DEF 14A 1 d103967ddef14a.htm DEF 14A DEF 14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

Filed by the Registrant  x                         Filed by a Party other than the Registrant  ¨

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¨ Preliminary Proxy Statement

 

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x Definitive Proxy Statement

 

¨ Definitive Additional Materials

 

¨ Soliciting Material Pursuant to §240.14a-12

Marsh & McLennan Companies, Inc.

(Name of Registrant as Specified in its Charter)

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

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LOGO


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LOGO


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Notice of Annual Meeting of Stockholders and Proxy Statement

Dear Stockholder:

You are cordially invited to attend the annual meeting of stockholders of Marsh & McLennan Companies, Inc. The meeting will be held at 10:00 a.m. on Thursday, May 19, 2016 at the Directors Guild of America, 110 West 57th Street, New York, NY 10019.

PURPOSE:

 

1. To elect eleven (11) persons named in the accompanying proxy statement to serve as directors for a one-year term;

 

2. To approve, by nonbinding vote, the compensation of our named executive officers;

 

3. To ratify the selection of Deloitte & Touche LLP as our independent registered public accounting firm; and

 

4. To conduct any other business that may properly come before the meeting.

Our Board of Directors recommends that you vote “FOR” the election of all director nominees, “FOR” the approval of the compensation of our named executive officers and “FOR” the ratification of the selection of Deloitte & Touche LLP.

This notice and proxy statement is being mailed or made available on the Internet to stockholders on or about April 1, 2016. These materials describe the matters being voted on at the annual meeting and contain certain other information. In addition, these materials are accompanied by a copy of the Company’s 2015 Annual Report, which includes financial statements as of and for the fiscal year ended December 31, 2015. In these materials we refer to Marsh & McLennan Companies, Inc. as the “Company,” “we” and “our.”

Only stockholders of record as of close of business on March 21, 2016 may vote, in person or by proxy, at the annual meeting. If you plan to attend the meeting in person, you will need proof of record or beneficial ownership of the Company’s common stock as of that date in order to enter the meeting.

If you accessed this proxy statement through the Internet after receiving a Notice of Internet Availability of Proxy Materials, you may cast your vote by telephone or over the Internet by following the instructions in that Notice. If you received this proxy statement by mail, you may cast your vote by mail, by telephone or over the Internet by following the instructions on the enclosed proxy card.

Whether or not you plan to attend the annual meeting, your vote is very important. We urge you to participate in electing directors and deciding the other items on the agenda for the annual meeting.

 

LOGO

CAREY ROBERTS

Deputy General Counsel, Chief Compliance Officer & Corporate Secretary

April 1, 2016

 

Marsh & McLennan Companies, Inc. Notice of Annual Meeting and 2016 Proxy Statement                


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Proxy Summary

 

 

This summary highlights information contained elsewhere in this proxy statement. You should read the entire proxy statement carefully before voting.

 

  Voting Matters         
               Page number for
more information
   Board vote
recommendation
    
  Election of Directors (Item 1)         
  To elect eleven (11) persons named in the accompanying proxy statement to serve as directors for a one-year term    12    FOR   
  Advisory (Nonbinding) Vote to Approve Named

Executive Officer Compensation (Item 2)

   18    FOR   
  To approve, by nonbinding vote, the compensation of our named executive officers             
  Ratification of Independent Auditor (Item 3)         
  To ratify the selection of Deloitte & Touche LLP as our independent registered public accounting firm    52    FOR   
          

 

    Key Governance Policies and Practices     
  ü Our chairman of the Board is an independent director and the roles of chairman and CEO have been separate since 2005

 

  ü All of our directors other than our CEO are independent (92% independent)

 

  ü All of our directors are elected annually

 

  ü Directors must receive a majority of the votes cast to be elected in uncontested elections

 

  ü Our by-laws allow holders of at least 20% of the voting power of the Company’s outstanding common stock to
call a special meeting

 

  ü Executive sessions of independent directors are held at every regularly scheduled in-person meeting of the Board

 

  ü Stock ownership guidelines for directors and senior executives

 

  ü Prohibition on hedging transactions by directors and employees, including senior executives

 

  ü Directors and senior executives must obtain pre-approval for any proposed pledges of Company stock

 

i          Marsh & McLennan Companies, Inc. Notice of Annual Meeting and 2016 Proxy Statement


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Proxy Summary (Continued)

 

 

 

    Key Executive Compensation Policies and Practices     
  ü Independent compensation consultant to the Compensation Committee

 

  ü High percentage of variable (‘‘at risk’’) pay for our senior executives

 

  ü Long-term incentive compensation for our senior executives is delivered predominantly in stock options and performance stock unit awards, the value of which is contingent on stock price appreciation or achievement of specific Company financial objectives

 

  ü Clawback policies for senior executive annual bonus awards and for equity-based compensation

 

  ü Severance protections for our senior executives, including our CEO, are at a 1x multiple of base salary and bonus

 

  ü “Double-trigger” vesting of equity-based awards and payment of severance benefits following a change in control of the Company

 

  ü No golden parachute excise tax gross-ups upon a change in control of the Company

 

  ü Mitigation of the potential dilutive effect of equity-based awards through our share repurchase program

 

  ü Annual advisory vote on named executive officer compensation by stockholders and strong stockholder support
of the executive compensation program (98% in 2015 and 97% in 2014)

 

    Highlights of Our 2015 Performance     

In 2015, we continued to execute on our long-term financial and strategic objectives.

 

    Our adjusted earnings per share (“EPS”) growth for 2015 was 8.2%*. Excluding the impact from currency exchange rate fluctuations, our adjusted EPS growth was 14.5%  

 

    We delivered 4% growth in underlying revenue while limiting underlying expense growth, leading to increased profitability for both the Risk and Insurance Services and Consulting segments for the sixth consecutive year  

 

    Our total stockholder return was 18.1% on a five-year annualized basis and -1.1% for 2015  

 

    We increased our quarterly dividend by 10.7%, from $0.28 to $0.31 per share, beginning in the third quarter of 2015  

 

    We used approximately $1.4 billion in cash to repurchase approximately 24.8 million shares, reducing our outstanding common stock by approximately 18 million shares on a net basis  

 

  * GAAP EPS for 2015 was $2.98. The impact from currency exchange rate fluctuations was ($0.18) per share. For a reconciliation of our non-GAAP financial measures to GAAP financial measures and related disclosures, please see Exhibit A.

 

Marsh & McLennan Companies, Inc. Notice of Annual Meeting and 2016 Proxy Statement          ii


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Proxy Summary (Continued)

 

 

 

    Highlights of Our 2015 Executive Compensation     

 

    Our strong performance with respect to 2015 financial and strategic objectives led to above-target bonuses for our named executive officers  

 

    Based on our 12.4% three-year annualized core net operating income (“NOI”) growth compared to a 10% long-term target, the payout for our 2013 performance stock unit (“PSU”) awards was 180% of target  

 

    Our equity run rate** in 2015 was 0.7%. Shares repurchased during the year more than offset the increase in shares attributable to the exercise of stock options and the distribution of shares for stock units from previously granted equity-based awards  

 

    We changed the financial performance measure used for corporate senior executives in the 2015 annual bonus program from EPS to NOI, each as modified for executive compensation purposes, so that NOI is now the financial performance measure for all senior executives, either at the Company or operating company level  

 

    We established a broader peer group for executive compensation purposes. The companies in our 2015 peer group aligned with the comparator group that we used to assess competitive financial performance under our 2015 annual bonus program  

 

    For our 2015 PSU awards, we changed the performance measure from core NOI growth to adjusted EPS growth as modified for executive compensation purposes, aligning with the priorities that support our strategy for creating long-term stockholder value, as outlined at our 2014 Investor Day. The Compensation Committee believes that it is appropriate to use different performance measures for our short-term and long-term incentive programs  

 

  ** “Equity run rate” means the number of shares of our common stock underlying equity-based awards granted plus the number of shares of our common stock underlying equity-based awards assumed upon an acquisition (if any), divided by the weighted average number of shares of our common stock outstanding for the year.

 

iii          Marsh & McLennan Companies, Inc. Notice of Annual Meeting and 2016 Proxy Statement


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Table of Contents

 

 

 

Corporate Governance      1   

Overview

     1   
Corporate Governance Practices      1   

Guidelines for Corporate Governance

     2   

Director Independence

     3   

Codes of Conduct

     3   

Review of Related-Person Transactions

     3   

Communicating Concerns Regarding Accounting Matters

     4   

Communicating with Directors

     4   
  
Board of Directors and Committees      5   

Board Composition, Leadership and Size

     5   

Director Qualifications and Nomination Process

     5   

Stockholder Nominations for Director Candidates

     5   

Director Election Voting Standard

     6   

Attendance

     6   

Retirement

     6   

Executive Sessions

     6   

Risk Oversight

     6   

Committees

     6   

Director Compensation

     10   
  
Election of Directors      12   

Item 1: Election of Directors

     12   
Executive Compensation      18   
Item 2: Advisory (Nonbinding) Vote to Approve Named Executive Officer Compensation      18   

Compensation Discussion and Analysis

     19   

Compensation Committee Report

     36   

Compensation of Executive Officers

     37   
  
Audit      52   
Item 3: Ratification of Selection of Independent Registered Public Accounting Firm      52   

Fees of Independent Registered Public Accounting Firm

     52   

Audit Committee Report

     53   
  
Additional Information      54   
Stock Ownership of Directors, Management and Certain Beneficial Owners      54   

Equity Compensation Plan Information

     56   

Transactions with Management and Others

     58   

Section 16(a) Beneficial Ownership Reporting Compliance

     58   
Information About Our Annual Meeting and Solicitation of Proxies      59   
Submission of Stockholder Proposals and Other Items of Business for 2017 Annual Meeting      63   

Exhibit A

     64   

Exhibit B

     65   
 

 

              Marsh & McLennan Companies, Inc. Notice of Annual Meeting and 2016 Proxy Statement


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Corporate Governance

 

 

We describe key features of the Company’s corporate governance environment below and in the next section of this proxy statement, captioned “Board of Directors and Committees.” Our key corporate governance materials are available online at http://www.mmc.com/about/governance.php.

Overview

Our Board of Directors currently has twelve (12) members, including Lord Lang, our independent chairman, and Daniel S. Glaser, our President and Chief Executive Officer. Mr. Glaser is the only member of management who serves as a Director. As described in more detail under “Board of Directors and Committees,” our Board maintains an Audit Committee, a Compensation Committee, a Directors and Governance Committee, a Finance Committee, a Corporate Responsibility Committee and an Executive Committee.

Corporate Governance Practices

The Company is committed to best practices in corporate governance. Highlights of our corporate governance practices are described below.

BOARD STRUCTURE

 

    Board Independence.  All of the Company’s directors are independent, with the exception of our CEO, who is the only member of management serving on the Board.

 

    Independent Chairman.  The Company maintains separate roles of chief executive officer and chairman of the Board as a matter of policy. An independent director acts as chairman of the Board.

 

    Offer to Resign upon Change in Circumstances.  Pursuant to our Governance Guidelines, any director undergoing a significant change in personal or professional circumstances must offer to resign from the Board.

ELECTION OF DIRECTORS/RIGHT OF STOCKHOLDERS TO CALL SPECIAL MEETINGS

 

    Majority Voting in Director Elections.  The Company’s by-laws provide that, in uncontested elections, director candidates must be elected by a majority of the votes cast. Each director candidate has previously tendered an irrevocable resignation that will be effective upon his or her failure to receive the requisite votes and the Board’s acceptance of such resignation.

 

    Stockholder Right to Call Special Meetings.  The Company’s by-laws allow holders of record of at least twenty percent (20%) of the voting power of the Company’s outstanding common stock to call a special meeting.

STOCKHOLDER RIGHTS PLAN

 

    No Poison Pill.  The Company does not have a Rights Agreement.

DECLASSIFICATION OF BOARD

 

    Annual Election of Directors. The Company’s charter provides for the annual election of directors.

COMPENSATION PRACTICES

 

    Compensation Structure for Independent Directors.  The Company’s director compensation structure is transparent to investors and does not provide for meeting fees or retainers for non-chair committee membership.

 

    Cap on Executive Severance Payments.  The Company is required as a matter of policy to obtain stockholder approval for severance agreements with certain senior executives if they provide for cash severance that exceeds 2.99 times the executive’s base salary and three-year average annual bonus award.

 

    “Double-Trigger” Condition for Vesting of Equity-Based Awards following a Change in Control.  Our outstanding and unvested equity-based awards contain a “double-trigger” vesting provision, which requires both a change in control of the Company and a specified termination of employment in order for vesting to be accelerated.

 

    “Clawback” Policies.  The Company may as a matter of policy recoup (or “claw back”) certain executive bonuses in the event of misconduct leading to a financial restatement. Also, our 2011 Incentive and Stock Award Plan allows the Company to “claw back” outstanding or already settled equity-based awards.

 

Marsh & McLennan Companies, Inc. Notice of Annual Meeting and 2016 Proxy Statement          1


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Corporate Governance (Continued)

 

 

EQUITY OWNERSHIP AND HOLDING REQUIREMENTS

 

    Senior Executive Equity Ownership and Holding Requirements.  The Company requires senior executives to hold shares or stock units of our common stock with a value equal to a multiple of base salary. The multiple for our Chief Executive Officer is six, and the multiple for our other senior executives is three. Senior executives are required to hold shares of the Company’s common stock acquired in connection with equity-based awards until they reach their ownership multiple and may not sell any shares of the Company’s common stock unless they maintain their ownership multiple.

 

    Director Equity Ownership and Holding Requirements.  Directors are required to acquire over time, and thereafter hold (directly or indirectly), shares or stock units of our common stock with a value equal to at least five times the Board’s basic annual retainer, or $550,000. Directors may not sell shares of the Company’s common stock until this ownership threshold is attained.

Guidelines for Corporate Governance

The Company and the Board of Directors formally express many of our governance policies through our Guidelines for Corporate Governance (our “Governance Guidelines”). The Governance Guidelines are posted on our website at http://www.mmc.com/content/dam/mmc-web/Files/corp-gov/Guidelines_for_Corporate_Governance.pdf.

The Governance Guidelines summarize certain policies and practices designed to assist the Board in fulfilling its fiduciary obligations to the Company’s stockholders, including the following (parenthetical references are to the relevant section of the Governance Guidelines):

 

  Specific Board functions (Section B), such as:

 

    selecting, regularly evaluating the performance of, and approving the compensation paid to, the CEO;

 

    providing oversight and guidance regarding the selection, evaluation, development and compensation of other senior executives;

 

    planning for CEO and other senior management succession;

 

    reviewing, monitoring and, where appropriate, approving the Company’s strategic and operating plans, fundamental financial objectives and major corporate actions;

 

    assessing major risks facing the Company and reviewing enterprise risk management programs and processes;

 

    overseeing the integrity of the Company’s financial statements and financial reporting processes;

 

    reviewing processes that are in place to maintain the Company’s compliance with applicable legal and ethical standards; and

 

    reviewing and monitoring the effectiveness of the Company’s corporate governance practices.

 

  Succession planning and management development. (Section C)

 

  Director qualification standards and director independence. (Sections D.2 and D.3)

 

  Limits on other public company board service. (Section D.5)

 

  Majority voting in director elections. (Section E.3)

 

  Resignation and retirement requirements for independent directors. (Section E.6)

 

  Separation of independent chairman and CEO. (Section F.2)

 

  Executive sessions of independent directors at every in-person meeting of the Board. (Section H.3)

 

  Board access to management and professional advisors. (Section I)

 

  Director and senior management stock ownership requirements. (Sections K.2 and K.3)

 

  Annual Board and committee evaluations. (Section L)

 

  Policy on interested stockholder transactions. (Section O)

 

2          Marsh & McLennan Companies, Inc. Notice of Annual Meeting and 2016 Proxy Statement


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Corporate Governance (Continued)

 

 

Director Independence

The Board has determined that all directors other than Mr. Glaser are independent under the New York Stock Exchange (“NYSE”) listed company rules and the standards set forth in the Governance Guidelines. Therefore, the Board has satisfied the objective, set forth in the Governance Guidelines, that a substantial majority of the Company’s directors be independent of management.

For a director to be considered “independent,” the Board must affirmatively determine that the director has no direct or indirect material relationship with the Company. The Board has established categorical standards to assist it in making determinations of director independence. These standards conform to, or are more exacting than, the independence requirements provided in the NYSE listed company rules. The Company’s director independence standards are set forth as Annex A to our Governance Guidelines.

All members of the Audit, Compensation and Directors and Governance Committees must be independent directors under the NYSE listed company rules and the standards set forth in the Company’s Governance Guidelines. Members of the Audit Committee must also satisfy a separate Securities and Exchange Commission (“SEC”) and NYSE independence requirement, which provides that they may not be affiliates and may not accept directly or indirectly any consulting, advisory or other compensatory fee from the Company or any of its subsidiaries, other than their directors’ compensation. The Board evaluated each member of the Compensation Committee under the additional NYSE compensation committee member standards and also determined that these members qualify as “non-employee directors” (as defined under Rule 16b-3 under the Securities Exchange Act of 1934) and as “outside directors” (as defined in Section 162(m) of the Internal Revenue Code).

Under our Governance Guidelines, if a director whom the Board has deemed independent has a change in circumstances or relationships that might cause the Board to reconsider that determination, he or she must immediately notify the chairman of the Board and the chair of the Directors and Governance Committee.

Codes of Conduct

Our reputation is fundamental to our business. The Company’s directors and officers and other employees are expected to act ethically at all times. To provide guidance in this regard, the Company has adopted a Code of Conduct, The Greater Good, which applies to all of our directors, officers and other employees. The Greater Good has been distributed to the Company’s employees, accompanied by a comprehensive training and communication effort that includes a recent campaign requiring employees to recertify their commitment to The Greater Good. The Company has also adopted a Code of Ethics for the Chief Executive Officer and Senior Financial Officers, which applies to our chief executive officer, chief financial officer and controller. Both of these codes are posted on the Company’s website at http://www.mmc.com, and print copies are available to any stockholder upon request. We will disclose any amendments to, or waivers of, the Code of Ethics for the Chief Executive Officer and Senior Financial Officers on our website within four business days.

