UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SEC 1913 (02-02)
(CMS ENERGY LOGO)
CMS ENERGY CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 18, 2007
To Fellow Shareholders of CMS Energy Corporation:
Our annual meeting of shareholders of CMS Energy Corporation (the "Corporation")
will be held on Friday, May 18, 2007, at 9:00 A.M., Eastern Daylight Saving
Time, at our corporate headquarters located at One Energy Plaza, Jackson,
Michigan 49201. The purposes of the annual meeting are to:
(1) Elect eleven members to the Corporation's Board of Directors;
(2) Consider a proposal to ratify the appointment of an independent
registered public accounting firm to audit the Corporation's
consolidated financial statements for the year ending December 31,
2007; and
(3) Transact such other business as may properly come before the annual
meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1 AND 2. The proxy
holders will use their discretion on other matters that may arise at the annual
meeting.
Our annual report to the shareholders for the year 2006, including the Form 10-K
with our consolidated financial statements, previously has been furnished to
you.
All shareholders are invited to attend our annual meeting. If you were a
shareholder of record at the close of business on March 30, 2007, you are
entitled to vote. Every vote is important. Please vote using a touch-tone
telephone, the Internet, or by signing and returning the enclosed proxy card.
You can help minimize our costs by promptly voting via telephone or the
Internet.
By Order of the Board of Directors
Catherine M. Reynolds
Corporate Secretary
CMS Energy Corporation
One Energy Plaza
Jackson, Michigan 49201
April 11, 2007
PROXY STATEMENT
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TABLE OF CONTENTS
GENERAL INFORMATION ABOUT THE 2007 ANNUAL MEETING AND VOTING............. Page 1
CORPORATE GOVERNANCE..................................................... Page 4
Background............................................................. Page 4
Board of Directors..................................................... Page 5
Director Independence.................................................. Page 5
Majority Voting Policy................................................. Page 6
Codes of Ethics........................................................ Page 6
Director Communication Process......................................... Page 6
Related Party Transactions............................................. Page 7
Board And Committee Information........................................ Page 7
PROPOSAL 1: ELECT ELEVEN MEMBERS TO THE CORPORATION'S BOARD OF
DIRECTORS.............................................................. Page 12
VOTING SECURITY OWNERSHIP................................................ Page 15
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.................. Page 16
COMPENSATION DISCUSSION AND ANALYSIS..................................... Page 16
COMPENSATION AND HUMAN RESOURCES COMMITTEE REPORT........................ Page 24
COMPENSATION TABLES...................................................... Page 25
REPORT OF THE AUDIT COMMITTEE............................................ Page 39
FEES PAID TO THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM........... Page 39
PROPOSAL 2: RATIFY THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM........................................................ Page 40
2008 PROXY STATEMENT INFORMATION......................................... Page 41
PROXY STATEMENT
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GENERAL INFORMATION ABOUT THE 2007 ANNUAL MEETING AND VOTING
The Board of Directors of CMS Energy Corporation ("CMS" or the "Corporation")
solicits your proxy for our annual meeting of shareholders.
The terms "we" and "our" as used in this proxy statement generally refer to CMS
Energy Corporation and its collective affiliates, including its principal
subsidiary Consumers Energy Company ("Consumers"). While established, operated
and regulated as separate legal entities and publicly traded companies, CMS and
Consumers historically have had the same individuals serve as members of both
Boards of Directors and Committees of the Board, adopted coordinated director
and executive compensation arrangements and plans as well as auditing
relationships. The two companies also historically have significant overlap in
executive management. Thus, in certain contexts in this proxy statement, the
terms "our" and "we" refer to each of CMS and Consumers and satisfy their
respective disclosure obligations. In addition, the disclosures frequently
reference "Boards" and "Committees" and similar plural presentations to reflect
these parallel structures of CMS and Consumers
Q: WHAT ARE THE PURPOSES OF THIS ANNUAL MEETING?
A: At the meeting, our shareholders will be asked to:
1) Elect eleven members to the Corporation's Board of Directors. The
nominees are: Merribel S. Ayres, Jon E. Barfield, Richard M. Gabrys,
David W. Joos, Philip R. Lochner, Jr., Michael T. Monahan, Joseph F.
Paquette, Jr., Percy A. Pierre, Kenneth L. Way, Kenneth Whipple and
John B. Yasinsky (see Proposal 1 found later in this proxy statement);
2) Ratify the appointment of PricewaterhouseCoopers LLP as the
Corporation's independent public accounting firm for the year 2007
(see Proposal 2 found later in this proxy statement); and
3) Transact such other business as may properly come before the annual
meeting. The Board of Directors knows of no other matters that might
be presented to the meeting except matters incident to the conduct of
the meeting. However, if any other matters (including matters incident
to the conduct of the meeting) do come before the meeting, it is
intended that the holders of the proxies will vote thereon in their
discretion.
Q: WHO IS ENTITLED TO VOTE AT THE ANNUAL MEETING?
A: Only shareholders of record at the close of business on March 30, 2007
are entitled to vote at the annual meeting. As of March 30, 2007, the
Corporation's only outstanding securities entitled to vote at the annual
meeting consisted of a total of 224,177,088 shares of Common Stock ($.01
par value). Each outstanding share is entitled to one vote on all matters
that come before the annual meeting. All shares represented by valid
proxies will be voted at the annual meeting.
Q: WHAT IS THE DIFFERENCE BETWEEN A SHAREHOLDER OF RECORD AND A "STREET
NAME" HOLDER?
A: If your shares are registered directly in your name you are considered
the shareholder of record for those shares.
If your shares are held in a stock brokerage account or by a bank or
other nominee you are considered the beneficial owner of the shares and
your shares are said to be held in "street name." Street name holders
generally cannot vote their shares directly and must instead instruct the
brokerage firm, bank or other nominee how to vote their shares using the
method described under "How do I vote my shares?" below. If you hold your
shares in a brokerage account but you fail to return your voting
instruction card to your broker, stock exchange rules will determine
whether your broker may vote your shares without first receiving
instructions from you on an item being presented to shareholders for
approval at the annual meeting.
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Q: WHO MAY ATTEND THE ANNUAL MEETING AND ARE THERE ANY REQUIREMENTS I MUST
MEET IN ORDER TO ATTEND THE MEETING IN PERSON?
A: Any shareholder of record as of March 30, 2007 may attend. You will be
asked to register upon arrival at the meeting and will be required to
present a form of photo identification (such as a driver's license) prior
to being admitted to the meeting. If your shares are held in street name
and you plan to attend the meeting bring your most recent brokerage
statement of account for evidence of ownership.
Q: HOW DO I VOTE MY SHARES?
A: If you hold your shares in your own name as a shareholder of record, you
may vote by telephone, through the Internet, by mail or by casting a
ballot in person at the annual meeting.
- To vote by telephone or through the Internet, follow the instructions
attached to your proxy card.
- To vote by mail, complete your proxy card, sign and date it, and return
it in the enclosed, postage-paid envelope.
YOU CAN HELP MINIMIZE OUR COSTS BY PROMPTLY VOTING VIA TELEPHONE OR THE
INTERNET.
If your shares are voted by proxy, the shares will be voted as you
instruct. If you sign and return your proxy card, but do not give any
specific voting instructions on your proxy card, your shares will be
voted as the Board recommends. Your shares will also be voted as
recommended by the Board, in its discretion, on any other business that
is properly presented for a vote at the meeting.
If your shares are held in street name, you must vote your shares in the
manner prescribed by your brokerage firm, bank or other nominee. Your
brokerage firm, bank or other nominee should provide a voting instruction
form for you to use in directing it how to vote your shares.
Q: CAN I CHANGE MY VOTE AFTER I HAVE VOTED OR CAN I REVOKE MY PROXY?
A: Yes. If you are a shareholder of record, you can revoke your signed proxy
card at any time before it is voted at the annual meeting, either by
signing and returning a proxy card with a later date or by attending the
annual meeting in person and changing your vote prior to the start of the
meeting. If you have voted your shares by telephone or the Internet, you
can revoke your prior telephone or Internet vote by recording a different
vote, or by signing and returning a proxy card dated as of a date later
than your last telephone or Internet vote.
If you are the beneficial owner of your shares, you may submit new voting
instructions to your broker, bank or other nominee.
Q: IS MY VOTE CONFIDENTIAL?
A: Yes, CMS shareholder voting is confidential (except as may become
necessary to meet applicable legal requirements or in the event a proxy
solicitation in opposition to the election of the Corporation's Board
nominees is initiated). This is true for all beneficial holders,
including employees and retirees who are shareholders through
participation in the Employee Savings Plan (our 401(k) plan).
Confidentiality of the proxy voting process means:
- Anyone who has access to voting information will not discuss how any
individual shareholder votes;
- Proxy cards and proxy forms are to be kept in a secure area so that no
one has access to them except for the persons assigned to handle and
tabulate the proxies;
- Whether a shareholder has or has not voted is confidential, just as is
how a shareholder votes;
- Any comments provided by shareholders are confidential. Certain
specific comments and summaries of comments are provided to management,
but there is no disclosure of who made the comments;
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- Proxy voting tabulations will be provided to management and to others
as appropriate, but the results provided will be only totals and
meaningful subtotals; and
- The confidentiality policy discussed above relates to all beneficial
holders, although banks and brokers who hold shares on behalf of others
will continue to be subject to proxy solicitation rules as is standard
in the industry.
Q: WHAT CONSTITUTES A QUORUM AT THE ANNUAL MEETING?
A: The presence of the holders of a majority of the outstanding shares of
common stock in person or by proxy at the annual meeting will constitute
a quorum, which is needed to transact any business.
Q: HOW ARE VOTES COUNTED FOR EACH ITEM?
A: The determination of approval of corporate action by the shareholders is
based on votes "for" and "against" (or "withhold authority" in the
context of the election of directors). In general, abstentions are not
counted as "against" or "withhold authority" votes but are counted in the
determination of a quorum. With respect to Proposal 1 below, the election
of each director requires approval from a plurality of the shares voted.
On Proposal 2, approval requires votes "for" by a majority of the shares
voted.
Although Michigan law provides for the election of directors by a
plurality of voted shares as described above, the CMS Board of Directors
adopted a majority voting policy in order to offer our shareholders a
meaningful alternative to plurality voting. Under this policy, any
director nominee who receives less than a majority of the votes cast by
our shareholders shall tender his or her resignation for a determination
by disinterested members of the Board whether to accept or decline that
director's resignation. This policy is described in greater detail later
in this proxy statement under the heading CORPORATE
GOVERNANCE -- Majority Voting Policy.
Under the New York Stock Exchange ("NYSE") listing standards, if your
broker, bank or other nominee holds your shares in its name and does not
receive voting instructions from you, your broker, bank or other nominee
has discretion to vote these shares on certain "routine" matters,
including the election of directors and the ratification of the
independent registered public accounting firm. However, on non-routine
matters, such as the approval of equity compensation plans, your broker,
bank or other nominee must receive voting instructions from you, as they
do not have discretionary voting power for that particular item. These
"broker discretionary votes" on both routine and non-routine matters are
counted toward establishing a quorum. On "routine" matters, broker
discretionary votes are counted toward determining the outcome on that
"routine" matter.
Q: WHAT IS "HOUSEHOLDING" AND HOW DOES IT AFFECT ME?
A: The Securities and Exchange Commission ("SEC") permits us to deliver a
single copy of the annual report and proxy statement to shareholders who
have the same address and last name. Each shareholder will continue to
receive a separate proxy card. This procedure, called "householding,"
will reduce the volume of duplicate information you receive and reduce
our printing and postage costs. A shareholder wishing to receive a
separate annual report or proxy statement can notify CMS at the address
or telephone number below. Similarly, shareholders currently receiving
multiple copies of these documents can request the elimination of
duplicate documents by contacting our Investor Services Department, One
Energy Plaza, Jackson, Michigan 49201, telephone 517-788-1868.
Q: CAN I ACCESS CMS' PROXY MATERIALS VIA THE INTERNET RATHER THAN RECEIVING
THEM IN PRINTED FORM?
A: Yes. We offer shareholders of record the opportunity to access the proxy
materials over the Internet rather than in printed form. This gives
shareholders faster delivery of these documents and saves CMS and its
shareholders the cost of printing and mailing these materials. If you
have already agreed to delivery of CMS' proxy materials via the Internet,
you may access these materials at the following Internet address:
www.cmsenergy.com.
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Q: WHO PAYS THE COST OF SOLICITING PROXIES?
