Form DEF 14A CONSUMERS ENERGY CO For: May 07

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934

 

CMS ENERGY CORPORATION

CONSUMERS ENERGY COMPANY

NOTICE OF VIRTUAL ANNUAL MEETINGS OF SHAREHOLDERS

To Shareholders of CMS Energy Corporation and Consumers Energy Company:

The CMS Energy Corporation (“CMS”) Virtual Annual Meeting of Shareholders and the Consumers Energy Company (“Consumers”) Virtual Annual Meeting of Shareholders (collectively “Annual Meeting”) will be held concurrently on Friday, May 7, 2021, at 10:00 a.m., Eastern Daylight Saving Time. There will be no physical location for shareholders to attend. Shareholders may only participate online by logging in at www.virtualshareholdermeeting.com/CMS2021 for CMS shareholders and www.virtualshareholdermeeting.com/CMSPB2021 for Consumers Shareholders.

ITEMS OF BUSINESS:

All shareholders of record at the close of business on March 9, 2021, are entitled to receive notice of and vote at the Annual Meeting. Whether or not you plan to attend the Annual Meeting, you can vote prior to the meeting by telephone, Internet, proxy card or voting instruction form. We encourage you to exercise your right to vote. All shares of Consumers common stock held by CMS (99.6% of the voting shares of Consumers) will be voted for the proposed Director nominees, thus assuring their election as Directors of Consumers, as well as for the other recommendations of the Consumers’ Board of Directors.

This year’s Annual Meeting will be a virtual-only meeting. A virtual-only meeting supports the safety of our shareholders and employees related to COVID-19, enables increased shareholder attendance and participation, improves efficiency and reduces costs. By visiting, www.proxyvote.com, you will be able to submit your questions prior to the Annual Meeting (April 20 through 11:59 p.m. May 3). You may attend the Annual Meeting, and electronically vote your shares at the Annual Meeting from any location around the world with internet connectivity.

By Order of the Boards of Directors,

Melissa M. Gleespen

Vice President,

Corporate Secretary and

Chief Compliance Officer

CMS Energy Corporation

Consumers Energy Company

March 25, 2021

Important Notice Regarding the Availability of Proxy Materials for

the Annual Meeting of Shareholders to Be Held on May 7, 2021.

This Proxy Statement and Annual Report to Shareholders are available at

https://materials.proxyvote.com/125896 for CMS and

https://materials.proxyvote.com/210518 for Consumers.

The terms “Corporation,” “we,” “our” “us” and other representations as used in this Proxy Statement generally refer to both CMS Energy Corporation (“CMS”) and its principal subsidiary, Consumers Energy Company (“Consumers”).

This summary highlights information contained elsewhere in this Proxy Statement and does not contain all of the information that you should consider. We encourage you to read this entire Proxy Statement carefully before voting.

 

While CMS and Consumers are established, operated and regulated as separate legal entities, CMS and Consumers have the same individuals serve as members on each Board of Directors and each Board Committee and have adopted coordinated director and executive compensation arrangements and plans as well as auditing relationships. The two companies also have significant overlap in executive management. Although in certain contexts in this Proxy Statement the terms “we” and “our” refer to each of CMS and Consumers and satisfy their respective disclosure obligations, this Combined Proxy Statement is separately filed by CMS and Consumers. Information in this Combined Proxy Statement relating to each individual registrant is filed by such registrant on its own behalf. Unless specifically noted, singular references to “Board,” “Committee,” “Corporation,” and “Annual Meeting” refers to both CMS and Consumers.

We have integrated sustainable principles throughout our company. Our commitment to the triple bottom line — people, planet and profit — is our foundation. As Michigan’s largest utility, consideration of ESG issues is embedded in our strategy, business planning and enterprise risk management processes. These commitments align with our purpose: World Class Performance Delivering Hometown Service. The triple bottom line balances the interests of all stakeholders, including co-workers, customers, suppliers, regulators, Michigan residents and the investment community.

While embedding ESG issues into our strategy, we provide a variety of disclosures. We participate in a voluntary industry initiative, coordinated by the Edison Electric Institute (EEI) and the American Gas Association (AGA), to provide the public, our customers and shareholders uniform and consistent ESG and sustainability-related metrics. We participate in the annual CDP Climate and Water Reports. Our Climate Assessment Report and Methane Reduction Plan are also great tools for outlining our ESG goals. All of these reports, our various reporting indexes, scorecards and our policies, such as, human rights, biodiversity, waste management, safety, environmental, greenhouse gas, and water use can all be found on our website at www.cmsenergy.com/sustainability.

Our success and ability to reach our ESG goals starts with an intentional culture, built around our cultural mindset. Our cultural mindset guides the actions and behaviors of all co-workers, allowing everyone to work safely to serve our customers and our communities. Each value in the cultural mindset is critically important and together align with our strategy and drive all of our actions.

These are the five values in our cultural mindset.

 

The actions of our co-workers are what makes CMS and Consumers unique. An intentional focus on our culture allows co-workers to thrive and succeed in an environment where their voices are heard and their contributions matter.

As a company, our commitment to Diversity, Equity, and Inclusion (“DE&I”) is long-standing. Consumers’ first Employee Resource Group (“ERG”), the Women’s Advisory Panel, was founded in the mid-1980’s. Over the years we have expanded to seven flourishing ERGs. Some other past efforts include public support for Jackson, Michigan’s non-discrimination ordinance and the raising and celebration of the Pride flag at our CMS headquarters. In 2019 and 2020, Consumers and its foundation donated $1.2 million to diverse associations impacting communities of color. In 2020, we also created Inclusion Champion roles within our union workforce and expanded our parental leave policy, allowing birthing mothers 24 weeks paid leave and 16 weeks paid leave to a nonbirthing parent. Additionally, through our Veterans Advisory Panel, we were recognized by three separate organizations in 2020 alone, for our outstanding commitment to creating a stronger, veteran-friendly employer environment.

Although DE&I has been a key part of our activity for a long time, recent racial discrimination and social injustice events across the nation have created a need for acceleration of our DE&I efforts. To further our commitment to DE&I, in August of 2020 CMS and Consumers appointed its first Vice President & Chief Diversity Officer, Angela Thompkins. Angela and her team are responsible for orchestrating and executing our DE&I strategy. Good progress has been made, and continued progress will be accomplished by enrolling all leaders across the company to accelerate our DE&I strategic plan.

Our DE&I mission is to build and sustain a world-class inclusive workforce, yielding success around our triple bottom line. We will achieve this mission by building on the foundational principle that DE&I is embedded into our culture like safety is embedded into our culture. To achieve this, we will leverage our Cultural Values: Caring, Empowered, Deliberate, Agility, and Ownership to drive success in three key pillars that encompass the entirety of our co-worker, customer, community, and investor interactions.

Our commitment to our DE&I strategy goes beyond the walls of CMS and Consumers. We’re also looking outward to serve as a driving force for good in our service territory and throughout Michigan. Recent efforts include:

Our stand for DE&I will continue with our customers, co-workers, communities, and investors. We are committed to accelerating our journey. Our comprehensive DE&I strategy allows us to place the right focus on all aspects of diversity and create a company that is inclusive of all ideas in the pursuit of the best outcome.

There are 11 nominees for election as directors of CMS and Consumers, to hold office until the next annual meeting of shareholders and until their successors are elected and qualified. The Board believes that the nominees will be available to serve, but in the event any nominee is unable to do so, the proxies will be voted for a substitute nominee designated by the Board or the number of directors constituting the full Board will be reduced accordingly.

All of the nominees are currently serving as Directors. All eleven nominees have accepted their nomination and agree to serve if elected. Garrick J. Rochow was elected to the Board in December 2020, and is standing for election by the shareholders for the first time at the 2021 Annual Meeting.

The following table identifies the balance of experience, skills and qualifications that the nominees bring to the Board. The skills and qualifications that are marked below are reviewed by the Governance, Sustainability and Public Responsibility Committee (“Governance Committee”) and the Board when making nomination decisions and reviewing Board succession planning and the fact that a particular skill or qualification is not designated does not mean nominees do not also possess the specific experience and qualifications. The table below illustrates how the Board is well-positioned to provide direction and oversight with respect to our overall performance, strategic direction and significant corporate policies.

 

The name, age and business experience of each nominee follows, as well as a description of the specific experience, qualifications, and core competencies of each nominee that led to the Board’s conclusion that such nominee should serve as director.

The Board and management review and monitor governance trends and best practices on an ongoing basis. The Board has adopted Principles that reflect corporate and Board practices as well as Securities and Exchange Commission (“SEC”) rules and the New York Stock Exchange (“NYSE”) listing standards. The Governance Committee is responsible for overseeing and reviewing our Principles at least annually and recommending any proposed changes to the Board for approval. The Principles intend to serve as a flexible framework within which the Board and its Committees operate. Except for the Executive Committee, the Board has adopted charters for each of the standing Committees that detail their purposes, duties and authority, composition, meetings and resources as well as other aspects of Committee activities (“Charters”), which are further described under Board and Committee Information below. Each Committee reviews its Charter annually and recommends changes to the Governance Committee for review and recommendation to the Board for approval.

The current version of our Principles, Amended and Restated Bylaws (“Bylaws”), Charters, Employee and Director Codes of Conduct (“Codes”) and other corporate governance materials are available at www.cmsenergy.com/corporategovernance.

The Board provides direction and oversight with respect to our overall performance, strategic direction and significant corporate policies. The Board approves major initiatives, advises on key financial and business objectives, and monitors progress with respect to these matters. Directors are kept informed of our business by various reports and documents provided to them on a regular basis, including operating and financial reports made at Board and Committee meetings. The Board has full and direct access to all members of management and may hire consultants and advisors as deemed necessary.

As stated in our Principles, the Board has determined that for the present time, it is in the best interests of the Corporation and shareholders to keep the offices of Chief Executive Officer (“CEO”) and Chairman separate to enhance oversight responsibilities. The Board believes that this leadership structure promotes independent and effective oversight of management on key issues relating to long-range business plans, long-range strategic issues and risks. To further promote independent and effective oversight of management, our Principles also provide that at any time when the Chairman is not considered independent under NYSE listing standards, a Presiding Director will be chosen by the independent directors to coordinate the activities and preside at the executive sessions attended only by the independent members of the Board. The Presiding Director provides the independent directors with a key means for collaboration and communication. Under our Bylaws, the Presiding Director will: (1) convene and chair meetings of the independent directors in executive session no less than once each year; (2) preside at meetings of the Board at which the Chairman of the Board is not present, including executive sessions of the independent directors; (3) solicit independent directors for advice on agenda items for meetings of the Board; (4) serve as a liaison between the Chairman of the Board, the President and the independent directors; and (5) perform such other duties as may be assigned by the Board from time to time. Russell, the current Chairman, is not a member of management, but served as President and CEO of CMS and Consumers until July 2016. As of July 2019, he qualified as independent under NYSE listing standards; however, on May 1, 2020, Harvey was re-elected as Presiding Director for the Board for a one-year term.

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

The Board is responsible for overseeing the Corporation’s cybersecurity risk. Cybersecurity risks are included in the risk reports to the Audit Committee discussed above. The Audit Committee receives cybersecurity updates that focus on our most critical assets, cybersecurity drills, exercises, mitigation of cybersecurity risks and assessments by third-party experts.

The Board oversees our political engagement policies, programs and practices. The Governance Committee is also responsible for advising and assisting the Board with respect to our political engagement. Our policies, including the governance and decision-making process for corporate political contributions, are described in detail at https://www.cmsenergy.com/corporate-governance/political-engagement. We believe Board oversight of our political activity along with the Board’s alignment with our current disclosure standards provide the necessary accountability to ensure that political activities are conducted in the best interest of customers, shareholders and other stakeholders. Through Board oversight, we have maintained a rigorous compliance process to ensure that its political activities are lawful, properly disclosed and align with our Codes.

The Board oversees our public responsibility and sustainability practices. The Governance Committee is also responsible for advising and assisting the Board with respect to our public responsibility and sustainability matters. We are committed to corporate responsibility through our business, culture, environment and our communities – past, present and future. We conduct business safely and ethically to preserve the environment and sustain our communities while serving our customers across the state of Michigan. This aligns with our purpose, which is to achieve world class performance while delivering hometown service. We measure our progress towards this purpose by considering our impact on the “triple bottom line” of people, planet, and profit, which is underpinned by performance; this consideration takes into account not only the economic value that we create, but also our responsibility to social and environmental goals.

The planet element of the triple bottom line represents our commitment to protect the environment, which extends beyond complying with the various state and federal laws and regulations.

We are committed to caring for the environment as part of our strategic direction. Some of our environmental and sustainability achievements include the following:

We provide extensive public reporting and are forthcoming in disclosures about our environmental stewardship and long-term strategy. We address issues related to climate change in SEC, Environmental Protection Agency and other regulatory agency filings, and by voluntarily reporting our climate risk strategy and related data to CDP (formerly known as the Carbon Disclosure Project). We have published Sustainability Reports, a Climate Assessment Report, which addresses the long-term implications of our electric supply fuel mix and capital expenditure plans and a Methane Reduction Plan, which explains our plans for achieving net zero methane emissions from our natural gas delivery system by 2030. In 2020, we completed the EEI ESG & Sustainability Report and announced our goal to achieve net zero carbon emissions from Consumers electric business by 2040.

We continually update and enhance disclosures relating to our sustainability efforts. These disclosures and updates can be found on our website at https://www.cmsenergy.com/sustainability.

We have created a cleaner, more sustainable energy future by taking a leadership position in reducing air emissions and water usage, saving landfill space and boosting the amount of renewable energy supplied to customers. We have also provided, and intend to continue providing, appropriate disclosures to our shareholders regarding climate change and the risks it poses.

As part of our overall corporate governance, we have an ongoing outreach program to develop and maintain communication with our investors in regard to governance and compensation issues. We value these discussions and the Board considers pertinent feedback when evaluating corporate governance and compensation issues. In addition, management regularly participates in investor and industry conferences throughout the year to discuss performance, environmental, social and governance topics, and share its perspective on business and industry developments. Shareholders may also contact the Board with any inquiry or issue, by the methods described below and the Board will respond as appropriate.

Interested parties, including shareholders, employees or third parties can communicate with the Board, Committee, the independent directors as a group, or an individual director, including the Chairman, by sending written communications to the Corporate Secretary, at the Corporation’s principal business office, One Energy Plaza, Jackson, Michigan 49201. Envelopes should be clearly marked “Board Communication” or “Director Communication.”

The Corporate Secretary will review and forward, as appropriate, such correspondence in order to facilitate communications with the Board or its Committees, the independent directors or individual members.

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

 

All such communications will be reviewed by the Chief Compliance Officer (who reports directly to the Audit Committee) prior to being forwarded to the Board or applicable Committees or directors, as appropriate.

The Governance Committee is responsible for identifying and evaluating director candidates, seeking candidates to serve on the Board consistent with criteria approved by the Board, and recommending a slate of candidates for election at the Annual Meeting. There are numerous steps in identifying director candidates.

 

The Governance Committee will consider shareholder-recommended director nominees in accordance with the requirements of our Bylaws. The information that must be included and the procedures that must be followed by a shareholder wishing to recommend a director candidate for the Board’s consideration are the same as would be required under our Bylaws if the shareholder wished to nominate that candidate directly. The Governance Committee will consider director candidates recommended by shareholders on the same basis that the Governance Committee evaluates other nominees for director.

CMS Bylaws also permit a shareholder, or a group of up to 20 shareholders, who have owned, continuously for at least three years, at least three percent of the outstanding shares of common stock of the Corporation to submit director nominees (not greater than two or 20% of the Board) for inclusion in its proxy statement if the shareholder(s) and the nominee(s) satisfy the requirements in the CMS Bylaws.

A director nomination that is not submitted for inclusion in the proxy statement but instead is sought to be presented directly at the Annual Meeting, must comply with the advance notice provisions in our Bylaws.

Any recommendation or nomination submitted by a shareholder regarding a director candidate must be submitted within the time frame provided in our Bylaws for director nominations and must include (a) a statement from the proposed nominee that he or she has consented to the submission of the recommendation or nomination and (b) such other information about the proposed nominee(s) and/or nominating shareholder(s) as is required by our Bylaws.

Written notice must be sent to the Corporate Secretary, One Energy Plaza, Jackson, Michigan 49201. You may access our Bylaws at www.cmsenergy.com/corporategovernance.

Director candidates are sought whose particular background, experiences and qualities meet the needs of the Board. The Board values high standards of integrity, business ethics and sound judgment, which add value, perspective and expertise to the Board’s deliberations. The Governance Committee assesses, on a regular basis, the qualifications needed by the Board in light of the Board’s current composition and recommends changes to the Board when appropriate; and determines from time to time other criteria for selection and retention of Board members. The Governance Committee has not established any specific, minimum qualifications that must be met by director candidates or identified any specific qualities or skills that the directors must possess. However, as stated in our Principles, the Board will include a broad spectrum of diverse business, political, academic, demographic and social interests. The Governance Committee takes a wide range of factors into account in evaluating the suitability of director candidates, including experience in business, leadership, regulated utility, sustainability and environment, risk management, customer experience, safety, governance, accounting, finance, legal, information technology, lean practices, and compensation and human resources, which will bring a diversity of thought, perspective, approach and opinion to the Board. The Governance Committee does not have a single method for identifying director candidates but will consider candidates suggested by a wide range of sources.

Rochow is standing for election by the shareholders for the first time at this Annual Meeting. Rochow was initially identified as a potential nominee by the Board and recommended for nomination by the Governance Committee. Rochow was elected to the Board effective December 1, 2020. Rochow is the only director nominee for the Annual Meeting who is standing for election by the shareholders for the first time.

The Board believes that diversity in tenure adds value, perspective and expertise to the Board’s deliberations, with longer-tenured directors bringing a deep understanding of the Corporation and shorter-tenured directors bringing a fresh perspective. Over the past eight years, the Board has added nine new directors. Director term limits, included in our Principles, state that Directors (other than the CEO) first elected after January 2017, may not serve on the Board for more than 15 years and Committee chairs (other than the Executive Committee) may not serve in such role for more than five years.

Directors Barfield, Butler, Darrow, Harvey, Russell, Shank, Soto, Sznewajs, Tanski, and Wright are “independent”, and Director Stephen E. Ewing who retired in 2020, was “independent” as determined by the Board, in accordance with the NYSE listing standards, applicable rules and regulations of the SEC, our more stringent Independence Standards, as set forth in our Principles,

and taking into consideration all business relationships between the Corporation and its subsidiaries and each non-employee director. Rochow is not and former Director Patricia K. Poppe was not independent due to their employment relationships with the Corporation.

The Board identified the following relationships which were deemed immaterial to such Directors’ independence:

In addition, the Board has affirmatively determined that each member of the Audit Committee and Compensation Committee is independent under NYSE listing standards, rules and regulations of the SEC and, if applicable, the Internal Revenue Code (“IRC”). Furthermore, the Board has determined that the ability of our Audit Committee members to serve on our Audit Committee is not impaired by service on other audit committees.

The Independence Standards, adopted by the Board as part of our Principles, can be found at www.cmsenergy.com/corporategovernance.

Under the CMS Articles of Incorporation, CMS Bylaws and our Principles, any director nominee who receives less than a majority of the votes cast by the CMS shareholders at a regular election shall promptly tender his or her resignation. For this purpose, a majority of the votes cast means that the number of shares voted “for” a director must exceed 50% of the votes cast with respect to that director, not counting abstentions. Upon receipt of such a tendered resignation, the CMS Governance Committee shall consider and recommend to the CMS Board whether or not to accept the resignation. The CMS Board will act on the CMS Governance Committee’s recommendation within 90 days following certification of our shareholder vote, and contemporaneously with that action will cause CMS to publicly disclose the CMS Board’s decision whether to accept or decline such director’s resignation offer (and the reasons for rejecting the resignation offer, if appropriate). The director who tenders his or her resignation pursuant to the standard will not be involved in either the CMS Governance Committee’s recommendation or the CMS Board’s decision to accept or decline the resignation. Due to complications that arise in the event of a contested election of directors, this standard would not apply in that context, and the underlying plurality vote requirement of Michigan law would control any contested director elections.

Board members are expected to attend at least one continuing education program annually, sponsored by a recognized utility industry or corporate governance organization. All Director nominees attended at least one continuing education program in 2020. Also, we have an internal director education program. The internal program includes corporate and industry information disseminated through orientation programs, business training modules and reports and operational site visits.

The Board is committed to continuous self-improvement, and Board and Committee evaluations are an important tool for promoting effectiveness. The Board conducts a performance evaluation annually and periodically engages a third party to conduct individual Director peer evaluations. The Governance Committee, in consultation with the Chairman, oversees the Board, Committee and Director evaluation processes.

Board and Committee evaluations are conducted for the Board and each standing Committee. Each Director participates in the process by completing a questionnaire that reviews the previous year’s performance. The questionnaire assesses, among other items, Board: 1) effectiveness, 2) meeting procedures, 3) operations, 4) composition, 5) accountability, and 6) future challenges. Directors may choose to provide their feedback anonymously. The Directors then discuss the evaluation results in executive session. Policies and practices are then updated to address feedback, as appropriate.

Director peer evaluations provide Directors an opportunity to evaluate each other and identify opportunities for their own growth and development. Peer evaluations and development follow-ups are facilitated by an independent third party and include confidential, open-ended, one-on-one interviews with each Director. The Board has conducted these periodic peer evaluations since 2008. The latest Director peer evaluation cycle began in 2018.

The CMS Board met ten times and the Consumers Board met nine times during 2020. Our Principles state the expectation that each Director will attend all scheduled Board and Committee meetings of which he or she is a member, as well as the Corporation’s annual meeting of shareholders. All Directors serving during 2020 attended 100% of the Board and assigned Committee meetings. All Board members then in office, attended the 2020 annual meeting of shareholders.

The Board has five standing Committees including an Audit Committee, a Compensation Committee, an Executive Committee, a Finance Committee and a Governance Committee. The members and the responsibilities of the standing Committees of the Boards are listed below. Each Committee is composed entirely of “independent” Directors, as that term is defined by the NYSE listing standards and our Principles described above. Committees may also invite members of management or others to attend their meetings as they determine appropriate. Rochow routinely attends and Poppe routinely attended committee meetings.

On a regularly-scheduled basis, the non-employee Directors meet in executive session (that is, with no employee Directors present) and may invite such members of management to attend as they determine appropriate. At least once each year, the independent Directors meet in executive session in conformance with the NYSE listing standards. In 2020, the CMS independent Directors met four times and the Consumers independent Directors met four times. In 2020, Presiding Director Harvey or Russell presided over the executive sessions of independent Directors.

Management annually undertakes a comprehensive review of the compensation policies and practices throughout the organization in order to assess the risks presented by such policies and practices.

Following this year’s review, we have determined that such policies and practices are not reasonably likely to have a material adverse effect on CMS or Consumers. Management’s analysis and determination were reported to and reviewed by the Compensation Committee.

We have adopted an employee code of ethics, titled “CMS Energy 2021 Code of Conduct” (“Employees’ Code”) that applies to the CEO, Chief Financial Officer (“CFO”) and Chief Accounting Officer (“CAO”), as well as all other officers and employees of CMS and Consumers. CMS and Consumers have also adopted a director code of ethics titled “2021 Board of Directors Code of Conduct” (“Directors’ Code”) that applies to the members of the Board. The Governance Committee annually reviews the Codes and recommends changes to the Board, as appropriate. The Employees’ Code is administered by the Chief Compliance Officer, who reports directly to the Audit Committee. The Audit Committee oversees compliance with the Codes. Any alleged violation of the Directors’ Code will be investigated by disinterested members of the Audit Committee, or if none, by disinterested members of the Board. The Governance Committee would recommend appropriate action to the Board in the event a determination is made that a director violated the Directors’ Code. The Codes and any waivers of, or amendments or exceptions to, a provision of the Employees’ Code that applies to the CEO, CFO, CAO or persons performing similar functions and any waivers of, or exceptions to, a provision of our Directors’ Code will be disclosed on our website at www.cmsenergy.com/complianceandethics. No such waivers or exceptions have been granted.

CMS, Consumers or their subsidiaries may occasionally enter into transactions with related parties. “Related Parties” include directors or executive officers, beneficial owners of more than 5% of our common stock, family members of such persons, and entities in which such persons

have a direct or indirect material interest. As set forth in our Codes, we consider a related party transaction to have occurred when a Related Party enters into a transaction in which we are participating, the transaction amount is more than $10,000 and the Related Party has or will have a direct or indirect material interest (“Related Party Transaction”). Any Related Party Transaction must be reported to us.

In accordance with our Codes and the Audit Committee Charter, Related Party Transactions must be pre-approved by the Audit Committee. In drawing its conclusion on any approval request, the Audit Committee considers the following factors:

The policies and procedures relating to the Audit Committee’s approval of Related Party Transactions are found in the Codes, which are available at www.cmsenergy.com/complianceandethics.

Since January 1, 2020, there have been no Related Party Transactions to report.

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

The Board engages in an active succession planning process. The Board selects a CEO and then consults with the CEO concerning the selection of a senior management team and plans for their succession. The management succession plan also includes provisions for CEO succession. The Compensation Committee regularly reviews succession planning issues and reports to the Board. The Compensation Committee also advises the Board on succession planning, including policies and principles for executive officer selection. CEO evaluations are conducted annually.

It is the philosophy of CMS and Consumers to provide market-based compensation tied to performance. An employee's compensation is based on a combination of the market value of his or her position along with individual experience and performance.

For the fiscal year ended December 31, 2020, the median of the annual total compensation of all CMS employees (other than Rochow, President and CEO), was $137,564; and the annual total compensation of the President and CEO was $9,833,511. The annual total compensation of the President and CEO is an aggregate of the current CEO as of December 1, 2020 (Rochow) and the former CEO (Poppe) for all pay elements except annual incentive. For non-equity incentive the amount was annualized for Rochow only as due to Poppe’s resignation she was not eligible for a non-equity incentive and we believe only including the non-equity compensation attributable to the portion of the year in which Rochow served as President and CEO would not be representative of total CEO compensation.

Based on this information the ratio of the annual total compensation of the President and CEO to the median of the annual total compensation of all CMS employees was 71.5 to 1.

For the fiscal year ended December 31, 2020, the median of the annual total compensation of all Consumers employees (other than Rochow, President and CEO), was $132,041; and the annual total compensation of the President and CEO was $9,833,511. The annual total compensation of the President and CEO is an aggregate of the current CEO as of December 1,2020 (Rochow) and the former CEO (Poppe) for all pay elements except annual incentive. For non-equity incentive the amount was annualized for Rochow only as due to Poppe’s resignation she was not eligible for a non-equity incentive and we believe only including the non-equity compensation attributable to the portion of the year in which Rochow served as President and CEO would not be representative of total CEO compensation.

Based on this information the ratio of the annual total compensation of the President and CEO to the median of the annual total compensation of all CMS employees was 74.5 to 1.

In determining the median employee for each of CMS and Consumers, our calculation includes employees as of December 31, 2018, as follows:

All employees are U.S.-based with 96% of our employee population in Michigan. Total compensation for purposes of determining the median employee is illustrated below by pay element. We identified each of CMS’ and Consumers’ median employees using these compensation measures, which were consistently applied to all employees.

SEC executive compensation disclosure rules allow for the identification of the median employee every three years unless there has been a change in its employee population or employee compensation arrangements that the registrant reasonably believes would result in a significant change in the pay ratio disclosure. No significant change has occurred in 2020 from 2018 regarding the median employees and, accordingly, we are using the same median employee as identified with respect to the 2018 CEO Pay Ratio disclosure.

The pay elements that were included in the annual total compensation to identify the median employee were:

Once the annual total compensation was calculated for each employee using the above measures, the annual total compensation of all employees was ranked except for the President and CEO from lowest to highest, and the median employee was identified.

The median employee’s compensation for fiscal year 2020 was calculated in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K as prescribed for inclusion in the 2020 Summary Compensation Table included in this Proxy Statement. With respect to the annual total compensation of the President and CEO, the amount reported in the “Total” column of our 2020 Summary Compensation Table included in this Proxy Statement was used.

The following table contains non-employee Director compensation information for 2020.

Non-employee director compensation is benchmarked annually. Directors who are CMS or Consumers employees do not receive retainers or fees for service on the Board or as a member of any Committee. Non-employee directors receive an annual retainer fee and restricted stock award for service on the CMS and Consumers Boards and additional annual retainer fees for certain Committee positions. Directors are reimbursed for expenses incurred in attending Board or Committee meetings and other company business.

In 2020, directors who were not CMS or Consumers employees each received an annual cash retainer fee. The following table describes the annual cash retainer fee received for service in 2020, as well as other fees for Director services, which did not change as compared to 2019. There are no changes to these fees in 2021. Annual retainer fees are paid based on the number of months served on the Board in each respective capacity.

In May 2020, non-employee directors, were awarded a number of shares of restricted stock with a fair market value at the time of award of $150,000, which did not increase from the 2019 annual stock retainer grant value. These shares of restricted stock are 100% tenure-based and vest 100% at the next annual meeting date. In 2021, the annual restricted stock award will have a fair market value at the time of the May 2021 award of approximately $150,000, equal to the 2020 award. These shares of restricted stock will be 100% tenure-based and vest at the next

annual meeting date. Under our Performance Incentive Stock Plan in effect at the time of grant, non-employee directors may defer receipt of their annual equity awards until a deferral date selected by the director. If a deferral election is made by the director, the equity awards subject to the deferral election will be granted as restricted stock units rather than restricted stock awards. Directors Butler, Darrow, Shank, Soto, and Sznewajs elected to defer their 2020 equity grants.

Stock ownership guidelines have been adopted by the Board that align further the interests of the directors with our shareholders. Directors are required to hold CMS common stock equivalent in value to five times their annual cash retainer by the end of the fifth calendar year of becoming a director. In the event a director has not met the stock ownership guidelines in the prescribed time frame, in lieu of the director receiving his or her monthly cash retainer, the retainer will be used to purchase CMS common stock until such time as the guideline has been met. All directors currently comply with this stock ownership requirement or are currently expected to comply by the end of their fifth calendar year of becoming a director.

Pursuant to the Directors’ Deferred Compensation Plan (“DCP”), a director who is not an employee may, at any time prior to a calendar year in which cash retainer fees are to be earned, irrevocably elect to defer payment, through written notice, of all or a portion of any of the cash retainer fees that would otherwise be paid to the director. Deferred amounts will be distributed in a lump sum or in annual installments in cash, as specified in the director’s initial election. Fidelity Investments, an independent record keeper, administers the DCP. The participant decides how contributions are invested among a broad array of mutual funds selected by and provided by the record keeper. Funds equal to the amounts deferred are transferred to Fidelity Investments. Our payment obligations to the directors remain an unsecured contractual right to a payment. Directors Barfield, Butler, Darrow, Shank, Soto, and Sznewajs elected to defer receipt of their 2020 fees under the DCP.

The following table shows those persons known to us as of March 9, 2021 to be the beneficial owners of more than 5% of CMS or Consumers’ voting securities:

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

The following table shows the beneficial ownership of CMS common stock as of March 9, 2021 by the directors and named executive officers of both CMS and Consumers and by all directors and executive officers as a group:

In this section, we describe and discuss our executive compensation program, including its objectives and elements, as well as determinations made by the Compensation Committee regarding the compensation of the CEO, CFO the three other most highly compensated executive officers of each of CMS and Consumers and our former CEO, who we collectively refer to as the “named executive officers” (“NEOs”). As of December 31, 2020, the NEOs for each of CMS and Consumers are Garrick J. Rochow (President and CEO), Patricia Poppe (former President and CEO), Rejji Hayes (Executive Vice President and CFO), Jean-Francois Brossoit (Senior Vice President, Transformation, Engineering and Operations Support), Catherine A. Hendrian (Senior Vice President, People and Culture), and Brian Rich (Senior Vice President, Customer Experience and Technology).

Effective December 1, 2020, Poppe voluntarily resigned from the Corporation from her position as President and CEO of CMS and Consumers. As a result, Poppe forfeited any outstanding long-term incentive awards, her annual incentive award and any unvested supplemental retirement awards. Rochow was elected President and CEO of CMS and Consumers, effective December 1, 2020.

In 2020, we continued to deliver strong financial performance marking 18 years of meeting or exceeding our adjusted earnings guidance. We believe that our highlights reflect on a successful year of world class performance delivering hometown service with achievements in our triple bottom line of people, planet and profit.

PEOPLE – serving our customers, communities and co-workers.

PLANET – going above and beyond environmental legislation to leave our planet better than we found it.

PROFIT – delivering consistent industry leading financial performance.

*A reconciliation of all non-GAAP measures found in this Proxy Statement is in Appendix A.

 

Based on these achievements, our 2020 Annual Incentive Plan paid out at 153% of target and our long-term incentive (“LTI”) program (performance period ended December 31, 2020) paid out at 168.2% of target for the TSR performance-based portion. The LTI performance-based payout was based on awards granted in 2018, with the payout of such awards determined based on CMS’ relative TSR and LTI EPS performance from January 1, 2018 to December 31, 2020 (see The Elements of Our Executive Compensation Program, Equity Compensation, Plan Performance Factor below). The final results of the LTI EPS performance will be known at the end of the performance period (March 19, 2021).

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

The Compensation Committee is responsible for approving the compensation program for the NEOs. The Compensation Committee acts pursuant to its Charter that is annually reviewed by the Board and is available on our website.

The NEO compensation program is organized around four principles:

We believe that a substantial portion of total compensation should be delivered in the form of at-risk equity in order to further align the interests of the NEOs with the interests of our shareholders and customers. Equity compensation granted in 2020 to our NEOs was provided through the Performance Incentive Stock Plan (“2014 Stock Plan”); effective June 1, 2020, the 2014 Stock Plan was replaced with the shareholder approved 2020 Performance Incentive Stock Plan (“2020 Stock Plan”) (collectively, “Stock Plan”). In 2020, awards were subject to the achievement of three-year relative TSR performance and relative LTI EPS growth goals, each weighted equally, over a three-year performance period from January 1, 2020 to December 31, 2022.

Assuming target performance, the following charts are an illustration of the pay mix for the current CEO and the average pay mix for the other NEOs as of December 31, 2020.

 

 

We have designed our executive compensation elements to be balanced and simple, placing emphasis on consistent, sustainable and superior absolute and relative performance. The following elements deliver our executive total direct compensation: base salary; annual incentive; and LTI.

BASE SALARY. Base salary is targeted to approximate the median of a peer group made up of companies of similar business profile and size, and to reflect individual performance and internal considerations.

ANNUAL INCENTIVE. Annual incentive awards are based on the achievement of Annual Incentive EPS (70% of annual incentive) and Annual Incentive OCF (30% of annual incentive) goals. For more information, see The Elements of Our Executive Compensation Program, Cash Compensation, Plan Performance Factor below.

The 2020 Annual Incentive EPS target of $2.64, represented 6% growth over our 2019 actual adjusted EPS of $2.49. We have delivered adjusted EPS growth every year for more than 10 years.

The Annual Incentive OCF target for 2020 was $1,750 million and was largely based on the Board-approved budget for the year.

We pay an annual incentive only if the Annual Incentive EPS or Annual Incentive OCF meet or exceed the threshold levels approved by the Compensation Committee in January of each year. Annual Incentive EPS and Annual Incentive OCF are used to determine the annual incentive payout because the Compensation Committee believes that these two metrics are the building blocks for growing the value of the Corporation and are good indicators of how well we are executing our customer focused strategy. We place more weight on Annual Incentive EPS to reflect the Corporation’s and shareholders’ focus on EPS growth and to align our performance objectives and allocation with our Peer Group and our utility-focused strategy. The payout may be increased or reduced by 10% based on the results of the operating metrics under the Consumers’ Annual Employee Incentive Compensation Plan (“Consumers Incentive Plan”). We believe that this alignment with operational performance and the broader employee population is an important aspect of our program design.

LONG TERM INCENTIVE. The LTI program consists of performance-based restricted stock (75% of total LTI) and tenure-based restricted stock (25% of total target LTI).

The 2020 performance-based portion is eligible to vest after three years dependent upon our TSR performance and LTI EPS growth (each weighted equally) relative to the Performance Peer Group. The 2020 LTI program is distinct from the annual incentive program in that it focuses on relative multi-year performance rather than absolute one-year performance. The tenure-based portion vests on the third anniversary of the award date.

Our 2020 LTI program is based on relative TSR performance and relative LTI EPS growth because the Compensation Committee believes that these measures offer a head-to-head comparison of how well our management team performed compared to other management teams in our industry and further motivate management to increase shareholder and customer value through stock price and earnings growth.

We tie a portion of equity compensation to continued employment. The tenure-based restricted stock helps build executive share ownership and alignment with shareholders while serving as an additional retention mechanism that is not subject to the year-to-year fluctuations of any performance measurement, although the value is subject to the performance of our stock price.

In 2020, the performance-based restricted stock awards granted in 2018 completed the three-year performance period, with the post-performance period tenure-based vesting satisfied in early 2021. The 2018 performance-based restricted stock awards vested based upon the relative TSR and LTI EPS growth performance during the performance period (January 1, 2018 to December 31, 2020). Our TSR for the three-year performance period (January 1, 2018 to December 31, 2020) was 32% while the median TSR for our Performance Peer Group was 14%, placing CMS, by comparison, in the 77^th percentile. Our LTI EPS Growth for the three-year performance period (January 1, 2018 to December 31, 2020) relative to the Performance Peer Group is not expected to be known until after March 19, 2021.