Review of Related-Person Transactions

The Company maintains a written Policy Regarding Related-Person Transactions, which sets forth standards and procedures for the review and approval or ratification of transactions between the Company and related persons. The policy is administered by the Directors and Governance Committee with assistance from the Company’s Corporate Secretary.

In determining whether to approve or ratify a related-person transaction, the Directors and Governance Committee will review the facts and circumstances it considers relevant. These may include: the commercial reasonableness of the terms of the transaction; the benefits of the transaction to the Company; the availability of other sources for the products or services involved in the transaction; the materiality and nature of the related person’s direct or indirect interest in the transaction; the potential public perception of the transaction; and the potential impact of the transaction on any director’s independence. The Directors and Governance Committee will approve or ratify a related-person transaction only if the Committee, in its sole good faith discretion based on the facts and circumstances it considers relevant, determines that the related-person transaction is in, or is not inconsistent with, the best interests of the Company and its stockholders.

If the Directors and Governance Committee determines not to approve or ratify a related-person transaction, the transaction may not be entered into or continued, as the case may be. No member of the Directors and Governance Committee will participate in any review or determination with respect to a related-person transaction if the Committee member or any of his or her immediate family members is the related person.

See the discussion under “Transactions with Management and Others” on page 58.

 

Marsh & McLennan Companies, Inc. Notice of Annual Meeting and 2016 Proxy Statement          3


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Corporate Governance (Continued)

 

 

Communicating Concerns Regarding Accounting Matters

The Audit Committee of the Board of Directors has established procedures to enable anyone who has a concern about the Company’s accounting, internal accounting controls or auditing practices to communicate that concern directly to the Audit Committee. These communications, which may be made on a confidential or anonymous basis, may be submitted in writing, by telephone or online as follows:

By mail to:

Marsh & McLennan Companies, Inc.

Audit Committee of the Board of Directors

c/o Carey Roberts—Corporate Secretary

1166 Avenue of the Americas, Legal Department

New York, New York 10036-2774

By telephone or online:

Go to this website for dialing instructions or to raise a concern online:

http://www.ethicscomplianceline.com

Further details of the Company’s procedures for handling complaints and concerns of employees and other interested parties regarding accounting matters are posted on our website at http://www.mmc.com/about/governance.php.

Company policy prohibits retaliation against anyone who raises a concern in good faith.

Communicating with Directors

Holders of the Company’s common stock and other interested parties may send communications to the Board of Directors, the independent chairman, any of the directors or the independent directors as a group by mail (addressed to Carey Roberts—Corporate Secretary, at the address shown above), online at http://www.ethicscomplianceline.com or by telephone (local dialing instructions can be found at http://www.ethicscomplianceline.com). Items unrelated to the directors’ duties and responsibilities as Board members may be excluded by the Corporate Secretary, including solicitations and advertisements, junk mail, product-related communications, surveys and job referral materials such as resumes.

 

4          Marsh & McLennan Companies, Inc. Notice of Annual Meeting and 2016 Proxy Statement


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Board of Directors and Committees

 

 

Board Composition, Leadership and Size

At the 2016 annual meeting, stockholders will vote on the election of eleven (11) directors. Lord Lang currently serves as the Board’s independent chairman. Lord Lang will retire from the Board effective as of the May 2016 annual meeting in accordance with the mandatory retirement provisions in our Governance Guidelines. The Board has chosen H. Edward Hanway to succeed Lord Lang as chairman.

The only member of management who serves on the Board is Daniel S. Glaser, the Company’s President and Chief Executive Officer. The position of chairman of the Board has been held by an independent director since 2005. The Board believes that this currently is the best leadership structure for the Company. The Board will continue to periodically evaluate whether the structure is in the best interests of stockholders.

Director Qualifications and Nomination Process

As provided in our Governance Guidelines, all directors must demonstrate the highest standards of ethics and integrity, must be independent thinkers with strong analytical ability and must be committed to representing all of the Company’s stockholders rather than any particular interest group. In addition to the foregoing characteristics, the Board evaluates each prospective director candidate by reference to the following criteria: (i) the candidate’s personal and professional reputation and background; (ii) the candidate’s industry knowledge; (iii) the candidate’s experience with businesses or other organizations comparable to the Company in terms of size or complexity; (iv) the interplay of the candidate’s skills and experience with those of the incumbent directors; (v) the extent to which the candidate would provide substantive expertise that is currently sought by the Board or any committees of the Board; (vi) the candidate’s ability to commit the time necessary to fulfill a director’s responsibilities; (vii) relevant legal and regulatory requirements and evolving best practices in corporate governance; and (viii) any other criteria the Board deems appropriate.

The Board, taking into account the recommendation of the Directors and Governance Committee, is responsible for nominating a slate of director candidates for election at the Company’s annual meeting of stockholders. The Board has delegated to the Directors and Governance Committee the authority, when circumstances so warrant, to identify, screen and recommend to the Board potential new director candidates and to engage one or more search firms to assist the Committee in that regard. The Directors and Governance Committee periodically reviews with the Board the skills and characteristics to be sought in any new director candidates, as well as the overall composition and structure of the incumbent Board. The Committee has a long-standing commitment to maintaining a diverse and inclusive Board, and when seeking new director candidates, takes into account such factors as the Board’s current mix of skills, backgrounds and experience, as well as the gender, racial, ethnic and cultural diversity of each potential candidate.

Stockholder Nominations for Director Candidates

The Directors and Governance Committee will consider director candidates recommended by stockholders if the recommendation is submitted in writing at the address below. As described in Article II of the Company’s by-laws, stockholders may submit nominations of persons for election as directors of the Company at an annual meeting of stockholders provided that the proposing stockholder is a stockholder of record both at the time the nomination is submitted and at the time of the annual meeting, is entitled to vote at the annual meeting and complies with the notice procedures set forth in Section 2.10 of the by-laws. The notice of nomination must meet certain guidelines as to timeliness and form and be delivered to the Company’s Corporate Secretary at our principal executive offices:

Marsh & McLennan Companies, Inc.

Attn: Directors and Governance Committee

c/o Carey Roberts—Corporate Secretary

1166 Avenue of the Americas

New York, New York 10036-2774

The director nomination notice must include certain information regarding the director nominee, the proposing stockholder and any associate of the proposing stockholder (such as the beneficial ownership of shares owned of record by the proposing stockholder), including information regarding ownership of our common stock and of derivatives of our securities. With respect to the director nominee, the notice must include the information required to be disclosed in a proxy statement with respect to any candidates for election as directors, including a nominee’s written consent to be named in the proxy statement as a nominee and to serve as director of the Company if elected. The notice also must be accompanied by a letter from the nominee containing certain representations regarding the nominee’s independence and compliance with the Company’s publicly disclosed corporate governance and other policies and guidelines.

See the discussion under “Submission of Stockholder Proposals and Other Items of Business for 2017 Annual Meeting” on page 63.

 

Marsh & McLennan Companies, Inc. Notice of Annual Meeting and 2016 Proxy Statement          5


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Board of Directors and Committees (Continued)

 

 

Director Election Voting Standard

The Company’s by-laws provide that, in an uncontested election of directors (i.e., where the number of nominees does not exceed the number of directors to be elected), a director nominee must receive more votes cast “for” than “against” his or her election in order to be elected to the Board.

In connection with the Company’s majority voting standard for director elections, the Board has adopted the following procedures, which are set forth more fully in Section E.3 of our Governance Guidelines:

 

  The Board shall nominate for election only director candidates who agree to tender to the Board an irrevocable resignation that will be effective upon (i) a director’s failure to receive the required number of votes for re-election at the next meeting of stockholders at which he or she faces re-election and (ii) the Board’s acceptance of such resignation.

 

  Following a meeting of stockholders at which an incumbent director who was a nominee for re-election does not receive the required number of votes for election, the Directors and Governance Committee shall make a recommendation to the Board as to whether to accept or reject such director’s resignation. Within 90 days following the certification of the election results, the Board shall decide whether to accept or reject the director’s resignation and shall publicly disclose that decision and its rationale.

 

  If the Board accepts a director’s resignation, the Directors and Governance Committee will recommend to the Board whether to fill the resultant vacant Board seat or reduce the size of the Board.

Attendance

The Board held nine meetings, including telephonic meetings, during 2015. The average attendance by directors at meetings of the Board and its committees held during 2015 was approximately 96%. All directors attended at least 75% of the meetings of the Board and committees on which they served. The Board’s policy is to have all directors attend annual meetings of stockholders. All directors were present at the 2015 annual meeting.

Retirement

Our Governance Guidelines require our independent directors to retire no later than at the annual meeting of stockholders following their 75th birthday. Any director who is an employee of the Company resigns from the Board when his or her employment ends.

Executive Sessions

Our independent directors meet in executive session without management at regularly scheduled in-person Board meetings. The independent chairman of the Board presides at these meetings.

Risk Oversight

It is the responsibility of the Company’s senior management to assess and manage our exposure to risk and to bring to the Board of Directors’ attention the most material risks facing the Company. The Board oversees risk management directly and through its committees. The Audit Committee regularly reviews the Company’s policies and practices with respect to risk assessment and risk management. The Directors and Governance Committee considers risks related to CEO succession planning and the Compensation Committee considers risks relating to the design of executive compensation programs and arrangements. See below for additional information about the Board’s committees.

Committees

Our Board maintains an Audit Committee, a Compensation Committee, a Directors and Governance Committee, a Finance Committee, a Corporate Responsibility Committee and an Executive Committee to assist the Board in discharging its responsibilities. Following each committee meeting, the respective committee chair reports the highlights of the meeting to the full Board.

Membership on each of the Audit, Compensation and Directors and Governance Committees is limited to independent directors as required by the Company, the listing standards of the NYSE and the SEC’s independence rules. The charters for these committees can be viewed on our website at http://www.mmc.com/about/governance.php.

 

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Board of Directors and Committees (Continued)

 

 

The table below indicates committee assignments for 2015 and the number of times each committee met in 2015:

 

Director          Audit      Compensation     

Directors

and

Governance

     Finance     

Corporate

Responsibility

     Executive  

Oscar Fanjul

                   X                  X(chair)                  X   

Daniel S. Glaser

                                     X                  X   

H. Edward Hanway

                   X(chair)                  X                  X   

Lord Lang (1)

                   X         X         X                  X(chair)   

Elaine La Roche

          X                           X                     

Maria Silvia Bastos Marques

                            X                  X            

Steven A. Mills

                   X         X                              

Bruce P. Nolop

          X                           X         X(chair)            

Marc D. Oken

          X(chair)                           X                  X   

Morton O. Schapiro

                   X         X(chair)                           X   

Lloyd M. Yates

          X                                    X            

R. David Yost

                   X                           X            

2015 Meetings

          10         6         5         6         5         0   

 

(1) Lord Lang, the Board’s independent chairman, will retire from the Board effective as of the 2016 annual meeting. He is not standing for re-election. The Board has chosen Mr. Hanway to succeed Lord Lang as independent chairman.

AUDIT COMMITTEE

The Audit Committee is charged, among other things, with assisting the Board in fulfilling its oversight responsibilities with respect to:

 

  the integrity of the Company’s financial statements;

 

  the qualifications, independence and performance of our independent registered public accounting firm;

 

  the performance of the Company’s internal audit function;

 

  compliance by the Company with legal and regulatory requirements; and

 

  the Company’s enterprise risk management programs and processes.

The Audit Committee selects, oversees and approves, pursuant to a pre-approval policy, all services to be performed by our independent registered public accounting firm. The Company’s independent registered public accounting firm reports to the Audit Committee.

All members of the Audit Committee are “financially literate,” as required by the NYSE and determined by the Board. The Board has determined that Bruce P. Nolop, Marc D. Oken and Lloyd Yates have the requisite qualifications to satisfy the SEC definition of “audit committee financial expert.”

COMPENSATION COMMITTEE

Among other things, the Compensation Committee:

 

  evaluates the performance and determines the compensation of our chief executive officer;

 

  reviews and approves the compensation of our other senior executives; and

 

  oversees the Company’s incentive compensation plans for our chief executive officer and other senior executives and equity-based plans and discharges the responsibilities of the Committee set forth in these plans.

Meeting Schedule.  The Compensation Committee met six times in 2015, including a special meeting in February to complete its annual review of, and make decisions on, executive compensation. Decisions relating to significant matters are usually presented to the Compensation Committee and discussed at more than one meeting to allow for full consideration of the implications and possible alternatives before a final decision is made. The Compensation Committee receives support from its independent compensation consultant and the Company’s management, including the Company’s human resources staff, as described below.

 

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The Compensation Committee may delegate all or a portion of its duties and responsibilities to the chair of the Compensation Committee or a subcommittee of the Compensation Committee. If necessary, the chair is authorized to take action on behalf of the Compensation Committee between its regularly scheduled meetings, within prescribed guidelines. If any such action is taken, the chair reports such action to the Compensation Committee at its next regularly scheduled meeting.

Independent Compensation Consultant.  The Compensation Committee has engaged Pay Governance LLC as its independent compensation consultant to provide support to the Compensation Committee. The independent compensation consultant advises the Compensation Committee in performing its duties and makes recommendations to the Compensation Committee regarding our executive compensation program. The independent compensation consultant reports directly to the Compensation Committee and provides advice and analysis solely to the Compensation Committee. The independent compensation consultant supports the Compensation Committee by:

 

  participating by invitation in meetings, or portions of meetings, of the Compensation Committee to advise the Compensation Committee on specific matters that arise;

 

  offering objective advice regarding the compensation and policy recommendations presented to the Compensation Committee by the Company’s management, including senior members of the Company’s human resources staff; and

 

  supplying data regarding the compensation practices of comparable companies.

The Compensation Committee requested and received advice from the independent compensation consultant with respect to all significant matters addressed by the Compensation Committee during 2015. Except for the services provided to the Compensation Committee, neither the individual compensation consultant nor Pay Governance LLC nor any of its affiliates provided any services to the Company or its affiliates in 2015.

The Compensation Committee assessed the work of Pay Governance LLC during 2015 pursuant to SEC rules and concluded that Pay Governance’s work did not raise any conflict of interest.

Company Management.  The Company’s management, including the Company’s human resources staff, supports the Compensation Committee by:

 

  developing meeting agendas in consultation with the chair of the Compensation Committee and preparing background materials for Compensation Committee meetings;

 

  making recommendations to the Compensation Committee on the Company’s compensation philosophy, governance initiatives and short-term and long-term incentive compensation design, including by providing input regarding the individual performance component of annual bonus awards, as discussed in the Compensation Discussion and Analysis beginning on page 19; and

 

  responding to actions and initiatives proposed by the Compensation Committee.

In addition, our President and Chief Executive Officer provides recommendations with respect to the compensation of our other senior executives.

Our President and Chief Executive Officer, senior members of the Company’s human resources staff and internal legal counsel attended Compensation Committee meetings when invited but were not present for executive sessions or for any discussion of their own compensation.

Timing and Procedures of Equity-Based Compensation Awards.  Annual awards under our long-term incentive compensation program are approved at a prescheduled meeting of the Compensation Committee each February and, consistent with our historical practice, are granted on that same date.

In addition, the Compensation Committee periodically grants restricted stock unit awards to newly hired senior executives and to continuing senior executives for increased responsibilities that accompany changes in position and for retention purposes. These awards are approved at prescheduled meetings of the Compensation Committee. The Compensation Committee has also authorized our President and Chief Executive Officer to make such awards to individuals who are not senior executives, subject to prescribed limitations. These awards are granted on the first calendar day of the month following approval of the award by the Compensation Committee or our President and Chief Executive Officer, as applicable. In the event that an award is approved prior to an individual’s start date with the Company, the award will be granted on the first calendar day of the first month on or following the individual’s start date.

 

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Equity-based awards are typically denominated as a dollar value and then converted into a number of performance stock units, restricted stock units or stock options. The number of performance stock units or restricted stock units is determined based on the grant date fair value of the Company’s common stock, which is defined as the average of the high and low trading prices of the Company’s common stock on the trading day immediately preceding the grant date. The number of stock options is determined based on the grant date fair value of a stock option to purchase a share of the Company’s common stock. The grant date fair value of stock options is determined in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation-Stock Compensation (“FASB ASC Topic 718”). Stock options have an exercise price equal to the average of the high and low trading prices of the Company’s common stock on the trading day immediately preceding the grant date. We believe that our equity-based compensation grant procedures effectively protect against the manipulation of grant timing for employee gain.

The Company’s human resources staff regularly monitors, and updates the Compensation Committee on, the use of shares of the Company’s common stock for equity-based awards and the number of shares available for future awards under our equity-based compensation plans. As part of the process of granting annual long-term incentive compensation, the Compensation Committee considers share use and equity run rate (as defined in “2015 Highlights” on page 20) so that annual long-term incentive awards, and the extent to which shares of the Company’s common stock are used for those awards, are maintained at a reasonable level.

DIRECTORS AND GOVERNANCE COMMITTEE

The Directors and Governance Committee’s duties and responsibilities include, among other things:

 

  assisting the Board by identifying, considering and recommending, consistent with criteria approved by the Board, qualified candidates for election as Directors, including the slate of Directors to be nominated by the Board for election at the Company’s annual meeting of stockholders;

 

  recommending to the Board nominees for each Board committee;

 

  overseeing the development and implementation of succession planning for the Company’s chief executive officer; and

 

  developing and recommending to the Board the Governance Guidelines applicable to the Company, including taking a leadership role in shaping the corporate governance of the Company.

FINANCE COMMITTEE

The Finance Committee reviews and makes recommendations to the Board concerning, among other matters, the Company’s capital structure, capital management and methods of corporate finance (including proposed issuances of securities or other financing transactions) and proposed acquisitions, divestitures or other strategic transactions.

CORPORATE RESPONSIBILITY COMMITTEE

In January 2016, the Board approved an amendment to the Corporate Responsibility Committee charter to update and clarify the Committee’s principal subjects of focus. The Corporate Responsibility Committee’s purpose is to create value for our stakeholders by enhancing the Company’s reputation, business position and employee engagement. In particular, the Corporate Responsibility Committee focuses on government relations, corporate communications, social responsibility, diversity and inclusion and sustainability and reports to the Board on a regular basis.

EXECUTIVE COMMITTEE

The Executive Committee is empowered to act for the full Board during the intervals between Board meetings, except with respect to matters that, under Delaware law or the Company’s by-laws, may not be delegated to a committee of the Board. The Executive Committee meets as necessary, with all actions taken by the Committee reported at the next Board meeting.