A: The cost of solicitation of proxies will be borne by CMS. Proxies may be
solicited by officers and other employees of CMS or its subsidiaries or
affiliates, personally or by telephone, facsimile, Internet, or mail. We
have arranged for Morrow & Co., Inc., 470 West Avenue, Stamford, CT
06902, to solicit proxies in such manner, and it is anticipated that the
cost of such solicitations will not exceed $10,000, plus incidental
expenses. We may also reimburse brokers, dealers, banks, voting trustees
or other record holders for postage and other reasonable expenses of
forwarding the proxy material to the beneficial owners of CMS Common
Stock held of record by such brokers, dealers, banks, voting trustees or
other record holders.
Q: HOW DOES A SHAREHOLDER RECOMMEND A PERSON FOR ELECTION TO THE BOARDS OF
DIRECTORS FOR THE 2007 ANNUAL MEETING?
A: Shareholders can submit recommendations of nominees for election to the
Boards of Directors. Shareholders' recommendations will be provided to
the Governance and Public Responsibility Committees for consideration.
The recommendations should include (a) the qualifications of the proposed
nominee to serve on the Boards, (b) the principal occupation and
employment of the proposed nominee for the past five years, (c) each
directorship, trustee position or similar position currently held by the
proposed nominee, and (d) a statement from the proposed nominee that he
or she has consented to the submission of the recommendation.
Shareholders should send their written recommendations of nominees c/o
the Corporate Secretary, CMS Energy Corporation or Consumers Energy
Company, One Energy Plaza, Jackson, MI 49201.
CORPORATE GOVERNANCE
BACKGROUND
In March of 2003, the CMS and Consumers Boards of Directors adopted Corporate
Governance Principles (the "Principles") that generally formalized long-standing
corporate and Board practices, although with various updated aspects reflecting
developing best practices as well as Securities and Exchange Commission ("SEC")
and New York Stock Exchange ("NYSE") standards. The Principles detail the role
of the Boards and their Committees, the selection and role of the Chief
Executive Officer ("CEO"), the composition and meeting procedures of the Boards
and their Committees, as well as Board and Committee compensation and self-
evaluation guidelines. At the same time, the Boards adopted, upon the
recommendations of their Governance and Public Responsibility Committees as well
as the applicable Committees, Charters for each of their standing Committees,
except the Executive Committees, that detailed their purposes and duties,
composition, meetings, performance evaluations, resources and authority as well
as other aspects of Committee activities.
In October of 2006 the Boards approved an amendment and restatement of the
Principles and all Committee Charters pursuant to the Governance and Public
Responsibility Committees' recommendations as well as the recommendations of the
respective committees. The Principles were modified to incorporate the common
and duplicative provisions from the various Committees' charters into the
Principles, use plain English and incorporate the previously approved director
majority voting policy into the Principles. All Committee Charters were revised
to develop clearer Board delegations of flexible guidelines and responsibilities
for each Committee.
The current versions of our Principles, the Charters of our standing Committees
(other than the Executive Committee), and other corporate governance
information, including our Employee and Director Codes of Conduct are available
through our Website at www.cmsenergy.com/corporategovernance. We will provide
this information in hardcopy form to any shareholder who requests it.
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BOARDS OF DIRECTORS
The Boards provide oversight with respect to our overall performance, strategic
direction and key corporate policies. They approve major initiatives, advise on
key financial and business objectives, and monitor progress with respect to
these matters. Members of the Boards 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 by our CEO,
Chief Financial Officer ("CFO") and other officers. The Boards have five
standing committees, the principal responsibilities of which are described
below.
DIRECTOR INDEPENDENCE
A director is independent if the Boards affirmatively determine that he or she
has no material relationships with CMS or Consumers and otherwise satisfies the
independence requirements of the NYSE and our more stringent director
independence guidelines included in our Principles posted at
www.cmsenergy.com/corporategovernance. A director is "independent" under the
NYSE listing standards if the Boards affirmatively determine that the director
has no material relationship with CMS or Consumers directly or as a partner,
shareholder or officer of an organization that has a relationship with CMS or
Consumers. The Boards have established categorical standards to assist them in
determining director independence. According to these standards, a director is
independent if:
- No non-employee director has a material relationship with CMS or Consumers
(either directly or as a partner, shareholder or officer of an organization
that has a relationship with CMS or Consumers).
- During the last three years, no non-employee director or his or her family
member:
- received more than $25,000 in direct compensation from CMS or Consumers (in
excess of payments for Board and Committee service);
- was affiliated with or employed by the present or former auditors of CMS or
Consumers;
- was employed as an executive officer by another company that has an
interlocking compensation committee with CMS or Consumers;
- was an officer or employee of a company to which CMS or Consumers made or
received payments of $1 million, or 2% of the other company's or CMS' or
Consumers' consolidated gross revenues; or
- has been an employee of CMS or Consumers.
The Boards undertook their annual review of director and Committee member
independence, including a review of each director's charitable affiliations vis-
a-vis CMS and Consumers charitable contributions, at their March 2007 meetings.
During the year 2006, no non-employee director received any direct compensation
from CMS or Consumers (in excess of payments for Board and Committee service).
With respect to Ms. Ayres, the Board also considered that she is a director of
Alliance Resource Partners, L.P. whose subsidiary Alliance Coal, LLC sells coal
to Consumers in the ordinary course of business. The Board also considered that
Mr. Way is a director and shareholder of Comerica Incorporated whose subsidiary
Comerica Bank provides banking services, including lending, to CMS and Consumers
in the ordinary course of business. The Boards affirmed the "independent" status
(in accordance with the listing standards of NYSE and the Principles) of each of
their non-employee directors including Merribel S. Ayres, Jon E. Barfield,
Richard M. Gabrys, Philip R. Lochner, Jr., Michael T. Monahan, Joseph F.
Paquette, Jr., Percy A. Pierre, Kenneth L. Way, and John B. Yasinsky (with the
exception of Mr. Whipple who served as the Chief Executive Officer of CMS and
Consumers from May 2002 through his resignation effective at the end of
September 2004). In addition, the Board reviewed the independence of Earl D.
Holton who retired as a director in May 2006, and found that Mr. Holton is
independent within the meaning of the rules of the NYSE and the Principles.
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MAJORITY VOTING POLICY
Under the Board's majority voting policy, any director nominee who receives less
than a majority of the votes cast by the Corporation's 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,
without regard to the effect of abstentions. Upon receipt of such a tendered
resignation, the Governance and Public Responsibility Committees shall consider
and recommend to the Boards whether to accept or decline the resignation. The
Boards will act on the Committees' recommendation within 90 days following
certification of the shareholder vote, and contemporaneously with that action
will cause the Corporation to publicly disclose the 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 policy will not be involved in either the
Committees' recommendation or the Boards' decision on accepting or declining the
resignation. Due to complications that arise in the event of a contested
election of directors, this policy would not apply in that context, and the
underlying plurality vote requirement of Michigan law would control director
elections.
CODES OF ETHICS
CMS has adopted a code of ethics that applies to its CEO, CFO and Chief
Accounting Officer ("CAO"), as well as all other officers and employees of the
Corporation and its affiliates, including Consumers. CMS and Consumers have also
adopted a Directors Code of Conduct that applies to the directors of the Boards.
The codes of ethics, included in our Code of Conduct and Statement of Ethics
Handbook, and the Directors Code of Conduct can be found on our website at
www.cmsenergy.com. Our Code of Conduct and Statement of Ethics, including the
code of ethics, is administered by the Chief Compliance Officer, who reports
directly to the Audit Committees of our Boards of Directors. The Directors Code
of Conduct is administered by the Audit Committee of the Board. Any alleged
violation of the Code of Conduct by a Director will be investigated by
disinterested members of the Audit Committee, or if none, by disinterested
members of the entire Board.
DIRECTOR COMMUNICATION PROCESS
CMS and Consumers shareholders, employees or third parties can communicate on
any topic with the Boards of Directors, Committees of the Boards or an
individual director, including our Chairman of the Boards, or our Board
executive session presiding director, Joseph F. Paquette, Jr., by sending
written communications c/o the Corporate Secretary, CMS Energy Corporation or
Consumers Energy Company, One Energy Plaza, Jackson, MI 49201. The Corporate
Secretary will review and forward such communications to the Boards or the
appropriate Committees or director. Further information regarding shareholder,
employee or other third-party communications with the Boards or their Committees
or individual members can be accessed at the Corporation's Website.
Any shareholder, employee or third party who wishes to submit a compliance
concern to the Boards or applicable Committees, including complaints regarding
accounting, internal accounting controls or auditing matters to the Audit
Committees, may do so by any of the following means:
- send correspondence or materials addressed to the appropriate party c/o the
Chief Compliance Officer, CMS Energy Corporation or Consumers Energy Company,
One Energy Plaza, Jackson, MI 49201;
- send an e-mail or other electronic communication via our external website
www.ethicspoint.com, again addressed to the appropriate party; or
- call the CMS and Consumers Compliance Hotlines at either 1-800-CMS-5212 (an
internally monitored line) or 1-866-ETHICSP (monitored by an external vendor).
All such communications initially will be reviewed by the Chief Compliance
Officer (who reports directly to the Boards) prior to being forwarded to the
Boards or applicable Committees or directors.
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RELATED PARTY TRANSACTIONS
CMS, Consumers or one of their subsidiaries may occasionally enter into
transactions with certain related parties. "Related Parties" include certain
directors or executive officers, beneficial owners of 5% or more of CMS common
stock, family members of such persons, and entities in which such persons have a
direct or indirect material interest. A related party transaction occurs when a
Related Party enters into a transaction in which the Corporation is
participating, the transaction amount is more than $10,000 and the Related Party
will acquire a direct or indirect material interest ("Related Party
Transaction").
In accordance with our Board of Directors Code of Conduct and our Employee Code
of Conduct, Related Party Transactions must be pre-approved by the Audit
Committee. In drawing its conclusion on any approval request, the Audit
Committee should consider the following factors:
- Whether the transaction involves the provision of goods or services to the
Corporation that are available from unaffiliated third parties;
- Whether the terms of the proposed transaction are at least as favorable to the
Corporation as those that might be achieved with an unaffiliated third party;
- The size of the transaction and the amount of consideration payable to a
Related Party;
- The nature of the interest of the applicable Related Party; and
- Whether the transaction may involve an actual or apparent conflict of
interest, or embarrassment or potential embarrassment to the Corporation when
disclosed.
The policies and procedures relating to the Audit Committee approval of Related
Party Transactions are found in the Corporation's Board of Directors Code of
Conduct and Employee Code of Conduct which are available on our website at
www.cmsenergy.com.
BOARD AND COMMITTEE INFORMATION
The CMS Board of Directors met 15 times (6 of which were telephone conference
calls) and Consumers' Board of Directors met 14 times (6 of which were telephone
conference calls) during 2006. In addition, the CMS Board took action by written
consent in lieu of additional meetings 3 times in 2006, and the Consumers Board
did so 6 times. All incumbent directors attended more than 75% of the CMS and
Consumers Board and assigned committee meetings during 2006. Our Principles
state the expectation that all Board members attend all scheduled board and
committee meetings, as well as the annual meeting of shareholders. All Board
members attended the 2006 annual meeting of shareholders.
The Boards have various standing committees including an Audit Committee,
Compensation and Human Resources Committee, Finance Committee, Governance and
Public Responsibility Committee and Executive Committee. The members and the
responsibilities of the standing committees of the Boards of Directors are
listed below. Each committee is composed entirely of "independent" directors, as
that term is defined by the NYSE listing standards and the Principles described
above, other than the Executive Committees of which Mr. Whipple serves as Chair.
Employee directors served on no committees during 2006.
According to the Principles, the Boards and each of its standing Committees,
conducts a performance evaluation of their respective previous year's
performance. The Principles are incorporated by reference into each Committee
Charter.
On a regularly scheduled basis, the independent directors meet in executive
session (that is, with no employee director present) and may invite such members
of management to attend as they determine appropriate. Mr. Whipple is often
invited to attend such sessions, especially since he became non-executive
Chairman effective October 1, 2004. At least once each year, the independent
directors meet in executive session without Mr. Whipple present in conformance
with the NYSE listing standards. Mr. Joseph F. Paquette, Jr. was named the
Presiding Director of these executive sessions effective May 2006 for a term of
2 years.
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GOVERNANCE AND PUBLIC RESPONSIBILITY COMMITTEES
Members: Joseph F. Paquette, Jr. (Chair), Merribel S. Ayres, Jon E. Barfield,
Philip R. Lochner, Jr., and John B. Yasinsky
Meetings during 2006: CMS 6; Consumers 6
The primary functions of these committees are to:
Establish Principles
- Recommend the Principles for Board approval;
- Review the Principles on an ongoing basis, recommending revisions as
necessary; and
- Monitor conformity of the practices of the Board with the Principles.
