the key performance metrics used in our performance-based compensation program as well as other business highlights.

    Financial Results

    Bats Acquisition Integration

    Business Segment Results

 

We believe that the performance of the Company demonstrates that management is keenly focused on driving the Company for sustainable long-term growth, while obtaining short-term results. Our business continued to generate strong cash flows from operations and we paid down debt, repurchased our stock and deployed capital to enhance stockholder returns while retaining the flexibility to pursue new opportunities. To that end, in 2018: 

    in keeping with our goal of consistent and sustainable dividend growth, we increased our quarterly dividend by 15% to $0.31 per share and paid cash dividends of $130 million in 2018;  

    we paid down  $25 million of outstanding debt; and

    we repurchased 1.3 million of our outstanding shares of common stock under a share repurchase program for a total of $141 million.   

As a result of these business highlights and capital allocation decisions, as of December 31, 2018, we achieved a total stockholder return, including reinvested dividends, of approximately 56% over the past three years and approximately 101% over the past five years.    Despite record results in 2018, as of December 31, 2018, we achieved a total stockholder return, including reinvested dividends, of approximately -21% for 2018.  

Executive Compensation Program Practices

Compensation Philosophy and Summary

Our executive compensation program is designed to attract and retain talented and dedicated executives who are instrumental in our achievement of key strategic business objectives. To meet these objectives, the Compensation Committee designed and implemented a program that pays a substantial portion of executive compensation based on corporate and individual performance. 

The Compensation Committee believes that our executive compensation program plays a vital role in contributing to the achievement of key strategic business objectives that ultimately drive long-term business success. Accordingly, we designed our executive compensation program to focus our executives on achieving critical corporate financial and strategic goals, while taking steps to position the business for sustained growth in financial performance over time.

Our executive compensation program generally consists of the following elements, in addition to retirement and health benefits:

The following table lists the various components included in total compensation for our executive officers and each element’s purpose. Later sections provide additional details regarding each component.

 

The following charts show the approximate 2018 total target compensation mix for the Chief Executive Officer and the other named executive officers as a group (excluding Ms. Moffic-Silver).  For the Chief Executive Officer and the other named executive officers, the majority of 2018 total target compensation is “at-risk” (i.e., linked to achievement of performance goals and/or the value is tied to our common stock price) and, further, the majority of “at-risk” pay is in the form of equity

awards.  Total target compensation is the sum of an executive officer’s 2018 base salary, target annual incentive opportunity and target value for long-term equity awards (i.e., RSUs and PSUs). 

Company’s Response to Stockholder Vote on Say‑on‑Pay

At the 2018 Annual Meeting of Stockholders, our “say-on-pay” proposal received the support of over 94% of the votes cast for approval of our 2017 executive compensation program as disclosed in our 2018 Proxy Statement, and every year since going public in 2010, we have received over 85% stockholder support of our executive compensation programs. The Compensation Committee has reviewed the results of the stockholder vote on our 2017 executive compensation program and considered such results supportive of our executive compensation program and the Compensation Committee’s measured approach to modifying our compensation practices to enhance their alignment with stockholder interests. In addition, the Compensation Committee has determined that the vote result did not warrant any large-scale changes to our executive compensation program; however, the Compensation Committee continues to take steps, as described below, to ensure our compensation practices remain aligned with best practices and stockholder interests.

Compensation Refinements

The Board and Compensation Committee determine actual annual incentive bonus payouts based on achieved results measured against pre-established corporate and individual performance goals.  As a result of our executives’ continued focus on the integration of Bats and a larger focus on growing our revenues and earnings, the Compensation Committee changed  the annual incentive award’s corporate performance metrics in 2018 to better align the interests of our executives with our business strategy and with stockholders. For 2018, the metrics and weightings were updated as follows:

 

Historically, the Compensation Committee approved granting PSUs that were one-half subject to relative total stockholder return goals and one-half subject to earnings per share goals. As a result of

the Bats acquisition, the Compensation Committee determined not to grant PSUs subject to earnings per share goals in 2017, due to the difficulty in setting a meaningful long-term earnings per share goal immediately following the acquisition. Therefore, in 2017 the Compensation Committee approved granting all PSUs subject solely to the achievement of relative total stockholder return.    

However, due to the continued successful integration of Bats and a better ability to set a meaningful long-term earnings per share goal, in 2018 the Compensation Committee approved granting PSUs (i) one-half subject to the achievement of relative total stockholder return measured against pre-determined performance goals over a three-year performance period and (ii) one-half subject to the achievement of earnings per share measured against pre-determined performance goals over a three-year performance period.  

Following the 2018 compensation decisions, the Compensation Committee reviewed our two peer groups, the Securities Exchange Peer Group and the Broader Financial and Technology Industry Peer Group,  and approved combining them into a single 25 company peer group that adds new companies and removes certain companies from each of those existing two peer groups.  The Committee made this determination because,  following the acquisition of Bats and our recent growth, the Company’s revenue, gross profit, market capitalization and number of employees grew to be more in-line with our larger securities exchange peers.  