 

Marsh & McLennan Companies, Inc. Notice of Annual Meeting and 2016 Proxy Statement          9


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Board of Directors and Committees (Continued)

 

 

Director Compensation

EXECUTIVE DIRECTORS

Executive directors (currently only Mr. Glaser) receive no compensation for their service as directors.

INDEPENDENT DIRECTORS

Independent directors receive a basic annual retainer and annual stock grant as compensation for their service as directors. Our independent chairman and directors who serve as the chair of a committee also receive a supplemental annual retainer. The basic annual retainer and the supplemental retainers are paid quarterly for pay periods ending on August 15, November 15, February 15 and May 15. Under the terms of the Company’s Directors’ Stock Compensation Plan, independent directors may elect to receive these retainer amounts in cash, the Company’s common stock or a combination thereof and may defer receipt of all or a portion of any compensation to be paid in the form of the Company’s common stock until a specified future date. The annual stock grant is made on June 1st of each year. Independent directors are also eligible to participate in the Company’s matching-gift program for certain charitable gifts to educational institutions.

The Board’s compensation year runs from June 1 through May 31. The current compensation arrangements for independent directors are summarized in the table below.

Elements of Independent Director Compensation

 

Basic Annual Retainer for All Independent Directors    $110,000
Supplemental Annual Retainer for Independent Chairman of the Board    $200,000

Supplemental Annual Retainer for Chair of

 

  Audit Committee

  Compensation Committee

   $25,000
Supplemental Annual Retainer for Chairs of Committees other than
Audit and Compensation
   $15,000
Annual Stock Grant for Independent Directors under the Company’s
Directors’ Stock Compensation Plan
   Number of shares having a grant date market value of $140,000

Stock Ownership Guidelines

   5 times Basic Annual Retainer

 

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Board of Directors and Committees (Continued)

 

 

2015 Independent Director Compensation

The table below indicates total compensation received by our independent directors for service on the Board and its committees during 2015:

 

Name    Fees Earned or
Paid in Cash
($) (1)
     Stock
Awards
($) (2)
     All Other
Compensation
($) (3)
     Total ($)  

Oscar Fanjul

     125,000         140,000                 265,000   

H. Edward Hanway

     135,000         140,000                 275,000   

Lord Lang (4)

     310,000         140,000                 450,000   

Elaine La Roche

     110,000         140,000                 250,000   

Maria Silvia Bastos Marques

     72,921         140,000                 212,291   

Steven A. Mills

     110,000         140,000                 250,000   

Bruce P. Nolop (5)

     117,255         140,000         1,250         257,255   

Marc D. Oken

     135,000         140,000                 275,000   

Morton O. Schapiro

     125,000         140,000                 265,000   

Adele Simmons (6)

     64,538                 5,000         69,538   

Lloyd M. Yates

     110,000         140,000                 250,000   

R. David Yost

     110,000         140,000         5,000         255,000   

 

(1) The amounts in this “Fees Earned or Paid in Cash” column reflect payments of the $110,000 basic annual retainer and any supplemental retainer made during fiscal 2015, as set forth in more detail below. The chairs of the Audit and Compensation Committees each received $25,000 for such service, and the chairs of committees other than Audit and Compensation each received $15,000 for such service. The committee chairs compensated during fiscal year 2015 were: Mr. Fanjul (Finance), Mr. Hanway (Compensation), Mr. Nolop (Corporate Responsibility), Mr. Oken (Audit), Mr. Schapiro (Directors and Governance) and Ms. Simmons (Corporate Responsibility). Lord Lang received $200,000 for his service as the independent chairman of the Board. Committee members other than the chairs receive no additional compensation for service on a committee.

 

  Mr. Mills elected to receive his quarterly payments in the form of the Company’s common stock. Mr. Schapiro elected to receive 30% of his quarterly payments ($37,500) in the form of the Company’s common stock on a deferred basis. Mr. Yost elected to receive his quarterly payments in the form of the Company’s common stock on a deferred basis. All of the other independent directors received these amounts in cash.

 

(2) This column reflects the award of 2,390 shares of the Company’s common stock to each independent director on June 1, 2015. The shares awarded to each director had an aggregate grant date fair value of $140,000, based on a per share price of $58.56, which was the average of the high and low prices on May 29, 2015, the trading day immediately preceding the grant. The amounts shown in this column constitute the dollar amount recognized by the Company for financial statement reporting purposes for the fiscal year ended December 31, 2015, in accordance with FASB ASC Topic 718. Mr. Schapiro and Mr. Yost elected to defer receipt of all of the shares awarded to them.

 

  As of December 31, 2015, the aggregate number of deferred shares held for the account of each director listed above who previously elected to defer shares was as follows: Mr. Schapiro, 54,218 shares; Ms. Simmons, 68,603; and Mr. Yost, 13,689 shares. Dividend equivalents on these deferred shares are reinvested into additional deferred shares for the account of the director.

 

(3) The Company maintains a matching gift program for employees and directors, pursuant to which the Company matches, on a dollar-for-dollar basis, charitable contributions to certain educational institutions up to a total of $5,000 per employee or director in any one year. The amounts shown in the table represent the Company’s matching contribution to educational institutions pursuant to this program.

 

(4) Lord Lang will retire from the Board effective as of the 2016 annual meeting.

 

(5) Mr. Nolop was appointed chair of the Corporate Responsibility committee upon Adele Simmons’ retirement from the Board.

 

(6) Ms. Simmons retired from the Board effective May 21, 2015.

 

Marsh & McLennan Companies, Inc. Notice of Annual Meeting and 2016 Proxy Statement          11


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Election of Directors

 

 

Item 1 — Election of Directors

At the 2016 annual meeting, stockholders will vote on the election of the eleven (11) nominees listed below—Oscar Fanjul, Daniel S. Glaser, H. Edward Hanway, Elaine La Roche, Maria Silvia Bastos Marques, Steven A. Mills, Bruce P. Nolop, Marc D. Oken, Morton O. Schapiro, Lloyd M. Yates and R. David Yost—for a one-year term. Lord Lang, our independent chairman, will retire from the Board effective as of the 2016 annual meeting and is not standing for re-election. The Board has chosen H. Edward Hanway to succeed Lord Lang as independent chairman.

The Board has nominated each of these individuals to serve until the 2017 annual meeting. Each nominee has indicated that he or she will serve if elected. We do not anticipate that any of the nominees will be unable or unwilling to stand for election, but if that happens, your proxy may be voted for another person nominated by the Board or the Board may reduce its size. Each director holds office until his or her successor has been duly elected and qualified or his or her earlier resignation, death or removal.

In nominating the following slate of director candidates for election at the Company’s annual meeting of stockholders, the Board has evaluated each nominee by reference to the criteria described above on page 5 under the heading “Director Qualifications and Nomination Process.” In addition, the Board evaluates each individual director in the context of the Board as a whole, with the objective of recommending a group that can best support the success of our businesses and represent stockholder interests.

The following section contains information provided by the nominees about their principal occupations, business experience and other matters, including their 2015 committee assignments, as well as a description of how each individual’s experience qualifies him or her to serve as a director of the Company.

The Board of Directors recommends that you vote FOR

the following Directors:

 

                       
 

LOGO

    

Oscar Fanjul

Compensation Committee

Executive Committee

Finance Committee (Chair)

 

   Director since 2001  
      

 

Mr. Fanjul, age 66, is Vice Chairman of Omega Capital, a private investment firm in Spain. Mr. Fanjul is the Founding Chairman and former Chief Executive Officer of Repsol.

Mr. Fanjul is a Director of Acerinox, LafargeHolcim and Ferrovial. He is a Trustee of the Amigos del Museo del Prado Foundation. Mr. Fanjul is a former Director of Unilever, the London Stock Exchange and Areva.

 

We believe Mr. Fanjul’s qualifications to sit on our Board of Directors and chair our Finance Committee include his extensive experience in various international markets with global companies and his understanding of global business practices.

 

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Election of Directors (Continued)

 

 

 

                       
 

LOGO

    

Daniel S. Glaser

Executive Committee

Finance Committee

 

 

   Director since 2013  
      

 

Daniel S. Glaser, age 55, is President and Chief Executive Officer of Marsh & McLennan Companies. Prior to assuming this role in January 2013, Mr. Glaser served as Group President and Chief Operating Officer of Marsh & McLennan Companies from April 2011 through December 2012, with strategic and operational oversight of both the Risk and Insurance Services and the Consulting segments of the Company. Mr. Glaser rejoined Marsh in December 2007 as Chairman and Chief Executive Officer of Marsh Inc. after serving in senior positions in commercial insurance and insurance brokerage in the United States, Europe, and the Middle East. He began his career at Marsh more than 30 years ago. Mr. Glaser was named Chairman of the Federal Advisory Committee on Insurance (FACI) in August 2014. Mr. Glaser also serves on the International Advisory Board of BritishAmerican Business and is a member of the Board of Trustees for The Institutes (American Institute for Chartered Property Casualty Underwriters), the Insurance Information Institute and Ohio Wesleyan University.

 

As the only member of the Company’s management team on the Board, Mr. Glaser’s presence on the Board provides directors with direct access to the Company’s chief executive officer and helps facilitate director contact with other members of the Company’s senior management.

 

                       
 

LOGO

    

H. Edward Hanway

Chairman of the Board (elect)

Compensation Committee (Chair)

Executive Committee (Chair elect)

Finance Committee

 

   Director since 2010  
      

 

Mr. Hanway, age 64, served as Chairman and Chief Executive Officer of Cigna Corporation from 2000 to the end of 2009. From 1999 to 2000, he served as President and Chief Operating Officer of Cigna. From 1996 to 1999, he was President of Cigna HealthCare, and from 1989 to 1996 was President of Cigna International. Mr. Hanway is a former Member of the Board of Directors of America’s Health Insurance Plans (AHIP). He is also a past Chairman of the Council on Affordable Quality Healthcare (CAQH) and has been active in a wide range of issues and initiatives associated with children’s health and education. He serves on the Board of Trustees of the March of Dimes Foundation and Drexel Newmann Academy and is the Chairman of the Faith in the Future Foundation committed to growth of Catholic education in the Archdiocese of Philadelphia.

 

We believe Mr. Hanway’s qualifications to chair our Board of Directors include his years of executive experience in the insurance industry, together with his background in the health and benefits sector, which provide our Board with insight into important areas in which the Company conducts business.

 

Marsh & McLennan Companies, Inc. Notice of Annual Meeting and 2016 Proxy Statement          13


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Election of Directors (Continued)

 

 

 

                       
 

LOGO

    

Elaine La Roche

Audit Committee

Finance Committee

 

 

   Director since 2012  
      

 

Ms. La Roche, age 66, is a Senior Advisor to China International Capital Corporation US. She served as Chief Executive Officer of China International Capital Corporation in Beijing from 1997 to 2000. Over the course of a 20-year career at Morgan Stanley, Ms. La Roche rose from Associate to Managing Director, serving in a variety of roles including Chief of Staff to the Chairman, and President and Head of the Asia Desk. From 2008 to 2010, Ms. La Roche was with JPMorgan Chase & Co. in Beijing, where she served as Vice Chairman, J.P. Morgan China Securities. Ms. La Roche served on the Board of Directors of Linktone Ltd., where she was Non-Executive Chairman from 2004 to 2008. She also served on the Board of Directors of China Construction Bank (CCB) from 2006 to 2011 and from 2012 to 2015 after a mandatory one-year hiatus. Ms. La Roche currently serves on the Board of Directors of Harsco Corporation.

 

We believe Ms. La Roche’s qualifications to sit on our Board of Directors include her executive experience in financial services, particularly internationally, and her corporate governance experience from prior board service.

 

                       
 

LOGO

    

Maria Silvia Bastos Marques

Corporate Responsibility Committee

Directors and Governance Committee

 

 

   Director since 2015  
      

 

Ms. Marques, age 59, is currently Special Advisor to the Mayor for the Rio de Janeiro 2016 Olympic Games. Prior to assuming this role in April 2014, Ms. Marques served as Chief Executive Officer of Rio’s Olympic Company, starting in 2011. Ms. Marques has served in leadership positions in both the public and private sector, including as CEO of Icatu Hartford Seguros S.A. from 2007 to 2011, CEO of Companhia Siderurgica Nacional from 1996 to 2002, and Secretary of Finance for the City of Rio de Janeiro from 1993 to 1996. In addition to these executive positions, Ms. Marques has served as a trustee of the Fundação Brasileira para o Desenvolvimento Sustentável (Brazilian Foundation for Sustainable Development) since 2004 and on the Advisory Board of Columbia University Global Center – Rio de Janeiro since 2013. Her past public company directorships include Anglo American PLC, Vale S.A., Embratel Participacoes S.A., and Companhia Brasileira de Distribuição. Ms. Marques currently serves on the Board of Directors of Estacio de Sa.

 

We believe Ms. Marques’ qualifications to sit on our Board of Directors include her executive leadership and management experience in a variety of sectors, together with her experience managing complex organizations.

 

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LOGO

    

Steven A. Mills

Compensation Committee

Directors and Governance Committee

 

   Director since 2011  
      

 

Mr. Mills, age 64, was a senior executive at International Business Machines Corporation (IBM) before his retirement at the end of December 2015. Mr. Mills joined IBM in 1973 and during the course of his 40-plus-year career held various executive leadership positions across the Company. At the time of his retirement, Mr. Mills was the Executive Vice President of Software & Systems, with responsibility for directing IBM’s $40 billion product business, which included over 100,000 employees spanning development, manufacturing, sales, marketing and support professions.

 

We believe Mr. Mills’ qualifications to sit on our Board of Directors include his executive leadership and management experience, his technology expertise, his extensive international business experience and his overall knowledge of global markets.

 

                       
 

LOGO

    

Bruce P. Nolop

Audit Committee

Corporate Responsibility Committee (chair)

Finance Committee

 

   Director since 2008  
      

 

Mr. Nolop, age 65, retired in 2011 from E*TRADE Financial Corporation, where he served as Executive Vice President and Chief Financial Officer from September 2008 through 2010. Previously he was Executive Vice President and Chief Financial Officer of Pitney Bowes Inc. from 2000 to 2008 and Managing Director of Wasserstein Perella from 1993 to 2000. Prior thereto he held positions with Goldman, Sachs & Co., Kimberly-Clark Corporation and Morgan Stanley & Co. Mr. Nolop also serves on the Board of Directors of TEGNA Inc. (formerly Gannett Co., Inc.), On Deck Capital, Inc. and privately-held CLS Group Holdings AG.

 

We believe Mr. Nolop’s qualifications to sit on our Board of Directors include his experience in financial accounting and corporate finance and his familiarity with internal financial controls and strategic transactions acquired through executive-level finance positions held in public companies and 18 years’ experience as an investment banker.

 

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LOGO

    

Marc D. Oken

Audit Committee (Chair)

Executive Committee

Finance Committee

 

 

   Director since 2006  
      

 

Mr. Oken, age 69, is the Managing Partner of Falfurrias Capital Partners, a private equity firm. He was Chief Financial Officer of Bank of America Corporation from 2004 to 2005. Mr. Oken joined Bank of America in 1989 as Executive Vice President-Chief Accounting Officer, a position he held until 1998, when he became Executive Vice President-Principal Finance Executive. Mr. Oken is also a Director of Sonoco Products Company and Capital Bank Financial Corp.

 

We believe Mr. Oken’s qualifications to sit on our Board of Directors and chair our Audit Committee include his extensive experience with public and financial accounting matters for complex global organizations, as well as his executive leadership and management experience.

 

                       
 

LOGO

    

Morton O. Schapiro

Compensation Committee

Directors and Governance Committee (Chair)

Executive Committee

 

   Director since 2002  
      

 

Mr. Schapiro, age 62, has been President and Professor of Economics at Northwestern University since 2009. Prior to that, he was President and Professor at Williams College from 2000. Previous positions include Dean of the College of Letters, Arts and Sciences of the University of Southern California from 1994 to 2000, the University’s Vice President for planning from 1999 to 2000, and Chair of its Department of Economics from 1991 to 1994.

 

We believe Mr. Schapiro’s qualifications to sit on our Board of Directors and chair our Directors and Governance Committee include his experience in managing large and complex educational institutions, which provides the Board with a diverse approach to management, as well as his more than 30 years of experience as a professor of economics.

 

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Election of Directors (Continued)

 

 

 

                       
 

LOGO

    

Lloyd M. Yates

Audit Committee

Corporate Responsibility Committee

 

 

   Director since 2011  
      

 

Mr. Yates, age 55, is Executive Vice President – Market Solutions of Duke Energy and President of Duke Energy’s Carolinas Region. Previously, Mr. Yates served as Executive Vice President of Customer Operations for Duke Energy. Mr. Yates has more than 30 years of experience in the energy industry, including the areas of nuclear and fossil generation, and energy delivery. Before the merger between Duke Energy and Progress Energy in July 2012, Mr. Yates served as President and Chief Executive Officer for Progress Energy Carolinas. Mr. Yates joined Progress Energy’s predecessor, Carolina Power & Light, in 1998. Before joining Progress Energy, he worked for PECO Energy for 16 years in several line operations and management positions. Mr. Yates serves on several community-based and industry boards and also serves as the President and Chairman of the Association of Edison Illuminating Companies.

 

We believe Mr. Yates’s qualifications to sit on our Board of Directors include the executive leadership and management experience he has acquired throughout his career in the energy industry.

 

                       
 

LOGO

    

R. David Yost

Compensation Committee

Corporate Responsibility Committee

 

 

   Director since 2012  
      

 

Mr. Yost, age 68, was the President and Chief Executive Officer of AmerisourceBergen, a comprehensive pharmaceutical services provider, from 2001 until his retirement in 2011. Mr. Yost also held a variety of other positions with AmeriSource Health Corporation and its predecessors from 1974 to 2001, including Chairman, President and Chief Executive Officer from 1997 to 2001. Mr. Yost is a graduate of the U.S. Air Force Academy and was previously a Captain in the United States Air Force. Mr. Yost serves on the Board of Directors of Tyco International and Bank of America. Mr. Yost also serves on the U.S. Air Force Academy Endowment Board.

 

We believe Mr. Yost’s qualifications to sit on our Board of Directors include his extensive leadership experience gained as the chief executive of a large publicly traded company in the healthcare industry and as a director of other publicly traded companies.

 

Marsh & McLennan Companies, Inc. Notice of Annual Meeting and 2016 Proxy Statement          17


Table of Contents

 

Executive Compensation

 

 

Item 2 — Advisory (Nonbinding) Vote to Approve Named Executive

Officer Compensation

Recognizing that executive compensation is an important matter for our stockholders, and in accordance with SEC rules, we are asking our stockholders to approve an advisory resolution on the compensation of our named executive officers as disclosed in this proxy statement.

This proposal, commonly known as a “say-on-pay” proposal, is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and our executive compensation philosophy, policies and practices as described in this proxy statement. Although the voting results are not binding, the Board and the Compensation Committee will take into account the results of the vote when considering future executive compensation arrangements. We will include this advisory vote on an annual basis at least until the next advisory vote on the frequency of say-on-pay votes (which will occur no later than our 2017 Annual Meeting of Stockholders).

We encourage our stockholders to read the Compensation Discussion and Analysis, which immediately follows this proposal. The Compensation Discussion and Analysis describes in more detail our executive compensation program and related policies and practices and explains the decisions the Compensation Committee has made under this program and the factors considered in making those decisions. We also encourage our stockholders to review the 2015 Summary Compensation Table and other related compensation tables and narratives, which provide detailed information on the compensation of our named executive officers.

STOCKHOLDERS ARE BEING ASKED TO VOTE ON THE FOLLOWING RESOLUTION:

RESOLVED, that the stockholders of Marsh & McLennan Companies approve, on an advisory basis, the compensation of the Company’s named executive officers, as disclosed in this proxy statement, including the Compensation Discussion and Analysis, the executive compensation tables and the related narratives.

The Board of Directors recommends that you vote FOR

the approval of our executive compensation on an advisory basis.

 

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Executive Compensation (Continued)

 

 

Compensation Discussion and Analysis

The following is a discussion and analysis of our compensation program for our senior executives, focusing on our key compensation principles, policies and practices.

This section describes the compensation decisions with respect to the individuals who served during 2015 as our President and Chief Executive Officer, our Chief Financial Officer and our three other most highly compensated executive officers as of December 31, 2015, as listed below. These individuals are included in the 2015 Summary Compensation Table on page 37.

 

Name    Title

Daniel S. Glaser

   President and Chief Executive Officer (“CEO”)

J. Michael Bischoff

   Chief Financial Officer (“CFO”)

Peter Zaffino

   Chairman of the Risk and Insurance Services (“RIS”) segment and President and Chief Executive Officer of Marsh LLC

Julio A. Portalatin

   President and Chief Executive Officer of Mercer Consulting Group, Inc.

Peter J. Beshar

   Executive Vice President and General Counsel

We refer to these individuals collectively in this Compensation Discussion and Analysis as our “named executive officers.” When we refer to our “senior executives” in this proxy statement, we mean our CEO, the chief executive officers of our four operating companies and certain leaders of our corporate staff. Background information regarding our senior executives is provided on our website at http://www.mmc.com/about/board.php#eo.

 

    2015 Highlights     

OUR PERFORMANCE

In 2015, we continued to execute on our long-term financial and strategic objectives.

 

    Our adjusted earnings per share (“EPS”) growth for 2015 was 8.2%*. Excluding the impact from currency exchange rate fluctuations, our adjusted EPS growth was 14.5%.  

 

    We delivered 4% growth in underlying revenue while limiting underlying expense growth, leading to increased profitability for both the Risk and Insurance Services and Consulting segments for the sixth consecutive year.  

 

    Our total stockholder return (“TSR”) was 18.1% on a five-year annualized basis and -1.1% for 2015.  

 

    We increased our quarterly dividend by 10.7%, from $0.28 to $0.31 per share, beginning in the third quarter of 2015.  

 

    We used approximately $1.4 billion in cash to repurchase approximately 24.8 million shares, reducing our outstanding common stock by approximately 18 million shares on a net basis.  

OUR EXECUTIVE COMPENSATION

 

    Our strong performance with respect to 2015 financial and strategic objectives led to above-target bonuses for our named executive officers.  

 

    Based on our 12.4% three-year annualized core net operating income (“NOI”) growth compared to a 10% long-term target, the payout for our 2013 performance stock unit (“PSU”) awards was 180% of target.

 

    Our equity run rate** in 2015 was 0.7%. Shares repurchased during the year more than offset the increase in shares attributable to the exercise of stock options and the distribution of shares for stock units from previously granted equity-based awards.

 

    We changed the financial performance measure used for corporate senior executives in the 2015 annual bonus program from EPS to NOI, each as modified for executive compensation purposes, so that NOI is now the financial performance measure for all senior executives, either at the Company or operating company level.

 

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Executive Compensation (Continued)

 

 

 

    2015 Highlights (continued)     
    We established a broader peer group for executive compensation purposes. The companies in our 2015 peer group aligned with the comparator group that we used to assess competitive financial performance under our 2015 annual bonus program.  

 

    For our 2015 PSU awards, we changed the performance measure from core NOI growth to adjusted EPS growth as modified for executive compensation purposes, aligning with the priorities that support our strategy for creating long-term stockholder value, as outlined at our 2014 Investor Day. The Compensation Committee believes that it is appropriate to use different performance measures for our short-term and long-term incentive programs.  

 

  * GAAP EPS for 2015 was $2.98. The impact from currency exchange rate fluctuations was ($0.18) per share. For a reconciliation of our non-GAAP financial measures to GAAP financial measures and related disclosures, please see Exhibit A.

 

  ** “Equity run rate” means the number of shares of our common stock underlying equity-based awards granted plus the number of shares of our common stock underlying equity-based awards assumed upon an acquisition (if any), divided by the weighted average number of shares of our common stock outstanding for the year.

SENIOR EXECUTIVE CHANGES AND APPOINTMENTS

Chairman of RIS Segment. Effective May 7, 2015, Mr. Zaffino was appointed Chairman of our Risk and Insurance Services segment, which comprises Marsh and Guy Carpenter. He continues to serve as President and Chief Executive Officer of Marsh.

Executive Vice President and General Counsel. Effective September 9, 2015, Mr. Beshar assumed responsibility for the Company’s Risk and Compliance Department.

Chief Financial Officer Transition. Effective January 1, 2016, Mark C. McGivney assumed the role of Chief Financial Officer replacing Mr. Bischoff, who became a special advisor to the Company. Mr. Bischoff is expected to retire on April 1, 2016. The compensation actions and decisions associated with Mr. McGivney’s appointment are discussed in “Appointment of New Chief Financial Officer” on page 31.

 

  Executive Summary   

The Company is a global professional services firm offering clients advice and solutions in risk, strategy and people. It is the parent company of a number of leading risk experts and specialty consultants, including: Marsh, the insurance broker, intermediary and risk advisor; Guy Carpenter, the risk and reinsurance specialist; Mercer, the provider of HR and related financial advice and services; and Oliver Wyman Group, the management, economic and brand consultancy. With approximately 60,000 employees worldwide and annual revenue of approximately $13 billion, the Company provides analysis, advice and transactional capabilities to clients in more than 130 countries.

As a professional services firm, our product is the expertise and capabilities of our employees. Our long-term success depends on their skill, integrity and dedication. To achieve our business objectives, we have designed our executive compensation program to attract, motivate and retain highly talented individuals to lead the Company and our various businesses in ways that meet our clients’ needs and, in turn, promote the long-term interests of our stockholders.

OUR FINANCIAL AND STRATEGIC OBJECTIVES AND 2015 PERFORMANCE

At the core of our business strategy are four pillars that are designed to create exceptional value and superior returns for our stockholders:

 

    Sustain long-term revenue and earnings growth  

 

    Maintain low capital requirements  

 

    Generate high levels of cash  

 

    Manage risk intelligently  

 

20          Marsh & McLennan Companies, Inc. Notice of Annual Meeting and 2016 Proxy Statement


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Executive Compensation (Continued)

 

 

 

  Executive Summary (continued)   

The strength of our financial performance over the past five years is reflected in our TSR, which includes stock price appreciation and reinvested dividends. The following table displays our TSR versus the S&P 500® over the past five years.

 

              Annualized Total Stockholder Return  
                5 Years        4 Years        3 Years        2 Years        1 Year  

Marsh & McLennan Companies, Inc.

              18.1%           17.8%           19.8%           9.4%           -1.1%   

S&P 500® Index

              12.6%           15.3%           15.1%           7.4%           1.4%   

2015 STOCKHOLDER ADVISORY VOTE ON NAMED EXECUTIVE OFFICER COMPENSATION AND STOCKHOLDER ENGAGEMENT

At our 2015 Annual Meeting of Stockholders, we held a nonbinding advisory vote with respect to the compensation of our named executive officers (commonly referred to as a “say-on-pay” vote). Approximately 98% of the votes cast on the say-on-pay proposal were voted in favor of our executive compensation policies and practices. This result followed a 97% approval rate in 2014.

Following our 2015 Annual Meeting of Stockholders, the Company discussed our executive compensation policies and practices, as well as the results of our 2015 say-on-pay vote, with several of our large institutional stockholders and the major proxy advisory firms. These discussions were generally favorable, consistent with our 98% approval rate in 2015.

The Compensation Committee is committed to the Company’s engagement with our stockholders and the major proxy advisory firms and intends to continue these outreach efforts.

2015 AND 2016 ANNUAL TOTAL DIRECT COMPENSATION OF NAMED EXECUTIVE OFFICERS

The following table summarizes the decisions made by the Compensation Committee in February 2016 and February 2015 with respect to the annual total direct compensation of our named executive officers. The compensation decisions reflected here, and the rationale for such decisions, are discussed in “Executive Compensation Determinations” on page 24.

Mr. Bischoff completed his service as our CFO effective December 31, 2015. As a result, the Compensation Committee’s decision regarding 2015 compensation was limited to his annual bonus award for the 2015 performance year.

 

Name    Decision Date      Base Salary      Annual
Bonus Award
     Annual LTI
Award
     Total Direct
Compensation
 

Mr. Glaser

    
 
 
2/22/2016
2/23/2015
Change
  
  
  
   $

$

 

1,400,000

1,400,000

0.0%

  

  

  

   $

$

 

4,400,000

3,900,000

+12.8%

  

  

  

   $

$

 

9,600,000

9,500,000

+1.1%

  

  

  

   $

$

 

15,400,000

14,800,000

+4.1%

  

  

  

Mr. Bischoff

    
 
 
2/22/2016
2/23/2015
Change
  
  
  
    

$

 

NA

750,000

NA

  

  

  

   $

$

 

2,200,000

1,850,000

+18.9%

  

  

  

    

$

 

NA

1,200,000

NA

  

  

  

    

$

 

NA

3,800,000

NA

  

  

  

Mr. Zaffino

    
 
 
2/22/2016
2/23/2015
Change
  
  
  
   $

$

 

1,000,000

1,000,000

0.0%

  

  

  

   $

$

 

3,350,000

3,100,000

+8.1%

  

  

  

   $

$

 

3,500,000

3,400,000

+2.9%

  

  

  

   $

$

 

7,850,000

7,500,000

+4.7%

  

  

  

Mr. Portalatin

    
 
 
2/22/2016
2/23/2015
Change
  
  
  
   $

$

 

900,000

900,000

0.0%

  

  

  

   $

$

 

2,850,000

2,600,000

+9.6%

  

  

  

   $

$

 

2,400,000

2,250,000

+6.7%

  

  

  

   $

$

 

6,150,000

5,750,000

+7.0%

  

  

  

Mr. Beshar

    
 
 
2/22/2016
2/23/2015
Change
  
  
  
   $

$

 

800,000

800,000

0.0%

  

  

  

   $

$

 

1,400,000

1,400,000

0.0%

  

  

  

   $

$

 

2,250,000

2,250,000

0.0%

  

  

  

   $

$

 

4,450,000

4,450,000

0.0%

  

  

  

 

Marsh & McLennan Companies, Inc. Notice of Annual Meeting and 2016 Proxy Statement          21


Table of Contents

 

Executive Compensation (Continued)

 

 

 

Executive Compensation Design, Elements and Process   

Our executive compensation program is governed by four guiding principles:

 

  Align with stockholder value creation with a focus on balancing risk and reward in compensation programs, policies and practices;

 

  Support a strong performance culture through short-term and long-term variable compensation, with the ability to differentiate among individuals based upon actual results;

 

  Set target compensation at competitive levels in markets where we operate, with flexibility to recognize different business models and markets for talent; and

 

  Maximize employees’ perceived value of our programs through transparent processes and communication.

The principal elements of our executive compensation program are base salary, annual bonuses and annual long-term incentive (“LTI”) awards. The Compensation Committee believes that each compensation element, and all of these elements combined, are important to maintain an executive compensation program that is competitive, performance-based and stockholder-focused.

Our integrated compensation framework heavily weights variable compensation to reward achievements against pre-established, quantifiable financial performance objectives and individual strategic performance objectives. In addition, because a significant portion of variable compensation is delivered in the form of equity-based awards, the value ultimately realized by our senior executives from these awards depends on stockholder value creation as measured by the future performance of our stock price.

As of December 31, 2015, variable compensation represented 89% of our CEO’s target total direct compensation and 80% for our other named executive officers, as displayed in the following chart.

 

LOGO

COMPETITIVENESS OF PAY

The Compensation Committee regularly reviews market data with the objective of understanding the competitiveness of our executive compensation program and each senior executive’s total direct compensation and pay mix, taking into account the individual’s role, responsibilities and performance. The Compensation Committee uses this information and exercises its judgment in determining individual compensation levels and regularly seeks input from its independent compensation consultant prior to making compensation decisions for our senior executives. Market-based executive compensation data is used as a “market check” only and compensation levels for our senior executives are not set to correspond to any specific level of market competitiveness.

The Compensation Committee reviews executive compensation information for direct competitors as well as companies in the financial services and general industry sectors. Competitive analyses from these different perspectives recognize that the Company is diverse on an enterprise-wide basis and competes for executive talent in different businesses on an operating company basis.

 

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Executive Compensation (Continued)

 

 

Peer Group for Executive Compensation Purposes

In 2015, the Compensation Committee reviewed the executive compensation data disclosed in the publicly available filings of the companies that comprise our peer group for executive compensation purposes, which it determined in 2015 based on business lines, talent pool and company size, as reflected by revenue and market capitalization. The peer group includes insurance, consulting and other business services companies, as listed in the table below. The Compensation Committee reviews the peer group periodically and makes adjustments that it deems are appropriate or necessary, for example, as a result of mergers and acquisitions activity.

 

Marsh & McLennan Companies, Inc.
2015 Peer Group for Executive Compensation

Accenture plc

ACE Limited*

Aetna Inc.*

Aon plc

  

Arthur J. Gallagher & Co.

Automatic Data Processing, Inc.

Chubb Corporation*

Cigna Corporation*

  

Towers Watson & Co.*

The Travelers Companies, Inc.

Willis Group Holdings plc*

Xerox Corporation

 

* Denotes companies that have announced or completed merger and acquisition activity.

Financial Services and General Industry Surveys

The Compensation Committee also reviewed executive compensation data drawn from two industry subsets (Financial Services and General Industry) of S&P 500® companies that participated in an executive compensation survey conducted by an independent compensation consulting firm. Each subset was refined so that the median revenue and market capitalization approximated our revenue and market capitalization. For a list of the companies comprising these subsets, please refer to Exhibit B. The operating company CEO comparisons were based on subsidiaries or divisions of all companies that participated in the executive compensation survey (instead of only S&P 500® companies) so as to have a significant sample size for these particular comparisons.

EMPLOYMENT LETTERS

Each of our senior executives has an employment letter that sets forth his or her compensation arrangements and other terms and conditions of employment. These letters are discussed in “Employment Letters” on page 39.

BASE SALARY

Base salary is intended to provide a fixed level of compensation that is appropriate given a senior executive’s role in the organization, his or her skills and experience, the competitive market for his or her position and internal equity considerations. A senior executive’s base salary is set forth in his or her employment letter and may be adjusted when the Compensation Committee determines an adjustment is appropriate to reflect a change in these factors.

ANNUAL BONUS

Our annual bonus is a variable pay program intended to link the cash-based incentive compensation of our senior executives to (i) our financial performance and (ii) their achievement of pre-established individual strategic objectives. The Compensation Committee believes that annual bonus awards should be determined primarily based on the achievement of objective, measurable financial results and how those results are achieved. The Compensation Committee also recognizes that individual executive performance should be measured by factors other than just the short-term financial performance of the Company or our operating companies. Therefore, in addition to short-term financial objectives, the strategic objectives component rewards achievement toward other business priorities and is intended to complement our annual LTI compensation program. After the end of the year, each senior executive’s performance was assessed by Mr. Glaser and the Compensation Committee (and, in the case of Mr. Glaser’s performance, solely by the Compensation Committee).

A senior executive’s target annual bonus is set forth in his or her employment letter and is adjusted when the Compensation Committee determines it is appropriate or necessary to reflect a change in his or her responsibilities, market conditions or internal equity considerations. The target annual bonuses for our named executive officers for 2015 are set forth in “Determination of 2015 Annual Bonuses” on page 28.

ANNUAL LTI AWARD

Annual LTI compensation is a variable pay program intended to align the financial interests of our senior executives with maximizing the return to our stockholders. Annual LTI compensation for our senior executives is delivered in a mix of equity-based awards consisting of stock options, which reward stock price appreciation and the creation of stockholder value, performance stock units (“PSUs”), which reward the achievement of specific Company financial objectives, and

 

Marsh & McLennan Companies, Inc. Notice of Annual Meeting and 2016 Proxy Statement          23


Table of Contents

 

Executive Compensation (Continued)

 

 

restricted stock units (“RSUs”), which further align the financial interests of our senior executives with our stockholders and also support retention.

The Compensation Committee reviews the mix of equity-based awards each year. In 2016, the Compensation Committee determined that the mix reflected in the table below is consistent with the objective of aligning the financial interests of our senior executives with maximizing our TSR.

As shown in the table below, the annual LTI compensation of our senior executives is delivered predominantly in stock options and PSU awards, the value of which is contingent on stock price appreciation or achieving specific Company financial objectives.

 

 

Proportion of Grant Date Fair Value

 

Stock Options    Performance Stock Units   Restricted Stock Units

50%

   25%   25%

Executive Compensation Determinations

The Compensation Committee takes a total compensation approach in setting the pay of our senior executives and makes decisions regarding base salary, annual bonuses and LTI awards in February of each year. This approach enables the Compensation Committee to evaluate performance on a consistent basis each year and to consider the appropriate level of fixed and variable compensation within each senior executive’s total compensation package.

While the Compensation Committee recognizes that elements of compensation may be interrelated, it does not require or assume any fixed relationship among the various elements of compensation within the total direct compensation framework or between the compensation of our CEO and that of any other senior executive. In addition, pension accruals and amounts realized or realizable under previously granted equity-based awards did not affect the Compensation Committee’s decisions.

The Compensation Committee considers the recommendations of our CEO when determining the compensation of our other senior executives.

BASE SALARY

The Compensation Committee did not adjust the base salary of any named executive officer for 2016.

ANNUAL BONUS

The Compensation Committee determined the 2015 annual bonus awards for our named executive officers using the following framework:

 

LOGO

Each senior executive’s target bonus was allocated into portions for financial and strategic performance according to weightings associated with his or her position. The Compensation Committee then assessed financial performance and each senior executive’s strategic performance and determined a payout level for each portion of the senior executive’s target annual bonus. The multiplier for competitive financial performance was determined and applied to the sum of the payout levels for financial and strategic performance for each senior executive. Using this result, the Compensation Committee then conducted a qualitative assessment to determine the actual bonus award for each senior executive.

 

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Executive Compensation (Continued)

 

 

The following table defines each financial performance measure used in the annual bonus framework:

 

Financial Performance Measure    Definition

Company or operating company

net operating income

 

Used in the 2015 financial

performance assessment for

our senior executives

   Net operating income calculated in accordance with GAAP, adjusted for the impact of currency exchange rate fluctuations, acquisitions and dispositions, and “noteworthy items” identified in Exhibit A to this proxy statement.

Company earnings per share

 

Used in the 2015 multiplier

for competitive

financial performance

   EPS from continuing operations calculated in accordance with GAAP, adjusted for the impact of “noteworthy items” identified in Exhibit A to this proxy statement (Adjusted Diluted EPS).

2015 Target Bonuses

The Compensation Committee did not adjust the target bonuses for any of the named executive officers in 2015.

Financial and Strategic Performance

The Compensation Committee selected the following measures and weightings for the 2015 annual bonus awards:

 

     

 

Financial Performance

 

  

 

Strategic Performance

 

Senior Executive    Weighting   Measure    Weighting     Measure

Company CEO

   80%  

Company

net operating income

     20   Individual objectives

established for each senior

executive

Other Corporate

Senior Executives

   70%        30  

Operating Company

Chief Executive Officers

   80%  

Operating company net

operating income

     20  

The financial performance factor ranged from 0% to 150% of the target level as indicated in the following table:

 

Performance Level   

Performance

as a %

of Target

      

Financial

Performance

Factor

 

Maximum

     ³110%           150%   

Target

     100%           100%   

Threshold

     90%           50%   

Below Threshold

     <90%           Discretionary   

Note: Interpolation is used to determine the performance factor for performance as a % of target between threshold/target or target/maximum.

 

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Executive Compensation (Continued)

 

 

2015 Financial Performance

For 2015, the financial performance measure for all senior executives was Company or operating company net operating income, as applicable, as modified for executive compensation purposes. The Compensation Committee selected the following target levels for our named executive officers to align with our 2015 objective of driving earnings growth across the Company. The Compensation Committee believed the targets reflected an appropriate level of performance given the existing market conditions. As shown in the table below, actual growth exceeded target growth with respect to each financial measure. As a result, the factors for financial performance for our named executive officers were above target, ranging from approximately 109% to 111% of target.

 

Name    Measure   

Actual

Growth (%)

    

Target

Growth (%)

 

Mr. Glaser

        

Mr. Bischoff

   Company net operating income      10.3%         8.5%   

Mr. Beshar

                      

Mr. Zaffino

   Marsh net operating income      9.6%         7.4%   

Mr. Portalatin

   Mercer net operating income      10.4%         8.1%   

Target growth rates shown in the table above are expressed as growth percentages over the prior year. However, bonus calculations were based on threshold, target and maximum levels in dollars rather than growth rates.

2015 Strategic Performance

In 2015, the Compensation Committee reviewed strategic objectives for each named executive officer relating to operational performance, risk management and human capital. The Compensation Committee and Mr. Glaser (and, in the case of Mr. Glaser, solely the Compensation Committee) assessed each named executive officer’s strategic performance as “above target” for the year and determined a payout factor for 2015 strategic performance. The Compensation Committee considered the following in its assessment:

 

Name   Description

Mr. Glaser

 

  Strong underlying revenue growth of 4% and adjusted EPS growth of 8.2%. Excluding the impact from currency exchange rate fluctuations, adjusted EPS growth was 14.5%

  Margin expansion in both the Risk and Insurance Services and Consulting segments for the sixth consecutive year

  Mr. Glaser’s continued leadership of a dynamic and effective leadership team

Mr. Bischoff

 

  Balanced capital management initiatives across our dividend strategy, mergers and acquisitions, and share repurchases

  Execution of the Company’s finance strategy, including restructuring our debt portfolio and amending our revolving credit facility

  Mr. Bischoff’s successful transition of the Chief Financial Officer role to Mr. McGivney

Mr. Zaffino

 

  Marsh’s 3% underlying revenue growth

  Marsh’s global expansion into the small and medium-sized enterprise market and strong growth of Marsh & McLennan Agency

  Mr. Zaffino’s contributions in his expanded role, starting in the spring of 2015, as the Chairman of our Risk and Insurance Services segment

Mr. Portalatin

 

  Mercer’s 4% underlying revenue growth

  Mercer’s increase in net operating income and the corresponding margin improvement

  Mr. Portalatin’s execution of Mercer’s strategy in the private healthcare exchange business and growing assets under management in the Investments business

Mr. Beshar

 

  Exceptional management of the Company’s legal and regulatory risk and strong leadership of our legal, government relations, risk management and external communications functions

  Spearheading our initiatives to establish the Company as an industry leader on cybersecurity issues

  Mr. Beshar’s contributions in his expanded role, starting in the fall of 2015, overseeing the Company’s Risk and Compliance Department

 

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Executive Compensation (Continued)

 

 

2015 Multiplier for Competitive Financial Performance

The multiplier for competitive financial performance was determined based on our adjusted EPS growth compared to that of a weighted composite of our peer group for executive compensation purposes and the S&P 500®. We included the S&P 500® to assess our competitive financial performance in a broader context.

The S&P 500® was weighted most heavily at 20% as it represents the broadest market comparison. Aon was weighted at 15% as it is the Company’s direct competitor and has divisions that compete directly with our RIS and Consulting segments. Willis Group Holdings and Towers Watson were each weighted at 10% as they were direct competitors with our RIS segment and Mercer, respectively. The nine additional companies listed in the table below were each equally weighted at 5%.

 

Component    Weighting  

S&P 500®

     20%   

Aon plc

     15%   

Towers Watson & Co.

     10%   

Willis Group Holdings plc

     10%   

Accenture plc

     5%   

ACE Limited

     5%   

Aetna Inc.

     5%   

Arthur J. Gallagher & Co.

     5%   

Automatic Data Processing, Inc.

     5%   

Chubb Corporation

     5%   

Cigna Corporation

     5%   

The Travelers Companies, Inc.

     5%   

Xerox Corporation

     5%   

Our adjusted EPS growth, assessed on a percentile basis using the weightings in the preceding table, was used in determining the multiplier for competitive financial performance. The following table shows the threshold, target and maximum multiplier based on percentile ranking.

 

Performance Level      Actual Performance      Multiplier  

Maximum

     75th percentile or higher        1.30x   

Target

     50th percentile        1.00x   

Threshold

     25th percentile or lower        0.70x   

Note: Interpolation is used to determine the multiplier for a percentile ranking between threshold/target or target/maximum.

The Compensation Committee reviewed adjusted EPS growth for the 2015 fiscal year as reported by the Company and by our peer group in press releases for fourth quarter earnings, as well as an estimate of 2015 operating EPS growth for the S&P 500® as available from S&P Dow Jones Indices LLC. These publicly reported results were selected based on their availability and comparability. For purposes of determining the multiplier for 2015, the Compensation Committee recognized that the reported results were not directly comparable due to meaningful differences in adjustments made by certain peer group companies.

The Compensation Committee used information that enhanced the comparability of adjusted EPS results to determine a ranking above the 75th percentile and a multiplier of 1.30x. This multiplier for competitive financial performance was applied to the sum of the bonus payout levels for 2015 Financial Performance and 2015 Strategic Performance for each named executive officer. Final results for the multiplier were reviewed by Pay Governance LLC, the Compensation Committee’s independent consultant.

 

Marsh & McLennan Companies, Inc. Notice of Annual Meeting and 2016 Proxy Statement          27


Table of Contents

 

Executive Compensation (Continued)

 

 

Qualitative Assessment

In addition to performance as measured against the previously described financial and strategic objectives, the Compensation Committee also assessed how these objectives were achieved and considered each senior executive’s current-year performance and bonus award vis-à-vis his or her prior-year performance and bonus award; compensation relative to peers at direct competitors; and his or her total direct compensation. The Compensation Committee believes that the exercise of discretion in making final bonus award decisions helps reward performance appropriately on a year-to-year basis and also on an internal equity basis among senior executives.

Using its assessment of the 2015 financial and strategic performance factors and the multiplier for competitive financial performance as its basis, the Compensation Committee exercised its discretion in the manner described above to determine the 2015 bonus award for each named executive officer.

Determination of 2015 Annual Bonuses

The actual annual bonuses paid to our named executive officers for 2015 were as follows.

 

Name     

2015 Actual

Bonus

      

2015 Target

Bonus Award

      

2015 Bonus

as a % of

Target

 

Mr. Glaser

     $ 4,400,000         $ 2,800,000           157%   

Mr. Bischoff

       2,200,000           1,250,000           176%   

Mr. Zaffino

       3,350,000           2,250,000           149%   

Mr. Portalatin

       2,850,000           1,700,000           168%   

Mr. Beshar

       1,400,000           950,000           147%   

Based on our financial performance, achieving performance above the 75th percentile for our competitive financial multiplier and the named executive officers’ achievements with respect to their strategic objectives, the Compensation Committee believes that the bonus awards, as compared to the targets, are aligned with performance.

ANNUAL LTI COMPENSATION

The annual equity-based awards granted to our senior executives are determined by the Compensation Committee as part of its annual total compensation review and decisions. In determining the awards, the Compensation Committee considers the senior executive’s performance and his or her expected future contributions to the Company’s performance along with external market competitiveness, internal equity comparisons and the target LTI award set forth in the senior executive’s employment letter. Mr. Glaser also provides LTI award recommendations for senior executives other than himself.

The grant date fair values of the annual LTI awards granted to our named executive officers in February 2016 are shown in the following table. They are not reflected in the 2015 Summary Compensation Table on page 37 because the awards were made after the end of the 2015 fiscal year. Mr. Bischoff, who completed his service as our CFO effective December 31, 2015 and is expected to retire on April 1, 2016, was not granted an LTI award in February 2016.

 

       

 

Grant Date Fair Value of

LTI Awards Granted in 2016

 

 
Name     

Stock

Options

      

Performance

Stock Units

      

Restricted

Stock Units

       Total  

Mr. Glaser

     $ 4,800,000         $ 2,400,000         $ 2,400,000         $ 9,600,000   

Mr. Bischoff

       NA           NA           NA           NA   

Mr. Zaffino

       1,750,000           875,000           875,000           3,500,000   

Mr. Portalatin

       1,200,000           600,000           600,000           2,400,000   

Mr. Beshar

       1,125,000           562,500           562,500           2,250,000   

 

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Executive Compensation (Continued)

 

 

The value ultimately realized from these awards is contingent on the named executive officer’s continued service, except in certain circumstances. The value also depends on the future performance of our stock price and, for PSU awards, achieving specific Company financial objectives. The terms and conditions of these awards are described in the narrative following the Grants of Plan-Based Awards in 2015 Table on page 40.

Performance Results for Our 2013 PSU Awards

PSU awards, which vest (if at all) after the completion of a three-year performance period, provide our senior executives with a strong incentive for achieving specific financial results that support our goal of creating long-term stockholder value. The performance measure for the PSU awards granted in 2013 was consolidated adjusted underlying net operating income growth (“core NOI growth”) measured on a three-year annualized growth rate basis. In setting the target and determining the payouts at varying levels of performance for these PSU awards, the Compensation Committee believed that achievement of 10% annualized core NOI growth was a challenging goal to maintain through all economic cycles. Depending on our actual financial performance results, 0% to 200% of the number of PSUs granted is delivered in shares of our common stock.

 

     

Payout

(as a % of Target)

 

     2013
PSU Awards
 
Performance Level       Core NOI Growth  

Maximum

     200%         ³13%   

Target

     100%         10%   

Threshold

     40%         4%   

Below Threshold

     0%         <4%   

Note: Interpolation is used to determine the payout (as a % of target) for a performance result between threshold/target or target/maximum.

“Core NOI growth” is the year-over-year change of consolidated net operating income calculated in accordance with GAAP, adjusted for “noteworthy items” identified in Exhibit A to this proxy statement, and adjusted further for the impact of acquisitions and dispositions and currency exchange rate fluctuations.

The following chart shows the threshold, target and maximum performance levels, with corresponding payouts as a percentage of target, for the PSU awards granted to our senior executives in 2013. The chart also shows our actual core NOI growth for the three-year performance period (2013-2015) applicable to the determination of the number of shares of our common stock earned for these awards.

 

LOGO

 

 

LOGO

 

 

Marsh & McLennan Companies, Inc. Notice of Annual Meeting and 2016 Proxy Statement          29


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Executive Compensation (Continued)

 

 

The following table shows our annualized core NOI growth for the three-year performance period and the corresponding payout for our 2013 PSU awards as a percentage of target.

 

 

Core NOI Growth

 

       
2013      2014      2015     

Annualized

2013-2015

    

Payout of 2013 PSU Award

(as a % of Target)

15.1%

     12.0%      10.3%      12.4%      180%

Changes Affecting Future Executive Compensation

ANNUAL BONUS

Merger and acquisition activity within our peer group for executive compensation will result in changes to the components and weightings of the companies and the S&P 500® that are used in the assessment of competitive financial performance for 2016. Other aspects of the framework for determining the annual bonus awards for our senior executives remain the same as in 2015.

PSU AWARDS

The Compensation Committee approved adjusted EPS growth as modified for executive compensation purposes as the performance measure for 2016 PSU awards with a target of 13%, aligning with the long-term financial performance objective communicated on our 2014 Investor Day. To broaden the incentive range and to align with our competitive market, the Compensation Committee adjusted the threshold performance level, the maximum performance level and the payout level for threshold performance. The following table displays the payout (as a percentage of target) for maximum, target and threshold performance levels for PSU awards granted in 2016 compared to 2015.

 

Performance Level   

Payout

(as a % of Target)

      

2016

                  PSU Award

Adjusted EPS Growth

          

Payout

(as a % of Target)

      

2015

         PSU Awards

Adjusted EPS
Growth

 

Maximum

     200%           ³15%              200%           ³16%   

Target

     100%           13%              100%           13%   

Threshold

     50%           3%              40%           7%   

Below Threshold

     0%           <3%              0%           <7%   
Note: Interpolation is used to determine the payout (as a % of target) for a performance result between threshold/target or target/maximum.   

For purposes of 2015 and 2016 PSU awards, adjusted EPS as modified for executive compensation purposes is defined as GAAP earnings per share, adjusted for the impact of “noteworthy items” identified in Exhibit A and modified to exclude (i) the impact of currency exchange rate fluctuations, (ii) the variation between actual and budgeted results for Marsh & McLennan Risk Capital Holdings, Ltd. (the legal entity through which the Company owns interests in private equity funds and other investments), and (iii) the costs related to the early extinguishment of debt.

When originally granted, the performance measure for the 2015 PSU awards did not expressly reference the impact of currency exchange rate fluctuations. In February 2016, the Compensation Committee amended the 2015 PSU awards to exclude the impact of currency exchange rate fluctuations. The Compensation Committee believes the use of a measure that provides for this adjustment increases the alignment between our operational performance and executive compensation. The Compensation Committee also considered that the performance measure for PSUs granted from 2011 to 2014 was core NOI growth, which excludes the impact of currency exchange rate fluctuations. Therefore, applying a similar adjustment to the performance measure for the PSU awards granted in 2015 and 2016 provides better consistency in assessing and rewarding financial results over the longer term.

These changes were made after considering a detailed review of PSU award design at companies in our executive compensation peer group, a review of historical EPS growth data for the S&P 500® and advice from our independent compensation consultant.

 

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Executive Compensation (Continued)

 

 

APPOINTMENT OF NEW CHIEF FINANCIAL OFFICER

In September 2015, we entered into an employment letter with Mr. McGivney in connection with his appointment as our Chief Financial Officer, effective January 1, 2016. Mr. McGivney’s current terms of employment as CFO are as follows:

 

    an annual base salary of $750,000;  

 

    an annual bonus with a target level of $1,200,000;  

 

    an annual LTI award with a target grant date fair value of $1,500,000; and  

 

    participation in the Senior Executive Severance Pay Plan.  

In establishing Mr. McGivney’s initial compensation arrangements, the Compensation Committee considered competitive market data for the chief financial officer position drawn from our peer group and from financial services and general industry surveys, internal equity, and advice from its compensation consultant. The Compensation Committee also considered Mr. McGivney’s prior experience as our Senior Vice President, Corporate Finance, the Chief Financial Officer and Chief Operating Officer of Mercer, and the Chief Financial Officer of Marsh.

Benefit Plans and Other Programs

RETIREMENT AND DEFERRED COMPENSATION PLANS

We maintain a defined benefit retirement program in the U.S. consisting of the tax-qualified Marsh & McLennan Companies Retirement Plan, the nonqualified Benefit Equalization Plan and the nonqualified Supplemental Retirement Plan. We also maintain the Supplemental Savings & Investment Plan (“SSIP”), an unfunded nonqualified defined contribution retirement plan that is coordinated with our 401(k) Savings & Investment Plan. We offer these plans, in which all of our senior executives are eligible to participate, to maintain a competitive compensation program. We do not have individually-designed defined benefit arrangements for any named executive officer.

Earnings with respect to all of our nonqualified defined contribution plans are based upon actual market performance, and preferential or above-market earnings are not offered. The features of our U.S. retirement program, including the present value of the accumulated pension benefits for our named executive officers as of the end of 2015, are presented in further detail in “Defined Benefit Retirement Program” on page 45. Additional information about the SSIP, including individual amounts deferred by our named executive officers, Company matching credits and earnings during 2015, as well as account balances as of the end of 2015, is presented in “Nonqualified Deferred Compensation Table” on page 47.

SEVERANCE ARRANGEMENTS

Severance payments and benefits for our senior executives are provided under our Senior Executive Severance Pay Plan, which provides for severance payments in the event of an involuntary termination of employment without cause (as defined in the plan) in an amount equal to the sum of the senior executive’s then-current base salary and average annual bonus award over the three prior years, plus an amount equal to a pro rata bonus for the year of termination.

While compensation decisions regarding our senior executives affect the potential payments under these arrangements, the existence of these severance arrangements did not affect the Compensation Committee’s decisions with respect to other elements of compensation for our named executive officers because these severance arrangements are contingent in nature and may never be triggered.

The terms of the Senior Executive Severance Pay Plan are discussed more fully in “Termination of Employment” on page 50. The amount of the estimated payments and benefits payable to our named executive officers, assuming a termination of employment as of the last business day of 2015, is presented in “Potential Payments Upon Termination or Change in Control” on page 48.

CHANGE-IN-CONTROL ARRANGEMENTS

Change-in-control payments and benefits are provided to our senior executives through our equity-based compensation plans and the Senior Executive Severance Pay Plan, as applicable. These arrangements are intended to retain our senior executives and provide continuity of management in the event of an actual or potential change in control of the Company. Consistent with this objective, the terms of our equity-based awards contain a “double-trigger” vesting provision, which requires both a change in control of the Company and a subsequent specified termination of employment for vesting to be accelerated. The Senior Executive Severance Pay Plan also includes a “double-trigger” change-in-control provision rather than providing severance payments solely on the basis of a change in control of the

 

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Executive Compensation (Continued)

 

 

Company. We believe that requiring a “double trigger,” rather than providing severance payments (and accelerated vesting of equity-based awards) solely on the basis of a change in control, is more consistent with the purpose of encouraging the continued employment of our senior executives following a change in control of the Company.

We do not provide change-in-control golden parachute excise tax reimbursements to any of our senior executives under any plan or arrangement. Previous equity-based compensation plans contained such a reimbursement provision; however, all of the equity-based awards that had been granted under such plans were fully vested as of February 21, 2015, so this provision no longer applies.

The amount of the estimated payments and benefits payable to our named executive officers, assuming a change in control of the Company and subsequent specified termination of employment as of the last business day of 2015, is presented in “Potential Payments Upon Termination or Change in Control” on page 48.

OTHER BENEFITS AND PERQUISITES

Our senior executives are eligible to participate in our health and welfare benefit programs on the same basis as our other eligible employees. We also provide certain perquisites and other personal benefits to our senior executives. In general, the perquisites or other personal benefits provided to our senior executives include (i) the cost of financial counseling and certain income tax return preparation and (ii) from time to time, the relocation costs associated with hiring a newly recruited or promoted senior executive.

In addition, the Compensation Committee has determined to provide Mr. Glaser access to a car and driver for business and commuting purposes and to corporate aircraft, in which we maintain fractional interests, for business and personal travel. Such personal air travel is limited to an amount not to exceed $100,000 per calendar year as determined based on the aggregate incremental cost of such travel to the Company.

The incremental cost of providing perquisites and other personal benefits during 2015 to our named executive officers is presented in the footnotes to the “All Other Compensation” column of the 2015 Summary Compensation Table on page 37. The imputed income attributable to Mr. Glaser’s personal use of corporate aircraft and a car service for commuting was taxable income to Mr. Glaser. The taxes associated with this income were not reimbursed or paid by the Company.

 

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Executive Compensation (Continued)

 

 

Risk and Reward Features of Executive Compensation Program

The Compensation Committee strives to maintain an appropriate balance between risk and reward in support of our overall business strategy. Our executive compensation principles, policies and practices are designed to encourage an appropriate level of risk-taking but not to encourage our senior executives to take excessive or unnecessary risks. To achieve this balance, we maintain the following policies and practices:

 

Feature    Description
Balanced Total Compensation Approach    The mix of base salary, annual bonus opportunity and LTI awards appropriately balances the shorter-term and longer-term aspects of each senior executive’s responsibilities and performance, without undue emphasis on any single element of compensation.
Performance-Based Annual Bonus Program    Awards to senior executives are made based on both financial performance measures, which relate to fiscal-year performance, and strategic performance objectives, which may relate to longer-term and qualitative objectives. We have also incorporated a relative financial measure based on EPS growth into the assessment of our financial performance. All bonus decisions for our senior executives are made by the Compensation Committee. Bonuses are individually determined and are limited to a maximum of 200% of pre-established target levels. We do not guarantee annual bonuses for our senior executives, except in special situations such as the initial bonus award after a senior executive’s hire if the guarantee is deemed necessary to attract a candidate to join the Company.
Stockholder-Focused LTI Program   

Equity-based awards to our senior executives are granted annually on a discretionary basis by the Compensation Committee taking into consideration each individual’s past performance and expected future contributions. Awards are made in a combination of stock options, RSU awards and PSU awards to align the financial interests of our senior executives with maximizing our return to stockholders. PSU awards are earned based on our achievement against financial performance objectives, as determined by the Compensation Committee, over a three-year performance period.

 

All equity-based awards are subject to multi-year vesting requirements with complete forfeiture of unvested awards upon a voluntary termination of employment by a senior executive (other than by reason of retirement) or termination of employment for cause. In addition, the terms of all outstanding and unvested equity-based awards contain a “double-trigger” vesting provision in the event of a change in control of the Company. We do not provide change-in-control “golden parachute” excise tax reimbursements to any of our senior executives under any plan or arrangement.

Executive Stock Ownership Guidelines    Our senior executives are required to acquire and hold shares or stock units of our common stock with an aggregate value at least equal to a specified multiple of their base salary. Our senior executives may not sell shares acquired in connection with the distribution of stock units or exercise of stock options until and unless the specified multiple of base salary is reached and maintained.
Prohibition Against Speculative Activities, Hedging or Pledging of Company Stock    We prohibit our employees, including our senior executives, from engaging in speculative or hedging activities (including short sales, purchases or sales of puts or calls and trading on a short-term basis) in our common stock. Our senior executives must obtain approval from our legal department before pledging our securities as collateral for a loan or for any other purpose.

 

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Executive Compensation (Continued)

 

 

Feature    Description
Compensation Recovery (“Clawback”) Policies    We may, to the extent permitted by applicable law, cancel or require reimbursement of any annual bonus awards received by a senior executive if and to the extent that: (i) the amount of the award was based on the achievement of specified consolidated or operating company financial results, and we subsequently restate those financial results; (ii) in the Compensation Committee’s judgment, the senior executive engaged in intentional misconduct that contributed to the need for the restatement; and (iii) the senior executive’s award would have been lower if the financial results in question had been properly reported. In such case, we will seek to recover from the senior executive the amount by which the actual annual bonus award paid for the relevant period exceeded the amount that would have been paid based on the restated financial results. The policy provides that we will not seek to recover compensation paid more than three years prior to the date the applicable restatement is disclosed. Also, our 2011 Incentive and Stock Award Plan allows us to “claw back” outstanding or already-settled equity-based awards.
Severance Payments    Severance protections for our senior executives are set at a uniform level equal to his or her base salary and three-year average annual bonus award (a “1x multiple”). In addition, without stockholder approval, we will not enter into a severance agreement with a senior executive that provides for any cash severance payment that exceeds 2.99 times the sum of his or her base salary and three-year average annual bonus award.

In light of the above, and based on management’s annual review and analysis focused on the incentive compensation programs covering our general employee population, we believe our compensation policies and practices do not encourage excessive or inappropriate risk-taking and that the risks arising from our compensation policies and practices for our employees are not reasonably likely to have a material adverse effect on the Company.

Stock Ownership Guidelines

We have maintained stock ownership guidelines for our senior executives since 2007. We believe that these guidelines help align the financial interests of our senior executives with our stockholders by requiring them to acquire and maintain a meaningful ownership interest in our common stock. These guidelines are intended to take into account an individual’s needs for portfolio diversification, while maintaining an ownership interest at levels sufficient to assure our stockholders of management’s commitment to long-term value creation. Our senior executives are required, over a five-year period, to acquire and hold shares or stock units of our common stock with an aggregate value at least equal to a specified multiple of their base salary. The current multiples for our named executive officers are as follows:

 

Named Executive Officer   

Ownership Level

(as a multiple of base salary)

 

CEO

     6x   

Other named executive officers

     3x   

As of February 29, 2016, all of our named executive officers satisfied their required ownership level under our stock ownership guidelines.

Additional information concerning our stock ownership guidelines is available on our website under:

http://www.mmc.com/about/SeniorExecutiveStockOwnershipGuidelines2014.pdf.

HOLDING REQUIREMENT FOR EQUITY-BASED AWARDS

Under our stock ownership guidelines, our senior executives are required to hold shares of our common stock acquired in connection with the distribution of stock units or exercise of stock options (net of any tax withholding and, in the case of stock options, the exercise price) until the required multiple of base salary is reached. In addition, our senior executives may not sell any shares of our common stock, however acquired, unless their ownership interest after such sale is at or above the required multiple of base salary stipulated under our stock ownership guidelines.

 

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Executive Compensation (Continued)

 

 

Tax and Accounting Considerations

Section 162(m) of the Internal Revenue Code generally disallows public companies a deduction for federal income tax purposes of remuneration in excess of $1 million paid to the chief executive officer and each of the three other most highly-compensated executive officers (other than the chief financial officer) in any taxable year. Generally, remuneration in excess of $1 million may only be deducted if it is “performance-based compensation” within the meaning of the Internal Revenue Code or satisfies the conditions of a different exemption from the deduction limit.

With respect to the incentive compensation paid to our senior executives for 2015, we sought to pay incentive compensation that was deductible for federal income tax purposes by paying our annual bonus awards and granting certain annual LTI awards to our named executive officers pursuant to a stockholder-approved plan that satisfied the requirements of the Section 162(m) “performance-based compensation” exemption. Under this plan, an annual incentive award pool was established based on our net operating income for the year. As permitted under the plan, the Compensation Committee could exercise its discretion to reduce (but not increase) the size of the amounts potentially payable to our named executive officers pursuant to the plan’s award formula.

Notwithstanding our efforts to maximize the tax deductibility of the incentive compensation paid to our senior executives, we may from time to time approve elements of compensation for certain senior executives that are not fully tax deductible, and we reserve the right to do so in appropriate circumstances. For example, a portion of Mr. Glaser’s 2015 base salary ($1,400,000) is not tax deductible.

We also structure compensation in a manner intended to avoid the incurrence of any additional tax, interest or penalties under Section 409A of the Internal Revenue Code governing the provision of nonqualified deferred compensation to our service providers.

We account for stock-based compensation in accordance with FASB ASC Topic 718, which requires us to recognize compensation expense relating to share-based payments (such as stock options, PSU awards and RSU awards) in our financial statements. The recognition of this expense has not caused us to limit or otherwise significantly alter the equity-based compensation element of our executive compensation program. This is because we believe equity-based compensation is a necessary component of a competitive executive compensation program and fulfills important program objectives. The Compensation Committee considers the potential impact of FASB ASC Topic 718 on any proposed change to the equity-based compensation element of our program.

Additional Considerations

This Compensation Discussion and Analysis includes statements regarding the use of various performance measures and related target levels in the limited context of our executive compensation program. These target levels are not intended to be statements of management’s expectations of our future financial results or other guidance. Investors should not apply these target levels in any other context.

 

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Executive Compensation (Continued)

 

 

Compensation Committee Report

The Compensation Committee has reviewed and discussed with management the preceding Compensation Discussion and Analysis, as well as the accompanying compensation tables. Based on that review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement and incorporated into the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

SUBMITTED BY THE COMPENSATION COMMITTEE OF THE COMPANY’S BOARD OF DIRECTORS

 

H. Edward Hanway (Chair)   Steven A. Mills
Oscar Fanjul   Morton O. Schapiro
Lord Lang of Monkton   R. David Yost

 

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Executive Compensation (Continued)

 

 

Compensation of Executive Officers

2015 Summary Compensation Table

The following table provides information regarding the compensation of our President and Chief Executive Officer, Chief Financial Officer and our three other most highly-compensated executive officers who were executive officers as of December 31, 2015.

 

Name & Principal Position (1)    Year     

Salary

($)

    

Bonus

($) (2)

    

Stock

Awards

($) (3)

    

Option

Awards

($) (3)

     Non-Equity
Incentive Plan
Compensation
($) (4)
    

Change in
Pension

Value and
Nonqualified
Deferred
Compensation
Earnings

($) (5)

     All Other
Compensation
($) (6)
    

Total

($) (7)

 

Daniel S. Glaser

     2015         1,400,000                 4,750,005         4,750,008         4,400,000         134,075         162,629         15,596,718   

President and CEO, Marsh &

McLennan Companies, Inc.

     2014         1,400,000                 4,425,024         4,425,005         3,900,000         585,224         171,386         14,906,638   
     2013         1,400,000                 3,900,002         3,900,005         3,750,000         173,264         164,058         13,287,328   

J. Michael Bischoff

     2015         750,000                 600,003         600,011         2,200,000         158,233         26,437         4,334,683   

Chief Finanical Officer, Marsh

& McLennan Companies, Inc.

     2014         725,000                 500,064         500,002         1,850,000         794,422         25,796         4,395,283   
     2013         650,000                 500,055         500,005         1,650,000         119,222         20,975         3,440,257   

Peter Zaffino

     2015         1,000,000                 1,700,084         1,700,002         3,350,000         4,024         42,644         7,796,754   

Chairman of the Risk and

Insurance Services segment

and President and Chief

Executive Officer of Marsh LLC

 

     2014         975,000                 1,625,088         1,625,005         3,100,000         441,893         45,707         7,812,694   
     2013         900,000                 1,625,049         1,625,001         3,000,000         4,592         32,000         7,186,643   
                                                                                

Julio A. Portalatin

     2015         900,000                 1,125,091         1,125,007         2,850,000         118,735         37,969         6,156,802   

President and Chief Executive

     2014         887,500                 1,050,048         1,050,003         2,600,000         235,938         37,156         5,860,645   

Officer, Mercer Consulting

     2013         850,000         850,000         1,000,036         1,000,004         2,400,000         220,415         36,805         6,357,260   

Group Inc.

 

                                                                                

Peter J. Beshar

     2015         800,000                 1,125,091         1,125,007         1,400,000                 35,582         4,485,680   

Executive Vice President and

General Counsel, Marsh &

McLennan Companies, Inc.

     2014         800,000                 1,100,064         1,100,004         1,400,000         516,204         36,136         4,952,408   
                                                                                

 

(1) As discussed in the Compensation Discussion and Analysis, Mr. Bischoff ceased serving as our Chief Financial Officer on December 31, 2015 and is expected to retire on April 1, 2016. For Mr. Beshar, only compensation for 2015 and 2014 are shown because he was not a named executive officer for 2013.
(2) The amount reported in the “Bonus” column represents the second half of a cash payment to Mr. Portalatin to replace forfeited compensation from his prior employer. The first half was paid within 30 days after the date that he joined the Company (February 1, 2012); the second half vested and was paid in February 2013.
(3) The amounts reported in the “Stock Awards” and “Option Awards” columns represent the grant date fair value of the awards for the years ended December 31, 2015, December 31, 2014 and December 31, 2013, respectively, computed in accordance with FASB ASC Topic 718. The amounts reported in the “Stock Awards” column represent both PSU and RSU awards. The grant date fair values of the PSU awards granted in each of these years to each of the named executive officers is reported based on performance at the target level. As stated in the description of the PSU awards following the “Grants of Plan-Based Awards in 2015” table on page 40, the payout based on maximum performance is 200% of the target level, which, if achieved, would correspond to the values reported in the table below, holding constant the grant date fair value of the Company’s common stock. The assumptions used in calculating the amounts reported for awards granted in 2015 are included in footnote 9 to the Company’s audited financial statements for the fiscal year ended December 31, 2015, included in the Company’s Annual Report on Form 10-K filed with the SEC on February 24, 2016. The assumptions used in calculating the amounts reported for awards granted prior to 2015 are included in the footnote captioned “Stock Benefit Plans” to the Company’s audited financial statements for the relevant fiscal year, included in the Company’s Annual Reports on Form 10-K previously filed with the SEC. The amounts reported in these columns may differ slightly from the corresponding amounts shown in the “Grants of Plan-Based Awards in 2015” table on page 40 due to rounding to the nearest whole dollar as required by the SEC rules. In addition, the amounts reported in these columns differ slightly from the amounts disclosed in the “2015 and 2016 Annual Total Direct Compensation of Named Executive Officers” section (page 21) of the Compensation Discussion and Analysis due to rounding to the nearest whole share.