Identify Candidates
- Seek candidates to fill Board positions and work to attract candidates
qualified to serve on the Board consistent with criteria approved by the
Board;
- Recommend a slate of Board candidates for election at each shareholders
meeting;
- When a vacancy occurs on the Board (either due to a director departure or an
increase in Board membership), recommend a director candidate to fill the
vacancy;
- Consider director candidates nominated by shareholders if they are: submitted
in writing to the Secretary of the Corporation within the required time frame
preceding the shareholders meeting; include the candidate's written consent to
serve; and include relevant information about the candidate as provided in the
Bylaws and as determined by the Committee;
- Assess, on a regular basis, the personal characteristics and business
experience needed by the Board in light of the Board's current composition;
- Determine from time to time other criteria for selection and retention of
Board members; and
- Evaluate the composition of all Board Committees annually.
Assess Performance
- Annually review the performance of the Committees, and report the results to
the Board;
- Recommend ways for the Board to increase its overall effectiveness;
- Review the Board's and its Committees' structure and operation, size,
charters, composition and compensation, and recommend to the Board changes
when appropriate;
- Periodically review the Board and Committee rotation and tenure policy and
recommend modifications, as appropriate, to the Board; and
- Oversee new director orientation and continuing education for existing
directors.
Review Environmental and Public Responsibility Matters
- Review the Corporation's environmental initiatives and compliance strategy;
and
- Review the Corporation's public advocacy and stewardship strategies to help
develop and shape corporate policies.
8
Review Director Code of Conduct
- Review the Director Code of Conduct on an ongoing basis and recommend changes,
as appropriate, to the Board.
The Committees have not established any specific, minimum qualifications that
must be met by director candidates or identified any specific qualities or
skills that they believe our directors must possess. The Committees take a wide
range of factors into account in evaluating the suitability of director
candidates. The Committees do not have any single method for identifying
director candidates but will consider candidates suggested by a wide range of
sources.
Shareholders can submit recommendations of nominees for election to the Boards
of Directors. Shareholders' recommendations will be provided to the Committees
for consideration. The recommendations should include (a) the qualifications of
the proposed nominee to serve on the Boards, (b) the principal occupation and
employment of the proposed nominee for the past five years, (c) each
directorship, trustee position or similar position currently held by the
proposed nominee, and (d) a statement from the proposed nominee that he or she
has consented to the submission of the recommendation. Shareholders should send
their written recommendations of nominees c/o the Corporate Secretary, CMS
Energy Corporation or Consumers Energy Company, One Energy Plaza, Jackson, MI
49201.
AUDIT COMMITTEES
Members: Michael T. Monahan (Chair), Richard M. Gabrys, Joseph F. Paquette, Jr.,
and Kenneth L. Way
Meetings during 2006: CMS 9; Consumers 9
Each of the members of the Audit Committees is an independent director, and each
qualifies as an "audit committee financial expert" based upon the following
qualifications:
- Educational background;
- Prior service as chief financial officer and/or chief executive officer
actively supervising accounting activities;
- Understanding of generally accepted accounting principles and financial
statements; or
- Membership on various audit committees.
The primary functions of the Audit Committees are to:
- Assure the integrity of CMS' and Consumers' consolidated financial statements
and financial information, the financial reporting process and the system of
internal accounting and financial controls;
- Assure CMS' and Consumers' compliance with applicable legal requirements,
regulatory requirements, and NYSE rules;
- Appoint, compensate and terminate CMS' and Consumers' independent auditors;
- Pre-approve all audit and non-audit services provided by the independent
auditors;
- Assure the independent auditors' qualifications and independence;
- Review the performance of the internal audit function and independent
auditors;
- Review CMS' and Consumers' risk management policies, controls and exposures;
- Prepare the Audit Committee Report for inclusion in the annual proxy
statement;
- Assure compliance with the Corporation's Codes of Conduct for employees and
directors including approval of any waiver of the provisions applicable to
directors or executive officers, pre-approval of Related Party Transactions
and
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receipt of periodic reports from the Chief Compliance Officer concerning
compliance activities relating to the Codes of Conduct; and
- Perform their duties in a manner consistent with the Audit Committee Charters
adopted by the Boards of Directors.
COMPENSATION AND HUMAN RESOURCES COMMITTEES
Members: John B. Yasinsky (Chair), Jon E. Barfield, Philip R. Lochner, Jr., and
Percy A. Pierre
Meetings during 2006: CMS 9; Consumers 8
The primary functions of these committees are to:
- Review and approve the Corporation's executive compensation structure and
policies, including the establishment and adjustment of executive officers'
base salaries, annual and long-term incentive targets and incentive payments
consistent with the achievement of such targets;
- Review and approve the grant of stock, and other stock-based awards pursuant
to the Corporation's incentive plans, and the terms thereof, including the
vesting schedule, performance goals, exercisability and term, to the
Corporation's employees, including officers;
- Review and approve corporate financial and business goals and target awards
pursuant to the Corporation's incentive plans, and approve the payment of
performance bonuses to employees, consistent with achievement of such goals;
- Set the CEO compensation level based among other things on the Board's
evaluation of the CEO's overall performance;
- Produce an annual proxy statement report on executive compensation as required
by the Securities and Exchange Commission;
- Review and recommend to the Board incentive compensation plans, equity-based
plans, tax-qualified retirement and investment plans, supplemental benefit
plans, including supplemental executive retirement plans, deferred
compensation programs, as well as employment, separation, and change-in-
control severance agreements. The Committee also recommends amendments to
these plans and agreements except for certain amendments that are delegated to
the officers or administrators specified under the terms of the plans;
- Review and act on management proposals regarding other compensation,
perquisites and benefit programs, plans and guidelines;
- Perform other functions assigned to the Committee under the terms of the
Corporation's employee benefit and compensation plans;
- Review and act on the CEO's selection of candidates for officer positions and
recommend such candidates to the Board for annual or ad hoc election as
officers, and recommend to the Board whether to accept or decline tenders of
resignation pursuant to the Corporation's Executive Officer Retirement Policy;
- Review and advise the Board concerning the Corporation's management succession
plan, including long-range plans for development and selection of key managers
and plans for emergency succession in case of unexpected disability or
departure of a senior executive officer;
- Review organizational and leadership development plans and programs, as well
as programs designed to identify, attract and retain high potential employees;
and
- Review the Corporation's diversity programs.
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The Committees directly retain Watson Wyatt Worldwide ("Watson Wyatt") as
compensation consultants to the Committees. In 2002, the Committees requested
that Watson Wyatt engage in a study of our executive compensation arrangements
and advise whether any changes would be recommended in order that our
compensation arrangements with our executive officers are appropriate. The
Committees requested that the study include comparisons of our existing
compensation arrangements to those of the Peer Group. Each year since 2002, the
Committees have requested that Watson Wyatt provide information regarding
compensation practices of the Peer Group as well as additional information from
published surveys of compensation in the public utility sector and general
industry. During the Committees' review of the CEO's and other managements'
compensation levels, the Committees considered the advice and information it
received from Watson Wyatt; however, the Committees were responsible for
determining the form and amount of our compensation programs. The Committees
have specifically directed Watson Wyatt to obtain the approval of the Committees
before undertaking any activity on behalf of CMS or Consumers.
The CMS Board adopted a resolution in October 2004 allowing the CMS Committee to
delegate to the CEO the right to grant up to 50,000 shares of restricted stock
per year. Individual grants are limited to 5,000 shares. The CEO provides to the
Committee a recommendation of yearly base salary adjustments and yearly
restricted stock awards for all officers, other than the CEO. The Committee
takes the CEO's recommendations, along with information provided by Watson
Wyatt, into consideration when making yearly base salary adjustments and yearly
restricted stock awards. Performance objectives under the Annual Officer
Incentive Compensation Plan are developed each year through an iterative
process. Management, including executive officers, develops preliminary
recommendations for the Committees' review. The Committees review management's
preliminary recommendations and establish final goals.
FINANCE COMMITTEES
Members: Kenneth L. Way (Chair), Merribel S. Ayres, Richard M. Gabrys, Michael
T. Monahan, and Percy A. Pierre
Meetings during 2006: CMS 3; Consumers 3
The Finance Committees review and make recommendations to the Boards concerning
the financing and investment plans and policies of the Corporation. Their
responsibilities include:
- Approve short- and long-term financing plans, including the sale or repurchase
of common equity, preferred equity and long-term debt and recommend that the
Board adopt resolutions to execute those plans;
- Approve financial policies relating to cash flow, capital structure, and
dividends and recommend that the Board adopt resolutions to execute those
plans, as appropriate, and recommend Board action to declare dividends;
- Review potential project investments and other significant capital
expenditures in order to recommend to the Board the financial feasibility of
such investment or expenditure;
- Approve risk management policies including foreign exchange management,
hedging, insurance and political risk insurance; and
- Review at least annually the (i) actuarial assumptions and funding status of
the defined benefit retirement program funds and their impact on the financial
statement, and (ii) the investment performance, funding, and asset allocation
policies for funded employee benefit plans and nuclear decommissioning trusts.
EXECUTIVE COMMITTEES
Members: Kenneth Whipple (Chair), Michael T. Monahan, Joseph F. Paquette, Jr.,
Kenneth L. Way, and John B. Yasinsky
Meetings during 2006: CMS 1; Consumers 0
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The primary function of these committees is to:
- Exercise the power and authority of the Boards of Directors as may be
necessary during the intervals between meetings of the Boards, subject to such
limitations as are provided by law or by resolution of the Boards.
AD HOC OR SPECIAL COMMITTEES
The standing committees listed above have continuing duties. In addition, the
Boards of Directors have, from time to time, established ad hoc or special
committees to address specific major issues facing CMS and/or Consumers. Ad hoc
or special committees do not have continuing duties; they exist only until they
complete their specified duties. The most significant such committee that was
active during 2006 was the Boards' Ad Hoc Litigation Oversight Committee, as
discussed below.
AD HOC LITIGATION OVERSIGHT COMMITTEE
Members: Philip R. Lochner (Chair), Jon E. Barfield and Richard M. Gabrys
Meetings during 2006: CMS 7
The CMS Board of Directors established this special committee and confirmed its
duties in March 2006. The purpose of the Ad Hoc Litigation Oversight Committee
is to meet as required with CMS' Chief Legal Officer and/or General Counsel, and
outside counsel when deemed appropriate, to review strategic and significant
financial aspects of our continuing securities, Employee Retirement Income
Security Act and gas price reporting antitrust class action lawsuits, as well as
other investigations and potential litigation arising from those same underlying
facts and circumstances, and such other investigations and litigation the
oversight for which may be delegated by the Board in the future. The Committee
shall make periodic reports to the full Board as circumstances and developments
warrant. The Committee shall continue it existence until such time as the Board
of Directors shall determine, upon recommendation of the Committee, that its
responsibilities are substantially complete.
Pursuant to the indemnification requirements of the CMS Restated Articles of
Incorporation, as amended, as well as applicable Board resolutions and
provisions of Michigan law, the Corporation has paid the expenses (including
attorney's fees) of certain of its current and former officers and directors
incurred in connection with the proceedings described above, as well as those
incurred in other completed regulatory investigations. The Corporation continues
to pay similar expenses related to pending legal proceedings. These
investigations and proceedings are further described in CMS' Annual Report on
Form 10-K for the year ended December 31, 2006. Each of these individuals has
provided an undertaking to repay all amounts advanced if it is ultimately
determined that he or she is not entitled to be indemnified under Michigan law.
The Corporation maintains directors, officers and fiduciaries insurance coverage
that may allow for reimbursement for some or all of these advanced amounts.
PROPOSAL 1: ELECT ELEVEN MEMBERS TO THE CORPORATION'S BOARD OF DIRECTORS
The nominees for directors are proposed to serve on the parallel Boards of
Directors of each of CMS and Consumers, to hold office until the next annual
meeting or until their successors are elected and qualified. Unless a
shareholder votes to "withhold authority" for the election of directors as
provided in the enclosed proxy card, the returned proxy will be voted for the
listed nominees. The Boards believe that the nominees will be available to
serve, but in the event any nominee is unable to do so, the CMS proxy 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 presently serving as directors and were previously elected by
shareholders.
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MERRIBEL S. AYRES, 55, has served since 1996 as President of Lighthouse
Consulting Group, LLC. Lighthouse provides governmental affairs and
communications expertise, as well as management consulting and business
development services, to a broad spectrum of international clients. Ms. Ayres
served from 1988 to 1996 as Chief Executive Officer of the National Independent
Energy Producers, a Washington, D.C. trade association representing the
competitive power supply industry. She is a member of the Aspen Institute Energy
Policy Forum and the Dean's Alumni Leadership Council of Harvard University's
Kennedy School of Government. She is a director of the United States Energy
Association (USEA) and the Alliance Resource Partners L.P. She has been a
director of CMS and of Consumers since 2004.
JON E. BARFIELD, 55, has served since 1981 as the President and since 1995 as
the Chairman of The Bartech Group based in Livonia, Michigan, a human capital
and staffing management firm which specializes in the placement of engineering
and information technology professionals and managing the staffing requirements
of regional and global corporations. Mr. Barfield currently serves as a director
on the public boards of BMC Software, Inc., Dow Jones and Company and National
City Corporation. He is also a director of Blue Cross Blue Shield of Michigan,
Detroit Renaissance Inc., and Kettering University. He has been a director of
CMS and of Consumers since August 2005.
RICHARD M. GABRYS, 65, Interim Dean of the School of Business Administration of
Wayne State University; retired Vice Chairman of Deloitte & Touche LLP. Mr.
Gabrys served for 42 years with Deloitte & Touche in public accounting serving a
variety of publicly held companies, especially automotive manufacturing
companies, financial services institutions and health care entities. Mr. Gabrys
serves on the boards of Dana Corporation, La-Z-Boy Corporation, Tri-Mas
Corporation, the Detroit Institute of Arts, the Karmanos Cancer Institute, Ave
Maria College and Ave Maria University. He has been a director of CMS and of
Consumers since May 2005.
DAVID W. JOOS, 54, has served since October 2004 as President and Chief
Executive Officer of CMS and Chief Executive Officer of Consumers. He served
from 2001 to 2004 as President and Chief Operating Officer of CMS and Consumers;
2000 to 2001 as Executive Vice President and Chief Operating Officer -- Electric
of CMS; and from 1997 to 2000 as President and Chief Executive
Officer -- Electric of Consumers. He is a director of Steelcase, Inc., the
Edison Electric Institute (EEI), the Nuclear Management Co., the Michigan
Manufacturers Association and the Detroit Renaissance Inc. He has been a
director of CMS and of Consumers since 2001.
PHILIP R. LOCHNER, JR., 64, served from 1991 through 1998 as Senior Vice
President and Chief Administrative Officer of Time Warner Inc. Immediately
preceding that employment, Mr. Lochner served as a commissioner of the SEC. He
is a director of Apria Healthcare Group Inc., CLARCOR Inc., Crane Co. and
Monster Worldwide, Inc. He has been a director of CMS and Consumers since May
2005.
MICHAEL T. MONAHAN, 68, has served since 1999 as President of Monahan
Enterprises, LLC, a Bloomfield Hills, Michigan-based consulting firm. He was
Chairman of Munder Capital Management, an investment management company, from
October 1999 to December 2000 and Chairman and Chief Executive Officer of Munder
Capital from October 1999 until January 2000. Prior to that, he was President
and a director of Comerica Bank from 1992 to 1999 and President and a director
of Comerica Inc. from 1993 to 1999. He is a director of The Munder Funds, Inc.,
a director of Engineered Machined Products, Inc., as well as a member of the
Boards of Trustees of Henry Ford Health Systems, Inc. and of the Community
Foundation for Southeast Michigan. He has been a director of CMS and of
Consumers since December 2002.
JOSEPH F. PAQUETTE, JR., 72, served from 1988 to 1995 as Chairman and Chief
Executive Officer and from 1995 until his retirement in 1997 as Chairman of PECO
Energy, formerly the Philadelphia Electric Company, a major supplier of electric
and gas energy. He is also a director of USEC, Inc. He has been a director of
CMS and of Consumers since December 2002. He had previously served as a director
of CMS and Consumers and as President of CMS from 1987 to 1988.
PERCY A. PIERRE, 68, is Vice President and Professor Emeritus of Michigan State
University. From 1990 to 1995 he served as Vice President for Research and
Graduate Studies and from 1995 to 2005 as Professor of Electrical and Computer
Engineering. Dr. Pierre is a former Assistant Secretary of the Army for
Research, Development and Acquisition. He is also a former President of Prairie
View A&M University. He also serves as a member of the Board of Trustees for the
University
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of Notre Dame and the Board of the White House Fellows Foundation and
Association. He has been a director of CMS and of Consumers since 1990.
KENNETH L. WAY, 67, served from 1988 through 2002 as Chairman of Lear
Corporation, a Southfield, Michigan-based supplier of automotive interior
systems to the automotive industry. In addition, he served from 1988 to 2000 as
Chief Executive Officer of Lear Corporation. He is a director of Comerica Inc.,
WESCO International, Inc., and Cooper Standard Automotive. He has been a
director of CMS and of Consumers since 1998.
KENNETH WHIPPLE, 72, Chairman of the Board, served from May of 2002 through
September of 2004 as Chairman and Chief Executive Officer of CMS and Consumers.
He served from 1988 until his retirement in 1999 as Executive Vice President of
Ford Motor Company, Dearborn, Michigan, a world-wide automotive manufacturer,
and President of the Ford Financial Services Group. In addition, he served from
1997 to 1999 as Chairman and Chief Executive Officer of Ford Motor Credit
Company. He is a director of Korn/Ferry International, as well as a trustee of
certain mutual funds in the JPMorgan family of mutual funds. He has been a
director of CMS and of Consumers since 1993.
JOHN B. YASINSKY, 67, served from 1999 until his retirement in 2000 as Chairman
and Chief Executive Officer and continued as Chairman until February 2001 of
OMNOVA Solutions Inc., a Fairlawn, Ohio-based developer, manufacturer, and
marketer of emulsion polymers, specialty chemicals, and building products. He
served from 1995 to 1999 as Chairman, Chief Executive Officer and President of
GenCorp. He is a director of TriState Capital Bank and A. Schulman, Inc. He has
been a director of CMS and of Consumers since 1994.
YOUR BOARD RECOMMENDS A VOTE FOR THE ELECTION OF EACH NOMINEE.
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VOTING SECURITY OWNERSHIP
We have received a copy of a Schedule 13G filed with the SEC by each of the
following companies which indicate their December 31, 2006 holdings of CMS
Common Stock as follows:
Name and Address of
Beneficial Owner Amount of Shares Percent Ownership
------------------- ---------------- -----------------
FMR Corp. ....................................... 21,490,010 9.6%
82 Devonshire Street
Boston, MA 02109
Lord, Abbett & Co. LLC........................... 19,078,774 8.6%
90 Hudson Street
Jersey City, NJ 07302
Each of these Schedule 13G filings indicate 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 our outstanding voting securities.
The following chart shows the beneficial ownership of CMS Common Stock by the
directors and named executive officers of both CMS and Consumers:
Shares
Name Beneficially Owned*
---- -------------------
Merribel S. Ayres............................................ 10,049
Jon E. Barfield.............................................. 3,493
Richard M. Gabrys............................................ 6,558
David W. Joos................................................ 522,162
Philip R. Lochner, Jr. ...................................... 6,558
Michael T. Monahan........................................... 14,003
Joseph F. Paquette, Jr. ..................................... 44,565
Percy A. Pierre.............................................. 28,235
Kenneth L. Way............................................... 45,732
Kenneth Whipple.............................................. 70,462
John B. Yasinsky............................................. 17,570
Thomas J. Webb............................................... 216,748
John G. Russell.............................................. 178,367
Thomas W. Elward............................................. 137,502
James E. Brunner............................................. 57,026
Robert A. Fenech............................................. 59,863
S. Kinnie Smith, Jr. ........................................ 208,208
All directors and executive officers**....................... 1,932,755
* All shares shown above are as of March 31, 2007. In addition to the shares
shown above, Messrs. Joos, Webb, Russell, Elward, Brunner, Fenech and
Smith, as well as all other executive officers of CMS and Consumers as a
group, owned options to acquire 267,000; 0; 34,000; 50,000; 0; 66,900;
165,000 and 383,179 shares, respectively, as of March 31, 2007. Mr.
Whipple has not been granted any options to acquire CMS Common Stock,
however, as of March 31, 2007, he held 125,000 phantom stock units payable
in cash but valued in an amount equivalent to the same number of shares of
CMS Common Stock. Mr. Whipple had earned or been awarded these and
previously paid-out phantom stock units pursuant to his employment
agreement during the period he served as CMS and Consumers Chief Executive
Officer.
15
** All directors and executive officers includes executive officers of both
CMS and Consumers; the directors of CMS and Consumers are the same
individuals, as disclosed earlier in this proxy statement. As of March 31,
2007, the directors and executive officers of CMS and Consumers
individually and collectively owned less than 1% of the outstanding shares
of CMS Common Stock.
Shares of CMS Common Stock shown as beneficially owned include:
- Shares to which a person has or shares voting power and/or investment power.
- The number of shares and share equivalents represented by interests in or
pursuant to the:
- Employee Savings Plan (our 401(k) plan);
- Deferred Salary Savings Plan; and
- Performance Incentive Stock Plan.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and
executive officers to file with the SEC reports of beneficial ownership and
changes in such ownership of any of CMS or Consumers equity securities or
related derivative securities. To management's knowledge, during the year ended
December 31, 2006, CMS and Consumers executive officers and directors made all
required Section 16(a) filings on a timely basis except that filings for Messrs.
Paquette and Holton (a director who retired in May 2006) inadvertently reported
four separate 2005 acquisitions of phantom stock units on a Form 5 rather than a
Form 4. These acquisitions were subsequently properly reported on Forms 4. In
addition, Mr. Holton filed two late Forms 4 regarding phantom stock units
acquired in 2006.
COMPENSATION DISCUSSION AND ANALYSIS
This section provides information regarding the 2006 compensation program for
our named executive officers ("NEOs"). NEOs include our principal executive
officer ("CEO"), principal financial officer ("CFO"), and the three most highly-
compensated executive officers of CMS and Consumers other than the CEO and CFO.
It includes information regarding, among other things, the overall objectives of
our compensation program and each element of compensation that we provide.
OBJECTIVES OF OUR COMPENSATION PROGRAM
The Compensation and Human Resources Committees (the "Committee") of our Boards
of Directors (the "Board") have responsibility for approving the compensation
program for our NEOs. The Committee acts pursuant to a charter that has been
approved by our Board and is available on our website. The program is organized
around four principles:
NEO Compensation Should Be Aligned With Increasing Shareholder Value. We
believe that a substantial portion of total compensation should be delivered in
the form of equity in order to align the interests of our NEOs with the
interests of our shareholders. In 2006, all equity compensation provided to NEOs
was granted in the form of performance-based restricted stock, which vests if,
and only to the extent that, specific performance goals established by the
Committee are met.
Our Compensation Program For NEOs Should Enable Us to Compete for First-Rate
Executive Talent. Shareholders are best served when we can attract, retain and
motivate talented executives with compensation packages that are competitive and
fair. We create a compensation package for NEOs that delivers salary, annual
incentives and long-term incentives at the 50th percentile of the market, as
defined by a Committee-approved 17-company peer group. The peer group consists
of energy companies comparable in business focus and size to CMS with which we
might compete for
16
executive talent (the "Peer Group"). The compensation package also provides
executives the opportunity to earn approximately at the 75th percentile
compensation of the Peer Group based on superior performance, through bonus and
equity awards. To assist in this process, the Committee engages a nationally-
known compensation consulting firm, Watson Wyatt, to provide advice and
information regarding compensation practices of the Peer Group as well as
additional information from published surveys of compensation in the public
utility sector and general industry. In selecting members of the peer group,
various financial and operational characteristics are considered. In 2006, the
Peer Group consisted of the following companies:
Alliant Energy Keyspan SEMPRA Energy
Ameren NiSource TECO Energy
Constellation Energy Northeast Utilities Wisconsin Energy
DTE Energy PPL WPS Resources
Energy East Progress Energy Xcel Energy
FirstEnergy SCANA
NEO Compensation Should Reward Measurable Results. As noted, the equity
compensation plan is fully performance contingent. Base salary is reviewed
annually and adjusted based on a variety of factors including each NEO's overall
performance as determined by the Committee. In making its determinations, the
Committee seeks base salary recommendations from the CEO for NEOs other than the
CEO, as well as input of market and Peer Group data from Watson Wyatt. CEO base
salary is determined solely by the Committee based on market and Peer Group data
from Watson Wyatt and overall CEO performance. Bonuses, the other form of cash
compensation, provide for award opportunities to each NEO under the Annual
Officer Incentive Compensation Plan ("Bonus Plan") (which pays bonuses on the
basis of performance over a one-year period) that are targeted at 45% to 65% of
each NEO's base salary, but may range from zero to two times the target level
depending on performance against specific targets. Bonuses under the Bonus Plan
are paid if, and only if, the company-wide goals set by the Committee, pursuant
to the Bonus Plan, are attained.
Our Compensation Program Should Be Fair and Competitive. We strive to create a
compensation program that will be perceived as fair, both internally and
externally. It accomplishes this by comparing the compensation that is provided
to our NEOs to:
- the compensation, as described above, provided to officers of the companies in
the Peer Group and, as reported in the published surveys, as a means to
measure external fairness;
- other senior employees of CMS, as a means to measure internal fairness; and
- individual performance.
THE ELEMENTS OF OUR COMPENSATION PROGRAM
This section describes the various elements of our compensation program for
NEOs, together with a discussion of various matters relating to those items,
including why we chose to include the items in the compensation program.
Cash Compensation
Our 2006 compensation program for NEOs was designed so that, subject to
performance, the percentage of cash compensation paid to our NEOs is comparable
to that paid to NEOs of the Peer Group. That strategy resulted in cash payments
(as a percentage of cash and equity compensation) representing approximately 50%
for the CEO to 75% for the sixth NEO. The range and mix of 50% for the CEO to
75% for the sixth NEO, is set to align with the Peer Group. Cash compensation is
paid in the form of salary and annual incentive. Salary is included in CMS' NEO
annual compensation package because we believe it is appropriate that some
portion of NEO compensation is provided in a form that is fixed and liquid.
Performance-based bonuses are included in the package because they permit us to
provide incentive to our NEOs. Performance priorities for CMS serve as the basis
for selecting annual incentive compensation ("bonus") goals.
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For 2006, the bonus program was based on our success in meeting challenging CMS
adjusted earnings per share and free cash flow goals agreed to by the Committee.
Adjusted earnings represent present operating financial performance, unaffected
by discontinued operations, asset sales, impairments, or other items. The
components comprising the cash portion of total compensation are described
below.
Salary. Base salary for NEOs for any given year is generally agreed to by the
Committee at the final scheduled meeting of the previous year. Increases or
decreases in base salary on a year-over-year basis are dependent on the NEO's
position within the salary range, industry, Peer Group, and national surveys, as
well as the collective judgment as to past and expected future contributions of
each individual. In fixing salaries, we are mindful of our overall goal to keep
cash compensation, including salary and target bonus, for our executive officers
near the 50th percentile of cash compensation paid by companies in our Peer
Group. The increases in base salaries for NEOs (other than Mr. Brunner) in 2006
ranged from 1.8% to 10.8%. Mr. Brunner's increase was 36% as a result of his
promotion to Senior Vice President and General Counsel.
Annual Officer Incentive Compensation Plan. We have one cash bonus plan, the
Bonus Plan, in which NEOs participate. The Bonus Plan pays out on the basis of
the achievement of goals set for a single fiscal year. The Bonus Plan was
approved by shareholders at the Annual Meeting of Shareholders in 2004. This
plan, which is described below, provides cash compensation to NEOs only if, and
to the extent that, performance conditions set by the Committee are met. Target
bonuses under the Bonus Plan are agreed to in February of each year by the
Committee.
In determining the amount of target bonuses under the Bonus Plan, we consider
several factors, including:
- the target bonus level, and actual bonuses paid, in recent years;
- the relative importance, in any given year, of each performance factor goal
established pursuant to the Bonus Plan; and
- the advice of Watson Wyatt as to compensation practices at other companies in
the Peer Group and the utility industry.
Performance objectives for the Bonus Plan are developed each year through an
iterative process. Based on a review of business plans, management, including
certain NEOs, develops preliminary recommendations for Committee review. Based
upon the strategic priorities of CMS, the Committee reviews management's
preliminary recommendations and establishes final goals. In establishing final
goals, we strive to ensure that the incentives provided pursuant to the Bonus
Plan are consistent with the strategic goals set by the Board, that the goals
set are sufficiently ambitious so as to provide a meaningful incentive and that
bonus payments, assuming target levels of performance are attained will be
consistent with our overall NEO compensation program. The Committee reserves the
discretion to reduce or eliminate bonuses under the Bonus Plan. The Committee
did not exercise this discretion in 2006.
Actual payments, if any, under the Bonus Plan can range, on the basis of
performance, from 25% (threshold) to 200% (maximum) of the target bonus agreed
to by the Committee. For fiscal year 2006, the Committee selected adjusted
earnings per share and corporate free cash flow as the corporate performance
goals.
Corporate Performance Goals: The plan payout ("Performance Factor %") for 2006
depended on corporate performance in two areas: adjusted earnings per
outstanding share of CMS Energy common stock ("Common Stock") ("Plan EPS"); and
the corporate free cash flow of CMS ("CFCF"). For 2006, the Committee determined
Plan EPS performance constituted one-third of the composite plan performance
factor and CFCF performance constituted the remaining two-thirds of the
composite plan performance factor. These percentages reflect the fact that in
2006 CFCF was a higher strategic priority for CMS. There is a payout under the
Bonus Plan if either a Plan EPS performance factor of 95 percent of target or a
CFCF performance factor of at least 83.3 percent of target is achieved. If one
but not both of these target minimums is achieved, a partial payout would
result. The composite plan performance factor used for payouts is capped at a
maximum of 200 percent.
Annual Award Formula: Annual awards for each eligible officer are based upon a
standard award percentage of the officer's base salary for the performance year.
The maximum amount that can be awarded under the Bonus Plan to any
18
one person will not exceed $2.5 million in any one performance year. This plan
provision is an upper limit and not reachable by current payout formulas. Annual
awards for officers are calculated and made as follows: Individual Award = Base
Salary times Standard Award Percentage times Performance Factor %. The standard
award percentages for officers are based on individual salary grade levels and
remain unchanged from the 2004 plan. Standard Award percentages for NEOs in 2006
were 65%, 55%, 55%, 50%, 50%, 45% and 60% of base salary, respectively, for each
NEO in the Summary Compensation Table.
Actual EPS and CFCF were both above target resulting in a payout of 140% of
target for 2006 annual awards.
Equity Compensation
Performance Incentive Stock Plan. As previously indicated, we pay a substantial
portion of NEO compensation in the form of equity awards because we believe that
such awards serve to align the interests of NEOs and our shareholders. Equity
awards to our NEOs are made pursuant to our Performance Incentive Stock Plan
("Stock Plan") approved by shareholders in 2004. The Stock Plan provides for
awards in the form of stock options, stock appreciation rights, restricted
stock, phantom shares, and performance units. At the present time, we believe
that performance-based restricted stock is the most effective form of equity
compensation because of the greater alignment it creates with shareholders than
do stock options, stock appreciation rights, phantom shares or performance
units. Restricted stock granted is performance-based and vests 100% three years
after the original grant date assuming the achievement of pre-established total
shareholder return ("TSR") goals. One half of the award is based on the
achievement of an absolute TSR level ranging from 15% to 45% and one-half of the
award is based on a relative TSR comparison to the Peer Group. The Committee
uses a fifty/fifty ratio to incent both absolute and relative performance.
Threshold for achievement of the relative TSR goal is 15 percentage points below
the Peer Group median, target is Peer Group Median and maximum is 15 percentage
points above Peer Group median. In 2006, the Committee awarded restricted stock
to NEOs that will vest in 2009 assuming the above referenced shareholder return
targets are met. The TSR targets and percentages are reviewed each year by the
Committee. Starting and ending stock prices for TSR determination are
established based on the 20-day average prior to award date and vesting date.
These dates are established well in advance and are based on the August
Committee meeting each year. These awards could vest, if at all, in an amount
ranging from 50% to 150% of the specified target level of award based on the TSR
over the three-year performance period. During 2006 the Committee did not award
any other form of equity to our NEOs pursuant to the Stock Plan.
The amount of equity compensation that is provided to each NEO in a given year
is generally determined by guidelines based on the salary grade of each NEO. The
guidelines are dependent on the Committee's assessment, for that year, of the
appropriate balance between cash and equity compensation. In making that
assessment, we consider factors such as retention and incentive practices and
the relative percentages of cash and equity paid by the Peer Group companies, as
reported to us by Watson Wyatt. The Committee also receives restricted stock
grant recommendations from the CEO for NEOs other than the CEO. CEO restricted
stock grants are determined solely by the Committee based principally on market
and Peer Group data from Watson Wyatt and overall CEO performance. In 2006, the
Committee granted restricted stock that, as a percentage of cash and equity
(assuming performance at target levels), was approximately 50% for the CEO and
20% for the sixth NEO. This mix of equity and cash compensation gives our NEOs a
substantial alignment with shareholders, while also permitting us to provide
incentive to the NEOs to pursue specific short- and long-term performance goals.
A description of the form of equity awards that may be made under the Stock Plan
follows.
Stock Options and Stock Appreciation Rights. Stock options granted under
the Stock Plan are exercisable at any time in any installments as
determined by the Committee at the time of the grant. At the discretion of
the Committee, any stock option granted under the Stock Plan may, at the
time of grant, include a stock appreciation right. A stock appreciation
right may be granted only in conjunction with a related stock option and is
exercisable only
19
at the time the related stock option is exercisable and only if the fair
market value exceeds the stock option price of the related stock option.
All stock options are granted at 100% of the fair market value of the
Common Stock on the date of grant and have a ten-year term. Stock options
previously granted under the Stock Plan cannot be re-priced by reducing the
exercise price, nor may stock options previously granted under the Stock
Plan be cancelled and replaced by a subsequent grant under the Stock Plan
of stock options having a lower exercise price than the cancelled stock
options.
Restricted Stock. The Committee may award restricted shares of Common
Stock to any eligible person it designates. The Committee may also award
restricted shares of Common Stock conditioned on the attainment of one or
more performance goals that relate to shareholder return, measured by
performance criteria as determined by the Committee as set forth in the
award.
Phantom Shares. The Committee may grant phantom shares, the value of which
is related to a share of Common Stock on terms and conditions as the
Committee, in its discretion, may determine. Each grant of phantom shares
specifies the number of phantom shares granted, the initial value of each
phantom share (which will not be less than the fair market value of the
Common Stock on the date of grant), the valuation dates, the number of
phantom shares for each valuation date, any vesting schedule for such
phantom shares, and any limitation on payment for such phantom shares.
Performance Units. Each performance unit has an initial value that is
established by the Committee at the time of grant and credited to a
bookkeeping account established for the person. No person can be granted
performance units during any one fiscal year with a value in excess of $2.5
million. The Committee can set performance periods and objectives and other
terms and conditions of the grant based upon performance criteria
determined by the Committee. The value of performance units will vary
depending upon the achievement of the performance criteria as determined by
the Committee. The Committee may pay earned performance units in cash,
Common Stock or a combination thereof.
Under the Stock Plan, the Committee may permit select employees, including NEOs,
to elect to receive all or a portion of their incentive payment under the Bonus
Plan in the form of cash, shares of restricted stock, shares of restricted stock
units or a combination of these alternatives. The Committee may also award
additional shares of restricted common stock or restricted stock units to such
select employees who elect to receive their incentive payment in the form of
restricted stock or restricted stock units, provided that the value of all such
additional restricted stock and restricted stock units awarded to an NEO does
not exceed $2.5 million for any fiscal year.
Practices Regarding the Grant of Options. The Committee has generally followed
a practice of making all grants to our officers on a single date each year. From
2000 to 2003, the Committee granted these awards at its regularly-scheduled
meeting in August. There have been no stock option grants since August of 2003.
We do not otherwise have any program, plan, or practice to time annual stock
option grants to our executives in coordination with the release of material
non-public information.
All stock option awards made to our NEOs, or any other employees or directors,
are made pursuant to our Stock Plan. All stock options under the Stock Plan have
been granted with an exercise price equal to the fair market value of our Common
Stock on the date of grant. Fair market value is defined under the Stock Plan to
be the closing market price of a share of our Common Stock on the date of grant.
We do not have any program, plan, or practice of awarding stock options and
setting the exercise price based on the Common Stock's price on a date other
than the grant date. We do not have a practice of determining the exercise price
of stock option grants by using average prices (or lowest prices) of our Common
Stock in a period preceding, surrounding or following the grant date.
The Committee has no intention to grant stock options at this time or in the
foreseeable future to our NEOs or any other employees or directors.
20
Perquisites
As part of our competitive compensation plan, our NEOs receive various
perquisites provided by or paid for by us. These perquisites include, among
other things, tax and financial planning services, executive physical
examinations and long-term disability insurance.
The Committee reviews the perquisites provided to our NEOs on a regular basis,
in an attempt to ensure that they continue to be appropriate in light of the
Committee's overall goal of designing a compensation program for NEOs that
maximizes the interests of our shareholders.
Deferred Compensation Plans
We have two plans that allow certain employees, including NEOs, to defer receipt
of salary and/or bonus payments. The Bonus Plan allows for deferral of up to
100% of bonuses. CMS does not match bonus amounts that are deferred. The
Deferred Salary Savings Plan ("DSSP") allows an eligible participant to defer
from 1% to 6% of salary in excess of the Internal Revenue Code ("IRC")
compensation limit ($220,000 in 2006) and receive a 60% match from CMS. In
addition, a DSSP eligible participant may elect an additional deferral of up to
50% of the participant's salary for the calendar year. This additional deferral
is not eligible for a CMS match. The combined maximum total deferral amount is
56%. The DSSP participant is required to participate with at least a 6% deferral
into the qualified defined contribution Employees' Savings Plan. Funds equal to
the deferred amounts are transferred to a mutual fund family at the time of
deferral. Earnings or losses are based on the rate of return of the mutual funds
selected by the participants in the DSSP.
The deferred compensation is funded by CMS; however, participants have only an
unsecured contractual commitment from us to pay the amounts due under both the
Bonus Plan and the DSSP. The funds transferred to the mutual fund family are
considered general assets of CMS and are subject to claims of creditors.
We offer this plan because the Committee wishes to permit certain employees (at
their discretion) to defer the obligation to pay taxes on certain elements of
compensation that they are entitled to receive. The provisions of the DSSP and
Bonus Plan plans permit them to do this while also receiving investment returns
on deferred amounts, as described above. We believe that provision of these
benefits is important as a retention and recruitment tool as many of the Peer
Group companies provide similar provisions to their senior employees.
Post-Termination Compensation
Severance Agreements. We have entered into severance agreements with certain
members of our senior management team, including certain NEOs. These agreements
provide for payments and other benefits if the officer's employment terminates
for a qualifying event or circumstance, such as being terminated without "Cause"
or leaving employment for "Good Reason," as these terms are defined in the
severance agreements. The severance agreements also contain "Change-in-Control"
provisions that provide for benefits, which are generally more substantial than
those provided under the severance provisions, upon a qualifying event or
circumstances after there has been a "Change-in-Control" of CMS (as defined in
the agreements). Additional information regarding the severance agreements and
the Change-in-Control provisions, including a definition of key terms and a
quantification of benefits that would have been received by our NEOs had
termination occurred on December 31, 2006, is found under the heading "Potential
Payments upon Termination or Change-in-Control" below. Mr. Brunner does not have
a severance agreement but has a Change-in-Control agreement that provides
Change-in-Control benefits that are substantially the same as those described
above under Change-in-Control provisions.
The Committee believes that these severance and Change-in-Control arrangements
are an important part of overall compensation for NEOs. The Committee believes
that these agreements will help to secure the continued employment and
dedication of our NEOs, notwithstanding any concern they may have regarding
their own continued employment, prior to or following a Change-in-Control. The
Committee also believes that these agreements are important for
21
recruitment and retention, as all or nearly all of the Peer Group have similar
agreements in place for their senior employees.
Pension Plans
Consumers Energy Pension Plan. The Consumers Energy Pension Plan (the "Pension
Plan") is a funded, tax-qualified, noncontributory defined-benefit pension plan
that covers certain employees hired before June 30, 2003. Benefits under the
Pension Plan are based upon the employee's years of service and the average of
the employee's 5 highest years of earnings while employed with us and our
affiliated companies. This benefit is payable after retirement in the form of an
annuity or a lump sum. Earnings, for purposes of the calculation of benefits
under the Pension Plans, are generally defined to include base salary only. The
amount of annual earnings that may be considered in calculating benefits under
the Pension Plan is limited by law. For 2006, the annual limitation was
$220,000. The Pension Plan is not open to new participants.
Defined Company Contribution Plan. Employees, including NEOs, hired after June
30, 2003 are not eligible to participate in the Pension Plan. These employees
are provided a Defined Company Contribution Plan ("DCCP"). Under the DCCP, CMS
provides a contribution equal to 5% of regular employee earnings to the DCCP on
behalf of the employee.
Supplemental Pension Plans
Supplemental Executive Retirement Plan. The Supplemental Executive Retirement
Plan (the "DB SERP"), is an unfunded plan that provides out of our general
assets an amount substantially equal to the difference between the amount that
would have been payable under the Pension Plan, in the absence of legislation
limiting pension benefits and earnings that may be considered in calculating
pension benefits, and the amount actually payable under the Pension Plan. In
addition, for officers, including NEOs, the DB SERP provides for an additional
year of service credit for each year of service credit until the total of actual
and additional service equal 20 years of service and includes any awards under
the Bonus Plan as earnings. The maximum benefit under the DB SERP is attained
after 35 years (including the additional years of service credit) and no further
service credit is provided. Any benefit calculated under the Pension Plan is
subtracted from the benefit calculated under the DB SERP. In certain
circumstances, we fund trusts established to secure obligations to make payments
under the DB SERP, however participants have an unsecured contractual commitment
from us to pay the amounts due under this plan. The DB SERP is not open to new
participants.
Defined Contribution Supplemental Executive Retirement Plan. Any employees,
including NEOs, who were hired or promoted to an eligible position after March
30, 2006 are not eligible to participate in the DB SERP. Instead, we have a
defined contribution SERP ("DC SERP") for these employees. Under the DC SERP,
the company provides an amount equal to 5%, 10% or 15% of employee regular
earnings plus any awards under the Bonus Plan, less any amounts taken into
account under the DCCP or amounts taken into account under the Pension Plan.
Funds equal to the DC SERP are transferred to a mutual fund family at the time
CMS makes a contribution. Earnings or losses are based on the rate of return of
the mutual funds selected by the participants in the DC SERP. Although the DC
SERP is funded by us, participants have an unsecured contractual commitment from
us to pay the amounts due under this plan.
We believe that our pension plans and the SERPs are an important part of the NEO
compensation program. These plans serve a critically important role in the
retention of our senior executives, as benefits thereunder increase for each
year that these executives remain employed by us. The plans thereby encourage
our most senior executives to remain employed by us and continue their work on
behalf of our shareholders. We have considered the issue of potential overlap
between the two long term focused plans (SERP and equity compensation) and
concluded that both are appropriate elements. The SERP is designed to provide a
predictable retirement income commensurate with pre-retirement cash compensation
levels, and the equity plan is designed to align the interests of NEOs with our
shareholders and is performance based and variable. Further, both are market
practice and supportive of the philosophy to provide a competitive NEO package.
22
Employees' Savings Plans
Employees' Savings Plan and Deferred Salary Savings Plan. Under the Employees'
Savings Plan for Consumers Energy and affiliated companies, a tax qualified
retirement savings plan (the "Savings Plan"), participating employees, including
NEOs, may contribute a percentage of their regular earnings, into their Savings
Plan accounts. NEOs, because they are considered highly compensated, may only
contribute up to 12.5% and only up to the Internal Revenue Service ("IRS")
annual dollar limit. In addition, under the Savings Plan, we match in Common
Stock, an amount equal to 60% of the first 6% of employee regular earnings
contributions. We have decided that, beginning May 1, 2007, we will not match in
Common Stock. Rather, the matching contribution will be allocated among the
participant employees' investment choices. Participants in our DCCP plan receive
a credit of 5% of regular earnings to their Savings Plan. Amounts held in
Savings Plan accounts may not be withdrawn prior to the employee's termination
of employment, or such earlier time as the employee reaches the age of 59 1/2,
subject to certain exceptions set forth in the regulations of the IRS.
The Deferred Salary Savings Plan ("DSSP"). DSSP is paid out of CMS' general
assets, credits Savings Plan participants with an amount substantially equal to
the difference between the amount that, in the absence of legislation limiting
annual additions to the Savings Plan, would have been allocated to an employee's
account as before-tax contributions and matching contributions, minus the amount
actually allocated under the Savings Plan.
In certain circumstances, we fund trusts established to meet our obligations to
make payments under the DSSP, however, participants have an unsecured
contractual commitment from us to pay the amounts due under the DSSP.
We maintain the Savings Plan for our employees, including our NEOs, because we
wish to encourage our employees to save some percentage of their cash
compensation for their eventual retirement. The Savings Plan permits employees
to make such savings in a manner that is relatively tax efficient. We maintain
the DSSP because we believe that it is not equitable to limit the matching
portion of the program on the basis of a limit that is established by the IRS
for purposes of federal tax policy.
Stock Ownership Guidelines
The Committee has established stock ownership guidelines for our officers. These
guidelines require our officers to increase their equity stake in CMS and
thereby more closely link their interests with those of our long-term
shareholders. These stock ownership guidelines provide that, within 5 years of
becoming an officer or promotion to a higher ownership requirement, each officer
must own (not including unexercised stock options) shares of our common stock
with a value of 1 to 5 times their base salary, depending on position. Mr. Joos,
as CEO, is required to own 5 times his base salary. All other NEOs are required
to own 3 times their base salary, except Mr. Fenech who is is required to own 2
times his base salary. All NEOs have met these guidelines with the exception of
Mr. Brunner who has 5 years from his promotion to Senior Vice President and
General Counsel to meet his new guideline amount.
We prohibit our officers from engaging in selling short our Common Stock or
engaging in hedging or offsetting transactions regarding our Common Stock.
COMPENSATION DEDUCTIBILITY
Section 162(m) of the IRC limits the tax deductibility of compensation in excess
of $1 million paid to a corporation's chief executive officer and to the other
four highest-paid executive officers unless such compensation qualifies as
"performance-based" and is approved by shareholders. Incentive awards under the
terms of the Bonus Plan and awards of stock options under the Stock Plan qualify
as performance-based compensation. Awards of restricted stock may qualify as
performance-based, if the grant includes performance-based vesting criteria, as
was the case with the 2004, 2005 and 2006 awards to the NEOs. Approval of the
material terms of the performance goals under the Stock Plan and the Bonus Plan
by CMS shareholders in 2004 permits compensation paid under these plans to be
deductible by CMS.
23
Generally, the Committee attempts to ensure the deductibility of all
compensation paid; however, the Committee may approve nondeductible compensation
if necessary or desirable to achieve the goals of our compensation philosophy.
In 2006, the Committee did not approve any such nondeductible compensation.
COMPENSATION AND HUMAN RESOURCES COMMITTEE REPORT
The Compensation and Human Resources Committees (the "Committee") of the Boards
of Directors of CMS and Consumers (the "Board") oversees CMS' and Consumers'
compensation program on behalf of the Boards. In fulfilling its oversight
responsibilities, the Committee reviewed and discussed with management the
Compensation Discussion and Analysis set forth in this Proxy Statement.
In reliance on the review and discussions referred to above, the Committee
recommends to the Boards that the Compensation Discussion and Analysis be
included in CMS' and Consumers' Annual Report on Form 10-K for the fiscal year
ended December 31, 2006 and CMS' Proxy Statement to be filed in connection with
CMS' and Consumers' 2007 Annual Meeting of Shareholders, each of which will be
filed with the Securities and Exchange Commission.
COMPENSATION AND HUMAN RESOURCES COMMITTEE
John B. Yasinsky (Chair)
Jon E. Barfield
Philip R. Lochner, Jr.
Percy A. Pierre
24
COMPENSATION TABLES
SUMMARY COMPENSATION TABLE
Change in
Pension Value &
Nonqualified
Non-Equity Deferred
Stock Incentive Plan Compensation All Other
Name and Principal Salary Awards (1) (2) Compensation (3) Earnings (4) Compensation (5) Total
Position Year ($) ($) ($) ($) ($) ($)
------------------ ---- ------- -------------- ---------------- --------------- ---------------- ---------
(a) (b) (c) (d) (e) (f) (g) (h)
DAVID W. JOOS........... 2006 946,000 1,640,914 860,860 1,377,773 46,861 4,872,408
President and CEO, CMS;
CEO, Consumers
THOMAS J. WEBB.......... 2006 600,000 741,462 462,000 369,459 21,482 2,194,403
Exec Vice President &
CFO,
CMS & Consumers
JOHN G. RUSSELL......... 2006 460,000 541,664 354,200 388,826 27,172 1,771,862
President and COO,
Consumers; and deemed
CMS Executive Officer
THOMAS W. ELWARD........ 2006 393,000 571,169 275,100 495,245 27,017 1,761,531
President and COO,
CMS Enterprises
JAMES E BRUNNER......... 2006 343,750 244,466 237,271 379,395 24,651 1,229,533
Senior Vice President,
CMS and Consumers
ROBERT A. FENECH........ 2006 334,000 185,860 210,420 346,676 20,483 1,097,439
Senior Vice President,
Consumers
Former Exec. Officer:
S. KINNIE SMITH, JR..... 2006 325,000 1,045,514 270,756 382,352 74,058 2,097,680
Chief Legal Officer,
CMS and Consumers
(1) These awards consist of restricted stock awarded between 2002 and 2006
under our Stock Plan that have been expensed in our 2006 financial
statements. In April 2006 the Stock Plan was amended, to comply with
Section 409A of the Internal Revenue Code, requiring acceleration in 2006
of expenses associated with certain prior year grants. Restricted stock
awards for 2004-2006 are performance-based and vest 100% three years
after the original grant date assuming the achievement of pre-established
total shareholder return ("TSR") goals. One-half of the award is based on
the achievement of an absolute TSR level ranging from 15% to 45% and one-
half of the award is based on a relative comparison to the Peer Group.
The amounts are based on the aggregate grant date fair value of the award
determined pursuant to the Financial Accounting Standards Board Statement
of Financial Accounting Standards No. 123R Share Based Payment ("FAS
123R"). See Note 10 Executive Incentive Compensation to the Consolidated
Financial Statements included in our Annual Report on Form 10-K for the
year ended December 31, 2006 for a discussion of the relevant assumptions
used in calculating grant date fair value pursuant to FAS 123R. For 2002-
2003 restricted stock awards are tenure-based.
(2) No option awards were granted during the calendar year 2006.
25
(3) This compensation consists of cash awards under our Bonus Plan. In
February of each year, the Committee sets targets for bonuses under the
Bonus Plan. For fiscal year 2006, the Committee selected adjusted
earnings per share and free cash flow as the relevant performance
criteria. The payment was 140% of target. These cash awards were earned
in 2006 but were approved by the Board and paid in March 2007.
(4) The amounts shown in this column include the aggregate annual increase,
as of November 30, 2006, in actuarial values of each of the NEO's
benefits under our Pension Plan and DB SERP.
(5) Detail supporting all other compensation is reflected in the All Other
Compensation Table.
ALL OTHER COMPENSATION
Registrant Life
Personal Contributions Insurance
Tax & Registrant to Nonqualified and
Financial Contributions Deferred Disability
Planning to Company Compensation Insurance
Services Savings Plan Plans (1) Premiums Other Total
Name ($) ($) ($) ($) ($) ($)
---- --------- ------------- --------------- ---------- ------ ------
(a) (b) (c) (d) (e) (f) (g)
David W. Joos................. 5,000 7,920 26,136 7,805 -- 46,861
Thomas J. Webb................ 5,000 7,920 -- 8,562 -- 21,482
John G. Russell............... 5,000 7,920 8,640 5,612 -- 27,172
Thomas W. Elward.............. 1,100 7,920 6,228 11,769 -- 27,017
James E. Brunner.............. 3,000 7,920 4,455 9,276 -- 24,651
Robert A. Fenech.............. 850 7,920 4,104 7,609 -- 20,483
S. Kinnie Smith, Jr........... 5,000 7,920 -- 11,138 50,000(2) 74,058
(1) The compensation amounts reflected in this column are also disclosed in
the subsequent Nonqualified Deferred Compensation Table (column (c)).
(2) Mr. Smith was paid for his unused vacation upon his retirement.
26
GRANTS OF PLAN-BASED AWARDS
Estimated Future Payouts Grant
Estimated Future Payouts Under Under Date Fair
Non-Equity Incentive Plan Equity Incentive Plan Value of
Awards(1) Awards(2) Stock and
--------------------------------- ----------------------------- Option
Grant Threshold Target Maximum Threshold Target Maximum Awards(2)
Name Date ($) ($) ($) (#) (#) (#) ($)
---- ------- --------- ------- --------- --------- ------- ------- ---------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
David W. Joos.......... 8/09/06 -- -- -- 67,500 135,000 202,500 1,887,300
-- 153,725 614,900 1,229,800 -- -- -- --
Thomas J. Webb......... 8/09/06 -- -- -- 22,500 45,000 67,500 629,100
-- 82,500 330,000 660,000 -- -- -- --
John G. Russell........ 8/09/06 -- -- -- 27,000 54,000 81,000 754,920
-- 63,250 253,000 506,000 -- -- -- --
Thomas W. Elward....... 8/09/06 -- -- -- 17,500 35,000 52,500 489,300
-- 49,125 196,500 393,000 -- -- -- --
James E. Brunner....... 8/09/06 -- -- -- 15,000 30,000 45,000 419,400
-- 42,396 169,583 339,167 -- -- -- --
Robert A. Fenech....... 8/09/06 -- -- -- 5,000 10,000 15,000 139,800
-- 37,575 150,300 300,600 -- -- -- --
S. Kinnie Smith, Jr.... -- -- -- -- -- -- -- --
-- 48,750 195,000 390,000 -- -- -- --
(1) This compensation consists of cash awards under our Bonus Plan. For each
NEO, the actual payment was 140% of target and is reported as Non-Equity
Incentive Plan compensation in the Summary Compensation Table. These cash
awards were earned in 2006 but were approved by the Board and paid in
March 2007. The threshold payout is 25%, the target payout is 100% and
the maximum payout is 200% under the Bonus Plan.
(2) These awards consist of restricted stock awarded under our Stock Plan.
Restricted stock awards are performance-based and vest 100% three years
after the original grant date assuming the achievement of TSR goals. One-
half of the award is based on the achievement of an absolute TSR level
ranging from 15% to 45% and one-half of the award is based on a relative
comparison to the Peer Group. The closing market price of Common Stock on
the grant date of August 9, 2006 was $13.98 per share.
NARRATIVE TO SUMMARY COMPENSATION TABLE AND GRANTS OF PLAN-BASED AWARDS TABLE
Employment Agreements
During 2006, none of the NEOs were employed pursuant to an employment agreement
with CMS or Consumers. Six NEOs have entered into Executive Severance Agreements
which have change-in-control provisions and one NEO has entered into a Change-
in-Control Agreement with us. Please see Potential Payments Upon Termination or
Change-in-Control below for a description of such agreements.
Awards
During 2006, we granted equity awards to each of our NEOs pursuant to our Stock
Plan. Restricted stock awarded in 2006 under the Stock Plan will vest in 2009 on
the third anniversary of the date of grant. The vesting is subject to
satisfaction of certain total shareholder return targets. These awards could
vest, if at all, in an amount ranging from 25% to
27
150% of the specified target level of total return over the three-year
performance period. Restricted stock awards include the right to vote and right
to receive dividends, but may not be sold or transferred during the vesting
period. Dividends on restricted stock will be earned and paid on the same terms
and at the same rate as that paid on Common Stock. In 2006, restricted stock was
awarded to each of the NEOs as follows: Mr. Joos, 135,000 shares; Mr. Webb,
45,000 shares; Mr. Russell, 54,000 shares; Mr. Elward, 35,000 shares; Mr.
Brunner, 30,000 shares and Mr. Fenech, 10,000 shares.
In 2006, the Committee established potential cash bonuses for each of our NEOs
under the Bonus Plan. The amount of the potential bonuses was tied to
satisfaction of earnings per share and corporate free cash flow targets
established by the Committee. In each case, the Bonus Plan bonuses were earned
by the NEOs at 140% of the target level and are reported as "Non-Equity
Incentive Plan Compensation" in the Summary Compensation Table.
Salary and Bonus in Proportion to the total of Salary, Bonus and Stock Awards
(''Total Compensation")
Our NEOs generally receive from 48% to 80% of their Total Compensation in the
form of base salary and cash incentive awards under our Bonus Plan. As noted in
the Compensation Discussion and Analysis section, we believe that a substantial
portion of each NEO's compensation should be in the form of equity awards. We
believe that our current compensation program gives our NEOs substantial
alignment with shareholders, while also permitting us to provide incentive to
the NEOs to pursue specific short- and long-term performance goals. Please see
Compensation Discussion and Analysis above for a description of the objectives
of our compensation program and overall compensation philosophy.
28
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
Option Awards Stock Awards
----------------------------------- -----------------------------------------------------
Equity
Equity Incentive
Incentive Plan
Plan Awards:
Awards: Market or
Number of Payout Value
Market Unearned of Unearned
Number of Value Shares, Shares,
Number of Shares or of Shares or Units or Units or
Securities Units of Units of Other Other
Underlying Stock Stock Rights Rights
Unexercised Option That Have That Have That Have That Have
Options - Exercise Option Not Vested Not Vested Not Vested Not Vested
Exercisable Price Expiration (1) (2) (1) (2)
Name (#) ($) Date (#) ($) (#) ($)
---- ----------- -------- ---------- ---------- ------------ ---------- ------------
(a) (b) (c) (d) (e) (f) (g) (h)
David W. Joos............ 20,000 35.9375 8/23/07 62,500 1,043,750 360,000 6,012,000
18,000 43.3750 8/22/08
32,000 39.0625 8/21/09
32,000 17.0000 3/23/10
50,000 31.0400 3/21/11
50,000 20.0000 10/27/11
65,000 22.2000 3/21/12
100,000 8.1200 8/30/12
100,000 6.3500 9/21/13
Thomas J. Webb........... 50,000 8.1200 8/30/12 36,250 605,375 135,000 2,254,500
100,000 6.3500 9/21/13
John G. Russell.......... 8,000 34.8750 10/23/09 12,250 204,575 149,000 2,488,300
10,000 31.0400 3/21/11
16,000 22.2000 3/21/12
Thomas W. Elward......... 8,000 43.3750 8/22/08 12,500 208,750 105,000 1,753,500
12,000 39.0625 8/21/09
14,000 31.0400 3/21/11
16,000 22.2000 3/21/12
20,000 8.1200 8/30/12
James E. Brunner......... -- -- -- 1,000 16,700 45,000 751,500
Robert A. Fenech......... 4,900 35.9375 8/23/07 7,500 125,250 30,000 501,000
8,000 43.3750 8/22/08
14,000 39.0625 8/21/09
14,000 31.0400 3/21/11
14,000 22.2000 3/21/12
12,000 8.1200 8/30/12
S. Kinnie Smith, Jr...... 65,000 8.1200 7/01/07 90,000 1,503,000
100,000 6.3500 7/01/07
29
(1) Vesting dates for the outstanding shares of restricted stock are as
follows:
Mr. Joos: 137,500 (2007); 150,000 (2008); and 135,000 (2009).
Mr. Webb: 66,250 (2007); 60,000 (2008); and 45,000 (2009).
Mr. Russell: 52,250 (2007); 55,000 (2008); and 54,000 (2009).
Mr. Elward: 42,500 (2007); 40,000 (2008); and 35,000 (2009).
Mr. Brunner: 6,500 (2007); 9,500 (2008); and 30,000 (2009).
Mr. Fenech: 14,000 (2007); 13,000 (2008); 10,000 (2009).
Mr. Smith: 45,000 (2007); 45,000 (2008).
(2) Based upon the December 31, 2006 closing price of Common Stock of $16.70
per share.
OPTION EXERCISES AND STOCK VESTED
Option Awards Stock Awards
------------------------- -------------------------
Number of Number of
Shares Value Shares Value
Acquired on Realized On Acquired on Realized On
Exercise Exercise Vesting Vesting(1)
Name (#) ($) (#) ($)
---- ----------- ----------- ----------- -----------
(a) (b) (c) (d) (e)
David W. Joos............................... -- -- 37,500 527,250
Thomas J. Webb.............................. -- -- 21,250 299,175
John G. Russell............................. -- -- 7,250 102,015
Thomas W. Elward............................ -- -- 7,500 105,450
James E. Brunner............................ -- -- 875 12,263
Robert A. Fenech............................ -- -- 4,500 63,270
S. Kinnie Smith, Jr......................... -- -- 61,250 1,683,150
(1) Restricted stock vesting reflects awards originally granted in the years
2002 and 2003 that partially vested in 2006. The value realized is based
upon the Common Stock closing price on the two 2006 vesting dates ($13.74
on 7/24/06 and $14.22 on 8/22/06).