Further, in connection with the grants of equity awards in 2019, the award agreements provide that in the event of a Change in Control (as defined in the Second Amended and Restated Long-Term Incentive Plan (the “Plan”)), each award will be "double trigger" unless a successor entity cannot or will not provide a "replacement award" (as defined in the Plan). If a successor entity cannot or will not provide a replacement award, the award will accelerate and be deemed fully vested and exercisable and all vesting conditions on restricted stock units will lapse, with all performance conditions deemed satisfied at the greater of target or the level of performance actually achieved as of the Change in Control (with similar performance assumed to be achieved through the remainder of the performance period). If the successor entity, including the Company if it is the surviving entity, assumes, continues or replaces an outstanding award (each such assumed, continued or replacement award, a replacement award), then such replacement award shall remain outstanding and be governed by its respective terms. Upon termination of the Participant's employment for any reason other than cause or by Participant with good reason upon or within two years after a Change in Control, such replacement award will accelerate and become fully vested and/or exercisable, with all performance conditions deemed satisfied at the greater of target or the level of performance actually achieved as of the employment termination date (with similar performance assumed to be achieved through the remainder of the performance period).

2018 Target Annual Pay Opportunities

The following chart shows the 2018 total target compensation for each named executive officer.

This supplemental table is not required, but rather it is provided to demonstrate the link between performance and our named executive officers’ total direct compensation for 2018. Please refer to the Summary Compensation Table below for complete disclosure of the total compensation of our named executive officers reported in accordance with the SEC disclosure requirements.

Role of the Compensation Committee

The Compensation Committee, composed of all independent directors, is responsible for reviewing the various components of the total compensation program for all executive officers. The Compensation Committee met 6 times in 2018.  The Compensation Committee either approves or makes recommendations to the Board regarding compensation related decisions. To provide the Compensation Committee with advice and assistance related to the design of our executive compensation program, the Compensation Committee engaged Meridian Compensation Partners, LLC (“Meridian”) as its independent compensation consultant. As described below in further detail, Meridian consultants regularly attend meetings of the Compensation Committee. In addition, Messrs. Tilly, Concannon and Schell generally attended in 2018 portions of the meetings of the Compensation Committee to provide information and assistance, other than when the Compensation Committee discussed the respective executive’s compensation. 

Independent Compensation Consultant

Meridian, our independent compensation consultant, reviews our executive compensation program and advises the Compensation Committee on best practices and plan design to help improve the Company’s program’s effectiveness. In addition, the consultant provides advice to the Compensation Committee on the Company’s compensation peer groups and on the competitive positioning of the various components of the executive compensation program. The independent compensation consultant also meets with the Compensation Committee in executive session without management present and may communicate directly, as needed, with members of the Compensation Committee and the Board at large. Based on a review of its engagement of the independent compensation consultant and consideration of factors set forth in SEC, Nasdaq and BZX rules, the Compensation Committee determined that Meridian’s work did not raise any conflicts of interest and that it is independent from management. 

Tally Sheets

When reviewing compensation for the named executive officers, the Compensation Committee considers tally sheets that detail the various elements of compensation for each executive. These tally sheets, developed with the assistance of Meridian, are used to evaluate the appropriateness of the total compensation package, to compare each executive’s total compensation opportunity with his or her actual payout and to ensure that the compensation appropriately reflects the executive compensation program’s focus on pay for performance and alignment with stockholder interests.   

Peer Groups and Comparative Data

For the 2018 compensation decisions, the Compensation Committee used two peer groups from which to derive competitive market compensation data: (i) the Securities Exchange Peer Group and (ii) the Broader Financial and Technology Industry Peer Group. The Securities Exchange Peer Group was composed of seven companies, each with a heavy focus on our industry. The Broader Financial and Technology Industry Peer Group was composed of 20 companies, and included financial services firms and technology-focused companies with corporate profiles similar to ours, with revenues ranging between one-third and three-times the Company’s projected annual revenue. The 

Compensation Committee utilized this two peer group model to derive meaningful compensation data due to our unique business model and to ensure that each named executive officer’s target total compensation is competitive. The Compensation Committee used this market data as points of reference, rather than as the sole determining factor in setting compensation for our executive officers.

 

 

Following the 2018 compensation decisions, the Compensation Committee  reviewed the two peer groups. The Committee reviewed the data provided by Meridian and compared our corporate performance to our peer groups in the areas of revenues, gross profit, market capitalization and number of employees. The Committee also considered business descriptions, complexity of business, company locations and other qualitative factors.  Following the acquisition of Bats and our recent growth, the Company’s revenue, gross profit, market capitalization and number of employees grew, and now fall closer to the median revenue, gross profit, market capitalization and number of employees of the industry-specific Securities Exchange Peer Group.   As a result, the Committee approved combining the two groups into a single peer group that adds new companies and removes certain companies of the existing Securities Exchange Peer Group and the Broader Financial and Technology Industry Peer Group.   With respect to the updated single peer group, the Company’s annual revenue falls slightly below the median of the peer group, gross profit falls below the median of the peer group, market capitalization falls at the median of the peer group and number of

employees falls below the median of the peer group.  The following is the updated 25 company single peer group:   

 

The following companies were added and removed from the existing Securities Exchange Peer Group and the Broader Financial and Technology Industry Peer Group:  

2018 Elements of Executive Compensation Program

Base Salary

The base salary for our named executive officers is designed to be part of a competitive total compensation package when compared to both of our peer groups. Base salary provides our named executive officers with a measure of certainty within their total compensation package and provides a baseline for their target payout opportunity under the annual incentive plan. In setting base salary, in addition to considering peer group data, the Compensation Committee also considered for each named executive officer the following factors: