DEF 14A of Morningstar, Inc.
Filed Mar 28, 2024 · FY20230001193125-24-080640
Director Nominee Summary
Director Nominee Summary
Director Nominee Summary
| Name | Age | Director Since | Independent | Committee Memberships | | Joe Mansueto | 67 | 1984 | | None | | Kunal Kapoor | 48 | 2017 | | None | | Robin Diamonte | 59 | 2015 | • | Audit; NCGC | | Cheryl Francis | 70 | 2002 | • | Audit (Chair); Compensation | | Steve Joynt | 72 | 2019 | • | Compensation; NCGC | | Steve Kaplan | 64 | 1999 | • | Compensation (Chair); NCGC | | Gail Landis | 71 | 2013 | • | Audit; NCGC | | Bill Lyons | 68 | 2007 | • | Compensation; NCGC (Chair) | | Doniel Sutton | 50 | 2021 | • | Audit; Compensation | | Caroline Tsay | 42 | 2017 | • | Audit; NCGC |
Director Nominee Skills and Qualifications
Director Nominee Skills and Qualifications A director nominee’s judgment, skills, qualifications, and experience (including that gained due to tenure on our Board) in the following areas are considered particularly relevant:
Director Nominee Skills and Qualifications
| • | CEO leadership |
Director Nominee Skills and Qualifications
| • | Business development and operations |
Director Nominee Skills and Qualifications
| • | Accounting, finance, and M&A |
Director Nominee Skills and Qualifications
| • | Client relations and insights |
Director Nominee Skills and Qualifications
| • | Governance and regulatory compliance |
Director Nominee Skills and Qualifications
| • | Talent management and compensation |
Director Nominee Skills and Qualifications
| • | Technology |
Director Nominee Skills and Qualifications
| • | Industry experience |
Director Nominee Skills and Qualifications
Our NCGC strives to recommend a diverse set of professionals as director nominees whose background, knowledge, and experience would be expected to assist the Board in furthering the interests of Morningstar and its shareholders.
Corporate Governance Overview
Corporate Governance Overview We are committed to maintaining strong corporate governance practices. Our NCGC regularly reviews our governance practices in the context of current corporate governance trends, regulatory changes, and recognized best practices. The following chart highlights our significant corporate governance policies and practices:
Corporate Governance Overview
| | | | | • Annual Board meeting focused on Company strategy • Annual Board and committee self-evaluations • Regular executive sessions of independent directors • Directors are not over-committed to additional boards and offer to resign upon significant job changes | • Annual election of directors • Retirement age policy for directors, with an exception based on tenure • Significant stock ownership and retention requirement • Commitment to diversity within the new director applicant pool | • Shareholder right to call special meetings • Proxy access right • Majority vote standard • Single-class capital structure with equal voting rights • Annual advisory vote on executive compensation |
Corporate Governance Overview
| Proposal 1: Election of Directors | Board Composition and Governance Overview | 16 |
Corporate Governance Overview
The following table provides summary information about our director nominees. Directors are elected annually by a majority of votes cast.
Corporate Governance Overview
| | Joe Mansueto | Kunal Kapoor | Robin Diamonte | Cheryl Francis | Steve Joynt | Steve Kaplan | Gail Landis | Bill Lyons | Doniel Sutton | Caroline Tsay | | Tenure and Independence | | | | | | | | | | | | Tenure | 40 | 7 | 9 | 22 | 5 | 25 | 11 | 17 | 3 | 7 | | Independence | | | ● | ● | ● | ● | ● | ● | ● | ● | | Composition | + | | | | | | | | | | | Audit Committee | | | | | | | | | | | | Compensation Committee | | | | | | | | | | | | Nominating and Corporate Governance Committee | | | | | | | | | | | | Diversity | | | | | | | | | | | | Age | 67 | 48 | 59 | 70 | 72 | 64 | 71 | 68 | 50 | 42 | | Gender Identity | | | | | | | | | | | | Female | | | ● | ● | | | ● | | ● | ● | | Male | ● | ● | | | ● | ● | | ● | | | | Race / Ethnicity | | | | | | | | | | | | Black / African American | | | | | | | | | ● | | | Asian | | ● | | | | | | | | ● | | White | ● | | ● | ● | ● | ● | ● | ● | | | | LGBTQ+ | | | ● | | | | | | | |
Corporate Governance Overview
+ Executive Chairman Committee Chair Member
Corporate Governance Overview
| Board Composition Our Board is responsible for providing oversight, counseling, and direction to our management team to advance the long-term interests of the Company and its shareholders. The Board believes that the 2024 nominees have the judgement, skills, experience and diversity to effectively oversee execution of our strategy and constructively challenge management’s performance. Detailed information about each nominee’s background, skills, and experience can be found beginning on the next page. |
Corporate Governance Overview
| 2024 Proxy Statement | 17 |
Corporate Governance Overview
| Board Nominees | | The Board of Directors recommends a vote FOR each director nominee. |
Corporate Governance Overview
| | Joe Mansueto Joe Mansueto founded Morningstar in 1984 and became executive chairman in 2017. He has served as chairman since our Company’s inception and as chief executive officer from 1984 to 1996 and from 2000 to 2017. Joe oversaw the Company’s international expansion, growth into new businesses, and development of its valuable intellectual property used throughout the financial industry. Joe is the owner and chairman of Chicago Fire FC, an American professional soccer franchise, as well as a significant investor in several media companies, real estate properties and other ventures. Joe has received several awards for his leadership and influence including from InvestmentNews, MutualFundWire, SmartMoney, and the Tiburon CEO Summit. | | | Age 67 | Qualifications • Founder and largest shareholder of the Company, with knowledge of all aspects of the business and the financial information industry. • Commitment to research integrity and independence. | Education • Master’s degree in business administration from The University of Chicago Booth School of Business. • Bachelor’s degree in business administration from The University of Chicago. | | Director Since: 1984 | | | | Board Committees: None | | |
Corporate Governance Overview
| | Kunal Kapoor Kunal Kapoor became chief executive officer of Morningstar in 2017. Prior to that, he served as president from 2015—2017, responsible for product development and innovation, sales and marketing, and driving strategic prioritization across the firm. Before becoming president Kunal was head of global products and client solutions. Since joining Morningstar in 1997, Kunal has also held leadership roles in a number of our divisions including Data, as well as leadership roles in our research group. He is a member of the board of directors of Wealth Enhancement Group, a privately-owned independent wealth management firm, a member of the Council on Chicago Booth and serves on the boards of several Chicago-based non-profit organizations. | | | Age 48 | Qualifications • Leadership roles in many of Morningstar’s businesses during a 27-year tenure at the Company. • Uniquely able to advise the Board on the opportunities and challenges of managing the Company and its strategy for growth, as well as its day-to-day operations and risks. | Education • Master’s degree in business administration from The University of Chicago Booth School of Business. • Bachelor’s degree in economics and environmental policy from Monmouth College. • Chartered Financial Analyst. | | Director Since: 2017 | | | | Board Committees: None | | |
Corporate Governance Overview
| Proposal 1: Election of Directors | Board Nominees | 18 |
Corporate Governance Overview
| | Robin Diamonte Robin Diamonte was appointed to the Board in December 2015. She is the chief investment officer of RTX Corp., the aerospace defense company formed in 2020 from the merger of Raytheon Corporation and the United Technologies Corporation aerospace business. Robin had been vice president and chief investment officer at United Technologies Corporation since 2004. Before joining United Technologies Corporation, she held several positions during her 13-year tenure at Verizon Investment Management Corporation, the asset management arm of Verizon Communications Inc. In 2013, Robin was appointed by President Obama and served as a member and chair of the Advisory Committee for the Pension Benefit Guaranty Corporation from 2013 through 2019. Robin currently serves on the board for the Committee on Investment of Employee Benefit Assets (CIEBA), and also serves on the investment committee (and is a former member of the board) of Miss Porter’s School, a private secondary school. In 2023, she received a Lifetime achievement award from With Intelligence, was named one of Pension and Investments Most Influential Woman in Investing and was on the Power 100 list of CIO allocators. | | | Age 59 | Qualifications • Extensive experience in the retirement industry as a chief investment officer overseeing over $115 billion in global retirement assets. • Unique perspective as a customer of Morningstar products and research for over 25 years since she first started as an investment analyst with Verizon in 1994. | Education • Master’s degree in business administration from the University of New Haven. • Bachelor’s degree in electrical engineering from the University of New Haven. | | Director Since: 2015 | | | | Board Committees: • Audit • NCGC | | |
Corporate Governance Overview
| 2024 Proxy Statement | 19 |
Corporate Governance Overview
| | Cheryl Francis Cheryl Francis was elected to the Board in July 2002. She has been co-chair of Corporate Leadership Center, a not-for-profit organization focused on developing tomorrow’s business leaders, since August 2008, and was vice-chair from October 2002 to August 2008. Additionally, she is the Board Chair Emeritus of the United Way of Metro Chicago, a nonprofit social services provider focused on building stronger and more equitable neighborhoods in Chicago. She has been an independent business and financial advisor since 2000. From 1995 to 2000, she served as executive vice president and chief financial officer of R.R. Donnelley & Sons Company, a print media company. Prior to her role at R.R. Donnelley, Cheryl held several positions on the management team of FMC Corporation including corporate treasurer, and served as chief financial officer of FMC Gold, a public company. Cheryl was an adjunct professor for the University of Chicago Graduate School of Business from 1991 to 1993. She currently serves as a member of the board of directors of HNI Corporation and Aon plc. | | | Age 70 | Qualifications • Valuable perspective as an independent business and financial advisor and previously CFO of a public company. • Runs a leadership organization that engages with senior executives, CEOs, and leading academics on current business topics. • Currently serves on two other public company boards and prior public company board experience. | Education • Master’s degree in business administration from The University of Chicago Booth School of Business. • Bachelor’s degree from Cornell University. | | Director Since: 2002 | | | | Board Committees: • Audit (Chair) • Compensation | | |
Corporate Governance Overview
| Proposal 1: Election of Directors | Board Nominees | 20 |
Corporate Governance Overview
| | Steve Joynt Steve Joynt was appointed to the Board in December 2019. He served as chief executive officer of DBRS, the global credit ratings agency acquired by Morningstar, from 2016 to 2019. Prior to that, he spent more than 20 years at the global credit ratings agency Fitch Group in a variety of roles, including as chief executive officer from 2002 to 2012. Earlier in his career, Steve spent 12 years at Standard & Poor’s in a variety of analytical roles, culminating in the role of managing director of U.S. structured finance. | | | Age 72 | Qualifications • Over 40 years in leadership roles in the credit ratings industry, with excellent understanding of fixed income securities, including sovereign, corporate, asset backed, and structured credits. • Valuable operating experience as CEO of a regulated company. | Education • Bachelor’s degree in business administration from the University of Arizona. | | Director Since: 2019 | | | | Board Committees: • Compensation • NCGC | | |
Corporate Governance Overview
| | Steve Kaplan Steve Kaplan served as a member of our advisory board beginning in 1998 and was elected to the Board in August 1999. Since 1988, he has been a professor at The University of Chicago Booth School of Business where he currently is the Neubauer Family Distinguished Service Professor of Entrepreneurship and Finance and the Kessenich E.P. Faculty Director at the Polsky Center for Entrepreneurship and Innovation. Steve serves as a research associate at the National Bureau of Economic Research. Having previously served on the boards of directors of public and private companies, Steve has experience developing and advising executive talent. Steve currently sits on the investment committee of NextGen Growth Partners, a private equity firm that partners with entrepreneurial talent to invest in, operate and grow lower middle market business and serves as a director of Illinois Venture Capital Association. | | | Age 64 | Qualifications • Extensive background on issues in private equity, venture capital, entrepreneurial finance, corporate governance, executive talent, and corporate finance. • Guidance and analysis of both organic growth opportunities and potential acquisitions. • Prior public and private company board experience. | Education • Ph.D. in business economics from Harvard University. • Bachelor’s degree in applied mathematics and economics from Harvard College. | | Director Since: 1999 | | | | Board Committees: • Compensation (Chair) • NCGC | | |
Corporate Governance Overview
| 2024 Proxy Statement | 21 |
Corporate Governance Overview
| | Gail Landis Gail Landis was elected to the Board in May 2013. She was a founding partner of Evercore Asset Management, LLC, an institutional asset management firm, and served as managing principal from 2005 until her retirement in December 2011. From 2003 to 2005, she served as head of distribution for the Americas for Credit Suisse Asset Management, the asset management division of Credit Suisse AG. In her long career in active investment management at Sanford C. Bernstein & Co., Inc. and its successor company AllianceBernstein L.P. between 1981 and 2002, she served in a broad array of roles as an equity analyst, senior portfolio manager, and business leader. Gail remains active in the investment community serving on several investment committees, including the investment committee of the David Rockefeller Fund and the investment committee of St. Mark’s School of Southborough. Gail also serves on the board of Wood River Women’s Foundation. | | | Age 71 | Qualifications • Over 30 years of experience as an investment management executive, with an excellent understanding of the marketing and business development needs of institutional investors. • Keen awareness of the investing needs of advisers, and the clients they serve, through dynamic market environments. | Education • Master’s degree in business administration from New York University’s Stern School of Business. • Bachelor’s degree in East Asian studies from Boston University. | | Director Since: 2013 | | | | Board Committees: • Audit • NCGC | | |
Corporate Governance Overview
| | Bill Lyons Bill Lyons was appointed to the Board in September 2007. He served as president and chief executive officer of American Century Companies, Inc., an investment management company, from September 2000 until his retirement in March 2007. From 1987 to 2000, he served in other capacities at American Century Companies, Inc., including as general counsel, chief operating officer, and president. During his time at American Century, he served on the board of the Investment Company Institute in Washington, D.C., and was appointed to several special task forces that developed best practices for mutual fund governance. He is active in civic and non-profit organizations in the greater Kansas City area, including current service on three non-profit boards (two as chair) and four investment committees overseeing endowment and foundation assets. He previously served as a member of the board of directors of NIC, Inc. and The Nasdaq Stock Market, LLC. | | | Age 68 | Qualifications • Extensive experience in the mutual fund industry with unique insights and a keen perspective on our customers’ priorities and challenges. • Business acumen and corporate governance mindset as the former chief executive officer of a private investment management company. Extensive experience in active investment management and investment process oversight. | Education • Juris doctor degree from Northwestern University School of Law. • Bachelor’s degree in history from Yale University. | | Director Since: 2007 | | | | Board Committees: • Compensation • NCGC (Chair) | | |
Corporate Governance Overview
| Proposal 1: Election of Directors | Board Nominees | 22 |
Corporate Governance Overview
| | Doniel Sutton Doniel Sutton was elected to the Board in May 2021. She joined Pinterest, Inc. an image sharing and social media platform, as chief people officer in February 2024. From August 2022 to October 2023, she served as chief people officer at Alteryx, a company that provides data analytics software. From September 2020 to July 2022, Doniel served as Chief People Officer at Fastly, Inc., a leading global provider of edge cloud platform services. From March 2017 to April 2019, she served as Senior Vice President, Head of People at PayPal Holdings Inc., a global payments and technology company, and worked in other leadership capacities within the human resources group during her seven-year tenure at the company. From August 1997 to September 2011, she held a variety of senior human resource leadership positions with Prudential Financial, Bank of America Corporation and Honeywell International. Doniel currently serves as a member of the board of directors of Ross Stores, Inc., is a member of the board of directors of Venminder, Inc., and serves as a board advisor to Certree. | | | Age 50 | Qualifications • Wealth of experience in human capital management and culture, global business expansions and large-scale mergers, acquisitions, and business integrations. • Experience in rapidly growing technology companies providing insights into strategies supporting innovation, scale, and growth. • Currently serves on the board of another public company. | Education • Master’s degree in business administration in human resources management from the University of Illinois at Urbana-Champaign. • Bachelor’s degree in finance from the University of Illinois at Urbana-Champaign. | | Director Since: 2021 | | | | Board Committees: • Audit • Compensation | | |
Corporate Governance Overview
| | Caroline Tsay Caroline Tsay was elected to the Board in May 2017. She served as chief executive officer of Compute Software, Inc., an enterprise cloud infrastructure software company, from January 2017 to November 2022. From March 2013 to December 2016, she served as vice president and general manager of software at Hewlett Packard Enterprise Company, an information technology company. From April 2007 to March 2013, she held several product leadership positions across the consumer search, e-commerce, and advertising businesses at Yahoo! Inc., a digital media company. Caroline remains active in the technology industry as an investor in venture capital funds and has previously served as an advisor to venture capital backed companies. Caroline currently serves on the board of directors of The Coca-Cola Company, and formerly served as a member of the board of directors of Rosetta Stone Inc. and Travelzoo Inc. | | | Age 42 | Qualifications • Background in technology as well as significant leadership and management experience. • Expertise in the areas of consumer internet and enterprise software product development, engineering, marketing, and sales, providing insight relevant to organic and inorganic growth. • Currently serves on the board of another public company and prior public company board experience. | Education • Master’s degree in management science and engineering from Stanford University. • Bachelor’s degree in computer science from Stanford University. | | Director Since: 2017 | | | | Board Committees: • Audit • NCGC | | |
Corporate Governance Overview
| 2024 Proxy Statement | 23 |
Corporate Governance Overview
Board of Directors and Corporate Governance
Risk Considerations in Our Compensation Program
| • | the mixture of cash and equity-based compensation encourages an appropriate balance between short-term and long-term risk; |
Risk Considerations in Our Compensation Program
| • | multi-year vesting of equity awards encourages employees to focus on the long-term operational and financial performance of the Company; and |
Risk Considerations in Our Compensation Program
| • | the use of stock ownership requirements for our executive officers not only aligns their interests with shareholders but also discourages a short-term focus. |
Director Compensation
Director Compensation The Board establishes non-employee directors’ compensation based on the recommendation of the Compensation Committee. Directors who are also our employees do not receive any additional compensation for serving on the Board or attending Board meetings. Our non-employee directors receive cash compensation and equity-based compensation.
Equity-Based Compensation
Equity-Based Compensation In 2023, each of our non-employee directors received an annual grant of restricted stock units covering shares with a value of approximately $165,000 at grant that vest over a period of three years, subject to the director’s continued service through the applicable vesting date. In their first year of service on the Board, new non-employee directors receive an initial grant of restricted stock units covering shares with a value of approximately $250,000 at grant, also vesting over a period of three years, subject to the director’s continued service through the applicable vesting date. Beginning in 2024, the grant date value of each non-employee director’s annual grant of restricted stock units increased to $190,000.
2023 Directors’ Compensation
| | Fees Earned or Paid in Cash | Stock Awards(1) | Total | | Robin Diamonte | $60,000 | $164,867.92 | $224,867.92 | | Cheryl Francis | 85,000 | 164,867.92 | 249,867.92 | | Steve Joynt | 60,000 | 164,867.92 | 224,867.92 | | Steve Kaplan | 75,000 | 164,867.92 | 239,867.92 | | Gail Landis | 65,000 | 164,867.92 | 229,867.92 | | Bill Lyons | 75,000 | 164,867.92 | 239,867.92 | | Doniel Sutton | 60,000 | 164,867.92 | 224,867.92 | | Caroline Tsay | 60,000 | 164,867.92 | 224,867.92 |
2023 Directors’ Compensation
(1) As required by relevant SEC rules, the amounts represent the aggregate grant date fair value for restricted stock unit awards granted in 2023 as determined pursuant to Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock Compensation. See Note 12 of the Notes to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2023 for a discussion of the relevant assumptions used in calculating these amounts. As of December 31, 2023, our non-employee directors held the following number of unvested restricted stock units: Robin Diamonte 1,526; Cheryl Francis 1,526; Steve Joynt 1,526; Steve Kaplan 1,526; Gail Landis 1,526; Bill Lyons 1,526; Doniel Sutton 1,662; and Caroline Tsay 1,526. Stock awards when granted are rounded down to the nearest whole share.
Pay for Performance Summary
Pay for Performance Summary We set robust goals under our incentive plans. In 2023, we generated strong positive growth in both Adjusted Revenue and Adjusted EBITDA, however, our performance was below our target goals. Adjusted Revenue in 2023 was $2,032.3 million compared with a target goal of $2,111.9 million, driven primarily by shortfalls in our Morningstar Credit and Morningstar Sustainalytics product areas. Adjusted EBITDA in 2023 was $526.7 million compared with a target goal of $542.8 million. As a result of this performance, our annual cash incentive funded at 91.7% of target for Kunal and Jason, and 90.4% of target for Danny. Our long-term equity incentive plan is comprised of 75% MSUs and 25% restricted stock units (RSUs). MSUs are earned primarily based upon TSR measured over a three-year time frame on an absolute basis. Our grants from May and November 2020 vested in May and November 2023, and each exceeded the TSR performance targets resulting in payouts of 136.6% and 117.8% of target, respectively. Three-year Adjusted Revenue growth targets were not exceeded, resulting in no modification to the final MSU payouts. For additional perspective, our 2023 one-year TSR was 32.9% compared to a 26.4% Morningstar U.S. Market Index return and our three-year TSR (from 2021-2023) was 25.3% compared to a 28.1% Morningstar U.S. Market Index return over that same period.
2023 Peer Group
2023 Peer Group In May 2022, for purposes of evaluating 2023 compensation, the Compensation Committee approved the addition of Broadridge Financial Solutions, Inc. to our peer group. This change in the peer group was due to consideration of the following factors: each company’s size relative to Morningstar; relevant lines of business in relation to Morningstar; talent competitors; and the commonality of being identified as a peer of other existing Morningstar peers. The revised peer group consists of the companies listed below:
2023 Peer Group
| • AssetMark Financial Holdings, Inc. | • Focus Financial Partners | | • Broadridge Financial Solutions, Inc. | • MarketAxess Holdings, Inc. | | • CBOE Holdings, Inc. | • Moody’s Corporation | | • Envestnet, Inc. | • MSCI Inc. | | • FactSet Research Systems, Inc. | • SEI Investments Company | | • Fair Isaac Corporation • Federated Hermes, Inc. | • SS&C Technologies Holdings, Inc • Verisk Analytics, Inc. |
2023 Peer Group
We note that Focus Financial Partners was taken private in 2023 and will be removed from the Company’s peer group in 2024. The Compensation Committee also reviewed published compensation survey data provided by Radford Data & Analytics. The survey provides information about compensation levels and practices at financial services and technology companies. When reviewing data from published surveys, the Compensation Committee focuses on information specific to companies of Morningstar’s size. For purposes of this Compensation Discussion and Analysis, we refer to the compensation data for these companies and surveys as “market data.”
2023 CEO Compensation
2023 CEO Compensation Kunal Kapoor has served as Morningstar’s CEO since 2017. The Compensation Committee believes that Kunal’s compensation should align with shareholder success, reward achievement of the Company’s strategic goals, and provide motivation for future growth. When the Committee compared Kunal’s total compensation with the compensation peer group in late 2022, his compensation target was between the 25th percentile and the median. Accordingly, the Committee increased Kunal’s compensation to be more competitive with the market median and focused his compensation adjustments on performance-based compensation. His salary increased by 5% to $525,000 in 2023 and remains among the lowest in the peer group to emphasize the committee’s preferred focus on variable pay. As such, his target annual bonus was increased from $1,500,000 to $1,675,000 and his target annual equity award was increased from $3,500,000 to $5,200,000. The increase to his target annual equity award essentially replaced the additional $1,000,000 MSU award that was previously granted to Kunal in each of 2020, 2021 and 2022, as approved by the Compensation Committee in December 2019. Overall, Kunal’s 2023 target total compensation remained below the median target total compensation for the peer group and continues to place more emphasis on performance-based, at-risk compensation than our peer group. The Compensation Committee will continue to monitor and manage the progression of Kunal’s target total compensation over time based on his performance and market competitiveness. The table below shows Kunal’s 2023 target total compensation:
2023 CEO Compensation
| Annual Base Salary | Target Bonus | Target Equity Awards | | $525,000 | $1,675,000 | $5,200,000 allocated 75% to market stock units and 25% to restricted stock units. |
Elements of Our Executive Compensation Program
Elements of Our Executive Compensation Program Our executive compensation program currently consists of two main elements: cash compensation (annual base salary and annual incentive) and equity-based compensation (market stock units and restricted stock units). The Compensation Committee believes that its current compensation program for executive officers strikes an appropriate balance between short-term and long-term incentives. This mix of cash and equity compensation is intended to drive operational performance and long-term value creation by aligning the interests of our executive officers with those of our shareholders.
Cash Compensation
Annual Cash Incentive: Our Corporate Incentive Plan rewards participants for meeting and exceeding annual performance goals approved by the Compensation Committee. As noted above, Joe Mansueto does not participate in the Corporate Incentive Plan, and based on her planned departure on January 31, 2023, Bevin Desmond was also not eligible to participate. The design of the Corporate Incentive Plan gives the Compensation Committee flexibility to use judgment to modify bonus payout for Kunal Kapoor and other executive officers based on individual performance and overall contribution to the Company. Kunal provides input to the Compensation Committee about the other executive officers’ performance and overall contribution to the Company, as well as the performance of their particular product areas. The chart below shows the formula for annual incentive payouts. 2023 Annual Incentive Target and Payout Determinations: In December 2022, the Compensation Committee approved the 2023 annual incentive targets for Kunal Kapoor, Jason Dubinsky and Danny Dunn. As described above, the Compensation Committee approved an increase to Kunal’s 2023 annual incentive target to $1,675,000 (319% of his base salary). The 2023 annual incentive targets for Jason and Danny were unchanged from 2022. In determining annual incentive targets, the Compensation Committee also reviewed compensation practices of the market data. As noted above, while it does not target specific compensation elements against the market data, the Compensation Committee does review competitive market practices and trends with respect to executive compensation. The Compensation Committee established Adjusted Revenue and Adjusted EBITDA as the two metrics to measure company and product area performance for the annual cash incentives in 2023. The Compensation Committee determined payouts for 2023 primarily based on Adjusted Revenue and Adjusted EBITDA, performance relative to company and product area goals. To arrive at Adjusted Revenue and Adjusted EBITDA we exclude the impact of certain items, including all or a portion of the following: expected incentive compensation costs, foreign currency fluctuations, capitalized software development costs, unbudgeted acquisitions and divestitures and associated costs, and certain one-time costs. At the beginning of 2023, the Compensation Committee established a funding formula that specifies bonus funding for various performance levels, with the final funding factor weighted 50% for Adjusted Revenue and 50% for Adjusted EBITDA, except for Danny Dunn who, based on his role as chief revenue officer, had a funding factor of 67% Adjusted Revenue and 33% Adjusted EBITDA weightings. The graphics below illustrate how this formula works for Company performance:
2023 Bonus Payouts
2023 Bonus Payouts The table below shows the bonus earned by each of the applicable NEOs.
2023 Bonus Payouts
| | 2023 Target Bonus | Financial Funding Factor | Individual Performance Factor | 2023 Cash Bonus | | Kunal Kapoor | $1,675,000 | 91.7% | 100% | 1,535,975 | | Jason Dubinsky | 650,000 | 91.7% | 100% | 596,050 | | Danny Dunn | 400,000 | 90.4% | 100% | 361,600 |
Equity-Based Compensation
Equity-Based Compensation Our 2021 Plan provides for grants of options, stock appreciation rights, restricted stock, restricted stock units, performance shares, and market stock units among other stock-based awards. All of our employees are eligible for awards under the 2021 Plan. As noted above, Joe Mansueto does not participate in the 2021 Plan. Equity awards that vest over time are an important part of how we reward our executive officers and other employees. We pay a meaningful portion of executive officer compensation in the form of equity awards to help align the economic interests of our executive officers with those of our shareholders. We also believe it’s important for our executives to have a long-term stake in the success of the business. The amount of equity-based compensation we provide to each executive officer each year generally reflects the individual’s level of responsibilities within the Company. The Compensation Committee reviews the value of annual equity awards for each executive officer to evaluate whether they reflect each individual’s responsibilities and performance within the Company and encourage retention and long-term alignment with the Company’s success. In 2023, we granted restricted stock units and market stock units to Kunal, Jason and Danny. In December 2022, the Compensation Committee approved increases for each of the participating NEOs based on their performance and market positioning. The target grant values for 2022 and 2023 are shown below. The mix for annual equity grants in 2023 was 75% MSUs and 25% RSUs, which was unchanged from 2022. RSUs were granted to our participating NEOs in May 2023. With respect to MSUs, the Compensation Committee elected to grant one-half of each NEO’s targeted value in May 2023 and the other half in November 2023 to minimize the potential effect of short-term stock price volatility on the awards. We describe these awards in more detail below.
Equity-Based Compensation
Restricted Stock Units: In 2023, the Compensation Committee granted RSUs to our NEOs that vest in four equal annual installments commencing on the first anniversary of the grant date and subject to their continued employment through the applicable vesting date. The table below shows the approximate value approved for RSUs granted to each NEO in 2023 and 2022.
Equity-Based Compensation
| | Approximate Value of 2023 Restricted Stock Units | Approximate Value of 2022 Restricted Stock Units | | Kunal Kapoor | $1,300,000 | $875,000(1) | | Jason Dubinsky | 400,000 | 300,000 | | Bevin Desmond(3) | 0 | 175,000 | | Danny Dunn | 300,000 | 225,000(2) |
Equity-Based Compensation
(1) In 2022, Kunal received the final of three annual grants of market stock units with a target value of $1,000,000 each, with a three-year performance period. These awards were approved in 2019 when the Compensation Committee evaluated and revisited Kunal’s target total compensation as a more experienced CEO with demonstrated successes, strategic direction, and leadership, and is not included in Kunal’s 2022 target values in the table above. The increase in 2023 equity awards considers the discontinuation of these grants. (2) Bevin Desmond resigned from her position with the Company effective January 31, 2023, and did not receive any MSU grants in 2023. In 2023, the target TSR to earn 100% of the target MSUs was 20%. Vesting for TSR performance between the performance levels described below is based on a linear interpolation.
Equity-Based Compensation
| Performance Level | Shares Earned as a Percentage of Target Market Stock Units | | Threshold TSR | 0% vesting if TSR is negative 13.33% | | Target TSR | 100% vesting if TSR is 20% | | Maximum TSR | 200% vesting if TSR is 70% |
May 2020 Market Stock Units
| Performance Level | Shares Earned as a Percentage of Target Market Stock Units | | Threshold TSR | 0% vesting if TSR is negative 13.33% | | Target TSR | 100% vesting if TSR is 20% | | Maximum TSR | 150% vesting if TSR is 45% | | Revenue Kicker | 100% - 200% modifier based on results compared to 3-year Adjusted Revenue targets for time period of 2020 - 2022 | | Actual TSR and Adjusted Revenue and Actual MSUs vesting | 136.6% of target MSUs vested due to actual TSR of 38.3% and Adjusted Revenue of $2,032.3 million |
November 2020 Market Stock Units
| Performance Level | Shares Earned as a Percentage of Target Market Stock Units | | Threshold TSR | 0% vesting if TSR is a negative 13.33% | | Target TSR | 100% vesting if TSR is 20% | | Maximum TSR | 150% vesting if TSR is 45% | | Revenue Kicker | 100% - 200% modifier based on results compared to 3-year Adjusted Revenue targets for time period 2020 - 2022 | | Actual TSR and Adjusted Revenue and Actual MSUs vesting | 117.8% of target MSUs vested due to actual TSR of 28.9% and Adjusted Revenue of $2,032.3 million |
Employment Agreements and Change in Control and Termination Arrangements
Employment Agreements and Change in Control and Termination Arrangements We do not have employment agreements or change-in-control agreements with any of our executive officers. Certain of our equity award agreements include accelerated vesting provisions in the event of death, disability or a qualifying termination of employment without cause. In addition, if there is a change in control of Morningstar, under the 2021 Plan, the Board can vest or make exercisable, as the case may be, unvested or not yet exercisable awards granted
Employment Agreements and Change in Control and Termination Arrangements
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Employment Agreements and Change in Control and Termination Arrangements
under the 2021 Plan. The following events constitute a change in control within the meaning of the 2021 Plan: the acquisition by a person or entity of more than 50% of Morningstar’s common stock, other than by Joe Mansueto, his wife, children, or any trustee or custodian on their behalf; a merger, consolidation, or statutory share exchange involving Morningstar, unless shareholders receive more than 60% of the stock of the surviving company or the parent company; a liquidation or dissolution of Morningstar; or a sale of substantially all of Morningstar’s assets. The Board has not determined how it will exercise its discretion if there is a change in control of Morningstar. Please see the “Potential Payments Upon Termination or Change in Control” section for further information regarding the value of each NEO’s outstanding equity awards in the event of qualifying termination events.
Bevin Desmond Contractor and Separation Agreements
Bevin Desmond Contractor and Separation Agreements As previously disclosed, Bevin’s last day of employment as Morningstar’s chief talent and culture officer was January 31, 2023, at which time she transitioned to three month contractor status which was not activated. Under the terms of Bevin’s separation agreement, and as approved by the Compensation Committee, Bevin’s outstanding equity awards were modified to provide for continued vesting in retirement. See “2023 Summary Compensation Table” for additional information.
Independent Compensation Consultants
Independent Compensation Consultants In September 2023, management retained an independent compensation consultant, Pay Governance, to review aspects of the Company’s executive and director compensation program, for a fee of $166,932. Pay Governance provides no other services to Morningstar. In January 2023 through August 2023, Willis Towers Watson also provided executive compensation consulting services for a fee of $80,848 as well as other services relating to broader human resources-related engagements, the fees for which totaled $82,091. The Compensation Committee reviewed the independence of both Pay Governance and Willis Towers Watson under Nasdaq and SEC rules and concluded that the work of the compensation consultants did not raise any conflict of interest.
2023 Summary Compensation Table
2023 Summary Compensation Table
2023 Summary Compensation Table
| Name and Principal Position | Year | Salary | Stock Awards(1) | Non-Equity Incentive Plan Compensation(2) | All Other Compensation(3) | Total | | Kunal Kapoor Chief Executive Officer | 2023 | $525,000 | $5,199,571 | $1,535,975 | $16,875 | $7,277,421 | | | 2022 | 500,000 | 4,499,252 | 1,294,500 | 15,225 | 6,308,977 | | | 2021 | 500,000 | 2,999,437 | 2,083,200 | 14,955 | 5,597,592 | | Jason Dubinsky Chief Financial Officer | 2023 | $475,000 | $1,599,537 | $596,050 | $16,875 | $2,687,462 | | | 2022 | 450,000 | 1,199,696 | 560,950 | 15,375 | 2,226,021 | | | 2021 | 400,000 | 899,606 | 744,000 | 14,922 | 2,058,528 | | Bevin Desmond Former Chief Talent and Culture Officer | 2023 | $14,583 | $0 | $0 | $383 | $14,966 | | | 2022 | 320,833 | 1,853,909 | 276,879 | 14,344 | 2,465,965 | | | 2021 | 290,137 | 499,859 | 431,723 | 14,050 | 1,235,769 | | Danny Dunn Chief Revenue Officer | 2023 | $400,000 | $1,199,600 | $361,600 | $16,875 | $1,978,075 | | | 2022 | 350,000 | 899,698 | 448,760 | 15,375 | 1,713,833 | | | 2021 | 300,000 | 499,859 | 580,320 | 14,856 | 1,395,035 | | Joe Mansueto Executive Chairman | 2023 | $100,000 | $0 | $0 | $5,250 | $105,250 | | | 2022 | 100,000 | 0 | 0 | 5,250 | 105,250 | | | 2021 | 100,000 | 0 | 0 | 5,293 | 105,293 |
2023 Summary Compensation Table
(1) As required by relevant SEC rules, the amounts for 2023 for each NEO other than Bevin Desmond and Joe Mansueto represent the aggregate grant date fair value for restricted stock unit awards and market stock units granted in 2023 as determined pursuant to FASB ASC Topic 718. The amounts included for the market stock units are calculated based on the probable satisfaction of the performance condition for these awards as of the grant date. Under FASB ASC Topic 718, the vesting condition related to the total shareholder return (TSR) market stock units is considered a market condition and not a performance condition. Accordingly, there is no grant date fair value below or in excess of the amount reflected in the table above for the NEOs that could be calculated and disclosed based on achievement of the underlying market condition. See Note 12 of the Notes to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2023 for a discussion of the relevant assumptions used in calculating these amounts. For further information on these awards, see the 2023 Grants of Plan-Based Awards table. Bevin Desmond retired from the Company effective January 1, 2023. As previously disclosed, in connection with Bevin’s departure, her equity awards were modified in 2022 to allow for continued vesting following her retirement. Under applicable accounting rules, the modification occurred in 2022 at the time of the Compensation Committee action rather than at the time of her 2023 departure and, accordingly, the value reported in this column for 2022 has been revised in accordance with accounting rules to reflect the incremental fair value associated with such 2022 modification. The original grant date fair value of her 2022 stock awards was $699,462, with the modification resulting in an incremental compensation expense of $1,154,447. No additional equity awards were granted in 2023. (2) The amounts represent annual bonus payments made under the Corporate Incentive Plan. For further information on these payments, see Compensation Discussion and Analysis — Cash Compensation — Annual Cash Incentive. (3) For 2023, the amounts represent matching contributions to our 401(k) plan.
2023 Summary Compensation Table
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2023 Grants of Plan-Based Awards
2023 Grants of Plan-Based Awards The following table shows information concerning the grant of plan-based awards in 2023 to each of our NEOs.
2023 Grants of Plan-Based Awards
| Name | Grant Date | Approval Date | Award Type | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards(2) | | | All other Stock Awards: Number of Shares of Stocks or Units(3) | Grant Date Fair Value of Stock Award(4) | | | | | | Target(1) | Threshold | Target | Maximum | | | | Kunal Kapoor | — | — | Bonus | $1,675,000 | — | — | — | — | — | | | 05/15/23 | 05/12/23 | MSU | — | 0 | 9,899 | 29,697 | — | $1,949,806 | | | 11/15/23 | 11/15/23 | MSU | — | 0 | 5,956 | 17,868 | — | $1,949,816 | | | 05/15/23 | 05/12/23 | RSU | — | — | — | — | 6,844 | $1,299,949 | | Jason Dubinsky | — | — | Bonus | $650,000 | — | — | — | — | — | | | 05/15/23 | 05/12/23 | MSU | — | 0 | 3,046 | 9,138 | — | $599,971 | | | 11/15/23 | 11/15/23 | MSU | — | 0 | 1,832 | 5,496 | — | $599,742 | | | 05/15/23 | 05/12/23 | RSU | — | — | — | — | 2,105 | $399,824 | | Danny Dunn | — | — | Bonus | $400,000 | — | — | — | — | — | | | 05/15/23 | 05/12/23 | MSU | — | 0 | 2,284 | 6,852 | — | $449,879 | | | 11/15/23 | 11/15/23 | MSU | — | 0 | 1,374 | 4,122 | — | $449,806 | | | 05/15/23 | 05/12/23 | RSU | — | — | — | — | 1,579 | $299,915 | | Joe Mansueto | — | — | | $0 | — | | — | — | — |
2023 Grants of Plan-Based Awards
(1) Amounts shown represent the Corporate Incentive Plan bonus target for each participating NEO established by the Compensation Committee. The Corporate Incentive Plan does not include specified threshold or maximum payout levels. (2) Amounts shown represent the target and maximum market stock units granted under the 2021 Plan. These market stock units vest on the third anniversary of the grant date depending on our total shareholder return (TSR) over that three-year period and adjusted revenue kicker determined by the Compensation Committee at or before the end of the performance period. The number of shares of our common stock to be received at vesting will range from 0% to 300% of the target amount based on the company’s TSR for the three-year performance period and the adjusted revenue kicker. At threshold performance, none of the shares vest. At target performance, the target number of shares vest. At, maximum, 300% of the target number of shares vest. See Compensation Discussion and Analysis — Equity-Based Compensation — Market Stock Units for more details. (3) Amounts shown consist of restricted stock units granted under the 2021 Plan. These restricted stock units vest in four equal annual installments beginning on the first anniversary of the grant date. (4) Amounts shown represent the aggregate grant date fair value for each restricted stock unit grant and market stock unit grant made in 2023 as determined pursuant to FASB ASC Topic 718. The amounts included for the market stock units are calculated based on the probable satisfaction of the performance condition for these awards as of the grant date.
2023 Grants of Plan-Based Awards
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2023 Outstanding Equity Awards at Fiscal Year-End
2023 Outstanding Equity Awards at Fiscal Year-End The following table shows certain information concerning outstanding equity awards for our NEOs as of December 31, 2023. This table assumes that 150% of the target market stock units granted prior to November 2021, and 200% of the market stock units granted November 2021 and later will vest on future vesting dates and does not reflect the impact of any revenue kicker that may apply.
2023 Outstanding Equity Awards at Fiscal Year-End
| Name | Grant Date | Award Type | Number of Shares or Units of Stock That Have Not Vested | Market Value of Shares or Units of Stock That Have Not Vested | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested | | Kunal Kapoor | 05/15/20 | RSU | 1,290(1) | $369,250 | | | | | 05/15/20 | RSU | 8,257(2) | $2,363,484 | | | | | 05/15/21 | RSU | 2,041(1) | $584,216 | | | | | 05/15/22 | RSU | 2,701(1) | $773,134 | | | | | 05/15/23 | RSU | 6,844(1) | $1,959,027 | | | | | 05/15/21 | MSU | | | 8,472 | $2,425,025(5) | | | 11/15/21 | MSU | | | 5,040 | $1,442,650(6) | | | 05/15/22 | MSU | | | 12,197 | $3,491,269(7) | | | 11/15/22 | MSU | | | 12,936 | $3,702,801(8) | | | 05/15/23 | MSU | | | 19,798 | $5,666,980(9) | | | 11/15/23 | MSU | | | 11,912 | $3,409,691(10) | | Jason Dubsinky | 05/15/20 | RSU | 688(1) | $196,933 | | | | | 05/15/21 | RSU | 918(1) | $262,768 | | | | | 05/15/21 | RSU | 125(1) | $35,780 | | | | | 05/15/22 | RSU | 926(1) | $265,058 | | | | | 05/15/23 | RSU | 2,105(1) | $602,535 | | | | | 05/15/21 | MSU | | | 1,905 | $545,287(5) | | | 11/15/21 | MSU | | | 1,134 | $324,596(6) | | | 05/15/22 | MSU | | | 3,028 | $866,735(7) | | | 11/15/22 | MSU | | | 3,212 | $919,403(8) | | | 05/15/23 | MSU | | | 6,092 | $1,743,774(9) | | | 11/15/23 | MSU | | | 3,664 | $1,048,783(10) |
2023 Outstanding Equity Awards at Fiscal Year-End
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2023 Outstanding Equity Awards at Fiscal Year-End
| Name | Grant Date | Award Type | Number of Shares or Units of Stock That Have Not Vested | Market Value of Shares or Units of Stock That Have Not Vested | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested | | Bevin Desmond | 05/15/20 | RSU | 430(1) | $123,083 | | | | | 05/15/21 | RSU | 510(1) | $145,982 | | | | | 05/15/21 | RSU | 135(1) | $38,642 | | | | | 05/15/22 | RSU | 540(1) | $154,570 | | | | | 05/15/21 | MSU | | | 1,059 | $303,128(5) | | | 11/15/21 | MSU | | | 630 | $180,331(6) | | | 05/15/22 | MSU | | | 1,765 | $505,214(7) | | | 11/15/22 | MSU | | | 1,872 | $535,841(8) | | Daniel Dunn | 05/15/20 | RSU | 387(1) | $110,775 | | | | | 05/15/21 | RSU | 510(1) | $145,982 | | | | | 05/15/21 | RSU | 75(1) | $21,468 | | | | | 05/15/22 | RSU | 695(1) | $198,937 | | | | | 05/15/22 | RSU | 138(3) | $39,501 | | | | | 03/01/23 | RSU | 249(4) | $71,274 | | | | | 05/15/23 | RSU | 1,579(1) | $451,973 | | | | | 05/15/21 | MSU | | | 1,059 | $303,128(5) | | | 11/15/21 | MSU | | | 630 | $180,331(6) | | | 05/15/22 | MSU | | | 2,271 | $650,051(7) | | | 11/15/22 | MSU | | | 2,408 | $689,266(8) | | | 05/15/23 | MSU | | | 4,568 | $1,307,544(9) | | | 11/15/23 | MSU | | | 2,748 | $786,588(10) | | Joe Mansueto | | — | — | — | — | — |
2023 Outstanding Equity Awards at Fiscal Year-End
(1) These restricted stock units vest in four equal annual installments on each of the first four anniversaries of the grant date. (2) These restricted stock units vest in five equal annual installments on each of the first five anniversaries of the grant date. (3) These restricted stock units vest in two equal installments on each of the first two anniversaries of the grant date. (4) These restricted stock units fully vest on the 18-month anniversary of the grant date. (5) These market stock units vest on May 14, 2024, subject to the achievement of total shareholder return performance goals over a three-year performance period. (6) These market stock units vest on November 14, 2024, subject to the achievement of total shareholder return performance goals over a three-year performance period. (7) These market stock units vest on May 14, 2025, subject to the achievement of total shareholder return performance goals over a three-year performance period. (8) These market stock units vest on November 14, 2025, subject to the achievement of total shareholder return performance goals over a three-year performance period. (9) These market stock units vest on May 14, 2026, subject to the achievement of total shareholder return performance goals over a three-year performance period. (10) These market stock units vest on November 14, 2026, subject to the achievement of total shareholder return performance goals over a three-year performance period.
2023 Outstanding Equity Awards at Fiscal Year-End
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2023 Option Exercises and Stock Vested
2023 Option Exercises and Stock Vested The following table shows certain information concerning the exercise of stock options and vesting of restricted stock units and market stock units during the year ended December 31, 2023 for each of our NEOs. Joe Mansueto did not exercise any stock options or receive any shares upon vesting of restricted stock or market stock units in 2023.
2023 Option Exercises and Stock Vested
| | Option Awards | | Stock Awards | | | Name | Number of Shares Acquired on Exercise | Value Realized on Exercise | Number of Shares Acquired on Vesting | Value Realized on Vesting | | Kunal Kapoor | — | $ — | 28,133 | $5,838,803 | | Jason Dubinsky | — | — | 6,110 | $1,273,656 | | Bevin Desmond | — | — | 3,767 | 786,216 | | Danny Dunn | — | — | 3,589 | 745,311 |
Potential Payments Upon Termination or Change in Control
Potential Payments Upon Termination or Change in Control The following table sets forth the market value of the shares subject to unvested restricted stock units and market stock units (at target) that would have vested upon certain terminations of employment or a change in control occurring on December 31, 2023, as described below:
Potential Payments Upon Termination or Change in Control
| | Termination due to Death or Disability(1) | Termination Without Cause(2) | Change in Control(3) | | Kunal Kapoor | | | | | Restricted Stock Units | $6,049,110 | — | $6,049,110 | | Market Stock Units | $4,554,365 | $4,554,365 | $11,295,889 | | Jason Dubinsky | | | | | Restricted Stock Units | $1,363,075 | — | $1,363,075 | | Market Stock Units | $1,117,481 | $1,117,481 | $3,013,821 | | Danny Dunn | | | | | Restricted Stock Units | $1,039,910 | — | $1,039,910 | | Market Stock Units | $747,945 | $747,945 | $2,147,372 | | Joe Mansueto | | | | | Restricted Stock Units | — | — | — | | Market Stock Units | — | — | — |
Potential Payments Upon Termination or Change in Control
(1) Under the applicable award agreements, in the event of a termination due to death or disability (as defined in the applicable award agreements), unvested restricted stock units will immediately vest, and unvested market stock units will vest based on target performance, prorated for the number of months completed in the performance period. The value of market stock units shown in the table above is based on target performance. (2) Under the applicable award agreements, in the event of a termination by the Company without cause (as defined in the applicable award agreements), unvested restricted stock units are forfeited and unvested market stock units will vest based on actual performance, prorated for the number of months completed in the performance period. The value of market stock units shown in the table above is based on an assumed performance level equal to target performance. (3) Amounts in this column represent the market value of the shares subject to unvested restricted stock units and market stock units (assuming target performance) that would have vested had the Board exercised its discretion to accelerate the vesting of such awards upon a change in control occurring on December 31, 2023.
Potential Payments Upon Termination or Change in Control
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CEO Pay Ratio
CEO Pay Ratio We are providing the following disclosure about the relationship of the annual total compensation of our employees to the annual total compensation of Kunal Kapoor, our CEO.