 

Marsh & McLennan Companies, Inc. Notice of Annual Meeting and 2016 Proxy Statement          37


Table of Contents

 

Executive Compensation (Continued)

 

 

 

Name      Year        Grant Date Fair Value
of Performance Stock
Unit Awards Granted
Assuming Target
Performance (100%)
($)
       Grant Date Fair Value
of Performance Stock
Unit Awards Granted
Assuming Maximum
Performance (200%)
($)
 

Mr. Glaser

       2015           2,375,003           4,750,005   
       2014           2,212,512           4,425,024   
         2013           1,950,001           3,900,002   

Mr. Bischoff

       2015           300,002           600,003   
       2014           250,032           500,064   
         2013           250,027           500,054   

Mr. Zaffino

       2015           850,042           1,700,084   
       2014           812,544           1,625,088   
         2013           812,525           1,625,049   

Mr. Portalatin

       2015           562,545           1,125,091   
       2014           525,024           1,050,048   
         2013           500,018           1,000,036   

Mr. Beshar

       2015           562,545           1,125,091   
         2014           550,032           1,100,064   

 

(4) The amounts reported in the “Non-Equity Incentive Plan Compensation” column represent the amounts received for annual bonus awards, as described in the “Annual Bonus” section (pages 24 to 28) of the Compensation Discussion and Analysis. The awards earned in respect of 2015 were determined by the Compensation Committee at its meeting on February 22, 2016 and were paid on February 29, 2016.
(5) The amounts reported in the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column represent the increase in the present value of the named executive officers’ benefits (both vested and unvested) under the tax-qualified Marsh & McLennan Companies Retirement Plan, the Company’s Benefit Equalization Plan and the Company’s Supplemental Retirement Plan. For 2015, the amount reported for each named executive officer reflects changes in age and service, the interest rate and the mortality assumption projecting longer life expectancies, and any change in base salary. In 2015, the sum of the change in pension value and nonqualified deferred compensation earnings for Mr. Beshar was negative (-$21,527); as required by SEC rules, the negative change is shown in the Summary Compensation Table as zero. The assumptions used in calculating the amounts reported are included in footnote 8 to the Company’s audited financial statements for the fiscal year ended December 31, 2015, included in the Company’s Annual Report on Form 10-K filed with the SEC on February 24, 2016. The Company’s retirement program is described in further detail in “Defined Benefit Retirement Program” on page 45. No named executive officer received preferential or above-market earnings on deferred compensation.
(6) The following items are reported in the “All Other Compensation” column for the named executive officers in 2015:

ALL OTHER COMPENSATION

 

Name     

Company
Contributions to
Defined
Contribution Plans

($) (a)

       Employee
Stock
Purchase
Plan Interest
($) (b)
       Financial
Planning
and Income
Tax Preparation
($) (c)
      

Personal
Use of
Corporate
Aircraft

($) (d)

      

Personal
Use of
Car Service

($) (e)

      

Total

($)

 

Mr. Glaser

       42,000           0           12,537           86,040           22,052           162,629   

Mr. Bischoff

       22,500           87           3,850           0           0           26,437   

Mr. Zaffino

       30,000           0           12,644           0           0           42,644   

Mr. Portalatin

       27,000           0           10,969           0           0           37,969   

Mr. Beshar

       23,000           0           12,582           0           0           35,582   

 

  (a) These amounts include the Company’s matching contributions under the Company’s 401(k) Savings & Investment Plan and Supplemental Savings and Investment Plan (SSIP) attributable to 2015. The Company’s 401(k) Savings & Investment Plan is a tax-qualified defined contribution plan. The SSIP is a nonqualified defined contribution plan and is described in further detail in the “Nonqualified Deferred Compensation Table” section (page 47).
  (b) This amount represents interest credited on the named executive officer’s account within the Company’s tax-qualified employee stock purchase plan.
  (c) These amounts represent the cost to the Company of offering personal financial planning and tax preparation services to the named executive officers. The imputed income attributable to these services was taxable income to the named executive officer. The taxes associated with this income were not reimbursed or paid by the Company.
  (d) This amount represents the incremental cost to the Company of Mr. Glaser’s personal use of corporate aircraft in which the Company owns a fractional interest. The incremental cost has been calculated by adding the incremental variable costs associated with personal flights on each of the aircraft (including hourly charges, taxes, passenger fees, international fees and catering). The imputed income attributable to his personal use of corporate aircraft was taxable income to Mr. Glaser. The taxes associated with this income were not reimbursed or paid by the Company.
  (e) This amount represents the cost to the Company of Mr. Glaser’s personal use of a car service for work/home travel. The imputed income attributable to his personal use of a car service was taxable income to Mr. Glaser. The taxes associated with this income were not reimbursed or paid by the Company.

 

(7) The total amounts reported in this column may not equal the sum of amounts reflected in the preceding columns due to rounding to the nearest whole dollar as required by the SEC rules.

 

38          Marsh & McLennan Companies, Inc. Notice of Annual Meeting and 2016 Proxy Statement


Table of Contents

 

Executive Compensation (Continued)

 

 

EMPLOYMENT LETTERS

The Company has employment letters with each of the named executive officers that follow a common template, approved by the Compensation Committee, and include the following principal terms:

 

    Base salary, target annual bonus and target annual long-term incentive (“LTI”) award, and applicable payment ranges. Actual annual bonus payments and annual LTI awards are based on factors described in the “Annual Bonus” section (pages 24 to 28) and “Annual LTI Compensation” section (page 28) of the Compensation Discussion and Analysis;

 

    Participation in the Company’s Senior Executive Severance Pay Plan, as described in the “Severance Arrangements” section (page 31) of the Compensation Discussion and Analysis and the “Potential Payments Upon Termination or Change in Control” section (page 48); and

 

    Noncompetition, nonsolicitation and confidentiality covenants in favor of the Company.

Mr. Glaser’s Employment Arrangements

Mr. Glaser’s current terms of employment as our President and Chief Executive Officer, as approved by the Compensation Committee, are as follows:

 

    an annual base salary of $1,400,000;

 

    an annual bonus with a target level of $2,800,000;

 

    an annual LTI award with a target grant date fair value of $9,500,000;

 

    continued participation in the Senior Executive Severance Pay Plan; and

 

    access to a car and driver for business and commuting purposes and to the corporate aircraft, in which we maintain fractional interests, for business and personal travel (with such personal air travel limited to an amount not to exceed $100,000 per calendar year as determined based on the aggregate incremental cost of such travel to the Company).

In consideration for these arrangements, Mr. Glaser entered into noncompetition and nonsolicitation covenants in favor of the Company for the duration of his employment and for 24 months following his termination of employment.

In 2016, the Compensation Committee increased Mr. Glaser’s annual LTI award target grant date fair value from $8,000,000 to $9,500,000, effective for 2017, taking into account external market competitiveness and an evaluation of his role.

Mr. Bischoff’s Employment Arrangements

Following his completion of service as our Chief Financial Officer on December 31, 2015, Mr. Bischoff served as special advisor to the Company on a part-time schedule for a three-month period. Mr. Bischoff was paid $31,250 per month in base salary during his period of service as special advisor and received an RSU award with a grant date fair value of $600,000 on April 1, 2016.

 

Marsh & McLennan Companies, Inc. Notice of Annual Meeting and 2016 Proxy Statement          39


Table of Contents

 

Executive Compensation (Continued)

 

 

Grants of Plan-Based Awards in 2015 Table

The following table provides information on the grants of plan-based awards made to the named executive officers in 2015. Amounts shown under the “Estimated Future Payouts Under Non-Equity Incentive Plan Awards” columns relate to the target annual cash bonus opportunities in respect of 2015. The terms and conditions of these awards are described in the “Annual Bonus” section (pages 24 to 28) of the Compensation Discussion and Analysis. The remaining columns relate to plan-based equity-based awards granted in 2015 under the 2011 Incentive and Stock Award Plan. The equity-based awards generally consist of PSU awards, RSU awards and stock options with respect to shares of the Company’s common stock. The terms and conditions of these awards are described in the narrative following this table.

 

          Estimated Future Payouts Under
Non-Equity Incentive Plan Awards
  Estimated Future Payouts Under
Equity Incentive Plan  Awards (3)
  All Other
Stock
Awards:
Number of
Shares of
Stock or
Units

(#) (4)
  All Other
Option
Awards:
Number of
Securities
Underlying
Options

(#) (5)
  Exercise
or Base
Price of
Option
Awards
($/Sh) (6)
  Closing
Stock
Price on
Date of
Grant
($/Sh) (6)
  Grant Date
Fair Value of
Stock and
Option
Awards

($) (7)
 
(a)   (b) (1)   (c)   (d) (2)   (e)   (f)   (g)   (h)   (i)   (j)   (k)   (l)   (m)  
Name   Grant Date  

Threshold

($)

 

Target

($)

 

Maximum

($)

 

Threshold

(#)

  Target
(#)
  Maximum
(#)
                          

Daniel S. Glaser

    0   2,800,000   5,600,000                
  2/23/2015         0   41,784   83,568             2,375,003   
  2/23/2015               41,784           2,375,003   
    2/23/2015                               418,872   56.840   57.010     4,750,008   

J. Michael Bischoff

    0   1,250,000   2,500,000                
  2/23/2015         0   5,278   10,556             300,002   
  2/23/2015               5,278           300,002   
    2/23/2015                               52,911   56.840   57.010     600,011   

Peter Zaffino

    0   2,250,000   4,500,000                
  2/23/2015         0   14,955   29,910             850,042   
  2/23/2015               14,955           850,042   
    2/23/2015                               149,912   56.840   57.010     1,700,002   

Julio A. Portalatin

    0   1,700,000   3,400,000                
  2/23/2015         0   9,897   19,794             562,545   
  2/23/2015               9,897           562,545   
    2/23/2015                               99,207   56.840   57.010     1,125,007   

Peter J. Beshar

    0   950,000   1,900,000                
  2/23/2015         0   9,897   19,794             562,545   
  2/23/2015               9,897           562,545   
    2/23/2015                               99,207   56.840   57.010     1,125,007   

 

(1) The equity-based awards granted on February 23, 2015 reported in this table were approved by the Compensation Committee at its meeting on the same date.
(2) The actual annual cash bonuses awarded to the named executive officers are reported in the “Non-Equity Incentive Plan Compensation” column of the 2015 Summary Compensation Table.
(3) The amounts reported in columns (f), (g) and (h) reflect PSU awards granted on February 23, 2015. The terms and conditions of these awards are described in the narrative following this table.
(4) The amounts reported in column (i) reflect the RSU awards granted on February 23, 2015. The terms and conditions of these awards are described in the narrative following this table.
(5) The amounts reported in column (j) reflect nonqualified stock options granted on February 23, 2015. The terms and conditions of these awards are described in the narrative following this table.
(6) The stock options granted on February 23, 2015 have an exercise price of $56.84 per share, equal to the average of the high and low trading prices of shares of the Company common stock on February 20, 2015, the trading date immediately preceding the date of grant. The closing market price of the Company’s common stock on the date of grant was $57.01 per share, which was higher than the stock option exercise price.
(7) The grant date fair value reported for the PSU awards is based on payment at the target level.

 

40          Marsh & McLennan Companies, Inc. Notice of Annual Meeting and 2016 Proxy Statement


Table of Contents

 

Executive Compensation (Continued)

 

 

STOCK OPTIONS

Stock options represent the right to purchase a specified number of shares of the Company’s common stock at a specified exercise price for a specified period of time. Stock options are scheduled to vest in four equal annual installments beginning on the first anniversary of the grant date, with earlier vesting and shortened exercisability in the event of death, disability and specified terminations of employment. The stock options granted to the named executive officers on February 23, 2015 are scheduled to vest on February 23, 2016, 2017, 2018 and 2019 and will expire no later than February 22, 2025. The stock options have an exercise price equal to the average of the high and low trading prices of shares of the Company’s common stock on the trading day immediately preceding the grant date.

RESTRICTED STOCK UNIT AWARDS

An RSU represents a promise to deliver a share of the Company’s common stock as soon as practicable after vesting. Annual awards of RSUs are scheduled to vest in three equal annual installments beginning on the 28th of the month in which the first anniversary of the grant date occurs, with full or pro rata vesting in the event of death, disability and specified terminations of employment. The RSU awards granted to the named executive officers on February 23, 2015 are scheduled to vest on February 28, 2016, 2017 and 2018. RSU awards include the right to payment of dividend equivalents for each share of common stock that is paid in respect of a vested RSU. Dividend equivalents that relate to RSUs that do not vest or are forfeited also will be forfeited. Holders of RSU awards have no right to vote the shares of common stock subject to the award.

PERFORMANCE STOCK UNIT AWARDS

A PSU represents a promise to deliver, as soon as practicable after the end of the performance period, a number of shares of the Company’s common stock ranging from 0% to 200% of the number of PSUs granted, depending on the Company’s achievement of a financial performance objective as determined by the Compensation Committee over a three-year performance period. The performance measure is the Company’s adjusted EPS as modified for executive compensation purposes (as described in the PSU Awards section on page 30 of the Compensation Discussion and Analysis) on a three-year annualized growth rate basis. The target adjusted EPS growth rate is 13%. The PSU awards granted to the named executive officers on February 23, 2015 are scheduled to vest on February 28, 2018, with full or pro rata vesting in the event of death, disability and specified terminations of employment. PSU awards include the right to payment of dividend equivalents for each share of common stock that is paid in respect of a vested PSU. Dividend equivalents that relate to PSU awards that do not vest or are forfeited also will be forfeited. Holders of PSU awards have no right to vote the shares of common stock subject to the award.

The treatment of these awards upon termination of employment or a change in control of the Company is described in further detail in “Potential Payments Upon Termination or Change in Control” on page 48.

 

Marsh & McLennan Companies, Inc. Notice of Annual Meeting and 2016 Proxy Statement          41


Table of Contents

 

Executive Compensation (Continued)

 

 

2015 Outstanding Equity Awards at Fiscal Year-End Table

The following table provides certain information concerning equity-based awards held by the named executive officers as of December 31, 2015. All outstanding equity awards are with respect to shares of the Company’s common stock.

 

      Option Awards      Stock Awards  
Name   

Option

Grant Date

     Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#) (1)
     Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#) (1)
    

Option
Exercise
Price

($)

    

Option

Expiration

Date

    

Stock

Award

Grant

Date

    

Number

of

Shares

or Units

of

Stock

That

Have

Not

Vested

(#) (2)

    

Market

Value of

Shares

or Units

of Stock

That

Have Not

Vested

($) (3)

    

Equity
Incentive Plan
Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested

(#) (4)

    

Equity

Incentive Plan

Awards:

Market

or Payout

Value of

Unearned

Shares, Units

or Other

Rights That

Have Not

Vested

($) (3)

 

Daniel S. Glaser

     12/10/2007         100,000         0         25.815         12/9/2017                  
     2/23/2009         653,595         0         19.045         2/22/2019                  
     2/22/2010         618,557         0         22.705         2/21/2020                  
     2/21/2011         299,851         0         30.595         2/20/2021                  
     2/24/2012         310,431         103,477         31.885         2/23/2022                  
     2/25/2013         314,516         314,517         36.495         2/24/2023                  
                    2/25/2013         17,811         987,620         
                    2/25/2013               106,864         5,925,609   
     2/24/2014         114,518         343,557         48.000         2/23/2024                  
                    2/24/2014         30,730         1,703,979         
                    2/24/2014               92,188         5,111,825   
     2/23/2015         0         418,872         56.840         2/22/2025                  
                    2/23/2015         41,784         2,316,923         
                                                    2/23/2015                           83,568         4,633,846   

J. Michael Bischoff

     2/22/2010         17,011         0         22.705         2/21/2020                  
     2/21/2011         7,497         0         30.595         2/20/2021                  
     2/24/2012         6,209         2,070         31.885         2/23/2022                  
     2/25/2013         40,323         40,323         36.495         2/24/2023                  
                    2/25/2013         2,284         126,648         
                    2/25/2013               13,702         759,776   
     2/24/2014         12,940         38,820         48.000         2/23/2024                  
                    2/24/2014         3,473         192,578         
                    2/24/2014               10,418         577,678   
     2/23/2015         0         52,911         56.840         2/22/2025                  
                    2/23/2015         5,278         292,665         
                                                    2/23/2015                           10,556         585,330   

Peter Zaffino

     2/22/2010         309,279         0         22.705         2/21/2020                  
     2/21/2011         149,926         0         30.595         2/20/2021                  
     2/24/2012         186,258         62,087         31.885         2/23/2022                  
     2/25/2013         131,048         131,049         36.495         2/24/2023                  
                    2/25/2013         7,422         411,550         
                    2/25/2013               44,528         2,469,078   
     2/24/2014         42,055         126,165         48.000         2/23/2024                  
                    2/24/2014         11,286         625,809         
                    2/24/2014               33,856         1,877,315   
     2/23/2015         0         149,912         56.840         2/22/2025                  
                    2/23/2015         14,955         829,255         
                                                    2/23/2015                           29,910         1,658,510   

Julio A. Portalatin

     2/24/2012         108,651         36,217         31.885         2/23/2022                  
     2/25/2013         80,645         80,646         36.495         2/24/2023                  
                    2/25/2013         4,567         253,240         
                    2/25/2013               27,402         1,519,441   
     2/24/2014         27,174         81,522         48.000         2/23/2024                  
                    2/24/2014         7,292         404,341         
                    2/24/2014               21,876         1,213,024   
     2/23/2015         0         99,207         56.840         2/22/2025                  
                    2/23/2015         9,897         548,789         
                                                    2/23/2015                           19,794         1,097,577   

 

42          Marsh & McLennan Companies, Inc. Notice of Annual Meeting and 2016 Proxy Statement


Table of Contents

 

Executive Compensation (Continued)

 

 

      Option Awards      Stock Awards  
Name   

Option

Grant Date

     Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#) (1)
     Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#) (1)
    

Option
Exercise
Price

($)

    

Option

Expiration

Date

    

Stock

Award

Grant

Date

    

Number

of

Shares

or Units

of

Stock

That

Have

Not

Vested

(#) (2)

    

Market

Value of

Shares

or Units

of Stock

That

Have Not

Vested

($) (3)

    

Equity
Incentive Plan
Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested

(#) (4)

    

Equity

Incentive Plan

Awards:

Market

or Payout

Value of

Unearned

Shares, Units

or Other

Rights That

Have Not

Vested

($) (3)

 

Peter J. Beshar

     2/12/2007         35,157         0         29.600         2/11/2017                  
     2/26/2008         151,516         0         26.070         2/25/2018                  
     2/23/2009         285,948         0         19.045         2/22/2019                  
     2/22/2010         270,619         0         22.705         2/21/2020                  
     2/21/2011         149,926         0         30.595         2/20/2021                  
     2/24/2012         130,381         43,461         31.885         2/23/2022                  
     2/25/2013         84,677         84,678         36.495         2/24/2023                  
                    2/25/2013         4,796         265,938         
                    2/25/2013               28,772         1,595,407   
     2/24/2014         28,468         85,404         48.000         2/23/2024                  
                    2/24/2014         7,640         423,638         
                    2/24/2014               22,918         1,270,803   
     2/23/2015         0         99,207         56.840         2/22/2025                  
                    2/23/2015         9,897         548,789         
                                                    2/23/2015                           19,794         1,097,577   

 

(1) Represents vested and unvested, non-performance contingent stock options and performance-contingent stock options that have met the applicable performance criteria. The unvested stock options ratably vest and become exercisable in 25% increments on the first four anniversaries of the grant date.
(2) The following table provides the vesting schedule of the restricted stock unit awards that were not vested as of December 31, 2015.

