SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

[Amendment No.    ]

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☐		Soliciting Material under § 240.14a-12

MOODY’S CORPORATION

(Name of Registrant as Specified in Its Charter)

(Name of Person(s) Filing Proxy Statement if other than the Registrant)

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		March 11, 2020

Dear Stockholder:

You are cordially invited to attend the 2020 Annual Meeting of Stockholders of Moody’s Corporation to be held on Tuesday, April 21, 2020, at 9:30 a.m. EDT at the Company’s principal executive offices at 7 World Trade Center at 250 Greenwich Street, New York, New York 10007.

The Notice of Annual Meeting and Proxy Statement accompanying this letter describe the business to be acted upon at the meeting. The Annual Report for the year ended December 31, 2019 is also enclosed.

On March 11, 2020, we mailed to many of our stockholders a Notice of Internet Availability of Proxy Materials (the “Notice”) containing instructions on how to access our 2020 Proxy Statement and 2019 Annual Report and vote online. The Notice included instructions on how to request a paper or e-mail copy of the proxy materials, including the Notice of Annual Meeting, Proxy Statement, Annual Report, and proxy card or voting instruction card. Stockholders who requested paper copies of the proxy materials or previously elected to receive the proxy materials electronically did not receive a Notice and will receive the proxy materials in the format requested.

Your vote is important. Whether or not you plan to attend the annual meeting, we encourage you to review the proxy materials and hope you will vote as soon as possible. You may vote by proxy over the Internet or by telephone by using the instructions provided in the Notice. Alternatively, if you requested and received paper copies of the proxy materials by mail, you can also vote by mail by following the instructions on the proxy card or voting instruction card. Voting over the Internet, by telephone or by written proxy or voting instruction card will ensure your representation at the annual meeting regardless of whether you attend in person. Instructions regarding the three methods of voting are contained in the Notice or proxy card or voting instruction card.

 

Sincerely,
Henry A. McKinnell, Jr. Chairman of the Board		Raymond W. McDaniel, Jr. President and Chief Executive Officer

MOODY’S CORPORATION

7 World Trade Center

250 Greenwich Street

New York, New York 10007*

NOTICE OF 2020 ANNUAL MEETING OF STOCKHOLDERS

To Our Stockholders:

The 2020 Annual Meeting of Stockholders of Moody’s Corporation will be held on Tuesday, April 21, 2020, at 9:30 a.m. EDT at the Company’s offices at 7 World Trade Center at 250 Greenwich Street, New York, New York*, for the following purposes, all as more fully described in the accompanying Proxy Statement:

 

1.

To elect the nine director nominees named in the Proxy Statement to serve a one-year term;

 

2.

To amend the Moody’s Corporation Restated Certificate of Incorporation to remove supermajority voting standards applicable to the following actions:

 

a.

Future amendments to certain provisions of the Restated Certificate of Incorporation and the By-Laws;

 

b.

Removing directors from office; and

 

c.

Filling vacancies and newly created directorships at certain special meetings called pursuant to the Delaware General Corporation Law;

 

3.

To ratify the appointment of KPMG LLP as the independent registered public accounting firm of the Company for the year 2020;

 

4.

To vote on an advisory resolution approving executive compensation; and

 

5.

To transact such other business as may properly come before the meeting.

The Board of Directors of the Company has fixed the close of business on February 24, 2020 as the record date for the determination of stockholders entitled to notice of, and to vote at, the meeting.

 

March 11, 2020

 

*

We are actively monitoring the public health and travel concerns relating to the coronavirus (COVID-19) and the protocols that federal, state, and local governments may impose. In the event it is not possible or advisable to hold the annual meeting in person, we will announce alternative arrangements for the meeting, which may include a change in venue or holding the meeting solely by means of remote communication. Please monitor the Company’s website at www.moodys.com under the headings “About Us—Investor Relations” for updated information. If you are planning to attend the meeting, please check the website one week prior to the meeting date. As always, we encourage you to vote your shares prior to the annual meeting.

IMPORTANT VOTING INFORMATION

Your Participation in Voting the Shares You Own Is Important

If you are the beneficial owner of your shares (meaning that your shares are held in the name of a bank, broker or other nominee), you may receive a Notice of Internet Availability of Proxy Materials from that firm containing instructions that you must follow in order for your shares to be voted. Certain institutions offer telephone and Internet voting. If you received the proxy materials in paper form, the materials include a voting instruction card so you can instruct the holder of record on how to vote your shares. The firm that holds your shares is not permitted to vote on the matters to be considered at the 2020 Annual Meeting of Stockholders, other than to ratify the appointment of KPMG LLP, unless you provide specific instructions by following the instructions from your broker about voting your shares by telephone or Internet or completing and returning the voting instruction card. For your vote to be counted in the election of directors, on the amendments to the Restated Certificate of Incorporation to remove supermajority voting standards, and on the advisory resolution approving executive compensation, you will need to communicate your voting decisions to your bank, broker or other holder of record before the date of the annual meeting.

Voting your shares is important to ensure that you have a say in the governance of the Company and to fulfill the objectives of the majority-voting standard that Moody’s Corporation applies in the election of directors. Please review the proxy materials and follow the relevant instructions to vote your shares. We hope you will exercise your rights and fully participate as a stockholder in the future of Moody’s Corporation.

More Information Is Available

If you have any questions about the voting of your shares or the proxy voting process in general, please contact the bank, broker or other nominee through which you hold your shares. The SEC also has a website (http://www.sec.gov/spotlight/proxymatters.shtml) with more information about voting at annual meetings. Additionally, you may contact the Company’s Investor Relations Department by sending an e-mail to ir@moodys.com.

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS

FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 21, 2020

The Proxy Statement and the Company’s 2019 Annual Report are available at https://materials.proxyvote.com/615369. Your vote is very important. Whether or not you plan to attend the annual meeting, we hope you will vote as soon as possible. You may vote your shares via a toll-free telephone number or over the Internet as instructed in the Notice of Internet Availability of Proxy Materials. Alternatively, if you received a paper copy of a proxy or voting instruction card by mail, you may submit your proxy or voting instruction card for the annual meeting by completing, signing, dating and returning your proxy or voting instruction card in the pre-addressed envelope provided. No postage is required if the card is mailed in the United States. If you attend the meeting, you may vote in person, even if you have previously returned your proxy or voting instruction card or voted by telephone or the Internet.

 

TABLE OF CONTENTS

 

		Page

PROXY STATEMENT SUMMARY			1
2020 Annual Meeting Information			1
Matters to be Voted on at the Annual Meeting			1
How to Vote			1
Annual Meeting Admission			2
Corporate Governance Highlights			2
Director Nominee Highlights			3
Corporate Social Responsibility			4
Sustainability			4
CORPORATE GOVERNANCE			5
Board Meetings and Committees			5
Recommendation of Director Candidates			5
Director Education			6
Board Leadership Structure			6
Codes of Business Conduct and Ethics			7
Director Independence			7
Board and Committee Evaluation Process			8
The Board’s Role in the Oversight of Company Risk			9

Executive Sessions			10
Communications with Directors			10
Succession Planning			10
Anti-Hedging and Anti-Pledging Policy; Short Sales and Other Speculative Trades			10
Rule 10b5-1 Trading Plans			10
THE AUDIT COMMITTEE			11
AUDIT COMMITTEE REPORT			12
THE GOVERNANCE & NOMINATING COMMITTEE			13
THE COMPENSATION & HUMAN RESOURCES COMMITTEE			13
REPORT OF THE COMPENSATION & HUMAN RESOURCES COMMITTEE			14
RELATIONSHIP OF COMPENSATION PRACTICES TO RISK MANAGEMENT			15
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS			15
COMPENSATION OF DIRECTORS			15
Stock Ownership Guidelines for Non-Management Directors			17
1998 Moody’s Corporation Non-Employee Directors’ Stock Incentive Plan			17
ITEM 1—ELECTION OF DIRECTORS			18
Qualifications and Skills of Directors			18
Director Nominees			19
ITEM 2—AMENDMENTS TO THE CERTIFICATE OF INCORPORATION TO REMOVE SUPERMAJORITY VOTING STANDARDS			24
Overview			24
Reasons for the Proposed Amendments			24
The Proposed Amendments			25
Additional Information			26
ITEM 3—RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS			27
Principal Accounting Fees and Services			27
ITEM 4—ADVISORY RESOLUTION APPROVING EXECUTIVE COMPENSATION			28
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT			31
Delinquent Section 16(a) Reports			32

 

i

COMPENSATION DISCUSSION AND ANALYSIS			33
Executive Summary			33
Executive Compensation Governance Highlights			34
Philosophy of the Executive Compensation Program			35
Peer and Market Review			36
Elements of Moody’s Compensation Program			38
Weighting of Elements—Fixed versus “At Risk” Compensation			40
2019 Compensation Decisions			41
Annual Incentive Funding Financial Metrics			44
Long-Term Equity Incentive Compensation			46
The Role of the Committee, Its Consultant and Management			48
Chief Executive Officer Compensation			48
Executive Compensation Governance Policies and Practices			50
Additional Executive Compensation Policies and Practices			52
SUMMARY COMPENSATION TABLE			54
GRANTS OF PLAN-BASED AWARDS TABLE FOR 2019			56
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE FOR 2019			57
OPTION EXERCISES AND STOCK VESTED TABLE FOR 2019			59
PENSION BENEFITS TABLE FOR 2019			59
Moody’s Corporation Retirement Account			60
Moody’s Corporation Pension Benefit Equalization Plan			61
Moody’s Corporation Supplemental Executive Benefit Plan			61
NON-QUALIFIED DEFERRED COMPENSATION TABLE			62
Moody’s Corporation Deferred Compensation Plan			62
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL			62
Moody’s Corporation Career Transition Plan			63
Moody’s Corporation Change In Control Severance Plan			65
Other Potential Payments upon Termination of Employment			66
CEO PAY RATIO			68
INFORMATION ABOUT THE ANNUAL MEETING, PROXY VOTING AND OTHER INFORMATION			69
Internet Availability of Proxy Materials			69
Delivery of Documents to Stockholders Sharing an Address			69
Record Date			69
Special Voting Procedures for Certain Current and Former Employees			69
Quorum and Voting Requirements			70
Proxies			71
OTHER BUSINESS			71
FORWARD-LOOKING STATEMENTS			71
STOCKHOLDER PROPOSALS FOR 2021 ANNUAL MEETING			72
APPENDIX A - PROPOSED AMENDMENTS			A-1

 

ii

PROXY STATEMENT SUMMARY

2020 ANNUAL MEETING INFORMATION

This Proxy Statement is being furnished to the holders of the common stock, par value $0.01 per share (the “Common Stock”), of Moody’s Corporation (“Moody’s” or the “Company”) in connection with the solicitation of proxies by the Board of Directors of the Company (the “Board of Directors” or the “Board”) for use in voting at the 2020 Annual Meeting of Stockholders or any adjournment or postponement thereof (the “Annual Meeting”). This summary highlights certain information from this Proxy Statement. You should read the entire Proxy Statement carefully before voting.

 

Date and Time				Place				Record Date
Tuesday, April 21, 2020     9:30 a.m. EDT				7 World Trade Center at 250 Greenwich Street, New York, New York*				February 24, 2020

 

*

We are actively monitoring the public health and travel concerns relating to the coronavirus (COVID-19) and the protocols that federal, state, and local governments may impose. In the event it is not possible or advisable to hold the Annual Meeting in person, we will announce alternative arrangements for the meeting, which may include a change in venue or holding the meeting solely by means of remote communication. Please monitor the Company’s website at www.moodys.com under the headings “About Us—Investor Relations” for updated information. If you are planning to attend the Annual Meeting, please check the website one week prior to the meeting date. As always, we encourage you to vote your shares prior to the Annual Meeting.

To obtain directions to attend the Annual Meeting and vote in person, please contact the Company’s Investor Relations Department by sending an e-mail to ir@moodys.com. This Proxy Statement and the accompanying proxy card are first being made available to stockholders on or about March 11, 2020. The Company’s telephone number is (212) 553-0300.

MATTERS TO BE VOTED ON AT THE ANNUAL MEETING

 

 

Items of Business						Board Recommendation				Vote Required
Item 1		Election of Directors				FOR each nominee				Majority of votes cast
Items 2(a),   2(b) and 2(c)		Amendments to the Certificate of Incorporation to remove the supermajority voting standards applicable to certain actions				FOR each of Items 2(a), 2(b) and 2(c)				80% of outstanding shares
Item 3		Ratification of appointment of KPMG LLP as the Company’s Independent Registered Public Accounting Firm for 2020				FOR				Majority of shares present and entitled to vote
Item 4		Advisory resolution approving executive compensation				FOR				Majority of shares present and entitled to vote

HOW TO VOTE

In addition to voting in person at the Annual Meeting, stockholders of record can vote by proxy by following the instructions in the Notice and using the Internet or by calling the toll-free telephone number that is available on the Internet. Alternatively, stockholders of record who requested a paper copy of the proxy materials can vote by proxy by mailing their signed proxy cards. The telephone and Internet voting procedures are designed to authenticate stockholders’ identities, to allow stockholders to give their voting instructions and to confirm that stockholders’ instructions have been recorded properly.

 

		MOODY’S 2020 PROXY STATEMENT		1

If your shares are held in the name of a bank, broker or other nominee, you may receive a Notice from that firm containing instructions that you must follow in order for your shares to be voted. Certain institutions offer telephone and Internet voting. If you received the proxy materials in paper form, the materials include a voting instruction card so you can instruct the holder of record on how to vote your shares. If you wish to vote in person at the Annual Meeting, you must obtain a legal proxy from the bank, broker or other nominee that holds your shares. For additional information, including voting procedures for certain current and former employees, see “Information about the Annual Meeting, Proxy Voting and Other Information” on page 69.

ANNUAL MEETING ADMISSION

Stockholders will need an admission ticket to enter the Annual Meeting. For stockholders of record, an admission ticket is available over the Internet, or, if you requested paper copies, you will receive a printed proxy card and a printed admission ticket. If you plan to attend the Annual Meeting in person, please retain and bring the admission ticket.

If you are the beneficial owner of your shares (meaning that your shares are held in the name of a bank, broker or other nominee) and you plan to attend the Annual Meeting in person, you may obtain an admission ticket in advance by sending a written request, along with proof of share ownership such as a bank or brokerage account statement, to the Corporate Secretary of the Company at 7 World Trade Center at 250 Greenwich Street, New York, New York 10007. An admission ticket is also available over the Internet. Stockholders who do not have admission tickets will be admitted following verification of ownership at the door.

CORPORATE GOVERNANCE HIGHLIGHTS

 

Board Independence				Executive Compensation Governance Practices
✓  Independent Chairman of the Board   ✓  Nine of ten current Board members independent   ✓  Fully independent Audit, Governance & Nominating, and Compensation & Human Resources Committees   ✓  Executive sessions of independent directors at each regular meeting				✓  Robust stock ownership guidelines for directors and executive officers   ✓  Comprehensive clawback policy   ✓  Minimum one-year vesting period for incentive equity awards   ✓  Anti-hedging and anti-pledging policy

 

Other Board Practices

✓  All directors elected annually by majority vote (in uncontested elections)   ✓  Annual evaluations of the Board, committees and individual directors   ✓  Board includes a range of tenures to balance fresh perspectives with in-depth knowledge about the Company

 

2		MOODY’S 2020 PROXY STATEMENT

DIRECTOR NOMINEE HIGHLIGHTS

The Company strives to maintain a Board that possesses a combination of skills, professional experience, and diversity of backgrounds and tenure necessary to effectively oversee the Company’s business. In addition, the Board amended the Company’s Corporate Governance Principles in 2019 to include a commitment that, as part of the search process for each new director, the Governance & Nominating Committee will include women and minorities in the pool of candidates (and instruct any search firm the Committee engages to do so) (often called a “Rooney Rule”). Nine of the ten directors currently serving are standing for election at the Annual Meeting. Gerrit Zalm will not stand for reelection to the Board at the Annual Meeting and will retire from the Board at the end of his current term. Information regarding the director nominees is provided below.

 

 

Director Nominee

Audit

Governance & Nominating

Compensation & Human Resources

Executive

Basil L. Anderson   Former Vice Chairman, Staples, Inc.

✓

M

C

M

M

Jorge A. Bermudez   Former Chief Risk Officer, Citigroup, Inc.

✓

M

M

M

Thérèse Esperdy   Former Global Chairman of Financial Institutions   Group, JPMorgan Chase & Co.

✓

M

M

M

Vincent A. Forlenza   Chairman and Former Chief Executive Officer,   Becton, Dickinson and Company

✓

M

M

M

Kathryn M. Hill   Former Senior Vice President, Cisco Systems, Inc.

✓

M

M

C

M

Raymond W. McDaniel, Jr.   President and Chief Executive Officer,   Moody’s Corporation

M

Henry A. McKinnell, Jr., Ph.D.   Chairman, Moody’s Corporation   Former Chairman, Pfizer Inc.

✓

M

M

M

C

Leslie F. Seidman   Former Chairman, Financial Accounting   Standards Board

✓

C

M

M

M

Bruce Van Saun   Chairman and Chief Executive Officer,   Citizens Financial Group, Inc.

✓

M

M

M

✓ Independent                C: Chairman of Committee                M: Member of Committee    

 

		MOODY’S 2020 PROXY STATEMENT		3

CORPORATE SOCIAL RESPONSIBILITY

Moody’s manages its business with the goal of delivering value to all of its stakeholders, including its customers, employees, business partners, local communities and stockholders. The Company’s Corporate Social Responsibility (“CSR”) strategy is an integral part of supporting this fundamental commitment to all stakeholders. The senior management of the Company is ultimately responsible for shaping and implementing the CSR strategy. Moody’s CSR Council, chaired by President and Chief Executive Officer Raymond W. McDaniel, Jr. and comprised of members of the management team, evaluates the Company’s CSR progress, generates recommendations to enhance Moody’s approach to CSR and identifies opportunities in Moody’s business that align with the CSR mission. In addition, the Board oversees sustainability matters, with assistance from the Governance & Nominating Committee, as part of its oversight of management and the Company’s overall strategy. Moody’s CSR strategy is focused on the following areas where the Company believes it can make the most impact.

 

 

SUSTAINABILITY

Moody’s advances sustainability by considering environmental, social, and governance factors throughout its operations and two business segments. It uses its expertise and assets to make a positive difference through technology tools, research and analytical services that help other organizations and the investor community better understand the links between sustainability considerations and the global markets. Moody’s efforts to promote sustainability-related thought leadership, assessments and data to market participants include following the policies of recognized sustainability and corporate social responsibility parties that develop standards or frameworks and/or evaluate and assess performance, including Global Reporting Initiative and Sustainability Accounting Standards Board (“SASB”). Moody’s sustainability-related achievements in 2019 included the following:

 

 

 

4		MOODY’S 2020 PROXY STATEMENT

CORPORATE GOVERNANCE

In order to address evolving best practices and new regulatory requirements, the Board of Directors reviews its corporate governance practices and the charters for its standing committees at least annually. After performing its annual governance review for 2019, the Board determined to amend the Company’s Corporate Governance Principles and its charters for the Audit, Governance & Nominating and Compensation & Human Resources Committees. A copy of the Corporate Governance Principles is available on the Company’s website at www.moodys.com under the headings “About Us—Investor Relations—Corporate Governance—Other Governance Documents.” Copies of the charters of the Audit Committee, the Governance & Nominating Committee, the Compensation & Human Resources Committee and the Executive Committee are available on the Company’s website at www.moodys.com under the headings “About Us—Investor Relations—Corporate Governance—Charter Documents.” Print copies of the Corporate Governance Principles and the committee charters may also be obtained upon request, addressed to the Corporate Secretary of the Company at 7 World Trade Center at 250 Greenwich Street, New York, New York 10007. The Audit Committee, the Governance & Nominating Committee and the Compensation & Human Resources Committee assist the Board in fulfilling its responsibilities, as described below. The Executive Committee has the authority to exercise the powers of the Board when it is not in session (subject to applicable law, rules and regulations, and the Company’s Certificate of Incorporation and By-Laws), advises management and performs other duties delegated to it by the Board from time to time.

BOARD MEETINGS AND COMMITTEES

During 2019, the Board of Directors met eight times. The Board had four standing committees: an Audit Committee, a Governance & Nominating Committee, a Compensation & Human Resources Committee and an Executive Committee. All incumbent directors attended more than 80% of the total number of meetings of the Board and of all Board committees on which they served in 2019.

Please refer to page 11 for additional information regarding the Audit Committee, page 13 for additional information regarding the Governance & Nominating Committee and page 13 for additional information regarding the Compensation & Human Resources Committee. The Executive Committee did not meet in 2019. Directors are encouraged to attend the Annual Meeting. All individuals elected to the Board at the Company’s 2019 annual meeting of stockholders attended the meeting.

RECOMMENDATION OF DIRECTOR CANDIDATES

The Governance & Nominating Committee considers and makes recommendations to the Board regarding the size, structure, composition and functioning of the Board and engages in succession planning for the Board and key leadership roles on the Board and its committees. The Governance & Nominating Committee is also responsible for overseeing processes for the selection and nomination of director candidates. The Governance & Nominating Committee periodically reviews the skills, experience, characteristics and other criteria for identifying and evaluating directors, and recommends these criteria to the Board. The Governance & Nominating Committee will consider director candidates recommended by stockholders of the Company and may also engage independent search firms from time to time to assist in identifying and evaluating potential director candidates. In considering a candidate for Board membership, whether proposed by stockholders or otherwise, the Governance & Nominating Committee examines the candidate’s business experience, qualifications, attributes and skills relevant to the management and oversight of the Company’s business, independence, the ability to represent diverse stockholder interests, judgment, integrity, the ability to commit sufficient time and attention to Board activities, and the absence of any potential conflicts with the Company’s business and interests. The Committee also seeks diverse occupational and personal backgrounds for the Board. See “Qualifications and Skills of Directors” on page 18 and “Director Nominees” beginning on page 19 for additional information on the Company’s directors. To have a candidate considered by the Governance & Nominating Committee, a stockholder must submit the recommendation in writing and must include the following information:

 

•

The name of the stockholder and evidence of the stockholder’s ownership of Company stock, including the number of shares owned and the length of time of ownership; and

 

•

The name of the candidate, the candidate’s resume or a listing of his or her qualifications to be a director of the Company, and the candidate’s consent to be named as a director if selected by the Governance & Nominating Committee and nominated by the Board.

 

		MOODY’S 2020 PROXY STATEMENT		5

The stockholder recommendation and information described above must be sent to the Corporate Secretary of the Company at 7 World Trade Center at 250 Greenwich Street, New York, New York 10007, and must be received by the Corporate Secretary not less than 120 days prior to the first anniversary of the Company’s most recent annual meeting of stockholders. For the Company’s 2021 annual meeting of stockholders, this deadline is December 22, 2020.

The Governance & Nominating Committee identifies potential nominees by asking current directors and executive officers to notify the Committee if they become aware of persons who meet the criteria described above and might be available to serve on the Board. As described above, the Committee will also consider candidates recommended by stockholders on the same basis as those from other sources. The Governance & Nominating Committee, from time to time, may engage firms that specialize in identifying director candidates for the Committee’s consideration.

Once a person has been identified by or for the Governance & Nominating Committee as a potential candidate, the Committee may collect and review publicly available information regarding the person to assess whether the person should be considered further. If the Governance & Nominating Committee determines that the candidate warrants further consideration, the chairman or another member of the Committee contacts the person. Generally, if the person expresses a willingness to be considered and to serve on the Board, the Governance & Nominating Committee requests information from the candidate, reviews the candidate’s accomplishments and qualifications, including in light of any other candidates whom the Committee might be considering, and conducts one or more interviews with the candidate. In certain instances, Committee members may contact one or more references provided by the candidate or may contact other members of the business community or other persons that may have greater first-hand knowledge of the candidate’s accomplishments.

DIRECTOR EDUCATION

The Company provides all new directors with an initial orientation session, which includes a comprehensive overview of the Company and the opportunity to meet with key leaders of the organization such as the Chief Executive Officer, Chief Financial Officer, General Counsel, the Presidents of Moody’s Investors Service, Inc. (“Moody’s Investors Service” or “MIS”) and Moody’s Analytics, Inc. (“Moody’s Analytics” or “MA”), the Chief Strategy Officer, the Head of Internal Audit, the Chief Technology Officer and the Controller. This orientation includes, among other topics, an overview of the Company’s business, including MIS and MA, corporate governance, compliance program, strategy, technology and cybersecurity, enterprise risk management, and legal and regulatory matters.

Board and committee meetings, industry and corporate governance update presentations, periodic reports from the Company’s businesses and external training programs also provide the Company’s directors with continuing education throughout their tenure. The Company reimburses directors for expenses associated with attendance at external education programs.

BOARD LEADERSHIP STRUCTURE

The Company’s Corporate Governance Principles permit the roles of Chairman and Chief Executive Officer to be filled by a single person or different individuals. This flexibility allows the Board to review the structure of the Board periodically and determine whether to separate the two roles based upon the Company’s needs and circumstances from time to time.

Dr. McKinnell serves as Chairman of the Board and Mr. McDaniel serves as President and Chief Executive Officer of Moody’s Corporation. In 2011 and 2012, the Board discussed whether to separate the roles, taking into account numerous considerations that bear upon the issue, including stockholders’ support at the Company’s 2011 annual meeting of a stockholder proposal recommending that, whenever possible, the Company’s chairman be independent. In light of these considerations, the Board determined to appoint an independent Chairman of the Board. The Board continues to believe that strong, independent Board leadership is a critical aspect of effective corporate governance and that the current leadership structure, with an independent Chairman and separate Chief Executive Officer, is in the best interests of the Company and its stockholders at this time. The roles and responsibilities of the Chairman of the Board are detailed in the Company’s Corporate Governance Principles.

 

6		MOODY’S 2020 PROXY STATEMENT

CODES OF BUSINESS CONDUCT AND ETHICS

The Company has adopted a code of ethics that applies to its Chief Executive Officer, Chief Financial Officer and Controller, or persons performing similar functions. The Company has also adopted a code of business conduct and ethics that applies to the Company’s directors, officers and employees. A current copy of each of these codes is available on the Company’s website at www.moodys.com under the headings “About Us—Investor Relations—Corporate Governance—Other Governance Documents.” A copy of each is also available in print to stockholders upon request, addressed to the Corporate Secretary of the Company at 7 World Trade Center at 250 Greenwich Street, New York, New York 10007. The Company intends to satisfy disclosure requirements regarding any amendments to, or waivers from, the codes of ethics by posting such information on the Company’s website at www.moodys.com under the headings “About Us—Investor Relations—Corporate Governance—Other Governance Documents.”

DIRECTOR INDEPENDENCE

To assist it in making determinations of a director’s independence, the Board has adopted independence standards that are set forth below and are included in the Company’s Corporate Governance Principles. The Board has determined that Mr. Anderson, Mr. Bermudez, Ms Esperdy, Mr. Forlenza, Ms Hill, Dr. McKinnell, Ms Seidman, Mr. Van Saun and Mr. Zalm, and thus a majority of the directors on the Board, are independent under these standards. The standards adopted by the Board incorporate the director independence criteria included in the New York Stock Exchange (the “NYSE”) listing standards, as well as additional criteria established by the Board. The Audit Committee, the Governance & Nominating Committee and the Compensation & Human Resources Committee are composed entirely of independent directors. In accordance with NYSE requirements and the independence standards adopted by the Board, all members of the Audit Committee and the Compensation & Human Resources Committee meet additional heightened independence standards applicable to audit committee and compensation committee members.

An “independent” director is a director whom the Board has determined has no material relationship with the Company or any of its consolidated subsidiaries (for purposes of this section, collectively referred to as the “Company”), either directly, or as a partner, stockholder or officer of an organization that has a relationship with the Company. For purposes of this definition, the Board has determined that a director is not independent if:

 

1.

the director is, or in the past three years has been, an employee of the Company, or an immediate family member of the director is, or in the past three years has been, an executive officer of the Company;

 

2.

(a) the director, or an immediate family member of the director, is a current partner of the Company’s outside auditor; (b) the director is a current employee of the Company’s outside auditor; (c) a member of the director’s immediate family is a current employee of the Company’s outside auditor and personally works on the Company’s audit; or (d) the director or an immediate family member of the director was in the past three years a partner or employee of the Company’s outside auditor and personally worked on the Company’s audit within that time;

 

3.

the director, or a member of the director’s immediate family, is or in the past three years has been, an executive officer of another company where any of the Company’s present executive officers serves or served on the compensation committee at the same time;

 

4.

the director, or a member of the director’s immediate family, has received, during any 12-month period in the past three years, any direct compensation from the Company in excess of $120,000, other than compensation for Board service, compensation received by the director’s immediate family member for service as an employee (other than an executive officer) of the Company, and pension or other forms of deferred compensation for prior service with the Company;

 

5.

the director is a current executive officer or employee, or a member of the director’s immediate family is a current executive officer of another company that makes payments to or receives payments from the Company, or during any of the last three fiscal years, has made payments to or received payments from the Company, for property or services in an amount that, in any single fiscal year, exceeded the greater of $1 million or 2% of the other company’s consolidated gross revenues; or

 

		MOODY’S 2020 PROXY STATEMENT		7

6.

the director, or the director’s spouse, is an executive officer of a non-profit organization to which the Company or the Company foundation makes, or in the past three years has made, contributions that, in any single fiscal year, exceeded the greater of $1 million or 2% of the non-profit organization’s consolidated gross revenues. (Amounts that the Company foundation contributes under matching gifts programs are not included in the contributions calculated for purposes of this standard.)

An “immediate family” member includes a director’s spouse, parents, children, siblings, mother- and father-in-law, sons- and daughters-in-law, brothers- and sisters-in-law, and anyone (other than a domestic employee) who shares the director’s home.

In addition, a director is not considered independent for purposes of serving on the Audit Committee, and may not serve on the Audit Committee, if the director: (a) accepts, directly or indirectly, from Moody’s Corporation or any of its subsidiaries, any consulting, advisory, or other compensatory fee, other than Board and committee fees and fixed amounts of compensation under a retirement plan (including deferred compensation) for prior service with Moody’s Corporation; or (b) is an “affiliated person” of Moody’s Corporation or any of its subsidiaries; each as determined in accordance with SEC regulations.

Furthermore, in determining whether a director is considered independent for purposes of serving on the Compensation & Human Resources Committee, the Board must consider all factors specifically relevant to determining whether the director has a relationship with the Company that is material to that director’s ability to be independent from management in connection with the duties of a compensation committee member, including, but not limited to: (a) the source of the director’s compensation, including any consulting, advisory or other compensatory fee paid by the Company to the director; and (b) whether the director is affiliated with Moody’s Corporation, any of its subsidiaries or an affiliate of any subsidiary; each as determined in accordance with SEC regulations.

In assessing independence, the Board took into account that Mr. Anderson, Mr. Bermudez, Ms Esperdy, Mr. Forlenza, Ms Hill, Ms Seidman, Mr. Van Saun and Mr. Zalm each served during 2019, or currently serves, as directors, employees or trustees of entities that are rated or have issued securities rated by Moody’s Investors Service, as listed in the Company’s Director and Shareholder Affiliation Policy posted on the Company’s website under the headings “About Moody’s—Investor Relations—Investor Relations Home—Corporate Governance—Other Governance Documents,” and that associated fees from each such entity accounted for less than 1% of the Company’s 2019 revenue. In addition, the Board took into account that the Company from time to time engages in business with entities where one of our directors, director candidates or their immediate family members are employed or have other relationships. The Board found nothing in the relationships to be contrary to the standards for determining independence as contained in the NYSE’s requirements and the Company’s Corporate Governance Principles. A copy of these standards is found in Attachment A to the Company’s Corporate Governance Principles on the Company’s website at www.moodys.com under the headings “About Moody’s—Investor Relations—Investor Relations Home—Corporate Governance—Other Governance Documents.”

BOARD AND COMMITTEE EVALUATION PROCESS

The Company’s Board and committee evaluation process is summarized below. The topics considered during the evaluation include Board effectiveness in overseeing key areas, such as strategy and risk, performance of committees’ duties under their respective charters, Board and committee operations, and individual director performance.

 

1		Review of Evaluation Process. The Governance & Nominating Committee annually reviews the evaluation process, including the evaluation method, to ensure that constructive feedback is solicited on the performance of the Board, its Committees, and individual directors.
2		Questionnaire and One-on-One Interviews. In 2019, as in prior years, the Board, the Audit Committee, the Compensation & Human Resources Committee and the Governance & Nominating Committee each conducted an annual self-evaluation through the use of a written questionnaire. All directors, other than the Chairman, also evaluate Chairman performance through a written

 

8		MOODY’S 2020 PROXY STATEMENT

		questionnaire. All questionnaires include open-ended questions to solicit direct feedback and the responses are collected on an unattributed basis. In addition, the Chairman conducts annual interviews with each non-management director to discuss individual Board member performance.
3		Summary of Written Evaluations. Directors’ responses to the questionnaires are aggregated without attribution and shared with the full Board and the applicable committees. All responses, including written comments, are provided along with an overview of the high and low scores on various topics.
4		Board and Committee Review. Using aggregated results as a reference, the Audit Committee and the Compensation & Human Resources Committee discuss their respective results. Discussions of the Board, Chairman and Governance & Nominating Committee results occur at the Governance & Nominating Committee. Following the committee-level discussions, all evaluation results and feedback, including those from the one-on-one interviews and the Chairman evaluation questionnaire, are discussed by the full Board.
5		Actions. The Board decides on specific actions to incorporate feedback received, including making any appropriate changes to Board- and committee-related practices.

THE BOARD’S ROLE IN THE OVERSIGHT OF COMPANY RISK

The Board of Directors oversees the Company’s enterprise-wide approach to the major risks facing the Company and, with the assistance of the Audit Committee and the Compensation & Human Resources Committee, oversees the Company’s policies for assessing and managing its exposure to risk. The Board periodically reviews these risks and the Company’s risk management processes, including in connection with its review of the Company’s strategy. The Board’s responsibilities include reviewing the Company’s practices with respect to risk assessment and risk management and reviewing contingent liabilities and risks that may be material to the Company. The Audit Committee reviews the Company’s policies with respect to enterprise-wide risk assessment and risk management, financial and compliance risks, including risks relating to internal controls and cyber risks, and major legislative and regulatory developments that could materially affect the Company. In addition, at least annually, the Audit Committee, together with the full Board from time to time, reviews the implementation and effectiveness of the Company’s enterprise risk management program with the Chief Risk Officer. The Compensation & Human Resources Committee oversees management’s assessment of whether the Company’s compensation structure, policies and programs create risks that are reasonably likely to have a material adverse effect on the Company and reviews the results of this assessment.

Under the oversight of the Board and its committees, the Chief Executive Officer has established an Enterprise-Wide Risk Committee, comprised of the Chief Executive Officer and his direct reports, which include the Chief Risk Officer. The Enterprise-Wide Risk Committee reviews the work of the Enterprise Risk Function that is managed by the Chief Risk Officer. The Chief Risk Officer oversees risk officers for the Company’s two business segments, MIS and MA, and the support functions in Moody’s Shared Services, Inc. who periodically report on risks and their mitigations within their areas of responsibility. Among other things, the Enterprise Risk Function is responsible for identifying and monitoring existing and emerging risks that are important to the achievement of the Company’s strategic and operative objectives; formulating appropriate polices, monitoring and reporting frameworks to support effective management of important risks; reviewing and evaluating the effectiveness of management processes and action plans to address such risks; advising on and recommending to executive management any significant actions or initiatives that they believe are necessary to effectively manage risk; and seeing that activities of discrete risk management disciplines within the Company are appropriately coordinated. The Chief Risk Officer presented the Enterprise Risk Committee’s analysis to the directors at four meetings in 2019. Additionally, the Audit Committee, the Governance & Nominating Committee and the Compensation & Human Resources Committee reviewed risks within their areas of responsibility at separate meetings in 2019. Significant risk issues evaluated by and/or major changes proposed by the Enterprise-Wide Risk Committee and the Chief Risk Officer are discussed at various Board meetings throughout the year.

 

		MOODY’S 2020 PROXY STATEMENT		9

EXECUTIVE SESSIONS

The independent directors routinely meet in executive session at regularly scheduled Board meetings. Dr. McKinnell, the independent Chairman of the Board, establishes the agenda for and presides at these sessions and has the authority to call additional sessions as appropriate.

COMMUNICATIONS WITH DIRECTORS

The Board of Directors has established a process to receive communications from stockholders and other interested parties. Stockholders and other interested parties may communicate with the Board of Directors or with all non-management directors as a group, or with a specific director or directors (including the Chairman of the Board), by writing to them c/o the Corporate Secretary of the Company at 7 World Trade Center at 250 Greenwich Street, New York, New York 10007.

All communications received as set forth in the preceding paragraph will be opened by the Corporate Secretary for the sole purpose of determining whether the contents represent a message to the Company’s directors. Any contents that are not in the nature of advertising, promotions of a product or service, or patently offensive material will be forwarded promptly to the addressee.

SUCCESSION PLANNING

The Board and the Compensation & Human Resources Committee review succession planning annually in conjunction with the Board’s review of strategic planning.

ANTI-HEDGING AND ANTI-PLEDGING POLICY; SHORT SALES AND OTHER SPECULATIVE TRADES

All executive officers, directors and their family members are subject to a securities trading policy under which they are prohibited from hedging and pledging Moody’s securities, including any publicly traded securities of a Moody’s subsidiary. The term “family member” is defined in the Company’s policy against insider trading and generally includes family members or entities that hold, purchase or sell Company stock that is attributed to the director or officer. Specifically, the following activities are prohibited under the policy:

 

•

Making “short sales” of Moody’s securities. A short sale has occurred if the seller: (i) does not own the securities sold; or (ii) does own the securities sold, but does not deliver or transmit them within the customary settlement period.

 

•

Engaging in short-term or speculative transactions or entering into any transaction (including purchasing or selling forward contracts, equity swaps, puts or calls) that is designed to offset any decrease in the market value of or is otherwise based on the price of Moody’s securities.

 

•

Holding Moody’s securities in margin accounts, buying Moody’s securities on margin or pledging Moody’s securities as collateral for a loan.

Employees who are not executive officers (and their family members) are prohibited from: (i) making short sales of Moody’s securities; (ii) buying Moody’s securities on margin or in any account in which a financial firm lends cash to purchase the securities; and (iii) engaging in short-term or speculative transactions involving Moody’s securities, including buying or selling put or call options and entering into other derivative transactions involving Moody’s securities. The restrictions in clause (iii) do not prohibit the exercise of Moody’s stock options that employees receive in connection with their compensation.

RULE 10B5-1 TRADING PLANS

The Chief Executive Officer, Chief Financial Officer and certain other officers of the Company, enter into Rule 10b5-1 stock trading plans from time to time. These plans allow executives to adopt predetermined procedures for trading shares of Company stock in advance of learning any material non-public information. The use of these trading plans permits diversification, retirement and tax planning activities. The transactions under the plans will be disclosed publicly through Form 4 filings with the SEC.

 

10		MOODY’S 2020 PROXY STATEMENT

THE AUDIT COMMITTEE

The Audit Committee represents and assists the Board of Directors in its oversight responsibilities relating to: the integrity of the Company’s financial statements and the financial information provided to the Company’s stockholders and others; the Company’s compliance with legal and regulatory requirements; the Company’s internal controls; the Company’s policies with respect to risk assessment and risk management, and the review of contingent liabilities and risks that might be material to the Company; and the audit process, including the qualifications and independence of the Company’s principal external auditors (the “Independent Auditors”), and the performance of the Independent Auditors and the Company’s internal audit function.

Oversight of Audit Processes

As part of the Audit Committee’s oversight of the audit process, the Audit Committee and its Chairman are directly involved in the selection of the lead engagement partner when there is a rotation required under applicable rules, and the Audit Committee reviews and concurs in the appointment and compensation of the head of the Company’s internal audit function (the “Chief Audit Executive”). The Committee also approves the fees and terms associated with the retention of the Independent Auditors to perform the annual engagement. In determining whether to approve services proposed to be provided by the Independent Auditors, the Committee is provided with summaries of the services, the fee associated with each service as well as information regarding incremental fees to be approved. The Committee also receives benchmarking data for audits of companies of similar sizes and audits of comparable complexity in order to determine the reasonableness of the proposed fees.

Responsibilities under the Audit Committee Charter

In fulfilling the responsibilities under its charter, the Audit Committee:

 

•

Discusses with, and receives regular status reports from, the Independent Auditors and the head of the internal audit function on the overall scope and plans for their audits, including their scope and plans for evaluating the effectiveness of internal control over financial reporting. Also receives regular updates on the Company’s internal control over financial reporting, and discusses with management and the Independent Auditors their evaluations and conclusions with respect to internal control over financial reporting.

 

•

Meets with the Independent Auditors and the head of the internal audit function, with and without management present, to discuss the results of their respective audits, in addition to holding meetings with members of management, including the General Counsel.

 

•

Reviews significant accounting policies, critical estimates and disclosures with management and the Independent Auditors, including the implementation of any new accounting standards or requirements.

 

•

Reviews and discusses with management and the Independent Auditors the Company’s earnings press releases and periodic filings made with the SEC, including the use of information that is provided to enhance understanding of the results presented in accordance with GAAP.

 

•

Oversees the implementation of new financial reporting systems and their related internal controls.

 

•

Reviews the Company’s financial and compliance risks, including, but not limited to, risks relating to internal controls and cyber risks. The Chairman of the Audit Committee holds a CERT Certificate in Cybersecurity Oversight, issued by the CERT Division of the Software Engineering Institute at Carnegie Mellon University.

 

•

Receives periodic reports on the effectiveness of the Company’s compliance program and regular status reports on compliance issues, including reports required by the Audit Committee’s policy for the receipt and treatment of any complaints received by the Company regarding accounting, internal control, auditing and federal securities law matters.

 

•

Provides input regarding the annual evaluation of the Chief Audit Executive.

 

•

Reviews its charter annually and conducts an annual self-evaluation to assess its performance.

The Audit Committee also has the authority to engage its own outside advisors, including experts in particular areas of accounting, as it determines appropriate.

 

		MOODY’S 2020 PROXY STATEMENT		11

Ongoing Assessment of the Independent Auditors

The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the Independent Auditors and, as such, the Independent Auditors report directly to the Audit Committee. KPMG LLP has served as the Company’s Independent Auditors since 2008, and was re-appointed at the conclusion of a competitive process that the Audit Committee conducted in 2019 to review the selection of the Company’s Independent Auditors. In selecting the Independent Auditors, the Committee considered the relative costs, benefits, challenges, potential impact, and overall advisability of selecting different Independent Auditors. In addition, the Audit Committee conducts an annual performance assessment of the Independent Auditors, seeking performance feedback from all the members of the Committee as well as from officers with audit-related responsibilities. The factors the Audit Committee considered in conducting this assessment included: independence, objectivity and integrity; quality of services and the ability to meet performance delivery dates; responsiveness and ability to adapt; proactivity in identification of opportunities and risks; performance of the lead engagement partners as well as other team members; technical expertise; understanding of the Company’s business and industry; effectiveness of their communication; sufficiency of resources; fee levels in light of the services rendered; and management feedback.

Policy on Pre-Approval of Independent Auditors Fees

The Audit Committee has established a policy setting forth the requirements for the pre-approval of audit and permissible non-audit services to be provided by the Independent Auditors. Under the policy, the Audit Committee pre-approves the annual audit engagement terms and fees, as well as any other audit services and specified categories of non-audit services, subject to certain pre-approved fee levels. In addition, pursuant to the policy, the Audit Committee authorized its Chairman to pre-approve other audit and permissible non-audit services in 2019 up to $250,000 per engagement and a maximum of $500,000 per year. The policy requires that the Audit Committee Chairman report any pre-approval decisions to the full Audit Committee at its next scheduled meeting. For the year ended December 31, 2019, the Audit Committee or its Chairman pre-approved all of the services provided by the Independent Auditors, which are described on page 27. The Audit Committee also is responsible for overseeing the audit fee negotiation associated with the retention of the Independent Auditors to perform the annual audit engagement.

Notable Actions in 2019

During 2019, the Audit Committee also reviewed and oversaw the expansion of voluntary sustainability disclosures in the Company’s periodic filings with the SEC and certain other external reports that reflect recommendations from sustainability assessment organizations. The enhanced disclosures recognize growing investor demand for sustainability information. In 2019, the Company began reporting on such matters using recommendations from SASB and also issued its second annual report on how the Company has implemented the TCFD recommendations.

The members of the Audit Committee are Ms Seidman (Chairman), Mr. Anderson, Mr. Bermudez, Ms Esperdy, Mr. Forlenza, Ms Hill, Dr. McKinnell, Mr. Van Saun and Mr. Zalm, each of whom is independent under NYSE and SEC rules and under the Company’s Corporate Governance Principles. The Board of Directors has determined that each of Mr. Anderson, Mr. Bermudez, Ms Esperdy, Mr. Forlenza, Dr. McKinnell, Ms Seidman, Mr. Van Saun and Mr. Zalm is an “audit committee financial expert” under the SEC’s rules. The Audit Committee held nine meetings during 2019.

AUDIT COMMITTEE REPORT

The Audit Committee has reviewed and discussed with management and the Independent Auditors the audited financial statements of the Company for the year ended December 31, 2019 (the “Audited Financial Statements”), management’s assessment of the effectiveness of the Company’s internal control over financial reporting, and the Independent Auditors’ evaluation of the Company’s system of internal control over financial reporting. In addition, the Audit Committee has discussed with KPMG LLP, which reports directly to the Audit Committee, the matters that independent registered public accounting firms must communicate to audit committees under applicable Public Company Accounting Oversight Board (“PCAOB”) standards.

 

12		MOODY’S 2020 PROXY STATEMENT

The Audit Committee also has discussed with KPMG LLP its independence from the Company, including the matters contained in the written disclosures and letter required by applicable requirements of the PCAOB regarding independent registered public accounting firms’ communications with audit committees about independence. The Audit Committee also has discussed with management of the Company and KPMG LLP such other matters and received such assurances from them as it deemed appropriate. The Audit Committee also considers whether the rendering of non-audit services by KPMG LLP to the Company is compatible with maintaining the independence of KPMG LLP from the Company. The Company historically has used KPMG LLP for only a limited number of non-audit services each year.

Following the foregoing review and discussions, the Audit Committee recommended to the Board of Directors that the Audited Financial Statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 for filing with the SEC.

The Audit Committee

Leslie F. Seidman, Chairman

Basil L. Anderson

Jorge A. Bermudez

Thérèse Esperdy

Vincent A. Forlenza

Kathryn M. Hill

Henry A. McKinnell, Jr.

Bruce Van Saun

Gerrit Zalm

THE GOVERNANCE & NOMINATING COMMITTEE

The Governance & Nominating Committee identifies and evaluates possible candidates to serve on the Board and recommends the Company’s director nominees for approval by the Board and the Company’s stockholders. The Governance & Nominating Committee also considers and makes recommendations to the Board of Directors concerning the size, structure, composition and functioning of the Board and its committees, oversees the evaluation of the Board, and develops and reviews the Company’s Corporate Governance Principles.

With respect to the evaluation of the Board, the Governance & Nominating Committee oversees a process for annually assessing the performance, contributions and the independence of incumbent directors in determining whether to recommend them for reelection to the Board. The Board, the Audit Committee, the Compensation & Human Resources Committee and the Governance & Nominating Committee, under that Committee’s oversight, each conduct an annual self-evaluation to assess its performance. The Chairman of the Board conducts annual interviews during which individual Board member evaluations are conducted.

In addition, the Governance & Nominating Committee oversees sustainability matters, including significant issues of corporate social and environmental responsibility, as they pertain to the Company’s business.

The members of the Governance & Nominating Committee are Mr. Anderson (Chairman), Mr. Bermudez, Ms Esperdy, Mr. Forlenza, Ms Hill, Dr. McKinnell, Ms Seidman, Mr. Van Saun and Mr. Zalm, each of whom is independent under NYSE rules and under the Company’s Corporate Governance Principles. The Governance & Nominating Committee met six times during 2019.

THE COMPENSATION & HUMAN RESOURCES COMMITTEE

The Compensation & Human Resources Committee oversees the Company’s overall compensation structure, policies and programs, assesses whether the Company’s compensation structure establishes appropriate incentives for management and employees, and assesses the results of the most recent vote on the Company’s advisory resolution approving executive compensation. The Committee also oversees the evaluation of senior management (including by reviewing and approving performance goals for the Company’s Chief Executive Officer and other executive officers, and by evaluating their performance against approved goals, which, with respect to the Chief Executive Officer, the Committee does in consultation with the Chairman of the Board) and oversees and makes the final decisions regarding compensation arrangements for the Chief Executive Officer and for certain other executive officers, including the named executive officers. The Chief Executive Officer makes

 

		MOODY’S 2020 PROXY STATEMENT		13

recommendations to the Committee regarding the amount and form of executive compensation (except with respect to his compensation). For a description of this process, see the Compensation Discussion and Analysis (the “Compensation Discussion and Analysis” or “CD&A”), beginning on page 33. The Committee administers and makes recommendations to the Board with respect to the Company’s incentive compensation and equity-based compensation plans that are subject to Board approval, including the Company’s key employees’ stock incentive plans. The Committee has authority, acting in a settlor capacity, to establish, amend and terminate the Company’s employee benefit plans, programs and practices, and to review reports from management regarding the funding, investments and other features of such plans, and the Committee delegates to management the responsibilities it has with respect to the Company’s employee benefit plans, programs and practices as the Committee deems appropriate. As discussed below, the Committee annually reviews the form and amount of compensation of directors for service on the Board and its committees and recommends changes to the Board.

The Committee is empowered to retain, at the Company’s expense, such consultants, counsel or other outside advisors as it determines appropriate to assist it in the performance of its functions. In 2019, the Committee retained the services of Meridian Compensation Partners LLC (“Meridian”), an independent compensation consulting company, to provide advice and information about executive and director compensation, including the competitiveness of pay levels, executive compensation design and governance issues, and market trends, as well as technical and compliance considerations. Meridian reports directly and solely to the Compensation & Human Resources Committee. Meridian exclusively provides executive and director compensation consulting services and does not provide any other services to the Company.

The Committee regularly reviews the current engagements and the objectivity and independence of the advice that Meridian provides to the Committee on executive and director compensation. The Committee considered the six specific independence factors adopted by the SEC and the NYSE under Dodd-Frank and other factors it deemed relevant, and the Committee found no conflicts of interest or other factors that would adversely affect Meridian’s independence.

During 2019, management continued to engage Aon Consulting (formerly called Aon Hewitt) as management’s compensation consultant. Aon Consulting worked with the Chief Human Resources Officer and her staff to develop market data regarding Moody’s executive compensation programs. The Committee takes into account that Aon Consulting provides executive compensation-related services to management when it evaluates the information and analyses provided by Aon Consulting.

The members of the Compensation & Human Resources Committee are Ms Hill (Chairman), Mr. Anderson, Mr. Bermudez, Ms Esperdy, Mr. Forlenza, Dr. McKinnell, Ms Seidman, Mr. Van Saun and Mr. Zalm, each of whom is independent under NYSE rules and under the Company’s Corporate Governance Principles. The Compensation & Human Resources Committee met six times during 2019.

REPORT OF THE COMPENSATION & HUMAN RESOURCES COMMITTEE

The Compensation & Human Resources Committee assists the Board in fulfilling its oversight responsibility relating to, among other things, establishing and reviewing compensation of the Company’s executive officers. In this context, the Compensation & Human Resources Committee reviewed and discussed with management the Company’s Compensation Discussion and Analysis, beginning on page 33. Following such reviews and discussions, the Compensation & Human Resources Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

The Compensation & Human Resources Committee

Kathryn M. Hill, Chairman

Basil L. Anderson

Jorge A. Bermudez

Thérèse Esperdy

Vincent A. Forlenza

Henry A. McKinnell, Jr.

Leslie F. Seidman

Bruce Van Saun

Gerrit Zalm

 

14		MOODY’S 2020 PROXY STATEMENT

RELATIONSHIP OF COMPENSATION PRACTICES TO RISK MANAGEMENT

When structuring its overall compensation practices for employees of the Company, generally consideration is given as to whether the structure creates incentives for risk-taking behavior and therefore affects the Company’s risk management practices. Attention is given to the elements and the mix of pay as well as seeing that employees’ compensation is aligned with stockholders’ value.

In order to assess whether the Company’s compensation practices and programs create risks that are reasonably likely to have a material adverse effect on the Company, management established a compensation risk committee led by the Chief Human Resources Officer to assess the risk related to the Company’s compensation plans, practices and programs. As part of this annual review, the compensation risk committee assessed the following items: (i) the relative proportion of variable to fixed components of compensation, (ii) the mix of performance periods (short-term, medium-term and long-term), (iii) the mix of payment mechanisms (cash, options, restricted stock units (“RSUs”), performance shares), (iv) the design of the incentive compensation programs, including the performance metrics used, linking the creation of value and earnings quality and sustainability, (v) the process of setting goals, degree of difficulty, spreads between thresholds, targets and maximum payouts, and ratios of payouts as a fraction of earnings, (vi) the maximum payout levels and caps, (vii) the clawback policy and other compensation-related governance policies, (viii) the retirement program design and (ix) the equity ownership and retention guidelines. These items were assessed in the context of the most significant risks currently facing the Company, to determine if the compensation plans, practices and programs incentivize employees to take undue risks. The committee then took into account controls and procedures that operate to monitor and mitigate against risk. The Chief Human Resources Officer presented the compensation risk committee’s conclusions to the Compensation & Human Resources Committee. These conclusions were also reviewed by the Compensation & Human Resources Committee’s independent compensation consultant, Meridian.

The Compensation & Human Resources Committee reviewed these conclusions through a risk assessment lens. As a result of these reviews, the Company does not believe that the Company’s compensation practices and programs create risks that are reasonably likely to have a material adverse effect on the Company, nor does it believe that the practices and programs are designed to promote undue risk taking.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Audit Committee is charged with monitoring and reviewing issues involving potential conflicts of interest, and reviewing and approving all related person transactions, as defined in applicable SEC rules. Under SEC rules, related persons include any director, executive officer, any nominee for director, any person owning 5% or more of the Company’s Common Stock, and any immediate family members of such persons. In addition, under the Company’s Code of Business Conduct and Code of Ethics, special rules apply to executive officers and directors who engage in conduct that creates an actual, apparent or potential conflict of interest. Before engaging in such conduct, such executive officers and directors must make full disclosure of all the facts and circumstances to the Company’s General Counsel and the Audit Committee Chairman, and obtain the prior written approval of the Audit Committee. All conduct is reviewed in a manner so as to (i) maintain the Company’s credibility in the market, (ii) maintain the independence of the Company’s employees and (iii) see that all business decisions are made solely on the basis of the best interests of the Company and not for personal benefit.

COMPENSATION OF DIRECTORS

Our director compensation program is designed to compensate our non-employee directors fairly for work required for a company of our size and scope and to align their interests with the long-term interests of our stockholders. The Compensation & Human Resources Committee annually reviews the form and amount of the compensation of directors for service on the Board and its committees and recommends changes to the Board. As part of its 2019 review, the Compensation & Human Resources Committee reviewed and considered data provided to the Committee by its independent consultant, Meridian, regarding the form and amount of compensation paid to non-management directors at the companies in Moody’s peer group used by the Compensation & Human Resources Committee for the assessment of executive compensation (as disclosed beginning on page 36 of this

 

		MOODY’S 2020 PROXY STATEMENT		15

Proxy Statement). The comparative analysis included each element of the director pay program: the annual cash retainer, board and committee fees as well as equity awards. This analysis showed that Moody’s director compensation is competitively positioned relative to the median of its peer group. Its equity to cash ratio was found to be similar to the peer group average and, like many of its peers, Moody’s directors are subject to stock holdings requirements (a multiple of the cash retainer). Moody’s does not provide per-meeting fees for board and committee meetings or any non-chairman committee member fees.

As a result of this review, the Compensation & Human Resources Committee determined that compensation of directors on the Board and its committees is reasonable and appropriate as compared to the board members of peer companies.

The following table sets forth, for the fiscal year ended December 31, 2019, the total compensation of the non-management members of the Company’s Board of Directors. Mr. McDaniel does not receive any compensation for serving as a Moody’s director. His compensation for his services as Moody’s President and Chief Executive Officer is reflected in the Summary Compensation Table on page 54 of this Proxy Statement.

 

Name		Year					Fees Earned or Paid in Cash ($)(1)					Stock Awards ($)(2)					All Other Compensation ($)(3)					Total ($)
Basil Anderson				2019				$	130,000				$	180,002					—				$	310,002
Jorge Bermudez				2019					105,000					180,002					—					285,002
Thérèse Esperdy (4)				2019					105,000					180,054					—					285,054
Vincent Forlenza				2019					105,000					180,002					—					285,002
Kathryn Hill				2019					130,000					180,002					—					310,002
Henry McKinnell, Jr.				2019					165,000					249,955					—					414,955
Leslie Seidman				2019					130,000					180,002					—					310,002
Bruce Van Saun				2019					105,000					180,002					—					285,002
Gerrit Zalm				2019					105,000					180,002					—					285,002

 

(1)

The Company’s non-management directors received an annual cash retainer of $105,000, payable in quarterly installments in 2019. The Chairmen of the Audit Committee, the Governance & Nominating Committee and the Compensation & Human Resources Committee each received an additional annual cash fee of $25,000, also payable in quarterly installments. The Chairman of the Board received an additional annual cash fee of $60,000. There were no separate meeting fees paid in 2019.

 

A non-management director may elect to defer receipt of all or a portion of his or her annual cash retainer until after termination of service on the Company’s Board of Directors. Deferred amounts are credited to an account and receive the rate of return earned by one or more investment options available under the Profit Participation Plan as selected by the director. Upon a change in control of the Company, a lump-sum payment will be made to each director of the amount credited to the director’s deferred account on the date of the change in control, and the total amount credited to each director’s deferred account from the date of the change in control until the date such director ceases to be a director, will be paid in a lump-sum.

 

(2)

On February 25, 2019, all then non-management directors, except Dr. McKinnell, received a grant of approximately $180,000 worth of RSUs issued from the 1998 Moody’s Corporation Non-Employee Directors’ Stock Incentive Plan (the “1998 Directors Plan”) which was equal to 1,037 RSUs. Also on February 25, 2019, Dr. McKinnell received a grant of approximately $250,000 worth of RSUs issued from the 1998 Directors Plan that was equal to 1,440 RSUs. The Compensation & Human Resources Committee authorized the grant of RSU awards for February 25, 2019 on December 17, 2018, and the grant was approved subsequently by the Board on December 17, 2018. The grant of RSU awards was effective on February 25, 2019, the fifth trading day following the date of the public dissemination of the Company’s financial results for 2018. On March 1, 2019, Ms Esperdy received a grant of approximately $180,000 worth of RSUs issued from the 1998 Directors Plan, which was equal to 1,027 RSUs. In each case, the number of RSUs based on the award value has been computed in accordance with FASB ASC Topic 718. For additional information on how Moody’s accounts for equity-based compensation, see Note 17 to the financial statements as contained in the Company’s Annual Report on Form 10-K filed with the SEC on February 24, 2020.

 

16		MOODY’S 2020 PROXY STATEMENT

The aggregate number of stock awards outstanding, including any accrued dividends, as of December 31, 2019 for each individual who served as a non-management director of the Company during 2019 was as follows:

 

Name		Number of Shares Underlying Options				Number of Shares of Unvested RSUs
Basil Anderson			—				1,044
Jorge Bermudez (a)			—				1,037
Thérèse Esperdy			—				1,034
Vincent Forlenza			—				1,044
Kathryn Hill (a)			—				1,037
Henry McKinnell, Jr.			—				1,450
Leslie Seidman (a)			—				1,037
Bruce Van Saun			—				1,044
Gerrit Zalm (a)			—				1,037

 

(a)

Messrs. Bermudez and Zalm and Ms Hill and Ms Seidman did not defer their RSU awards and receive cash dividends upon vesting of the RSUs.

(3)

Perquisites and other personal benefits provided to each individual who served as a non-management director in 2019 were, in the aggregate, less than $10,000 per director. Each non-management director is reimbursed for travel, meals and hotel expenses incurred in connection with attending meetings of the Company’s Board of Directors or its committees. For the meetings held at the Company’s executive offices, the Company pays for travel for each non-management director and one guest of each director, as well as for their accommodations, meals, Company-arranged activities and other incidental expenses.

 

(4)	Ms Esperdy commenced service as a director on March 1, 2019.

STOCK OWNERSHIP GUIDELINES FOR NON-MANAGEMENT DIRECTORS

Moody’s has adopted stock ownership guidelines for its executives, including the named executive officers and its non-management directors, encouraging them to acquire and maintain a meaningful stake in the Company. Moody’s believes that these guidelines encourage its executive officers and non-management directors to act as owners, thereby better aligning their interests with those of the Company’s stockholders.

 

•

The guidelines are intended to ensure an ownership level sufficient to assure stockholders of each director’s commitment to value creation, while satisfying an individual’s need for portfolio diversification.

 

•

Non-management directors are expected, within five years, to acquire and hold shares of the Company’s Common Stock equal in value to five times the annual cash retainer.

 

•

Restricted shares, RSUs and shares owned by immediate family members or through the Company’s tax-qualified savings and retirement plans count toward satisfying the guidelines.

 

•

Stock options, whether vested or unvested, do not count toward satisfying the guidelines.

As of December 31, 2019, each of the directors serving on that date was in compliance with the guidelines.

1998 MOODY’S CORPORATION NON-EMPLOYEE DIRECTORS’ STOCK INCENTIVE PLAN

The 1998 Directors Plan includes an annual grant limit on awards to individual directors, which is not to exceed “the lesser of 20,000 shares or shares with a fair market value of $400,000.” As disclosed in the Compensation of Directors table above, the fair market value of director grants have historically been below this amount.

 

		MOODY’S 2020 PROXY STATEMENT		17

ITEM 1—ELECTION OF DIRECTORS

 

What is being voted on		Election of nine director nominees to the Board.
Board recommendation		The Board of Directors recommends a vote FOR the election of each of the director nominees.

The Board of Directors has nominated Basil L. Anderson, Jorge A. Bermudez, Thérèse Esperdy, Vincent A. Forlenza, Kathryn M. Hill, Raymond W. McDaniel, Jr., Henry A. McKinnell, Jr., Ph.D., Leslie F. Seidman and Bruce Van Saun, each for a one-year term expiring in 2021. Gerrit Zalm, together with the rest of the Governance & Nominating Committee and the Board of Directors, determined collectively he will not stand for reelection at the Annual Meeting and will retire from the Board at the end of his current term. Accordingly, the Board will set the number of directors at nine, effective as of the Annual Meeting. If elected, the nominees will hold office until each of their terms expires and until a successor is elected and qualified. All of the nominees are currently members of the Board of Directors and were previously elected by the stockholders. The Governance & Nominating Committee evaluates the qualifications and skills of other potential candidates in light of the Board’s current composition and consideration of the Company’s current and future business and operations. The Company expects the nominees for election as director to be able to serve if elected. If a nominee is unable to serve, proxies may be voted for the election of such other person for director as the Board may recommend in the place of such nominee or just for the remaining nominees, leaving a vacancy. Alternatively, the Board may reduce the size of the Board.

QUALIFICATIONS AND SKILLS OF DIRECTORS

The Board believes that the Board, as a whole, should possess a combination of skills, professional experience and diversity of backgrounds necessary to oversee the Company’s business. In addition, the Board believes that there are certain attributes that every director should possess, as reflected in the Board’s membership criteria. Accordingly, the Board and the Governance & Nominating Committee consider the qualifications of directors and director candidates individually and in the broader context of the Board’s overall composition and the Company’s current and future business and operations.

The Governance & Nominating Committee is responsible for developing and recommending Board membership criteria to the Board for approval. The criteria, which are set forth in the Company’s Corporate Governance Principles, include the candidate’s:

 

•

business experience,

 

•

qualifications, attributes and skills relevant to the management and oversight of the Company’s business,

 

•

independence,

 

•

the ability to represent diverse stockholder interests,

 

•

judgment and integrity,

 

•

the ability to commit sufficient time and attention to Board activities, and

 

•

the absence of any potential conflicts with the Company’s business and interests.

In addition, the Board and the Governance & Nominating Committee annually evaluate the composition of the Board to assess whether the skills, experience, characteristics and other criteria established by the Board are currently represented on the Board, and to assess the criteria that may be needed in the future, given the Company’s current situation and strategic plans. The Board and the Governance & Nominating Committee seek a diversity of occupational and personal backgrounds on the Board, including diversity with respect to demographics such as gender, race, ethnic and national background, geography, and age in order to obtain a range of viewpoints and perspectives. As part of the search process for each new director, the Governance & Nominating Committee

 

18		MOODY’S 2020 PROXY STATEMENT

includes women and minorities in the pool of candidates (and instructs any search firm the Committee engages to do so). The Committee also considers the special requirements of Moody’s Investors Service and its role in the securities markets. As an example, the Committee has determined that individuals who by profession actively manage securities portfolios could encounter conflicts of interests or give rise to the appearance of conflicts.

This annual evaluation of the Board’s composition enables the Board and the Governance & Nominating Committee to update the skills and experience they seek in the Board as a whole, and in individual directors, as the Company’s needs evolve and change over time, and to assess the effectiveness of efforts at promoting diversity. In identifying director candidates from time to time, the Board and the Governance & Nominating Committee may identify specific skills and experience that they believe the Company should seek in order to constitute a balanced and effective board.

In addition to a diversity of backgrounds, the Board believes it is important to have diversity of tenures represented on the Board. The Company’s director nominees have varied tenure that the Board believes facilitates and ensures effective oversight by balancing fresh perspectives and in-depth experience and knowledge about the Company.

In considering and nominating directors for election to the Board, the Board and the Governance & Nominating Committee have considered a variety of factors. These include the nominee’s independence, financial literacy, personal and professional accomplishments, experience in light of the needs of the Company and, for incumbent directors, past performance on the Board. With respect to the Company’s director nominees standing for election, their biography as of the date of this Proxy Statement as well as their skills and qualifications that support their service on the Board are set forth below.

The Board of Directors recommends a vote FOR the election as directors of each of the nominees listed below.

DIRECTOR NOMINEES

BASIL L. ANDERSON

Director since April 2004

Basil L. Anderson, age 74, is Chairman of the Governance & Nominating Committee and is a member of the Executive, Audit and Compensation & Human Resources Committees of the Board of Directors. Mr. Anderson served as Vice Chairman of Staples, Inc., an office products company, from September 2001 until his retirement in March 2006. Prior to joining Staples, Mr. Anderson served as Executive Vice President and Chief Financial Officer of Campbell Soup Company from April 1996 to February 2001. Prior to joining Campbell Soup, Mr. Anderson was with Scott Paper Company, where he served in a variety of capacities beginning in 1975, including Vice President and Chief Financial Officer from December 1993 to December 1995. He served as a director of Staples, Inc. from 1997 until 2016, Hasbro, Inc. from 2002 until May 2017 and Becton Dickinson from 2004 to 2018.

Mr. Anderson has over a decade of experience as an executive officer, including as a chief financial officer, of several public companies where he held significant policymaking positions. He also has experience as an operating executive in charge of an international business based in Paris, France. In addition, Mr. Anderson served as a director of NYSE or Nasdaq listed companies. As a result of these positions, he brings to the Board expertise as a strategist, management and operations experience, and a perspective on international business operations and corporate governance in the public company context.

JORGE A. BERMUDEZ

Director since April 2011

Jorge A. Bermudez, age 68, is a member of the Audit, Governance & Nominating and Compensation & Human Resources Committees of the Board of Directors. He served as Chief Risk Officer of Citigroup, Inc., a global

 

		MOODY’S 2020 PROXY STATEMENT		19

financial services company, from November 2007 to March 2008. Before serving as Chief Risk Officer, Mr. Bermudez was Chief Executive Officer of Citigroup’s Commercial Business Group in North America and Citibank Texas from 2005 to 2007. He served as Senior Advisor, Citigroup International from 2004 to 2006, as Chief Executive Officer of Citigroup Latin America from 2002 to 2004, Chief Executive Officer, eBusiness, Global Cash Management and Trade from 1998 to 2002 and Head of Citibank Corporate and Investment Bank, South America from 1996 to 1998. Mr. Bermudez joined Citigroup in 1975 and held leadership positions in other divisions, including equity investments, credit policy and corporate banking from 1984 to 1996. Mr. Bermudez currently is a member of the Texas A&M Foundation Board of Trustees (2014-present) and the Chairman of the Smart Grid Center Board at Texas A&M University, and also serves on the Board of Directors of AB Mutual Funds, overseeing approximately 70 funds within the mutual fund complex (January 2020-present). He served as a director of Citibank N.A. from 2005 to 2008, the Federal Reserve Bank of Dallas, Houston Branch from 2009 to 2011, the Federal Reserve Bank of Dallas from 2011 to 2017, the Association of Former Students, Texas A&M University from 2005 to 2012, the American Institute of Architects for the entirety of 2015, the Electric Reliability Council of Texas from 2010 to 2016. He serves as a director of the Community Foundation of Brazos Valley where he served as Chairman from July 2013 to June 2014 and currently serves as the chairman of the Investment Committee.

Mr. Bermudez brings a history of executive experience at a major international financial services company. As the head of risk for a major global financial institution, he was involved in the debt restructuring of various sovereigns around the world. He also managed a global business with a presence in over 100 countries. As a result, Mr. Bermudez brings a deep understanding of credit risk and years of financial expertise, as well as risk management experience, to the Board.

THÉRÈSE ESPERDY

Director since March 2019

Thérèse Esperdy, age 59, is a member of the Audit, Governance & Nominating and Compensation & Human Resources Committees of the Board of Directors. She held various executive roles at JPMorgan Chase & Co. (“JPMorgan”) from 1997 through 2015, including Global Chairman of Financial Institutions Group, Co-Head of Banking, Asia Pacific, and Head of Global Debt Capital Markets. Prior to her time at JPMorgan, Ms Esperdy started her banking career at Lehman Brothers. Ms Esperdy currently serves as the Non-Executive Chairman of Imperial Brands PLC (January 2020-present), where she was a Non-Executive Director and then Senior Independent Director (July 2016-December 2019). She also serves as an Independent Non-Executive Director at National Grid plc (March 2014-present) and is on the board of National Grid USA (May 2015-present).

Ms Esperdy’s extensive experience in global investment banking and financial markets provides her with strategic and financial expertise that is critical to overseeing the Company’s strategies. As a senior executive at JPMorgan, she played key roles in managing JPMorgan’s Asia and capital markets businesses through challenging financial climates. Her experiences and expertise enhance the Board’s ability to oversee the Company’s global operations and effectively manage risk.

VINCENT A. FORLENZA

Director since April 2018

Vincent A. Forlenza, age 66, is a member of the Audit, Governance & Nominating and Compensation & Human Resources Committees of the Board of Directors. He has served as a director of Becton, Dickinson and Company (“BD”), a global medical technology company, since 2011 and became Chairman of its board in 2012. Mr. Forlenza served as BD’s Chief Executive Officer from 2011 to January 2020 and President from 2009 to April 2017. Prior to that, Mr. Forlenza served as Chief Operating Officer from July 2010 to October 2011. Mr. Forlenza joined BD in 1980 and served in a number of different capacities, including strategic planning, business development, research and development, and general management in each of BD’s segments and in overseas roles. Mr. Forlenza is a member of the board of directors and former chairman of the Advanced Medical

 

20		MOODY’S 2020 PROXY STATEMENT

Technology Association (AdvaMed), an international medical technology trade organization. He is a member of the Board of Trustees of The Valley Health System and a member of the Board of Directors of the Quest Autism Foundation. He previously served as a member of the Board of Trustees of Lehigh University from 2011 to 2017.

Mr. Forlenza served as the chief executive officer of a public, global medical technology company for approximately nine years. He has also served as chairman of that company’s board since 2012. Prior to becoming chief executive officer, he was the chief operating officer and held various additional roles. He has experience leading a large global business in a regulated industry, including significant experience in large M&A transactions. He additionally brings experience in areas such as strategic planning, business development and new product development. His service as a director also contributes to his focus on corporate governance matters.

KATHRYN M. HILL

Director since October 2011

Kathryn M. Hill, age 63, is Chairman of the Compensation & Human Resources Committee and is a member of the Executive, Audit and Governance & Nominating Committees of the Board of Directors. Ms Hill has over 30 years of experience in business management and leading engineering and operations organizations. Ms Hill served in a number of positions at Cisco Systems, Inc. from 1997 to 2013, including, among others, Executive Advisor from 2011 to 2013, Senior Vice President, Development Strategy and Operations from 2009 to 2011, Senior Vice President, Access Networking and Services Group from 2008 to 2009 and Senior Vice President, Ethernet Systems and Wireless Technology Group from 2005 to 2008. Cisco designs, manufactures and sells Internet Protocol (IP)-based networking and other products related to the communications and information technology industry and provides services associated with these products. Prior to Cisco, Ms Hill had a number of engineering roles at various technology companies. Ms Hill currently serves as a director of NetApp, Inc. (September 2013-present) and Celanese Corporation (July 2015-present).

Ms Hill has significant experience in business management and leading engineering and operations organizations. Her various executive roles at Cisco Systems, Inc. allow her to bring extensive leadership experience and a strong background in information technology and business operations to the Board.

RAYMOND W. MCDANIEL, JR.

Director since April 2003

Raymond W. McDaniel, Jr., age 62, has served as the Company’s President and Chief Executive Officer since April 2012, and served as the Chairman and Chief Executive Officer from April 2005 until April 2012. He currently serves on the Executive Committee of the Board of Directors. Mr. McDaniel served as the Company’s President from October 2004 until April 2005 and the Company’s Chief Operating Officer from January 2004 until April 2005. He has served as Chief Executive Officer of Moody’s Investors Service since October 2007. He held the additional titles of President from November 2001 to August 2007 and December 2008 to November 2010 and Chairman from October 2007 until June 2015. Mr. McDaniel served as the Company’s Executive Vice President from April 2003 to January 2004, and as Senior Vice President, Global Ratings and Research from November 2000 until April 2003. He served as Senior Managing Director, Global Ratings and Research, of Moody’s Investors Service from November 2000 until November 2001 and as Managing Director, International from 1996 to November 2000. Mr. McDaniel currently is a director of John Wiley & Sons, Inc. (2005-present) and a member of the Board of Trustees of Muhlenberg College (2015-present).

Mr. McDaniel, who is both President and Chief Executive Officer of the Company, began his career at the Company serving as a ratings analyst and has served in numerous capacities at the Company over the past three decades. As a result, he brings to the Board a deep understanding of the Company’s business and operations as well as a historical perspective on the Company’s strategy. In addition, his service since 2005 as a director of John Wiley & Sons, Inc., which develops, publishes and sells products in print and electronic media for the educational, professional, scientific, technical, medical and consumer markets worldwide, has provided him with perspective on public company governance issues.

 

		MOODY’S 2020 PROXY STATEMENT		21

HENRY A. MCKINNELL, JR., PH.D.

Director since October 1997

Henry A. McKinnell, Jr., age 77, is Chairman of the Board of Directors and Chairman of the Executive Committee and serves as a member of the Audit, Governance & Nominating and Compensation & Human Resources Committees of the Board of Directors. Dr. McKinnell served as the Chief Executive Officer of Optimer Pharmaceuticals, Inc. from February 2013 until October 31, 2013. He served as Chairman of the Board of Pfizer Inc., a pharmaceutical company, from May 2001 until his retirement in December 2006 and Chief Executive Officer from January 2001 to July 2006. He served as President of Pfizer Inc. from May 1999 to May 2001, and as President of Pfizer Pharmaceuticals Group from January 1997 to April 2001. Dr. McKinnell served as Chief Operating Officer of Pfizer Inc. from May 1999 to December 2000 and as Executive Vice President from 1992 to 1999. He served as the Chairman of the Accordia Global Health Foundation, is Chairman Emeritus of the Connecticut Science Center and is Life Director of the Japan Society. He currently serves as a director of ChemoCentryx, Inc. He served as Chairman of Optimer Pharmaceuticals, Inc. until 2013 and Emmaus Life Sciences until 2015. He served as a director of Angiotech Pharmaceuticals, Inc. until 2011, Pfizer Inc. and ExxonMobil Corporation until 2007 and John Wiley & Sons until 2005. He also served as a director of ViewRay, Inc. from April 2016 to May 2019.

Dr. McKinnell served for five years as the chief executive officer of a public pharmaceutical company with worldwide operations and, prior to that position, served as president, chief operating officer, chief financial officer and executive vice president. As a result of these positions, Dr. McKinnell brings to the Board financial expertise, global management experience and leadership skills. In addition, because the pharmaceutical business, like the Company’s, operates in a highly regulated industry, Dr. McKinnell brings to the Board an appreciation of what a complex regulatory environment means for the Company’s operations. Dr. McKinnell has also served as a director of several public companies, contributing to his perspective on corporate governance matters.

LESLIE F. SEIDMAN

Director since December 2013

Leslie F. Seidman, age 57, is Chairman of the Audit Committee and is a member of the Executive, Governance & Nominating and Compensation & Human Resources Committees of the Board of Directors. Ms Seidman has over 30 years of experience in the accounting profession, serving as a member of the Financial Accounting Standards Board (“FASB”) from 2003-2013, and as Chairman for approximately the last three years of her term. During her tenure, the FASB established numerous accounting standards relating to financial instruments, including securitizations, derivatives and credit losses and worked with regulators and policy makers in the U.S., and in other major capital markets to develop consistent accounting standards. Previously, Ms Seidman was the founder and managing member of a financial reporting consulting firm that served global financial institutions, law firms and accounting firms. From 1987 to 1996, Ms Seidman served as Vice President, Accounting Policy and in other roles at J.P. Morgan & Company, Inc. (now JPMorgan) and from 1984 to 1987, Ms Seidman served as an auditor for Arthur Young & Co. (now Ernst & Young, LLP). Ms Seidman previously served as a Public Governor of the Financial Industry Regulatory Authority (2014-2019). Ms Seidman currently serves as a director of General Electric (2018-present), where she has served as the Audit Committee Chair since April 2019, and is also an advisor to Idaciti, Inc., a start-up fintech company (2017-present).

Ms Seidman brings regulatory and financial expertise to the Board. She served as a Public Governor of the Financial Industry Regulatory Authority (FINRA). Her experience as the Chairman of the Financial Accounting Standards Board, executive at a major bank and auditor for a major accounting firm allows her to bring to the Board significant knowledge of global accounting and financial reporting matters in addition to regulatory and senior management experience. In addition, she has previously worked as a CPA and is certified in cybersecurity oversight.

 

22		MOODY’S 2020 PROXY STATEMENT

BRUCE VAN SAUN

Director since March 2016

Bruce Van Saun, age 62, is a member of the Audit, Governance & Nominating and Compensation & Human Resources Committees of the Board of Directors. He has served as Chairman and Chief Executive Officer of Citizens Financial Group, Inc. (“Citizens”), a large regional bank, since October 2013. He joined Citizens from The Royal Bank of Scotland Group plc (“RBS”), a global banking and financial services group. He led Citizens to a successful initial public offering in September 2014, and full independence from RBS in October 2015. At RBS, Mr. Van Saun served as Group Finance Director and as an executive director on the RBS board from 2009 to 2013. Prior to that, Mr. Van Saun held a number of senior positions with Bank of New York and later Bank of New York Mellon over an 11-year period. As Vice Chairman and Chief Financial Officer, he was actively involved in the strategic transformation of Bank of New York from a diversified regional bank into a focused global securities servicer and asset manager. Earlier in his more than 30-year financial services career, he held senior positions with Deutsche Bank, Wasserstein Perella Group and Kidder Peabody & Co. Mr. Van Saun has served on a number of boards in both the U.S. and the U.K. He is a current member of The Clearing House supervisory board. He also serves on the boards of The Bank Policy Institute and Federal Reserve Bank of Boston. He has previously served on the boards of The Royal Bank of Scotland Group plc and National Westminster Bank, Plc, each an RBS affiliate, from October 2009 to October 2013. He also served on the boards of ConvergEx Inc. from May 2007 to October 2013, Direct Line Insurance Group plc from April 2012 to October 2013 and WorldPay (Ship Midco Limited) from July 2011 to September 2013, and on the franchise board of Lloyd’s of London from September 2012 to May 2016.

Mr. Van Saun currently serves as the chief executive officer and chairman of a U.S. bank. He has extensive executive experience, having formerly held several additional senior management positions at banks. As a result of holding these positions, Mr. Van Saun brings financial expertise, management experience and experience managing a business in a highly regulated industry both in the U.S. and in Europe. He has also served as a director of several companies, contributing to his appreciation of corporate governance matters.

 

		MOODY’S 2020 PROXY STATEMENT		23

ITEM 2— AMENDMENTS TO THE CERTIFICATE OF INCORPORATION

TO REMOVE SUPERMAJORITY VOTING STANDARDS

 

What is being voted on		Amendments to the Certificate of Incorporation to remove supermajority voting standards applicable to certain actions.
Board recommendation		The Board of Directors recommends a vote FOR each of the amendments, which are presented separately as Items 2(a), 2(b) and 2(c).

OVERVIEW

After careful consideration, the Board voted to approve, and to recommend to the stockholders that they approve, amendments to the Company’s Restated Certificate of Incorporation (“Certificate of Incorporation”) to remove the supermajority voting requirements currently in the Certificate of Incorporation and replace them with majority voting standards, and to adopt certain other immaterial amendments to the Certificate of Incorporation, each as described below (collectively, the “Proposed Amendments”). In light of the differing nature of the provisions affected, this matter is presented as three Items. The Proposed Amendments are set forth in Item 2(a), Item 2(b) and Item 2(c) below. Approval of any one of these Items is not conditioned upon approval of the other Items.

As discussed in more detail below, the Company’s Certificate of Incorporation currently contains the following supermajority voting provisions:

 

•

Future Amendments to Certain Sections of the Certificate of Incorporation and the By-Laws—The Certificate of Incorporation states that a supermajority vote is necessary for stockholders to amend certain provisions in the Certificate of Incorporation and the By-Laws. Item 2(a) proposes to amend the Certificate of Incorporation so that future amendments to these provisions of the Certificate of Incorporation and the By-Laws can be approved by a majority vote of the outstanding shares entitled to vote.

 

•

Removal of Directors—The Certificate of Incorporation states that a director can be removed from office only by a supermajority vote of stockholders. Item 2(b) proposes to amend this requirement so that directors can be removed by a majority vote of the outstanding shares entitled to vote.

 

•

Filling Open Board Seats at Statutorily Required Special Meetings—The Certificate of Incorporation states that a supermajority vote is necessary for stockholders to fill a vacancy or newly created directorship at a statutorily required special meeting of stockholders. Item 2(c) proposes to remove this supermajority voting requirement. As a result, the same voting standards applicable to the election of directors under the By-Laws (a majority of votes cast in uncontested elections, and plurality voting in contested elections) would apply.

In addition, the Proposed Amendments include certain immaterial changes that are described below.

REASONS FOR THE PROPOSED AMENDMENTS

As a part of the Company’s ongoing review of its corporate governance, the Board determined that it is in the best interests of the Company and its stockholders to remove the supermajority voting requirements in the Company’s Certificate of Incorporation and provide for majority voting standards.

The Board recognizes that supermajority voting requirements can promote stability and protect stockholders by restricting certain fundamental corporate governance changes from being made unless those actions enjoy broad support among the Company’s stockholders. The Board also believes that an additional benefit of the existing supermajority provisions is that they provide enhanced stability that benefits the Company’s rating business, which depends in part upon maintaining the confidence of the marketplace and of regulators that the

 

24		MOODY’S 2020 PROXY STATEMENT

Company’s ratings processes are stable, methodical and free from improper influence. However, the Board also recognizes that many investors and others have a different view, and believe that supermajority voting provisions conflict with principles of good corporate governance. For example, some stockholders and commentators argue that supermajority voting requirements limit a board’s accountability to stockholders or limit stockholders’ participation in a company’s corporate governance. It is important to note that if the Proposed Amendments are approved, they could make it easier for stockholders to remove directors and effect other corporate governance changes in the future.

After considering the advantages and disadvantages of maintaining supermajority voting requirements in the Certificate of Incorporation, the Board adopted resolutions setting forth the Proposed Amendments, declaring the Proposed Amendments advisable and resolving to submit the Proposed Amendments to the Company’s stockholders for deliberation with the recommendation that stockholders approve the Proposed Amendments.

THE PROPOSED AMENDMENTS

ITEM 2(a): REMOVAL OF SUPERMAJORITY VOTING STANDARDS FOR STOCKHOLDER APPROVAL OF FUTURE AMENDMENTS TO THE CERTIFICATE OF INCORPORATION AND BY-LAWS

Article Ninth of the Certificate of Incorporation currently states that a vote of at least 80% of the voting power of all the shares of the Company entitled to vote generally in the election of directors, voting together as a single class, is necessary to modify Article Ninth or the provisions in the Certificate of Incorporation that:

•

allow the Board of Directors to adopt, amend or repeal the By-Laws (Article Fifth);

•

address the size of the Board, the terms of directors, and the process for filling vacancies and newly created Board seats (Article Seventh); and

•

provide that any action by stockholders must be taken at an annual or special meeting (Article Eighth).

Likewise, Article Ninth of the Certificate of Incorporation limits amendments to the Certificate of Incorporation, and Article Fifth limits amendments to the By-Laws (where those amendments are approved by the stockholders), that are inconsistent with the foregoing provisions, by imposing a supermajority voting requirement. Specifically, any such amendments must be approved by the affirmative vote of at least 80% of the voting power of all the shares of the Company entitled to vote generally in the election of directors, voting together as a single class.

This Item 2(a) proposes to amend Article Ninth of the Certificate of Incorporation by replacing the 80% voting requirements with majority voting requirements. As a result, any future action by stockholders to alter, amend or repeal the Certificate of Incorporation can be approved by the affirmative vote of a majority of the voting power of all the shares of the Company entitled to vote, voting together as a single class. This majority voting requirement is the default voting standard for amending provisions of a certificate of incorporation under the Delaware General Corporation Law (the “DGCL”). This Item 2(a) would also amend Article Fifth of the Certificate of Incorporation to provide that the By-Law provisions described above will be subject to the same majority voting standard that applies to amend the provisions of the Certificate of Incorporation.

In addition, the Board has approved a conforming amendment to Article IX of the By-Laws, to remove the 80% vote required for stockholders to amend certain provisions of the By-Laws. These By-Law provisions address the same matters that are subject to an 80% vote under Articles Seventh and Eighth of the Certificate of Incorporation, as described above. The By-Law provisions also address: (1) the voting standard applicable to the election of directors by stockholders (which is a majority of votes cast in uncontested elections); (2) the quorum and vote for Board action; and (3) the submission of nominations and other business at meetings of stockholders, including the advance notice By-Laws. This By-Law amendment will become effective only if stockholders approve the Proposed Amendments set forth in this Item 2(a).

ITEM 2(b): REMOVAL OF SUPERMAJORITY VOTING STANDARD TO REMOVE DIRECTORS

Currently, Article Seventh, Section 1 of the Certificate of Incorporation states that a director can be removed from office only by the affirmative vote of the holders of at least 80% of the voting power of all shares of the Company entitled to vote generally in the election of directors, voting together as a single class. This Item 2(b)

 

		MOODY’S 2020 PROXY STATEMENT		25

requests that stockholders approve an amendment to this standard in order to provide that stockholders can remove directors by “a majority of the voting power of all the shares of the corporation entitled to vote thereon.” This is the default voting standard under the DGCL.

ITEM 2(c): REMOVAL OF SUPERMAJORITY VOTING STANDARDS FOR FILLING OPEN BOARD SEATS AT STATUTORILY REQUIRED SPECIAL MEETINGS

Currently, Article Seventh, Section 1 of the Certificate of Incorporation states that stockholders can fill vacancies and newly created directorships at a statutorily required special meeting of stockholders by the affirmative vote of the holders of at least 80% of the voting power of all shares of the Company entitled to vote generally in the election of directors, voting together as a single class.

This Item 2(c) requests that stockholders approve an amendment to the Certificate of Incorporation that removes this supermajority voting provision. Under Section 223 of the DGCL, if at any time the Company should have no directors in office, then any stockholder may apply to the Court of Chancery for a decree summarily ordering an election. Section 223 further states that if, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole board, the Court of Chancery may, upon application of any stockholder or stockholders holding at least 10% of the voting stock at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office. By deleting the supermajority voting provision, directors elected at a meeting called pursuant to Section 223 will be elected by the same voting standard that governs the election of directors pursuant to the By-Laws. Under Article II, Section 1 of the By-Laws, directors are elected by a majority of the votes cast in an uncontested election, and by a plurality vote in contested elections. The general description of Section 223 set forth herein is qualified in its entirety by reference to the text of the DGCL.

This Item 2(c) also includes additional immaterial changes that remove from Article Seventh, Section 1 of the Certificate of Incorporation legacy provisions relating to the Company’s transition from a classified board of directors to annual elections, which is now complete.

In addition, the Board has approved a conforming amendment to Article II, Section 2 of the By-Laws, which contains substantially similar language to Article Seventh, Section 1 of the Certificate of Incorporation governing the filling of any vacancy or any newly created directorship. This By-Law amendment will become effective only if stockholders approve the Proposed Amendments set forth in this Item 2(c).

ADDITIONAL INFORMATION

The general descriptions of the Proposed Amendments set forth above are qualified in their entirety by reference to the text of the Proposed Amendments, which are attached as Appendix A to these proxy materials. Additions to the Certificate of Incorporation are indicated by double underlining, and deletions are indicated by strike-outs.

If any of the Proposed Amendments are approved, the approved amendments will become effective upon the filing of a certificate of amendment with the Secretary of State of the State of Delaware setting forth the approved amendments, which is expected to occur after the Company’s 2020 Annual Meeting of Stockholders. However, if the Company’s stockholders approve any of the Proposed Amendments, the Board retains discretion under the DGCL not to implement the approved Proposed Amendments. If the Board exercises this discretion, it will publicly disclose that fact and the reason for its determination. As noted above, the Board has also approved conforming amendments to the By-Laws, contingent upon stockholder approval and implementation of the Proposed Amendments. If the Proposed Amendments included in any or all of Item 2(a), Item 2(b) and Item 2(c) are not approved by stockholders, the Proposed Amendments that are not approved by stockholders will not be implemented, the Company’s current voting standards relating to the Proposed Amendments that were not approved will remain in place, and the conforming amendments to the By-Laws will not become effective.

The Board of Directors recommends a vote FOR each of Item 2(a), Item 2(b) and Item 2(c) in order to amend the Company’s Certificate of Incorporation to remove the supermajority voting requirements applicable to certain actions and replace them with majority voting standards as described above.

 

26		MOODY’S 2020 PROXY STATEMENT

ITEM 3—RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS

 

What is being voted on		Ratification of the appointment of KPMG LLP as the Company’s independent registered public accounting firm.
Board recommendation		The Board of Directors recommends a vote FOR ratification of the appointment of KPMG LLP as the Company’s independent registered public accounting firm for 2020.

The Audit Committee evaluates the selection of the Company’s independent auditor each year, and has appointed KPMG LLP as the Company’s independent registered public accounting firm to audit the consolidated financial statements of the Company for the year ending December 31, 2020. KPMG LLP audited the consolidated financial statements of the Company for the year ended December 31, 2019. In determining whether to reappoint KPMG as the Company’s independent auditor, the Audit Committee took into consideration a number of factors, including: KPMG’s performance on prior audits, and the quality and efficiency of the services provided by KPMG; an assessment of the firm’s professional qualifications, resources and expertise; KPMG’s knowledge of the Company’s business and industry; the quality of the Audit Committee’s ongoing communications with KPMG and of the firm’s relationship with the Audit Committee and Company management; KPMG’s independence; the appropriateness of KPMG’s fees; the length of time the firm has served in this role; the impact of changing auditors; and data on audit quality and performance, including recent PCAOB reports on KPMG LLP and peer firms. Considered together, these factors enable the Audit Committee to evaluate whether the selection of KPMG LLP as the Company’s independent auditor, and the retention of KPMG LLP to perform other services, will contribute to and enhance audit quality. Based on its evaluation, the Audit Committee believes that the continued retention of KPMG LLP to serve as the Company’s independent registered public accounting firm is in the best interest of our stockholders.

The Audit Committee has requested the Board of Directors to submit the selection of KPMG LLP as the Company’s independent registered public accounting firm for 2020 to stockholders for ratification as a matter of good corporate governance. If the appointment of KPMG LLP is not ratified by stockholders, the Audit Committee will re-evaluate its selection and will determine whether to maintain KPMG LLP as the Company’s independent registered public accounting firm or to appoint another independent registered public accounting firm.

A representative of KPMG LLP is expected to be present at the Annual Meeting. Such representative will have the opportunity to make a statement if he so desires and is expected to be available to respond to appropriate questions.

The Board of Directors recommends a vote FOR ratification of the appointment of KPMG LLP as the Company’s independent registered public accounting firm for 2020.

PRINCIPAL ACCOUNTING FEES AND SERVICES

AUDIT FEES

The aggregate fees for professional services rendered for (i) the integrated audit of the Company’s annual financial statements for the years ended December 31, 2019 and 2018, (ii) the review of the financial statements included in the Company’s Reports on Forms 10-Q and 8-K, and (iii) statutory audits of subsidiaries, were approximately $5.4 million and $6.5 million in 2019 and 2018, respectively. These fees included amounts accrued but not billed of approximately $2.5 million and $2.7 million in the years ended December 31, 2019 and 2018, respectively.

AUDIT-RELATED FEES

The aggregate fees for audit-related services rendered to the Company were approximately $0.6 million in the year ended December 31, 2019 and approximately $0.2 million in the year ended December 31, 2018. Such services included employee benefit plan audits.

 

		MOODY’S 2020 PROXY STATEMENT		27

TAX FEES

The aggregate fees billed for professional services rendered for tax services rendered by the auditors for the years ended December 31, 2019 and 2018 were approximately $0 and $0, respectively.

ALL OTHER FEES

The aggregate fees billed for all other services rendered to the Company by KPMG LLP for the years ended December 31, 2019 and 2018 were approximately $0 and $0, respectively.

ITEM 4—ADVISORY RESOLUTION APPROVING EXECUTIVE COMPENSATION

 

What is being voted on		An advisory resolution approving the compensation of the Named Executive Officers.
Board recommendation		The Board of Directors recommends a vote FOR the advisory resolution approving executive compensation.

We are asking stockholders to vote on an advisory resolution approving the compensation of the Company’s executives who are named in the Summary Compensation Table that appears on page 54 (referred to as the “Named Executive Officers” or “NEOs”) of this Proxy Statement. As described in the Compensation Discussion and Analysis section of this Proxy Statement, the goal of the Compensation & Human Resources Committee in setting executive compensation is to provide a competitive total compensation package that assists in the retention of the Company’s executives and motivates them to perform at a superior level while encouraging behavior that is in the long-term best interests of the Company and its stockholders. Consistent with this philosophy, a significant portion of the total compensation opportunity for each of Moody’s executives is performance-based, and ultimately dependent upon the Company’s achievement of specified goals that are both financial and operating (non-financial) in nature, and aligned with stockholder value creation.

The Company achieved strong results for 2019, reporting revenue of $4.8 billion. Moody’s Investors Service revenue increased 6% from 2018, and Moody’s Analytics achieved strong growth, with revenues increasing 13% from 2018.

 

•

Long-Term Performance-Based Shares—For each of the past several years, the Company has granted three-year performance-based share awards with performance requirements based on the Company’s cumulative profitability (measured in earnings before interest, taxes, depreciation and amortization, including future acquisitions, if any, and adjusted for restructuring charges and certain other non-recurring items approved from time to time (“MCO EBITDA for Compensation Purposes”)), MIS’s ratings accuracy performance (“MIS Ratings Performance”), and MA’s cumulative sales over the relevant three-year period (including sales from entities acquired in future acquisitions, if any, and adjusted to exclude foreign exchange impact) (“MA Sales for Compensation Purposes”). To more directly align incentive compensation performance measures with stockholder value, beginning with the 2019-2021 performance period the Company’s performance for purposes of these long-term awards will be measured in earnings per share adjusted for certain non-recurring items approved from time to time (“MCO EPS for Compensation Purposes”) instead of MCO EBITDA for Compensation Purposes.

 

•

Minimum One-Year Vesting Period for Equity Awards—The Company amended the Company’s 2001 Key Employees’ Stock Incentive Plan (as amended and restated on April 15, 2019, the “2001 Stock Incentive Plan”) to impose a minimum one-year vesting period for all equity awards issued under such plan on or after April 15, 2019, subject to certain limited exceptions.

 

•

Balanced Mix of Equity Awards—NEOs are granted a balanced mix of long-term equity awards split 20% in stock options, 20% in RSUs and 60% in performance-based share awards.

 

28		MOODY’S 2020 PROXY STATEMENT

•

Clawback Policy—Annual cash incentive awards, performance-based share awards and other equity awards are subject to the Company’s clawback policy under which the Company has the right to require forfeiture of, or seek to recoup all or any portion of the value of the proceeds from such award in the case of a significant or material financial restatement, a restatement resulting from fraud or other misconduct, or material financial harm to the Company resulting from unlawful activity, fraud or intentional or willful misconduct.

 

•

Stock Ownership Guidelines—The Company has robust stock ownership guidelines for its executives (including the NEOs) and non-management directors, as well as a requirement that executives who are subject to the Company’s guidelines retain a significant percentage (75%) of the net shares received through equity awards until satisfying their ownership goals.

 

•

Anti-Hedging and Anti-Pledging Policy—The Company prohibits executive officers, directors and their family members from (i) making “short sales” of Moody’s securities; (ii) engaging in short-term or speculative transactions or entering into any transaction (including purchasing or selling forward contracts, equity swaps, puts or calls) that are designed to offset any decrease in the market value of or is otherwise based on the price of Moody’s securities; (iii) holding Moody’s securities in margin accounts or buying Moody’s securities on margin; and (iv) pledging Moody’s securities as collateral for a loan.

 

•

No Dividend Accruals—Dividends do not accrue on unvested performance shares.

 

•

No Executive Employment Agreements—The Company does not maintain employment agreements with its U.S. executives, including the NEOs.

 

•

No Single-Trigger Payments upon a Change in Control—The Company does not provide “single-trigger” cash payments that are prompted solely by a change in control and unvested equity awards granted to the Company’s executive officers do not provide for accelerated vesting or settlement solely upon a change in control when the surviving company assumes the equity awards.

 

•

Limited Executive Perquisites—The Company does not provide perquisites or other personal benefits with an aggregate annual value of more than $10,000 to any of its NEOs.

 

•

No Tax Gross-Ups on Perquisites and Change in Control Payments—The Company does not provide any tax gross-ups on perquisites or change in control payments to its executive officers.

We urge stockholders to read the CD&A beginning on page 33 of this Proxy Statement, which describes in more detail how our executive compensation policies and procedures operate and are designed to achieve our compensation objectives, as well as the Summary Compensation Table and related compensation tables and narrative, beginning on page 54, which provide detailed information on the compensation of our NEOs. The Committee and the Board of Directors believe that the policies and procedures articulated in the CD&A are effective in achieving our goals and that the compensation of our NEOs reported in this Proxy Statement has supported and contributed to the Company’s success.

In accordance with Section 14A of the Exchange Act, and as a matter of good corporate governance, the Board is asking stockholders to vote at the Annual Meeting on the following advisory resolution approving executive compensation:

RESOLVED, that the stockholders of Moody’s Corporation (the “Company”) approve, on an advisory basis, the compensation of the Company’s Named Executive Officers disclosed in the Compensation Discussion and Analysis, the Summary Compensation Table and the related compensation tables and narrative in the Proxy Statement for the Company’s 2020 Annual Meeting of Stockholders.

This advisory resolution, commonly referred to as a say-on-pay resolution, is non-binding on the Board. Although non-binding, the Board and the Compensation & Human Resources Committee will review and consider the voting results when evaluating the Company’s executive compensation program.

 

		MOODY’S 2020 PROXY STATEMENT		29

After consideration of the vote of stockholders at the Company’s 2017 annual meeting of stockholders on the frequency of future say-on-pay resolutions and other factors, the Board determined to hold a vote on an advisory resolution approving executive compensation annually, although it may determine to vary this practice based on factors such as discussions with stockholders. Accordingly, unless the Board modifies its policy on the frequency of future say-on-pay advisory votes, the next vote on an advisory resolution approving executive compensation will be held at the Company’s 2021 annual meeting of stockholders.

The Board of Directors recommends a vote FOR the advisory resolution approving executive compensation.

 

30		MOODY’S 2020 PROXY STATEMENT

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The table below sets forth the number of shares of Common Stock beneficially owned as of the dates indicated below by (i) each director and nominee for director of the Company, (ii) each Named Executive Officer, (iii) all directors and executive officers of the Company as a group, and (iv) each person who is known to the Company to be the beneficial owner of more than 5% of the outstanding shares of Common Stock (the “Company’s 5% Owners”). Except as noted below, stock ownership information is based on (a) the number of shares of Common Stock beneficially owned by directors and executive officers as of December 31, 2019 (based on information they supplied to the Company), calculated in accordance with SEC rules, and (b) the number of shares of Common Stock held by the Company’s 5% Owners, based on information filed with the SEC by the Company’s 5% Owners. Unless otherwise indicated and except for the interests of individuals’ spouses, the stockholders listed below have sole voting and investment power with respect to the shares indicated as owned by them. Percentages are based upon the number of shares of Common Stock outstanding on December 31, 2019, and, where applicable, the number of shares of Common Stock that the indicated beneficial owner had a right to acquire within 60 days of such date. The table also sets forth ownership information concerning “Stock Units,” the value of which is measured by the price of the Common Stock. Stock units do not confer voting rights and are not considered “beneficially owned” shares under SEC rules.

 

Name		Shares Beneficially Owned(1)															Number of Shares Subject to Options Which Are or Become Exercisable Within 60 Days  of December 31 (2)					Number of RSUs That Vest Within 60 Days of December 31 Stock Units  and Dividend Equivalents(3)					Total Beneficial Ownership										Stock Units (4)					Percentage of Shares Outstanding(5)
Basil L. Anderson				42,715															0					0					42,715										12,082					*
Jorge A. Bermudez				17,425															0					0					17,425															*
Thérèse Esperdy				15															0					0					15															*
Robert Fauber				40,906															46,869					0					87,775															*
Vincent A. Forlenza				2,635															0					0					2,635										466					*
John J. Goggins				55,604															77,233					0					132,837															*
Kathryn M. Hill				15,027															0					0					15,027															*
Mark Kaye				0															4,486					0					4,486															*
Raymond W. McDaniel, Jr.				244,642										(6	)				498,802					0					743,444															*
Henry A. McKinnell, Jr.				85,890															0					0					85,889										1,846					*
Leslie F. Seidman				8,247															0					0					8,247															*
Stephen Tulenko				4,654															9,105					0					13,759															*
Bruce Van Saun				4,410															0					0					4,410															*
Michael West				4,754															7,189					0					11,943															*
Gerrit Zalm				1,115															0					0					1,115															*
All current directors and executive officers as a group (18 people)				698,146															786,268					0					1,484,413										14,412					*
Berkshire Hathaway, Inc.				24,669,778										(7	)(8)																													13.1%
Warren E. Buffett, National Indemnity Company, GEICO Corporation, Government Employees Insurance Company, 3555 Farnam Street, Omaha, Nebraska 68131
The Vanguard Group				12,556,009										(9	)																													6.7%
100 Vanguard Blvd., Malvern, Pennsylvania 19355
BlackRock Inc.				10,917,720										(1	0)																													5.8%
55 East 52nd Street, New York, New York 10055

*	Represents less than 1% of the outstanding Common Stock.

 

(1)	Includes all shares held directly, including those held in a rabbi trust and unvested restricted stock.

 

(2)	Options vesting within 60 days of December 31, 2019.

 

		MOODY’S 2020 PROXY STATEMENT		31

(3)	Consists of: (i) RSUs that have been granted to members of management that vest within 60 days of December 31, 2019; and (ii) dividend equivalents that will convert to shares within 60 days of December 31, 2019.

 

(4)

Consists of stock units (payable to non-management directors after retirement), the value of which is measured by the price of the Common Stock, received under various non-management director compensation arrangements of the Company and its predecessor. These units do not confer voting rights and are not considered “beneficially owned” shares of Common Stock under SEC rules. Additional stock units accrue over time to reflect the deemed reinvestment of dividends.

 

(5)	Percentages are based upon the number of shares outstanding as of December 31, 2019 and, where applicable, the number of shares of Common Stock that the individual beneficial owner had a right to acquire within 60 days of such date.

 

(6)	This amount includes 2,000 shares of Common Stock owned by Mr. McDaniel’s spouse and shares held in a trust.

 

(7)

As set forth in Amendment No. 3 to the Schedule 13G jointly filed with the SEC on February 14, 2014 by Warren E. Buffett, Berkshire Hathaway Inc., National Indemnity Company, GEICO Corporation and Government Employees Insurance Company, (a) each of Mr. Buffett, Berkshire Hathaway Inc. and National Indemnity Company had shared voting power and shared dispositive power with respect to 24,669,778 shares reported in such Amendment No. 3 to the Schedule 13G and (b) each of GEICO Corporation and Government Employees Insurance Company had shared voting power and shared dispositive power with respect to 11,973,928 of such 24,669,778 shares.

 

(8)

This address is listed in Amendment No. 3 to the Schedule 13G jointly filed with the SEC on February 14, 2014 as the address of each of Mr. Buffett and Berkshire Hathaway Inc. The address of National Indemnity Company is listed as 3024 Harney Street, Omaha, Nebraska 68131; and the address of GEICO Corporation and Government Employees Insurance Company is listed as 1 GEICO Plaza, Washington, D.C. 20076.

 

(9)

As set forth in Amendment No. 7 to the Schedule 13G filed with the SEC on February 12, 2020 by The Vanguard Group. The Vanguard Group had sole voting power with respect to 254,284 shares, shared voting power with respect to 46,279 shares, sole dispositive power with respect to 12,270,121 shares and shared dispositive power with respect to 285,888 of their 12,556,009 shares as of December 31, 2019.

 

(10)	As set forth in Amendment No. 6 to the Schedule 13G filed with the SEC on February 5, 2020 by BlackRock Inc. BlackRock Inc. had sole voting power with respect to 9,288,594 shares and sole dispositive power with respect to 10,917,720 of their 10,917,720 shares as of December 31, 2019.

DELINQUENT SECTION 16(A) REPORTS

Section 16(a) of the Exchange Act requires the Company’s directors, executive officers and persons who beneficially own more than 10% of a registered class of the Company’s equity securities to file with the SEC reports on Forms 3, 4 and 5 concerning their ownership of, and transactions in, the Common Stock and other equity securities of the Company. As a practical matter, the Company assists its directors and executives by monitoring transactions, and completing and filing reports on their behalf.

Based solely on the Company’s review of copies of such reports filed with the SEC and written representations that no other reports are required, the Company believes that all of its executive officers, directors and those greater-than-10% stockholders that filed any reports for the year ended December 31, 2019 reported all transactions on a timely basis, with the exception of one Form 3 for each of Mr. Tulenko and Mr. West that incorrectly reported their initial holdings. Corrected information was subsequently reported on Forms 3/A.

 

32		MOODY’S 2020 PROXY STATEMENT

COMPENSATION DISCUSSION AND ANALYSIS

Moody’s executive compensation programs are designed to foster and maintain a strong, capable, experienced and motivated executive team with the ability to manage the business during challenging times and to change as market practices warrant by aligning compensation with business performance and the interests of our stockholders. This discussion and analysis provides a guide to Moody’s executive compensation programs and explains the decisions of the Compensation & Human Resources Committee (in this discussion, also referred to as the “Committee”) regarding compensation reported for 2019 for Raymond W. McDaniel, Jr., the Chief Executive Officer (referred to as the “CEO”), and the other executive officers named in the Summary Compensation Table on page 54 (together with the CEO, referred to as the “Named Executive Officers” or “NEOs”).

 

EXECUTIVE SUMMARY   The Company achieved strong results for 2019, reporting revenue of $4.8 billion. Moody’s Investors Service, Inc. (“Moody’s Investors Service” or “MIS”) revenue increased 6% from 2018, and Moody’s Analytics, Inc. (“Moody’s Analytics” or “MA”) achieved strong growth, with revenues increasing 13% from 2018.   2019 financial performance measures for the Company include:   •  2019 revenue of $4.8 billion, up 9% from 2018;   •  2019 GAAP earnings per share of $7.42, up 10% from 2018; 2019 adjusted earnings per share of $8.29, up 12% from 2018;*   •  2019 operating income of $2.0 billion, up 7% from 2018; 2019 adjusted operating income was $2.3 billion, up 8% from 2018. Adjusted operating income excludes the impact of restructuring charges, depreciation and amortization, acquisition-related expenses, a loss pursuant to the divestiture of Moody’s Analytics Knowledge Services (MAKS), and a captive insurance company settlement;* and   •  Achievement of 113% of the Company’s three-year profitability performance target.   These operating and financial performance achievements formed the basis for the Committee’s award determinations.   •  For the NEOs, cash incentive awards ranged from 110.3% of target to 125.0% of target (excluding Mr. Almeida who is being paid his 2019 annual cash incentive bonus at target pursuant to the terms of his Transition Agreement). This level of payout reflects Moody’s business performance and results outlined above.   •  The grant date fair value of the long-term equity incentive award granted to the CEO in February 2019 was the same as his 2018 grant date award value. The annual grants awarded to the NEO group in 2019 (excluding the CEO and the November grant made to the newly appointed Chief Operating Officer) increased in the aggregate by approximately 11.6% from the value of the annual 2018 awards. This increase reflected the Company’s 2018 performance and was designed to bring long-term incentive levels and total compensation for Messrs. Kaye and Goggins closer to market.   •  The performance share cycle ended December 31, 2019 resulted in a payout of 167.6% of target for MIS, 158.9% of target for MA and 165.9% of target for Moody’s Shared Services, Inc. of performance shares granted for the 2017-2019 performance cycle.

*    See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures” in Moody’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 for information on these adjusted measures, including a reconciliation of these adjusted financial measures to the most directly comparable generally accepted accounting principles (“GAAP”) financial measures.

 

		MOODY’S 2020 PROXY STATEMENT		33

2019 Changes   •  Effective November 1, 2019, Mr. Fauber, who had served as President of MIS since 2016, was appointed as Chief Operating Officer. Mr. Michael West succeeded Mr. Fauber as President of MIS effective November 1, 2019. Also effective November 1, 2019, Mr. Stephen Tulenko succeeded Mr. Almeida as President of MA.   •  In order to focus short-term incentive compensation performance on operating performance and income, the Company’s earnings per share is no longer considered in determining the annual cash incentive payouts. As a result, the financial performance goals considered for the 2019 annual cash incentive payout included MCO Operating Income for Compensation Purposes, MIS Operating Income for Compensation Purposes, MA Operating Income for Compensation Purposes, and MA Sales for Compensation Purposes (in each case, as defined below).   •  In addition, beginning with the 2019-2021 performance period, the Company’s performance for performance share purposes will be measured in earnings per share adjusted for certain non-recurring items as approved from time to time (“MCO EPS for Compensation Purposes”) instead of MCO EBITDA for Compensation Purposes (as defined below) to more directly align long-term performance measurements with stockholder value.   •  The Company also amended the Company’s 2001 Key Employees’ Stock Incentive Plan (as amended and restated on April 15, 2019, the “2001 Stock Incentive Plan”) to impose a minimum one-year vesting period for all equity awards issued under such plan, subject to certain limited exceptions.

EXECUTIVE COMPENSATION GOVERNANCE HIGHLIGHTS

The Company operates under governance standards that it believes best serve its stockholders, while also incorporating certain “best practices” in governance and executive compensation, including the following:

 

What We Do
		Long-Term Performance-Based Shares–For each of the past several years, the Company has granted three-year performance-based share awards with performance thresholds based on the Company’s cumulative profitability (measured in earnings before interest, taxes, depreciation and amortization, including future acquisitions, if any, and adjusted for restructuring charges and certain other non-recurring items approved from time to time (“MCO EBITDA for Compensation Purposes”), Moody’s Investors Service’s ratings accuracy performance (“MIS Ratings Performance”), and Moody’s Analytics’ cumulative sales over the relevant three-year period (including sales from entities acquired in future acquisitions, if any, and adjusted to exclude foreign exchange impact) (“MA Sales for Compensation Purposes”). To more directly align incentive compensation performance measures with stockholder value, beginning with the 2019-2021 performance period the Company’s performance for purposes of these long-term awards will be measured in earnings per share adjusted for certain non-recurring items approved from time to time (“MCO EPS for Compensation Purposes”) instead of MCO EBITDA for Compensation Purposes.
		Minimum One-Year Vesting Period for Equity Awards–The Company amended the Company’s 2001 Stock Incentive Plan to impose a minimum one-year vesting period for all equity awards issued under such plan on or after April 15, 2019, subject to certain limited exceptions.
		Balanced Mix of Equity Awards–NEOs are granted a balanced mix of long-term equity awards split 20% in stock options, 20% in restricted stock units (“RSUs”) and 60% in performance-based share awards.
		Clawback Policy–Annual cash incentive awards, performance-based share awards and other equity awards are subject to the Company’s clawback policy under which the Company has the right to require forfeiture of, or seek to recoup all or any portion of the value of the proceeds from such award in the case of a significant or material financial restatement, a restatement resulting from fraud or other misconduct, or material financial harm to the Company resulting from unlawful activity, fraud or intentional or willful misconduct.

 

34		MOODY’S 2020 PROXY STATEMENT

		Stock Ownership Guidelines–The Company has robust stock ownership guidelines for its executives (including the NEOs) and non-management directors, as well as a requirement that executives who are subject to the Company’s guidelines retain a significant percentage (75%) of the net shares received through equity awards until satisfying their ownership goals.
		Anti-Hedging and Anti-Pledging Policy–The Company prohibits executive officers, directors and their family members from (i) making “short sales” of Moody’s securities; (ii) engaging in short-term or speculative transactions or entering into any transaction (including purchasing or selling forward contracts, equity swaps, puts or calls) that are designed to offset any decrease in the market value of or is otherwise based on the price of Moody’s securities; (iii) holding Moody’s securities in margin accounts or buying Moody’s securities on margin; and (iv) pledging Moody’s securities as collateral for a loan.

 

What We Don’t Do
		No Dividend Accruals–Dividends do not accrue on unvested performance shares.
		No Executive Employment Agreements–The Company does not maintain employment agreements with its U.S. executives, including the NEOs.
		No Single-Trigger Payments upon a Change in Control–The Company does not provide “single-trigger” cash payments that are prompted solely by a change in control and unvested equity awards granted to the Company’s executive officers do not provide for accelerated vesting or settlement solely upon a change in control when the surviving company assumes the equity awards.
		Limited Executive Perquisites–The Company does not provide perquisites or other personal benefits with an aggregate annual value of more than $10,000 to any of its NEOs.
		No Tax Gross-Ups on Perquisites and Change in Control Payments–The Company does not provide any tax gross-ups on perquisites or change in control payments to Moody’s executive officers.

PHILOSOPHY OF THE EXECUTIVE COMPENSATION PROGRAM

Moody’s executive compensation program is designed to:

 

•

Link a substantial part of each executive’s realized compensation to the achievement of the Company’s financial and operating objectives and to the individual’s performance.

 

•

Align executives’ rewards with changes in the value of stockholders’ investments.

 

•

We implement this linkage and alignment by:

 

•

awarding the NEOs annual cash incentive compensation that is based on the Company’s performance against financial objectives specified at the beginning of the performance year and an evaluation of individual, qualitative and largely operational (non-financial) accomplishments and performance during that year;

 

•

using Company performance as the primary factor in determining the annual cash incentive compensation payouts that will be distributed to the NEOs;

 

•

establishing the targeted annual long-term equity award mix for all NEOs at 20% options, 20% RSUs and 60% performance shares, in order to tie realizable compensation directly to pre-established performance goals and future increases in stockholder value;

 

•

providing long-term equity-based incentives in the form of (i) performance shares that will be earned following the completion of a three-year performance period only if certain performance goals are achieved or exceeded, (ii) stock options that will deliver value to the executives only if stockholder value increases from the date the awards are

 

		MOODY’S 2020 PROXY STATEMENT		35

granted and (iii) RSUs that help to retain executives over a four-year vesting period and increase or decrease in value with share price appreciation or depreciation;

 

•

imposing a minimum one-year vesting period for all incentive equity awards issued under the 2001 Stock Incentive Plan, subject to certain limited exceptions; and

 

•

establishing thresholds for 2019-2021 performance shares based on the MCO EPS for Compensation Purposes, MIS Ratings Performance and MA Sales for Compensation Purposes. The weights of these metrics vary depending on each NEO’s role and responsibilities.

 

•

Provide a competitive total compensation package that will motivate the Company’s executives to perform at a superior level and assist in incentivizing and retaining the executives. When designing the total compensation package, we compare data to that of a group of select peer companies and the broader financial services industry, as discussed further in the “Peer and Market Review” section, below.

The Company’s compensation philosophy generally is to target the market 50th percentile for base salary, target annual incentives, long-term incentives and target total compensation. The Company has also found that targeting the 50th percentile has allowed it to retain key talent and remain competitive in the marketplace. However, an executive’s positioning against market may be above or below such target positioning based on a number of additional factors that the Compensation & Human Resources Committee uses when establishing targeted total direct compensation, including: skills, performance, tenure, retention risk, seniority, market conditions and the unique nature of Moody’s business.

These factors contribute to variations in actual and target compensation levels. Moody’s believes it is important to exercise discretion and judgment in order to attract and retain superior talent and to reward officers with a greater scope of responsibilities or deeper experience than their peers within the peer group and/or the broader financial services market. Based on the Committee’s analysis of the above, and consideration of a recommendation from the CEO (other than with respect to his own compensation), the Committee establishes a targeted total direct compensation level for each NEO that it believes is competitive and aligned with stockholder value.

PEER AND MARKET REVIEW

The independent compensation consultant annually reviews the peer group. Based on the consultant’s review, management makes recommendations for changes to the composition of the peer group subject to Committee approval. As a result of the review, no changes were recommended for 2019 as the existing peer group entities were deemed to be appropriate in regard to a comparison of the size, revenue and market capitalization of Moody’s. For 2019, the peer companies were:

 

CME Group Inc.		Gartner Inc.		Nielsen Holdings plc
Dun & Bradstreet Corp.*		IHS Markit Ltd.		T. Rowe Price Group, Inc.
Equifax Inc.		Intercontinental Exchange, Inc.		S&P Global
Fidelity National Information Services		Invesco Ltd.		Thomson Reuters Corp.
Fiserv Inc.		NASDAQ, Inc.		TransUnion
				Verisk Analytics, Inc.
* Became a private company in February 2019.

This group, the Committee believes, appropriately reflects the companies with which Moody’s competes for business and executive talent. This group also appropriately reflects the companies against which Moody’s financial performance is measured, as it includes firms that:

 

•

Provide analytics products and services in addition to credit risk analysis;

 

•

Provide company and industry credit research and business information services;

 

•

Had median revenue of $4.6 billion in 2018 (Moody’s 2018 revenue equaled $4.4 billion); and

 

•

Had a median average market capitalization of $18.9 billion as of December 31, 2018 (Moody’s market capitalization equaled approximately $27 billion as of December 31, 2018).

 

36		MOODY’S 2020 PROXY STATEMENT

The Committee continually seeks to improve the criteria upon which the peer group is selected. The Committee reviewed the peer company selection criteria and the revenue threshold for non-financial companies. In addition to reviewing compensation practices and pay levels within the Company’s peer group, the Committee looks at the broader financial services industry’s compensation data furnished by management’s compensation consultant, Aon Consulting, and reviewed by the Committee’s consultant. This additional compensation data is based on Aon Consulting’s survey data from 26 companies and is used only for reference when evaluating pay for the Company’s NEOs.

Meridian Compensation Partners LLC (“Meridian”) provided the Committee and management with total direct compensation data from these peer group entities along with analyses of each element of compensation. The comparison groups’ information is reviewed in quartile ranges, beginning with the 25th percentile. For 2019, the target total direct compensation opportunity for the CEO was at the 53rd percentile of the peer group, and positioning for the other NEOs ranged from the 6th percentile to the 63rd percentile of the peer group. The Committee periodically benchmarks benefits and perquisites and believes benefits to be in line with market practice and perquisites to be below current market practice. The table below reflects Moody’s percentile ranking and absolute rank against the peer group for revenues, market capitalization, assets and total shareholder return.

 

 

 

1	Rank is reported highest to lowest (1= highest and 16 = lowest).

 

2	Data reflects 2019 fiscal year-end data for revenues and assets.

 

3	Market Capitalization reflects one year average as of December 31, 2019.

 

4	Total Shareholder Return (TSR) is as of December 31, 2019.

 

		MOODY’S 2020 PROXY STATEMENT		37

ELEMENTS OF MOODY’S COMPENSATION PROGRAM

The following table lists the elements of Moody’s 2019 executive compensation program and the primary purpose of each:

 

Base Salary—Target at 50th percentile
Form		Fixed Compensation in Cash
Objectives and Basis		Base salary is intended to provide a level of pay that is appropriate given professional status, job content, market value, accomplishments and internal equity.

 

Annual Cash Incentives–Target at 50th percentile
Form		At Risk Compensation in Cash
Objectives and Basis		Annual cash incentives are intended to reward performance and assist in motivation and retention of management.   Award payouts are finalized at the Committee’s February meeting following the performance year in question; payouts primarily reflect the Company’s financial performance and a qualitative assessment of certain strategic and operational metrics, but on occasion have been reduced or modestly adjusted upward based upon the outcome of an extensive review of each NEO’s performance against his annual objectives; actual payouts are typically made at the beginning of March following the performance year in question.   Awards customarily are made under the 2004 Moody’s Corporation Covered Employee Cash Incentive Plan, as amended (the “2004 Plan”), although the Committee retains the right to pay discretionary cash incentives outside of the 2004 Plan when circumstances warrant.

 

Long-Term Incentive Compensation–Target at 50th percentile
Form		At Risk Compensation in Stock Options, Performance Shares and RSUs
Objectives and Basis		To help balance the need to motivate the NEOs to drive long-term stockholder value, manage the number of shares used to deliver equity awards, and allow the Company to measure and reward a broader set of long-term goals, the Committee delivers equity incentive compensation through a combination of stock options, RSUs and performance shares.   Stock options have a strike price of no less than 100% of the average of the high and the low market price of the Common Stock on the date of grant and vest based on continued service over four years in annual 25% increments, which means that executives: (i) will realize value from their awards only if the market price of the Company’s stock appreciates above the options’ exercise price after the options have vested, and (ii) will be motivated to remain with the Company due to the multi-year vesting schedule. Stock options expire 10 years after the applicable grant date.   Performance shares will be earned following the completion of a three-year performance period only if pre-established performance goals are met or exceeded. The performance shares are also subject to a minimum one-year vesting period, subject to certain limited exceptions. For the 2019-2021 performance period, these performance thresholds are based on MCO EPS for Compensation Purposes, MIS Ratings Performance and MA Sales for Compensation Purposes. The weights of these metrics vary depending on each NEO’s role and responsibilities. The number of performance shares treated as vested and the corresponding number of shares actually issued to an employee as payout at the end of the three-year performance period may be less than the number determined by the performance goal formula at the discretion of the Committee.

 

38		MOODY’S 2020 PROXY STATEMENT

		RSUs will vest equally in four annual installments, provided there is continued employment through each such vesting date. Such awards motivate executives to remain with the Company due to the multi-year vesting schedule and align executive and stockholder interests.   In 2019, equity award grants were made five business days after the release of the Company’s year-end earnings.

 

Perquisites
Form		Limited
Objectives and Basis		Moody’s does not provide perquisites or other personal benefits with an aggregate annual value of more than $10,000 to any of its NEOs.

 

Retirement Benefits
Form		Broad-based and non-tax qualified plans
Objectives and Basis		Defined Contribution Plans. Moody’s offers its U.S. employees, including the NEOs, the opportunity to participate in a tax-qualified defined contribution plan, the Profit Participation Plan, and offers highly compensated senior management, including the NEOs who reside in the U.S., a voluntary deferred compensation plan (the “Moody’s Corporation Deferred Compensation Plan,” or “DCP”).   The primary purpose of the DCP is to allow certain employees to make pre-tax deferrals into a non-qualified plan and to receive the maximum company match on compensation without regard to Internal Revenue Service (“IRS”) limits that apply to the Profit Participation Plan. The Company match only applies to deferrals in excess of the IRS limit on compensation that can be taken into account under a tax-qualified defined contribution plan. In addition, the Company will credit to the DCP employer contributions that would have been made to the Profit Participation Plan but for the application of the IRS total contribution limit.   Additional information regarding the DCP is found on page 62.   Defined Benefit Plans. Certain NEOs based in the U.S. participate in the tax-qualified Moody’s Corporation Retirement Account (the “Retirement Account”) and the non-qualified Pension Benefit Equalization Plan (“PBEP”) which restores benefits that cannot be delivered through the Retirement Account due to IRS qualified plan limits. There are no participants in the Supplemental Executive Benefit Plan (“SEBP”). Any vested SEBP benefits as of December 31, 2018 that were “grandfathered” to Mr. McDaniel and Mr. Goggins as a result of their removal from SEBP participation will be paid pursuant to the terms of the SEBP. All three of these pension plans have been closed to new participants since 2008.   More details regarding the Retirement Account, the PBEP and the SEBP are provided in the narrative following the Pension Benefits Table for 2019 on page 59.

 

		MOODY’S 2020 PROXY STATEMENT		39

WEIGHTING OF ELEMENTS—FIXED VERSUS “AT RISK” COMPENSATION

For 2019, the Company reviewed data from its peer group and the broader financial services market, as discussed in further detail in the “Peer and Market Review” section beginning on page 36. The Committee, based on the recommendations of the CEO (excluding with respect to his own pay) and the Committee’s independent compensation consultant, Meridian, determined that the large majority of an NEO’s total direct compensation package (which includes salary, target annual cash incentive, performance share awards, option awards and non-equity incentive plan compensation) should be “at risk,” meaning the amounts that may ultimately be realized by an executive can vary based on performance. The “at risk” elements of an NEO’s direct compensation are delivered in the form of annual cash incentives and long-term equity awards consisting of stock options, RSUs and performance shares. The Committee concluded that approximately 10% to 25% of the NEO group’s target total direct compensation should be fixed and approximately 75% to 90% should be in the form of “at risk” compensation for 2019. The Company did not have a target weight for each element of compensation in 2019. The sum of the figures below may not equal 100% due to rounding. All percentages are based on salary and target figures as of December 31, 2019.

 

Chief Executive Officer Mix of Pay Elements		Other Named Executives Average Mix of Pay Elements

 

		Total Target Direct Compensation(1)
Name		% that is Base Salary				% that is Target   Annual Incentive				% that is   Target Equity				% that is   At Risk(2)
Raymond W. McDaniel			9%				18%				72%				91%
Mark Kaye			20%				24%				57%				80%
Robert Fauber			12%				27%				61%				88%
John J. Goggins			25%				21%				55%				75%
Stephen Tulenko			22%				28%				50%				78%
Mark E. Almeida			19%				27%				55%				81%

 

(1)	Total Target Direct Compensation is the sum of the base salary, target annual cash incentive and grant date fair value of equity awards. The sum may not equal 100% due to rounding. All percentages are based on salary and target figures as of December 31, 2019.

(2)	Includes annual incentive target award amount and grant date fair value of equity grant.

 

40		MOODY’S 2020 PROXY STATEMENT

2019 COMPENSATION DECISIONS

BASE SALARY

The base salaries of the NEOs as of December 31, 2019 and 2018 are listed below:

 

		Base Salary
Name		2018 Base Salary				2019 Base Salary				Percentage Change
Raymond W. McDaniel		$	1,000,000			$	1,000,000				0%
Mark Kaye			525,000				525,000				0%
Robert Fauber (1)			575,000				700,000				21.7%
John J. Goggins			550,000				550,000				0%
Stephen Tulenko (2)			454,939				525,000				15.4%
Mark E. Almeida			575,000				575,000				0%

 

(1)	In connection with his appointment as Chief Operating Officer, Mr. Fauber’s base salary increased to $700,000 effective November 1, 2019.

(2)	In connection with his appointment as President of MA, Mr. Tulenko’s base salary increased to $525,000 effective November 1, 2019.

The base salary increases made in 2019 for Messrs. Fauber and Tulenko reflected their new roles.

ANNUAL CASH INCENTIVES

Cash incentives for 2019 were paid out at 110.3% to 125.0% of target (excluding Mr. Almeida who is being paid his 2019 annual cash incentive bonus at target pursuant to the terms of his Transition Agreement) based upon financial and individual performance and after consideration of the results of an Institutional Investor Satisfaction Survey.

2019 Annual Cash Incentive Program Payouts

This year’s Company financial performance resulted in funding for the NEOs under the 2004 Plan, with the resulting annual cash incentive awards as shown in the table below:

 

Name		2019 Target Cash   Incentive Under 2004 Plan				2019 Maximum Cash   Incentive Under 2004 Plan				2019 Actual Cash Incentive        Paid Under 2004 Plan
Raymond W. McDaniel		$	2,000,000			$	4,000,000			$	2,500,000
Mark Kaye			625,000				1,250,000				747,600
Robert Fauber (1)			1,300,000				2,600,000				1,568,000
John J. Goggins			460,000				920,000				550,300
Stephen Tulenko (2)			600,000				1,200,000				661,900
Mark E. Almeida (3)			—				—				820,000

 

(1)	In connection with his appointment as Chief Operating Officer, Mr. Fauber’s target cash incentive under the 2004 Plan increased to $1,300,000 effective November 1, 2019.

(2)	In connection with his appointment as President of MA, Mr. Tulenko’s target cash incentive under the 2004 Plan increased to $600,000 effective November 1, 2019.

(3)	Mr. Almeida is being paid a cash incentive bonus of $820,000, representing his 2019 annual cash incentive bonus at target, pursuant to the terms of his Transition Agreement.

Process for Determining Annual Cash Incentives

 

•

Financial Performance Goals. The significant majority of the cash incentive payout for each NEO is based on the Company’s financial performance against pre-established Company and line-of-business financial goals. For 2019, potential cash incentive payouts were based on a combination of adjusted measures. These measures included the Company’s operating income, MIS operating income, MA operating income and MA sales, all adjusted for compensation purposes (defined above as “MCO Operating Income for Compensation Purposes,” “MIS Operating Income for Compensation Purposes,” “MA Operating Income for Compensation Purposes,” and “MA Sales

 

		MOODY’S 2020 PROXY STATEMENT		41

for Compensation Purposes,” respectively).** The weighting of each measure differed depending on the individual’s area of responsibility.

The additional adjustments for compensation purposes were to exclude the effects of foreign exchange rates as compared to pre-established foreign exchange rates, the impact of acquisition related costs, the cost of restructuring, discretionary funding adjustments, and other material non-recurring or unusual items.

For 2019, financial performance goals were based on the annual budget plan incorporating stretch objectives. The Committee sets target performance goals that are intended to motivate performance by being aspirational and challenging, but achievable. When the Committee set the NEOs’ targets, there was an expectation that substantially exceeding the targets would require extraordinary efforts individually and collectively. Therefore, in order to receive the maximum cash incentive payments, financial performance must exceed targets by more than 20%, reflecting extraordinary performance.

 

•

Strategic & Operational Measure. This measure is a qualitative assessment of strategic and operational metrics tied to key non-financial business objectives certified by the Compensation & Human Resources Committee at the beginning of the performance period. The Committee assessed the achievement of the metric by evaluating performance against the following objectives: (i) new sources of growth; (ii) quality assurance and controls; (iii) operating effectiveness and efficiency; (iv) people and culture; (v) risk management; and (vi) enabling technologies and capabilities.

 

•

Adjustment for Institutional Investor Satisfaction. After the cash incentive payouts for each NEO are determined based on the performance metrics and weightings detailed below, the Committee can adjust the formulaic payout upwards by no more than 10% based on the results of a fixed-income Institutional Investor Satisfaction Survey conducted on behalf of the Company by an independent third party. The results of that survey are described below under “Institutional Investor Satisfaction.”

 

•

Adjustment for Individual Performance. The cash incentive amount approved for each NEO may be reduced or modestly adjusted upward from the formulaic determination based upon an extensive assessment of that individual’s performance against qualitative, largely operational objectives established for the year. These are described below under “Individual Performance.”

 

•

Maximum and Minimum Funding. For the 2019 plan year, the maximum incentive payout opportunity was 200% of target. Performance below an established threshold would result in no cash incentive payouts.

 

•

The Committee continues to be rigorous in its oversight of incentive metrics, goals and the relationship between performance and pay.

 

•

With assistance from the Committee’s compensation consultant, Meridian, the Committee conducted a review in 2019 of the Company’s performance periods and sensitivity of the payout curves utilized for its cash incentive plan compared to peer group.

 

**

While the Company reports its financial results in accordance with GAAP, financial performance targets and results under the Company’s incentive plans are based on adjusted financial measures. These adjusted financial measures are permitted by those plans and are approved by the Compensation & Human Resources Committee. Management reviews adjustments from GAAP measures to adjusted measures for compensation purposes with the Compensation & Human Resources Committee to assure the Committee that performance is evaluated on a basis that takes into account the way the goals were set and maintains executive accountability for performance. These metrics and the related performance targets are relevant only to Moody’s executive compensation program and should not be used or applied in other contexts.

 

42		MOODY’S 2020 PROXY STATEMENT

•

Peer Group Comparison.

 

•

This 2019 review confirmed that the relationship between Company performance and cash incentive payouts is more demanding than typical market practice. For the upside incentive opportunity above target, the Company’s payout at maximum performance levels generally requires higher performance improvement than its peers and the general industry require.

 

•

For the downside opportunity (minimum payout) below target at the Company, the relationship between target performance and performance at threshold is similar to the relationship at peers and in general industry; however, under Moody’s plan, threshold performance generates a lower minimum payout than is typical for peers and general industry.

2019 ANNUAL CASH INCENTIVE PROGRAM PERFORMANCE RESULTS

Financial, Strategic and Operational Performance Goals. Financial, strategic and operational performance measures for 2019 were weighted as set forth in the table below.

Performance Metrics

 

Name		MCO Operating Income for Compensation Purposes					MIS Operating Income for Compensation Purposes					MA Operating Income for Compensation Purposes					MA Sales for Compensation Purposes					Strategic and Operational
Raymond W. McDaniel				75.00%					—					—					—					25.00%
Mark Kaye				75.00%					—					—					—					25.00%
Robert Fauber				30.00%					45.00%					—					—					25.00%
John J. Goggins				75.00%					—					—					—					25.00%
Stephen Tulenko				—					—					37.50%					37.50%					25.00%
Mark E. Almeida (1)				—					—					—					—					—

(1)	Mr. Almeida’s annual cash incentive amount was established pursuant to the terms of his Transition Agreement.

For 2019, performance in-line with the Company’s budget for MCO Operating Income for Compensation Purposes would result in 100% funding of the target cash incentive pool with respect to those metrics. For the 2019 plan year, maximum incentive funding opportunity was 200% of target. Performance below an established threshold would result in no funding with respect to that metric.

The 2019 financial performance goals for threshold, target and maximum payout, as well as actual 2019 performance, are set forth in the table below. For the metric goals used in both 2018 and 2019, the metric goals at target compared to 2018 actual performance were as follows: MCO Operating Income for Compensation Purposes up +5.70%; MIS Operating Income for Compensation Purposes up +1.0%; MA Operating Income for Compensation Purposes up +28.30%; and MA Sales for Compensation Purposes up +10.1%.

 

		MOODY’S 2020 PROXY STATEMENT		43

ANNUAL INCENTIVE FUNDING FINANCIAL METRICS

 

 

As stated above, all adjusted measures used for determining incentive compensation amounts reflect adjustments to exclude the effects of foreign exchange rates as compared to pre-established foreign exchange rates, the impact of acquisition related costs, the cost of restructuring, discretionary funding adjustments, and other material non-recurring or unusual items.

Institutional Investor Satisfaction. In 2009, the Committee added a Fixed Income Institutional Investor Satisfaction Survey (performed by an independent third party) modifier to the NEOs’ annual cash incentive program in order to take into account input from users of the Company’s products in setting compensation. The annual survey is comprised of approximately 100 questions in total, five of which were used for compensation analysis. Respondents were asked for their perceptions of Moody’s and Moody’s competitors in the market where the respondent is based. The questions used as a basis for the compensation modifier were as follows: (1) Overall, how has Moody’s met your business needs and expectations over the past 12 months? (2) Does Moody’s provide predictive ratings? (3) Is Moody’s an authoritative source on issues or events affecting the market? (4) Does Moody’s clearly and consistently communicate information about its rating decisions, methodology and models? and (5) Does Moody’s provide high quality and insightful research? This survey modifier adjusts the total funding of the annual cash incentive program upwards by no more than 10% based on achievements versus the Company’s customer value goals.

The Company’s institutional investor goals for 2019 were consistent with 2018. The two primary goals were management’s ability to (i) continue to enhance positive investor impressions of Moody’s products and services; and (ii) reduce less favorable impressions of the Company in the marketplace. The survey results do not produce a direct numerical adjustment by the Committee. Rather, the Committee completes a subjective, but structured, analysis of (i) the degree to which positive impressions increased and negative impressions decreased versus the previous year; and (ii) the degree to which the impressions of Moody’s were meaningfully different relative to the impressions of Moody’s competitors included in the survey. After considering the cash incentive payouts based on the financial performance metrics in conjunction with the overall survey results, the Committee determined to adjust the NEO cash incentive formulaic payout percentages by 2.5%.

Individual Performance. The Committee retains the discretion to set individual award payouts under the 2004 Plan based upon its subjective evaluation of the NEO’s performance against operational objectives

 

44		MOODY’S 2020 PROXY STATEMENT

established for the year. For 2019, the individual performance goals evaluated when determining each NEO’s actual annual incentive award payouts are described below. Mr. Almeida left his position as President of Moody’s Analytics effective November 1, 2019 and his 2019 award payout was established pursuant to the terms of his Transition Agreement.

 

•

Mr. McDaniel: The Committee determined, based on Mr. McDaniel’s (i) contributions to the Company’s financial performance including MCO Operating Income for Compensation Purposes, (ii) communication of an appropriate tone at the top with respect to risk management, internal controls and compliance, (iii) management of regulatory processes and initiatives so that MIS can continue to operate independently and successfully, (iv) coordination of management and communication of litigation and regulatory risk with market participants and employees, (v) support of growth and diversification of the Company’s business by advancing MIS’s and MA’s strategic initiatives, including product innovation, development of enabling technologies and investing globally, (vi) building of an agile culture and the support of organizational transformation initiatives, (vii) improvement of overall operating effectiveness by enhancing workforce quality and productivity and delivery of planned savings, and (viii) support of diversity and inclusion initiatives, to pay Mr. McDaniel 125.0% of his target annual cash incentive.

 

•

Mr. Kaye: The Committee determined, based on Mr. Kaye’s (i) contributions to the Company’s financial performance including MCO Operating Income for Compensation Purposes, (ii) coordination of financial requirements for executing MIS and MA strategies, (iii) optimization of earnings call materials and messaging that focused on the Company’s narrative, (iv) successful transformation of the finance organization he oversees, (v) effective cash management, including execution of the Company’s share repurchase program, and capital management, (vi) implementation of diversity and inclusion initiatives, (vii) management of the Company’s independent registered public accounting firm, and (viii) automation of several finance areas, to pay Mr. Kaye 119.6% of his target annual cash incentive.

 

•

Mr. Fauber: The Committee determined, based on Mr. Fauber’s (i) contributions to MIS Operating Income for Compensation Purposes and MCO Operating Income for Compensation Purposes, (ii) communication of an appropriate tone at the top for compliance with regulation and Company policies, (iii) execution of a global MIS strategy, including expansion outside the U.S., (iv) productivity gains across MIS through re-engineering and automation, (v) development of skill-building programs for MIS staff, (vi) steps taken with respect to diversity and inclusion initiatives, (vii) advancement of enabling technology and innovation initiatives, (viii) ongoing focus on internal controls and compliance and timely implementation of regulatory rules, and (ix) effective organizational management and transition as Chief Operating Officer, to pay Mr. Fauber 120.6% of his target annual cash incentive.

 

•

Mr. Goggins: The Committee determined, based on Mr. Goggins’ (i) management of the Company’s legal risk and all material litigation matters and governmental investigations while balancing business requirements, (ii) mitigation of contingent liabilities for products and services, (iii) coordination with market participants about regulatory affairs and engagement with regulators and legislators globally, (iv) management of all key components of the Company’s compliance function and preparation for examinations by regulatory bodies, (v) support of MIS and MA business initiatives, including the coordination of legal, regulatory and contractual requirements related to expansion outside the U.S., (vi) advising on products and use of new technologies to mitigate contingent liabilities, and (vii) support of diversity and inclusion initiatives, to pay Mr. Goggins 119.6% of his target annual cash incentive.

 

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Mr. Tulenko: The Committee determined, based on Mr. Tulenko’s (i) contributions to MA Operating Income for Compensation Purposes and MA Sales for Compensation Purposes that exceeded the growth targets by 2.6% and 0.9%, respectively, (ii) continued focus on margin management and cost reduction practices, (iii) pursuit of M&A opportunities, (iv) continued work on enhancing MA’s product portfolio, and Enterprise Risk Solutions’ portfolio in particular, as well as meeting customer demand for analytic and insight tools, conducting business development and positioning MA for growth, as well as sustaining customer retention by enhancing product quality and service, (v) focus on expanding sales in products with scalable and sustainable growth, (vi) focus on risk management,

 

		MOODY’S 2020 PROXY STATEMENT		45