Pay Versus Performance
Pay Versus Performance
Pay Versus Performance
| Pay Versus Performance | | | | | | | | | | Year (1) | Summary Compensation Table Total for PEO (2) | Compensation Actually Paid to PEO (3) | Average Summary Compensation Table Total for Non-PEO Named Executive Officers (2) | Average Compensation Actually Paid to Non- PEO Named Executive Officers (4) | Value of Initial Fixed $100 Investment Based On: (5) | | Net Income ($M) | Adjusted Revenue ($M) (7) | | | | | | | Total Shareholder Return | Peer Group Total Shareholder Return (6) | | | | 2023 | $7,277,421 | $13,444,168 | $1,196,438 | $1,966,551 | $194 | $164 | 141.1 | $2,032.3 | | 2022 | 6,308,977 | (3,290,220) | 1,627,767 | 107,229 | 146 | 122 | 70.5 | 1,883.1 | | 2021 | 5,597,592 | 17,578,908 | 1,198,656 | 2,507,107 | 229 | 154 | 193.3 | 1,684.5 | | 2020 | 7,579,731 | 17,071,970 | 1,062,357 | 2,014,443 | 155 | 129 | 223.6 | 1,348.7 |
Pay Versus Performance
(1) Kunal Kapoor served as the Company’s principal executive (PEO) and each of Jason Dubinsky, Bevin Desmond, Danny Dunn, and Joe Mansueto were the Company’s other NEOs for 2020, 2021, 2022 and 2023. Bevin Desmond resigned from her position with the Company effective January 31, 2023. (2) Amounts reported in this column represent (i) the total compensation reported in the Summary Compensation Table for the applicable year in the case of Kunal and (ii) the average of the total compensation reported in the Summary Compensation Table for the applicable year for the Company’s NEOs for the applicable year other than the PEO for such years. (3) Amounts reported in this column represent the compensation actually paid to Kunal as the PEO in the indicated fiscal years, based on his total compensation reported in the Summary Compensation Table for the indicated fiscal years and adjusted as shown in the table below:
Pay Versus Performance
| | Principal Executive Officer | | | | | | | 2023 | 2022 | | 2021 | 2020 | | Summary Compensation Table — Total Compensation (a) | $7,277,421 | | 6,308,977 | $5,597,592 | $7,579,731 | | - Grant Date Fair Value of Stock Awards Granted in Fiscal Year (b) | $5,199,571 | | 4,499,252 | $2,999,437 | $6,003,467 | | + Fair Value at Fiscal Year-End of Outstanding and Unvested Stock Awards Granted in Fiscal Year (c) | $8,503,605 | | 4,075,140 | $5,103,683 | $10,296,721 | | + Change in Fair Value of Outstanding and Unvested Stock Awards Granted in Prior Fiscal Years (d) | $3,862,264 | | (6,814,902) | $8,792,335 | $5,441,145 | | + Fair Value at Vesting of Stock Awards Granted in Fiscal Year That Vested During Fiscal Year (e) | $0 | | 0 | $0 | $0 | | + Change in Fair Value as of Vesting Date of Stock Awards Granted in Prior Fiscal Years For Which Applicable Vesting Conditions Were Satisfied During Fiscal Year (f) | $(999,550) | | (2,360,183) | $1,084,735 | $(242,159) | | - Fair Value as of Prior Fiscal Year-End of Stock Awards Granted in Prior Fiscal Years That Failed to Meet Applicable Vesting Conditions During Fiscal Year (g) | $0 | | 0 | $0 | $0 | | = Compensation Actually Paid | $13,444,168 | ($ | 3,290,220) | $17,578,908 | $17,071,970 |
Pay Versus Performance
(a) Represents Total Compensation as reported in the Summary Compensation Table for the indicated fiscal year. (b) Represents the aggregate grant date fair value of the stock awards granted to Kunal during the indicated fiscal year, calculated using the same methodology as used in the Company’s financial statements under generally accepted accounting principles. (c) Represents the aggregate fair value as of the indicated fiscal year-end of Kunal’s outstanding and unvested stock awards granted during such fiscal year, calculated using the same methodology as used in the Company’s financial statements under generally accepted accounting principles. (d) Represents the aggregate change in fair value during the indicated fiscal year of the outstanding and unvested stock awards held by Kunal as of the last day of the indicated fiscal year, calculated using the same methodology as used in the Company’s financial statements under generally accepted accounting principles and, for awards subject to performance-based vesting conditions, based on the probable outcome of such performance-based vesting conditions as of the last day of the fiscal year. (e) Represents the aggregate fair value at vesting of the stock awards that were granted to Kunal and vested during the indicated fiscal year, calculated using the same methodology as used in the Company’s financial statements under generally accepted accounting principles. (f) Represents the aggregate change in fair value, measured from the prior fiscal to the vesting date, of each stock award held by Kunal that was granted in a prior fiscal year and which vested during the indicated fiscal year, calculated using the same methodology as used in the Company’s financial statements under generally accepted accounting principles.
Pay Versus Performance
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Pay Versus Performance
(g) Represents the aggregate fair value as of the last day of the prior fiscal year of Kunal’s stock awards that were granted in a prior fiscal year and which failed to meet the applicable vesting conditions in the indicated fiscal year, calculated using the same methodology as used in the Company’s financial statements under generally accepted accounting principles. (4) Amounts reported in this column represent the compensation actually paid to the Company’s NEOs other than Kunal in the indicated fiscal year, based on the average total compensation for such NEOs reported in the Summary Compensation Table for the indicated fiscal year and adjusted as shown in the table below:
Pay Versus Performance
| | Other Named Executive Officers Average (a) | | | | | | 2023 | 2022 | 2021 | 2020 | | Summary Compensation Table — Total Compensation (b) | $1,196,438 | $1,627,767 | $1,198,656 | $1,062,357 | | - Grant Date Fair Value of Stock Awards Granted in Fiscal Year (c) | $699,784 | $988,326 | $474,831 | $437,402 | | + Fair Value at Fiscal Year-End of Outstanding and Unvested Stock Awards Granted in Fiscal Year (d) | $1,144,505 | $571,157 | $790,207 | $788,350 | | + Change in Fair Value of Outstanding and Unvested Stock Awards Granted in Prior Fiscal Years (e) | $448,367 | $(780,841) | $871,533 | $539,157 | | + Fair Value at Vesting of Stock Awards Granted in Fiscal Year That Vested During Fiscal Year (f) | $0 | $0 | $0 | $0 | | + Change in Fair Value as of Vesting Date of Stock Awards Granted in Prior Fiscal Years for Which Applicable Vesting Conditions Were Satisfied During Fiscal Year (g) | $(122,976) | $(322,528) | $121,543 | $61,981 | | - Fair Value as of Prior Fiscal Year-End of Stock Awards Granted in Prior Fiscal Years That Failed to Meet Applicable Vesting Conditions During Fiscal Year (h) | $0 | $0 | $0 | $0 | | = Compensation Actually Paid | $1,966,551 | $107,229 | $2,507,107 | $2,014,443 |
Pay Versus Performance
(a) Please see footnote 1 for the NEOs included in the average for each indicated fiscal year. (b) Represents the average Total Compensation as reported in the Summary Compensation Table for the reported NEOs in the indicated fiscal year. (c) Represents the average aggregate grant date fair value of the stock awards granted to the reported NEOs during the indicated fiscal year, calculated using the same methodology as used in the Company’s financial statements under generally accepted accounting principles. (d) Represents the average aggregate fair value as of the indicated fiscal year-end of the reported NEOs’ outstanding and unvested stock awards granted during such fiscal year, calculated using the same methodology as used in the Company’s financial statements under generally accepted accounting principles. (e) Represents the average aggregate change in fair value during the indicated fiscal year of the outstanding and unvested stock awards held by the reported NEOs as of the last day of the indicated fiscal year, calculated using the same methodology as used in the Company’s financial statements under generally accepted accounting principles and, for awards subject to performance-based vesting conditions, based on the probable outcome of such performance-based vesting conditions as of the last day of the fiscal year. (f) Represents the average aggregate fair value at vesting of the stock awards that were granted to the reported NEOs and vested during the indicated fiscal year, calculated using the same methodology as used in the Company’s financial statements under generally accepted accounting principles. (g) Represents the average aggregate change in fair value, measured from the prior fiscal year-end to the vesting date, of each stock award held by the reported NEOs that was granted in a prior fiscal year and which vested during the indicated fiscal year, calculated using the same methodology as used in the Company’s financial statements under generally accepted accounting principles. (h) Represents the average aggregate fair value as of the last day of the prior fiscal year of the reported NEOs’ stock awards that were granted in a prior fiscal year and which failed to meet the applicable vesting conditions in the indicated fiscal year, calculated using the same methodology as used in the Company’s financial statements under generally accepted accounting principles. (5) Pursuant to rules of the SEC, the comparison assumes $100 was invested on December 31, 2019 in our common stock. Historic stock price performance is not necessarily indicative of future stock price performance. (6) The peer group TSR is based on the market cap weighted TSR performance of the respective compensation peer group disclosed in the Compensation Discussion and Analysis in 2023. In 2023, Broadridge Financial Solutions, Inc. was added to the peer group. TSR for 2023 does not include Focus Financial Partners Inc. as they were not publicly traded as of December 31, 2023. The changes to the peer group in 2023 do not change the TSR values for prior years. (7) As disclosed in the Compensation Discussion and Analysis, Adjusted Revenue is a non-GAAP financial measure and is adjusted to exclude the impact of certain items, such as foreign currency fluctuations.
Pay Versus Performance
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Pay Versus Performance
Relationship Between Pay and Performance We believe the “Compensation Actually Paid” (CAP) in each of the years reported above and over the three-year cumulative period reflects the Compensation Committee’s emphasis on pay-for-performance as the “Compensation Actually Paid” fluctuated year-over-year, primarily due to our stock performance and our varying levels of achievement against pre-established performance goals under our Corporate Incentive Plan and MSU awards.
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| Compensation Discussion and Analysis | Executive Compensation | 62 |
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The following is a list of financial performance measures, which in the Company’s assessment represent the most important financial performance measures used by the Company to link compensation actually paid to the NEOs for 2023. Please see the Compensation Discussion and Analysis for further information regarding how each of these measures is calculated and how they are used in the Company’s executive compensation program. Our 2023 executive compensation program utilized the financial metrics noted below and, in determining the individual performance adjustment for the Corporate Incentive Plan, supplemented those metrics with individual performance achievements, as further described in the Compensation Discussion and Analysis.
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| • | Adjusted Revenue |
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| • | Adjusted EBITDA |
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| • | Total Shareholder Return |
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| 2024 Proxy Statement | 63 |
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Equity Compensation Plan Information The following table includes certain information as of December 31, 2023 regarding our equity incentive plans.
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| | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants, and Rights | Weighted Average Exercise Price of Outstanding Options, Warrants, and Rights | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Covered by Outstanding Options, Warrants, and Rights) | | Equity compensation plans approved by shareholders | 813,853(1) | $—(2) | 2,216,440 | | Equity compensation plans not approved by shareholders | — | — | — | | Total | 813,853 | — | 2,216,440 |
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(1) Includes 352,340 restricted stock units, 407,236 market stock units and revenue kicker shares if earned at maximum, and 54,277 PitchBook performance share awards if earned at maximum that were outstanding as of December 31, 2023. (2) Restricted stock units, market stock units, and PitchBook performance share awards do not have an exercise price. Morningstar does not have any outstanding options as of December 31, 2023.
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| Proposal 2 | 64 |
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Advisory Vote to Approve Executive Compensation As required by Section 14A of the Exchange Act, we are asking our shareholders to vote, on an advisory basis, with respect to compensation awarded to our NEOs as described in this proxy statement. This proposal, commonly known as a “say on pay” vote, gives shareholders the opportunity to express their views on our 2023 executive compensation program and the compensation paid to our NEOs on an advisory or non-binding basis. Our most recent say on pay vote was held at our 2023 Annual Shareholders’ Meeting. At our 2023 Annual Shareholders’ Meeting, shareholders voted (on a non-binding basis) on our executive compensation as disclosed in the proxy statement for that meeting. As discussed in the Compensation Discussion and Analysis, our compensation philosophy is to pay our executives competitive base salaries and provide them with the opportunity to earn meaningful equity-based and incentive compensation. The goals of our executive compensation program, policies, and practices are to attract and retain talented executives, motivate and reward our executives for their contributions to the Company, and align our executives’ interests with the long-term interests of our shareholders. The Compensation Committee and the Board believe the design of the 2023 executive compensation program and the compensation paid to our NEOs under the current program fulfill these goals. This proposal allows our shareholders to express their views on the overall compensation of our NEOs and the philosophy, policies, and practices described in this proxy statement. For the reasons discussed above, we are asking our shareholders to indicate their support for the compensation of our NEOs by voting FOR the following resolution at the annual meeting:
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| “Resolved, that the Company’s shareholders hereby approve, on an advisory basis, the compensation of the named executive officers, as disclosed in this proxy statement pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the Summary Compensation Table, and the other related tables and disclosures.” |
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Because the say on pay vote is an advisory vote only, it will not be binding on the Company or our Board. However, the Board and the Compensation Committee will take into account the outcome of the vote when considering future compensation arrangements for our NEOs.
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| Recommendation of the Board The Board recommends a vote FOR the approval of the resolution relating to the executive compensation of our named executive officers as disclosed in this proxy statement. |
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| 2024 Proxy Statement | 65 |
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Ratification of the Appointment of Independent Registered Public Accounting Firm The Audit Committee has reappointed KPMG LLP as Morningstar’s independent registered public accounting firm for the fiscal year ending December 31, 2024. KPMG has served as our independent registered public accounting firm since 2011. The Audit Committee evaluates the independent registered public accounting firm’s qualifications, performance, and independence each year. As a result of the committee’s evaluation carried out in early 2024, the Audit Committee decided to continue to engage KPMG. Although the Audit Committee has the sole authority to appoint the independent registered public accounting firm, as a matter of good corporate governance we are submitting the appointment of KPMG as our independent registered public accounting firm to shareholders for ratification. If shareholders do not ratify this appointment at the annual meeting, the Audit Committee will undertake further review. We expect that a representative of KPMG will attend the annual meeting. The KPMG representative will be available to respond to appropriate questions from shareholders.
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| Recommendation of the Board and Audit Committee The Board and the Audit Committee recommend that you vote FOR the ratification of the appointment of KPMG as our independent registered public accounting firm for 2024. |
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| Proposal 3 | 66 |
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Audit Committee Report The Audit Committee’s role is to assist the Board in its general oversight of Morningstar’s financial reporting, audit functions, and internal control over financial reporting. Management is responsible for preparing, presenting, and maintaining the integrity of Morningstar’s financial statements; establishing and maintaining accounting and financial reporting principles and internal controls; and following procedures designed to promote compliance with accounting standards, applicable laws, and regulations. The Audit Committee is made up solely of independent directors, as defined under Nasdaq and SEC rules, and it operates under a written charter adopted by the Board, a copy of which is posted in the Investor Relations area of our corporate website at shareholders.morningstar.com/investor-relations in the Governance section. Morningstar intends for the composition of the Audit Committee, the attributes of its members, and the responsibilities reflected in its charter to be in accordance with applicable requirements for public company audit committees. The Audit Committee reviews and assesses the adequacy of its charter on an annual basis. The Board last revised the charter in December 2023. Morningstar has a full-time Internal Audit department, and internal audit leadership reports to the Audit Committee. The Internal Audit department is responsible for objectively reviewing and evaluating the adequacy, effectiveness, and quality of Morningstar’s system of internal controls relating to the reliability and integrity of Morningstar’s financial information and the safeguarding of Morningstar’s assets. Morningstar’s independent registered public accounting firm is responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board and expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. The Audit Committee is directly responsible for the appointment, compensation, retention, and, when appropriate, replacement of Morningstar’s independent registered public accounting firm. At least annually, the Audit Committee reviews the Company’s independent registered public accounting firm to decide whether to retain such firm on behalf of the Company. For additional information on the Audit Committee’s latest review of KPMG, see Proposal 3: Ratification of the Appointment of Independent Registered Public Accounting Firm. Among other matters, the Audit Committee monitors the activities and performance of Morningstar’s internal and independent auditors, including the audit scope, external audit fees, auditor independence, and the extent to which the independent audit firm may be retained to perform non-audit services. KPMG provided the Audit Committee with the written communications required by the Public Company Accounting Oversight Board related to its independence in the role of independent registered public accounting firm for Morningstar. The Audit Committee also discussed KPMG’s independence with KPMG and management. The Audit Committee members are not professional accountants or auditors, and they do not duplicate or certify the activities of management or the independent audit firm, nor can the Audit Committee certify that the independent audit firm is indeed independent under applicable rules. The Audit Committee serves in a board-level oversight and monitoring role. It
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| 2024 Proxy Statement | 67 |
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provides advice, counsel, and direction to management and the auditors based on the information it receives, discussions with management and the auditors, and the experience of its members in business, financial, and accounting matters. The Audit Committee may engage its own outside advisors, including experts in particular areas of accounting, as it determines appropriate. The Audit Committee has an agenda for the year that includes reviewing Morningstar’s financial statements, internal control over financial reporting, and other audit matters. The Audit Committee meets each quarter with the independent audit firm and management to review Morningstar’s interim financial results before the publication of Morningstar’s quarterly filings with the SEC. Management and the independent audit firm review and discuss with the Audit Committee various topics and events that may have significant financial impact on Morningstar. Management and the independent audit firm also review with the Audit Committee matters discussed between them. The Audit Committee reviews and discusses with management risks relating to the Company’s financial systems and data in the context of internal controls and legal exposure, as well as the steps that management has taken to monitor and control them. The Audit Committee is responsible for establishing procedures for handling complaints received by Morningstar regarding accounting, internal controls, or auditing matters. This includes setting up procedures to allow Morningstar employees to submit any concerns they may have regarding questionable accounting or auditing matters in a confidential, anonymous manner. In accordance with Audit Committee policy and the requirements of law, the Audit Committee preapproves all services to be provided by the independent audit firm, including audit services, audit-related services, tax services, and other services. In some cases, the full Audit Committee provides pre-approval for up to a year, related to a particular defined task or scope of work and subject to a specific budget. The Audit Committee has authorized its Chair to preapprove additional services. If the Chair preapproves a service, she reviews the matter with the full Audit Committee at its next regularly scheduled meeting. To avoid potential conflicts of interest, publicly traded companies are prohibited from obtaining certain non-audit services from their independent audit firms. Morningstar obtains these services from other firms as needed. The Audit Committee reviewed and discussed with management and representatives of KPMG Morningstar’s consolidated financial statements for the fiscal year ended December 31, 2023, management’s assessment of the effectiveness of Morningstar’s internal control over financial reporting, and KPMG’s evaluation of Morningstar’s internal control over financial reporting. Management represented to the Audit Committee that the consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles. KPMG represented that its presentations included the matters that the Audit Committee and the independent registered public accounting firm are required to discuss pursuant to the applicable requirements of the Public Company Accounting Oversight Board and the SEC. This review included a discussion with management of the quality, not merely the acceptability, of Morningstar’s accounting principles; the reasonableness of significant estimates and judgments; and the clarity of disclosure in Morningstar’s financial statements, including the disclosures related to critical accounting estimates. Based on these views and other discussions, and KPMG’s reports, the Audit Committee recommended to the Board the inclusion of the audited financial statements in Morningstar’s Annual Report on Form 10-K for the year ended December 31, 2023.