 

Grant Date      Name of Executive      Vesting Schedule
2/25/2013      All      100% vesting on February 28, 2016
2/24/2014      All      50% vesting on each February 28, 2016 and 2017
2/23/2015      All      33 13% vesting on each February 28, 2016, 2017 and 2018

 

(3) Based on the closing price per share of the Company’s common stock on December 31, 2015 ($55.45), the last trading day of 2015.
(4) Represents the number of shares underlying PSU awards, based on the achievement of maximum performance. The PSU awards granted in 2013 vested on February 28, 2016, and PSU awards granted in 2014 and 2015 will vest on February 28, 2017 and February 28, 2018, respectively, and will be paid in a number of shares of the Company’s common stock determined based on actual performance over the applicable three-year performance period. Our core NOI growth for the individual years 2013, 2014 and 2015, and adjusted EPS growth as modified for executive compensation purposes for 2015, were determined by the Compensation Committee in the first quarter after the end of the year. For these PSU awards, performance was tracking at or above target payout levels on December 31, 2015. If the Company does not attain the maximum cumulative target over the applicable three-year performance period, the number of shares received by the named executive officers upon settlement will be lower. The number of deliverable shares will range from 0% to 200% of the number of PSUs granted. See the “Performance Results for Our 2013 PSU Awards” section (page 29) of the Compensation Discussion and Analysis and the narrative following the “Grants of Plan-Based Awards in 2015 Table” above with respect to the 2015 PSU awards granted to the named executive officers.

 

Marsh & McLennan Companies, Inc. Notice of Annual Meeting and 2016 Proxy Statement          43


Table of Contents

 

Executive Compensation (Continued)

 

 

2015 Option Exercises and Stock Vested Table

The following table provides certain information concerning (i) stock options exercised by the named executive officers in 2015 and (ii) other stock awards held by the named executive officers that vested or were earned in 2015.

 

      Option Awards      Stock Awards  
Name   

Number of
Shares Acquired
on Exercise

(#)

    

Value

Realized
on Exercise
($) (1)

    

Number of
Shares Acquired
on Vesting

(#) (2)

    

Value
Realized on
Vesting

($) (3)

 

Daniel S. Glaser

     0         0         124,651         7,103,860   

J. Michael Bischoff

     8,974         253,679         22,986         1,252,544   

Peter Zaffino

     100,000         3,696,550         67,950         3,872,471   

Julio A. Portalatin

     0         0         56,012         3,182,103   

Peter J. Beshar

     53,572         1,440,645         47,035         2,680,525   

 

(1) Based on the difference between the market price of the underlying shares of the Company’s common stock on the date of exercise and the exercise price of the stock options.
(2) Includes distribution of shares of the Company’s common stock in connection with 2012 PSU awards that vested in 2015 and paid out at 200% of target based on Company performance (Mr. Glaser—78,408 PSUs, Mr. Bischoff—3,138 PSUs, Mr. Zaffino—47,046 PSUs; Mr. Portalatin—27,444 PSUs and Mr. Beshar—32,932 PSUs).
(3) Based on the average of the high and low trading prices of a share of the Company’s common stock on the trading date immediately preceding the award vesting date.

 

44          Marsh & McLennan Companies, Inc. Notice of Annual Meeting and 2016 Proxy Statement


Table of Contents

 

Executive Compensation (Continued)

 

 

Defined Benefit Retirement Program

The Company maintains a defined benefit retirement program in the United States consisting of the tax-qualified Marsh & McLennan Companies Retirement Plan, the nonqualified Benefit Equalization Plan and the nonqualified Supplemental Retirement Plan. The Benefit Equalization Plan is a restoration plan that provides those participants subject to certain Internal Revenue Code limitations with retirement benefits on a comparable basis to those provided to employees who are not subject to such limitations. The Supplemental Retirement Plan provides for an enhanced benefit for a select group of highly compensated employees. All of the named executive officers participate in the United States defined benefit retirement program.

For participants who are eligible for these plans, annual benefits payable at age 65 in the form of a straight-life annuity are determined generally by the following formula:

 

    2.0% of eligible salary for each of the first 25 years of eligible benefit service; plus  

 

    1.6% of eligible salary for each of the next five years of eligible benefit service; plus  

 

    1.0% of eligible salary for each year of eligible benefit service over 30 years.  

The above sum is reduced by an amount representing a portion of the participant’s estimated Social Security benefit. Participants who are at least age 65 are eligible for normal retirement benefits and participants who have attained five years of vesting service and are at least age 55 are eligible for early retirement benefits. Of the named executive officers, Mr. Glaser is eligible for an early retirement benefit and Mr. Bischoff is eligible for a normal retirement benefit. Benefits under the retirement program vest upon the earliest of (i) a participant’s attainment of five years of vesting service, (ii) attainment of age 65 or (iii) a change in control of the Company. All of the named executive officers except Mr. Portalatin have a vested benefit under the retirement program.

The present value of the accumulated pension benefits of the named executive officers who participate in these plans as of the end of 2015, as well as other information about each of our defined benefit pension plans, is reported in the table below. Assumptions used in the calculation of these amounts, other than retirement age, are included in footnote 8 to the Company’s audited financial statements for the fiscal year ended December 31, 2015, included in the Company’s Annual Report on Form 10-K filed with the SEC on February 24, 2016. The assumed retirement age used for purposes of this table is 68.2 years for Mr. Bischoff and 65 years for all other named executives. Benefits under the tax-qualified Marsh & McLennan Companies Retirement Plan are generally paid as a monthly annuity for the life of the retiree and his or her designated survivor, if the participant has elected to be paid on a joint and survivor basis. Benefits earned and vested under the nonqualified plans prior to 2005 may be payable as a lump sum as well. The lump-sum option is only available to Mr. Bischoff because none of the other named executive officers have nonqualified plan benefits that were earned and vested as of December 31, 2004. The Company’s policy for funding its obligation under the tax-qualified plan is to contribute amounts at least sufficient to meet the funding requirements set forth in applicable law. The Company is not required to, and does not, fund any of its obligations to the named executive officers under any of its nonqualified defined benefit retirement plans.

 

Marsh & McLennan Companies, Inc. Notice of Annual Meeting and 2016 Proxy Statement          45


Table of Contents

 

Executive Compensation (Continued)

 

 

Pension Benefits Table for 2015

 

Name    Plan Name   

Number of
Years Credited
Service

(#) (1)

   

Present Value

of Accumulated
Benefit

($) (2)

    

Payments

During Last

Fiscal Year
($)

 

Daniel S. Glaser (3)

   Qualified Retirement Plan      18.0        319,068         0   
   Benefit Equalization Plan      18.0        915,998         0   
   Supplemental Retirement Plan      18.0        306,865         0   
     Total              1,541,931         0   

J. Michael Bischoff (4)

   Qualified Retirement Plan      34.0        1,442,892         0   
   Benefit Equalization Plan      34.0        1,379,872         0   
   Supplemental Retirement Plan      34.0        978,654         0   
     Total              3,801,418         0   

Peter Zaffino

   Qualified Retirement Plan      14.3        291,604         0   
   Benefit Equalization Plan      14.3        573,644         0   
   Supplemental Retirement Plan      14.3        201,288         0   
     Total              1,066,535         0   

Julio A. Portalatin

   Qualified Retirement Plan      3.9        129,968         0   
   Benefit Equalization Plan      3.9        325,423         0   
   Supplemental Retirement Plan      3.9        111,981         0   
     Total              567,371         0   

Peter J. Beshar

   Qualified Retirement Plan      11.2        302,134         0   
   Benefit Equalization Plan      11.2        745,240         0   
   Supplemental Retirement Plan      11.2        261,566         0   
     Total              1,308,940         0   

 

(1) Represents years of benefit accrual service as of December 31, 2015. Mr. Glaser’s 18.0 years of service includes 9.9 years of service for his prior period of service with Marsh from July 1982 through May 1992.
(2) Assumptions used in the calculation of these amounts, other than retirement age, which has been assumed for purposes of this table to be 68.2 years for Mr. Bischoff and 65 years for all other named executive officers, are included in footnote 8 to the Company’s audited financial statements for the fiscal year ended December 31, 2015, included in the Company’s Annual Report on Form 10-K filed with the SEC on February 24, 2016. The U.S. Retirement Program provides a survivor benefit, in the form of a monthly annuity, to a qualifying spouse or domestic partner upon the death of a vested participant. The present value of this survivor benefit in the event of death on December 31, 2015 was $1,452,791 for Mr. Glaser, $2,064,932 for Mr. Bischoff, $479,790 for Mr. Zaffino and $1,272,055 for Mr. Beshar. The survivor benefit was not applicable to Mr. Portalatin since he did not have a vested accrued benefit under the United States defined benefit retirement program as of December 31, 2015. The total amounts reported in this column may not equal the sum of amounts reflected due to rounding to the nearest whole dollar as required by the SEC rules.
(3) Mr. Glaser is eligible for an early retirement benefit. His early retirement benefit is separately quantified in the table included in the “Potential Payments Upon Termination or Change in Control” section (page 48).
(4) Mr. Bischoff is eligible for a normal retirement benefit. His normal retirement benefit is separately quantified in the table included in the “Potential Payments Upon Termination or Change in Control” section (page 48).

 

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Table of Contents

 

Executive Compensation (Continued)

 

 

Nonqualified Deferred Compensation Table

The Company maintains the Supplemental Savings & Investment Plan (the “SSIP”), a nonqualified deferred compensation plan that coordinates with the Company’s 401(k) Savings & Investment Plan to give eligible participants the opportunity to defer compensation on a pre-tax basis in addition to what is allowed under the tax-qualified plan. Under the SSIP, selected participants who have reached any one of the limitations set forth in the Internal Revenue Code under the Company’s 401(k) Savings & Investment Plan may, at their election, defer up to 30% of their base salary and notionally invest this amount in any or all of the plan’s notional investment alternatives. These alternatives consist of a variety of mutual funds and units of the Company’s common stock. Participants in the SSIP may change their investment elections at any time, both as to future deferrals and existing balances; however, once a participant notionally invests an amount in units of the Company’s common stock, that amount cannot be reallocated to any other notional investment. After a participant completes one year of service with the Company, the Company provides matching credits at the same rate as the Company’s 401(k) Savings & Investment Plan. Participants are not permitted to make withdrawals from their accounts while they are employed by the Company. Participants are generally entitled to payment of their accounts following retirement, death or disability in a lump sum or annual installments over 2 to 15 years. All of the named executive officers are eligible to participate in the SSIP.

 

Name      12/31/14
Closing
Balance
($)
       Executive
Contributions
in Last
Fiscal Year
($)
       Registrant
Contributions
in Last
Fiscal Year
($) (1)
       Aggregate
Earnings
in Last
Fiscal Year
($) (2)
     Aggregate
Withdrawals or
Distributions
($)
       Aggregate
Balance at
Last Fiscal
Year End
($) (3)
 

Daniel S. Glaser

       547,594           69,600           34,667           14,386         0           666,246   

J. Michael Bischoff

       1,491,835           177,577           19,688           24,411         0           1,713,510   

Peter Zaffino

       344,852           46,500           23,083           2,534         0           416,969   

Julio A. Portalatin

       122,306           39,600           19,500           (2,347      0           179,059   

Peter J. Beshar

       754,738           30,000           15,000           (35,162      0           764,576   

 

(1) Amounts reported in this column are also reported in the “All Other Compensation” column in the 2015 Summary Compensation Table on page 37.
(2) Aggregate earnings are based upon the performance of a variety of mutual funds and shares of the Company’s common stock. Because these earnings are based upon actual market performance, they are not considered above-market or preferential for purposes of the SEC rules. Therefore, none of the amounts reported in this column are reportable in the 2015 Summary Compensation Table on page 37.
(3) The amounts reported in this column may not equal the sum of amounts reflected in the preceding columns due to rounding to the nearest whole dollar as required by the SEC rules.

 

Marsh & McLennan Companies, Inc. Notice of Annual Meeting and 2016 Proxy Statement          47


Table of Contents

 

Executive Compensation (Continued)

 

 

Potential Payments Upon Termination or Change in Control

The following table sets forth the estimated payments and benefits to be provided to the named executive officers in the event of the specified terminations of employment, including following a change in control of the Company. In accordance with SEC rules, this table assumes that the relevant triggering event occurred on December 31, 2015, the last business day of the last completed fiscal year, and that the market price of the Company’s common stock was the closing stock price as of December 31, 2015 ($55.45 per share), the last trading day of 2015.

The employment letter for each named executive officer provides that he will participate in the Company’s Senior Executive Severance Pay Plan. In general, the Senior Executive Severance Pay Plan provides for cash severance in the event of an involuntary termination of employment without “cause” (as described below) or, within the two-year period following a change in control of the Company, either by the successor entity without cause or by the participant for a termination of employment for “good reason” (as described in “Termination of Employment” below). In addition, each such named executive officer is eligible for specified benefits upon death or “disability” (as described in “Termination of Employment” below).

Cash severance under the Senior Executive Severance Pay Plan is paid in a lump sum equal to:

 

    one times annual base salary;  

 

    one times the average of the annual bonuses paid to the participant for each of the three prior calendar years; and  

 

    a pro rata bonus for the year of termination.  

The Senior Executive Severance Pay Plan also provides 12 months of outplacement services and continued medical and dental coverage for 12 months at active employee rates. Severance payments and benefits are conditioned on a participant having executed a waiver and release of claims (including restrictive covenants). The cash severance amounts included in the following table reflect the employment arrangements in effect on December 31, 2015.

The terms and conditions of equity-based awards provide for full or pro rata vesting in the event of death, disability and specified terminations of employment.

Mr. Bischoff’s employment letter provides that, in the event his termination of employment does not entitle him to severance payments and benefits under the Senior Executive Severance Pay Plan, he will be eligible for a prorated annual bonus based on the portion of the year elapsed as of the date of his termination and amount determined based on the degree of achievement of goals at year-end under the annual bonus program in effect on the date of his termination.

As of December 31, 2015, none of the named executive officers, except Mr. Glaser and Mr. Bischoff, were eligible to commence benefit payments under the Company’s defined benefit retirement program upon an early or normal retirement.

 

Name   Termination Reason   Total Cash
Payment
($) (1)
    Unvested
Stock Awards
($) (2)
    Unvested
Option Awards
($) (2)
    Accumulated
Dividend
Equivalents on
Outstanding
Stock Units
($)
    Welfare
and
Retirement
Benefits
($) (3) (4) (5) (6)
    Total
($) (7)
 

Daniel S. Glaser

  Involuntary termination without cause     9,650,000        11,126,153        10,959,606        486,406        17,523        32,239,689   
  Involuntary termination without cause or termination
for good reason following a change in control
    8,050,000        17,519,428        10,959,606        659,833        17,523        37,206,390   
  Death     2,800,000        17,519,428        10,959,606        659,833        0        31,938,867   
  Disability     2,800,000        17,681,620        10,959,606        662,465        0        32,103,691   
    Early Retirement     0        9,875,368        10,959,606        431,608        0        21,266,582   

J. Michael Bischoff

  Involuntary termination without cause     4,550,000        2,167,263        1,102,311        81,536        15,377        7,916,487   
  Involuntary termination without cause or termination
for good reason following a change in control
    3,600,000        2,146,747        1,102,311        81,203        15,377        6,945,638   
  Death     1,250,000        2,146,747        1,102,311        81,203        0        4,580,261   
  Disability     1,250,000        2,167,264        1,102,311        81,536        0        4,601,111   
    Normal Retirement     2,200,000        1,964,205        1,102,311        72,906        0        5,339,422   

Peter Zaffino

  Involuntary termination without cause     7,333,333        4,391,751        0        195,474        17,523        11,938,081   
  Involuntary termination without cause or termination
for good reason following a change in control
    6,233,333        6,732,518        4,887,043        259,927        17,523        18,130,344   
  Death     2,250,000        6,732,518        4,887,043        259,927        0        14,129,488   
    Disability     2,250,000        6,790,574        4,887,043        260,869        0        14,188,486   

 

48          Marsh & McLennan Companies, Inc. Notice of Annual Meeting and 2016 Proxy Statement


Table of Contents

 

Executive Compensation (Continued)

 

 

Name   Termination Reason   Total Cash
Payment
($) (1)
   

Unvested
Stock
Awards

($) (2)

    Unvested
Option
Awards
($) (2)
    Accumulated
Dividend
Equivalents on
Outstanding
Stock Units
($)
    Welfare
and
Retirement
Benefits
($) (3) (4) (5) (6)
    Total
($) (7)
 

Julio A. Portalatin

  Involuntary termination without cause     6,116,667        2,762,796        0        122,009        13,828        9,015,300   
  Involuntary termination without cause or termination
for good reason following a change in control
    4,966,667        4,287,505        2,989,438        163,625        13,828        12,421,062   
  Death     1,700,000        4,287,505        2,989,438        163,625        0        9,140,568   
    Disability     1,700,000        4,325,932        2,989,438        164,249        0        9,179,618   

Peter J. Beshar

  Involuntary termination without cause     3,583,333        2,883,067        0        127,783        18,710        6,612,894   
  Involuntary termination without cause or termination
for good reason following a change in control
    3,133,333        4,443,708        3,265,489        170,798        18,710        11,032,038   
  Death     950,000        4,443,708        3,265,489        170,798        0        8,829,994   
    Disability     950,000        4,482,135        3,265,489        171,421        0        8,869,045   

 

(1) The following table sets forth the calculation of amounts shown in the “Total Cash Payment” column of the table above. For purposes of this calculation, because this table assumes that termination of employment occurs at year-end, the amount shown in the “Pro Rata Bonus” column of the table below is equal to the individual’s actual or target bonus for the entire year.

 

Name   Termination Reason   Base
Salary
($)
    Average
Bonus
($)
    Total
($)
    Severance
Multiplier
    Total
Severance
($) (a)
    Pro Rata
Bonus
($) (b)