30
PENSION BENEFITS
Number of Present
Years Value of Payments
Credited Accumulated During Last
Service(1) Benefit Fiscal Year
Name Plan Name (#) ($) ($)
---- ------------ ---------- ----------- -----------
(a) (b) (c) (d) (e)
David W. Joos.............................. Pension Plan 26.96 690,075 --
DB SERP 35.00 5,695,066 --
Thomas J. Webb............................. Pension Plan 4.55 130,021 --
DB SERP 8.99 985,025 --
John G. Russell............................ Pension Plan 25.00 467,489 --
DB SERP 26.17 974,189 --
Thomas W. Elward........................... Pension Plan 34.40 1,098,754 --
DB SERP 35.00 2,111,206 --
James E. Brunner........................... Pension Plan 29.73 688,545 --
DB SERP 34.93 636,265 --
Robert A. Fenech........................... Pension Plan 20.75 759,305 --
DB SERP 26.85 1,679,752 --
S. Kinnie Smith, Jr........................ Pension Plan 13.53 0 477,414(2)
DB SERP 23.53 3,061,326 --
(1) Under the DB SERP, the plan provides for an additional year of service
credit for each year of service credit ("preference service") until the
total of actual and additional service equal 20 years of service (during
the first 10 years of service). After this limit is reached, no
additional preference service is provided. The addition of preference
service to the DB SERP benefit formula provides an increase to the DB
SERP non-qualified benefit but does not affect the qualified pension plan
benefit.
(2) Mr. Smith retired as of July 1, 2006 and elected to receive a lump sum
pension payout.
The Pension Plan is a funded, tax-qualified, noncontributory defined benefit
pension plan. Benefits under the Pension Plan are based on the employee's years
of service, age at retirement and the sum of the five highest calendar years of
base pay divided by 60. Base pay excludes overtime pay and bonuses. Base pay for
purposes of calculating a benefit cannot exceed the annual compensation limit
established by law, which is $220,000 for 2006. Benefits are payable at
retirement. A participant is vested in his or her benefit after 5 years of
service. The standard form of benefit for an unmarried retiring employee is a
life annuity. The standard form of benefit for a married retiring employee is a
50% joint and survivor annuity. The Pension Plan offers retiring employees
additional forms of joint and survivor annuities, allowing retirees to select an
alternative most suitable to their financial planning needs. An unmarried
retiring employee may elect to have his or her benefit paid in the form of a
single sum. A married retiring employee must receive the notarized consent of
his/her spouse in order to elect a single sum payment. The benefit formula
provides an annuity equal to 2.1% for the first 20 years of service and 1.7% for
the next 15 years of service, to a maximum percentage of 67.5% for 35 years of
service. This amount is subject to the Social Security adjustment which is .5%
multiplied by 1/12th of the average of the participant's 3 most recent years of
compensation, up to the maximum Social Security covered compensation for each
year of service counted in the formula. To the extent an employee exceeds 35
years of service under the Pension Plan, an additional $20 per month is added to
the annuity for each full year of service above 35. This benefit is added to the
life annuity after the adjustment for Social Security. At the minimum retirement
age of 55, 65% of the normal retirement age (age 65) benefit is available. The
Pension Plan retirement benefit is unreduced at age 62. The Pension Plan
provides an add-on benefit for long-term employees when an employee retires on
or after age 58 and has 30 or more years of service.
31
This add-on benefit is equal to the participant's accrued retirement income as
of September 1, 2000, if any, multiplied by the early retirement percentage at
the time of the employee's retirement, and is added to the retiring employee's
retirement annuity. The present value information contained in this report is
based on a discount rate prescribed by the SEC and applied using the age at
which a benefit is unreduced. Early retirement subsidies provided by the benefit
formula of the Pension Plan and the actual discount rate required by the U.S.
Department of Treasury may provide a greater present value to a participant
retiring on or after age 55 but prior to the age of an unreduced benefit.
The Pension Plan also provides a temporary monthly Supplement Early Retirement
Income ("SERI") subsidy to participants, payable at retirement if the
participant is at least age 55 but not more than 62, age-plus-service equals 80
or greater, and his or her monthly life annuity benefit does not exceed $2,200.
The SERI maximum is reduced by 4% for each full or partial year the participant
has less than 30 years of service. The SERI portion of the benefit ceases at age
62. The Pension Plan provides a pre-retirement survivor benefit to the spouse of
a married employee or one named beneficiary of an unmarried employee. The
Pension Plan provides a disability retirement benefit to employees with at least
15 years of service who are found by CMS to be totally and permanently disabled.
Payments continue until the participant recovers from the disability, elects
early retirement or reaches the normal retirement age of 65, at which point the
participant converts to a pension benefit using the formula detailed above. The
monthly disability benefit is determined by multiplying $26.00 by years of plan
service, plus an additional $350 per month if the participant does not qualify
for any Social Security benefit. The minimum monthly disability benefit is $450.
The Pension Plan currently limits the annual annuity benefit under Section 415
of the IRC to no more than $175,000 payable at age 65. Mr. Elward is currently
eligible to elect an early retirement and does qualify for the add-on benefit.
The remaining NEOs are below the minimum retirement age of 55. The Present Value
of Accumulated Benefit column above is determined using the FAS 87 discount rate
(currently 5.75%) and the FAS 87 mortality for annuities (currently the year
2000 mortality table). Pension Plan benefits are subject to domestic relations
orders.
The DB SERP is an unfunded non-qualified supplemental defined benefit plan which
provides benefits based on pay, bonuses and added service that are not provided
by the Pension Plan. The benefit formula used to determine the DB SERP annuity
is the same as that used for the Pension Plan. The DB SERP does not contain an
add-on benefit. The Pension Plan annuity is subtracted from the DB SERP annuity
to determine the annuity payable from the DB SERP. Although a rabbi trust (a
trust that is established for the benefit of its participants except that
creditors of the Company can obtain resources of the trust) has been established
by the Company for purposes of paying DB SERP benefits, participants have an
unsecured contractual commitment from CMS to pay the amounts due under this
plan. Under the DB SERP, a participant must have 5 full years of participation
in the DB SERP and reach a minimum age of 55 to be able to receive the
retirement benefit discussed above. Participants with 5 full years of service
who voluntarily terminate service with CMS prior to age 55 receive a benefit
without inclusion of bonuses and added service. Participants with 5 full years
of service who non-voluntarily terminate service with CMS prior to age 55
receive their vested benefit starting the first of the month on or after their
55th birthday. The participant currently receives 38.3% of the age 65 benefit. A
participant whose services are terminated for any reason prior to attaining 5
full years of actual or disability service is not eligible for payments from the
DB SERP except as provided for in any employment agreement. The standard form of
benefit is a monthly annuity. At the minimum retirement age of 55, 65% of the
normal retirement age (age 65) benefit is available. The DB SERP benefit is
unreduced at age 62. A participant may elect a single life annuity, a joint and
survivor monthly annuity or a lump sum payment. For purposes of calculating a
lump sum payment amount, the expected return on assets rate for the Pension Plan
(currently 8.50%) is the interest rate applied using a deferred to age 65
annuity table to determine the value of the lump sum. The Present Value of
Accumulated Benefit column in the table above is determined using the FAS 87
discount rate (currently 5.75%) and the FAS 87 mortality for annuities
(currently the year 2000 mortality table). DB SERP benefits are subject to
domestic relations orders.
32
NONQUALIFIED DEFERRED COMPENSATION(1)
Aggregate
Executive Registrant Aggregate Withdrawals/ Aggregate
Contributions Contributions Earnings Distributions Balance at
in Last FY in Last FY in Last FY(2) in Last FY Last FYE
Name ($) ($) ($) ($) ($)
---- ------------- ------------- ------------- ------------- ----------
(a) (b) (c) (d) (e) (f)
David W. Joos.................... 43,560 26,136 52,847 -- 503,860
Thomas J. Webb................... -- -- -- -- --
John G. Russell.................. 14,400 8,640 5,608 -- 77,075
Thomas W. Elward................. 10,380 6,228 8,590 -- 66,720
James E. Brunner................. 7,425 4,455 970 -- 15,168
Robert A. Fenech................. 6,840 4,104 10,224 -- 100,703
S. Kinnie Smith, Jr.............. -- -- 9,900 -- 78,083
(1) Nonqualified deferred compensation plans are plans providing for deferral
of compensation that do not satisfy the minimum coverage
nondiscrimination and other rules that qualify broad-based plans for
favorable tax treatment under the Internal Revenue Code. For CMS, this
table only includes the DSSP and does not include CMS' contributions or
related CMS match to the Savings Plan.
(2) Any above-market or preferential earnings on compensation that is
deferred on a basis that is not tax-qualified, including such earnings on
nonqualified defined contribution plans is already included in the
Summary Compensation Table (column f).
An employee who has base salary (excluding any bonus, incentive or other premium
pay) before deductions for taxes and other withholdings in excess of the IRC
compensation limit ($220,000 for 2006) is eligible and may elect to participate
in the unfunded nonqualified tax deferred defined contribution DSSP. A
participant in the DSSP may elect in the prior year to defer from 1% to 6% of
his or her base salary that exceeds the legal compensation limit and CMS will
match 60% of the deferral; provided, however that the participant must also
defer at least 6% of base salary under the Savings Plan. In addition, a DSSP
eligible participant may elect an additional deferral up to 50% of the
participant's base salary for the calendar year. This additional deferral is not
eligible for a Company match. The combined maximum total of the two DSSP
deferral amounts and the 6% Savings Plan deferral is 56% of base salary. At the
time a participant elects a deferral, a distribution election is also made for
this class year deferral. Each class year deferral is payable either at a
certain date 5 or more years in the future (if the participant is still an
employee), upon separation from service with CMS or as a series of payments from
2 to 15 years after separation from service. CMS has elected to outsource the
DSSP record keeping to Fidelity Investments. In addition, CMS has elected to
place funds with the record keeper to equal CMS' future obligations; however,
the DSSP remains an unfunded deferred compensation plan and any amounts placed
with the record keeper are subject to the claims of creditors of CMS. The
participant decides how Company contributions are invested among a broad array
of mutual funds selected by CMS and provided by the record keeper. The Company
matching contribution is invested in a fund holding shares of Common Stock. All
participants in the DSSP are restricted in the reallocation of participation in
the Common Stock fund in order to comply with any rules of the SEC.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL
As noted above under the Compensation Discussion and Analysis -- Post-
Termination Compensation -- Severance Agreements, we have entered into two
separate types of agreements with our NEOs regarding termination. Six of the
NEOs (Messrs. Joos, Webb, Russell, Elward, Fenech and Smith) have entered into
Executive Severance Agreements ("ES Agreements") which provide for payments and
other benefits if the NEO is terminated under circumstances specified in the ES
Agreement at a time when we have not undergone a Change-In-Control (as defined
in the ES Agreement). The ES Agreements also provide for payments and other
benefits if the NEO is terminated under the circumstances specified
33
in the ES Agreement within two years of a Change-in-Control of CMS. A
description of terms of each of these Agreements follows. We have Change-in-
Control Agreements ("CIC Agreements") that one of our NEOs (Mr. Brunner) has
entered into. These CIC Agreements provide for payments and other benefits only
if the NEO is terminated under the circumstances specified in the CIC Agreements
within two years of a Change-in-Control of CMS.
Executive Severance Agreements. The ES Agreements provide for payments of
certain benefits, as described in the table below, upon termination of the
employment of an NEO. The NEO's rights upon a termination of his or her
employment depend upon the circumstances of the termination. Central to an
understanding of the rights of each NEO under the ES Agreements is an
understanding of the definitions of "Cause" and "Good Reason" that are used in
those agreements. For purposes of the ES Agreements:
- We have Cause to terminate the NEO if the NEO has engaged in any of a list of
specified activities, including willful and continued failure to perform
duties consistent with the scope and nature of his or her position, committing
an act materially detrimental to the financial condition and/or goodwill of
CMS or its subsidiaries, arrest for committing an act of fraud, embezzlement,
theft, or other act constituting a felony involving moral turpitude.
- The NEO is said to have Good Reason to terminate his or her employment (and
thereby gain access to the benefits described below) if we assign duties that
are materially inconsistent with his or her position, materially reduce the
NEO's compensation, require that the NEO's principal job location or office be
located more than 35 miles from its location at the time the ES Agreement was
entered into or other actions specified in the definition.
The ES Agreements require, as a precondition to the receipt of these payments,
that the NEO sign a standard form of release in which he or she waives all
claims that he or she might have against us and certain associated individuals
and entities. They also include noncompete and nonsolicitation provisions that
would apply for a period of 12 months following the NEO's termination of
employment and nondisparagement and confidentiality provisions that would apply
for an unlimited period of time following the NEO's termination of employment.
Change-in-Control Agreements and Provisions. All of the ES Agreements and CIC
Agreements contain provisions which provide for payments in event of a Change-
in-Control. The Change-in-Control provisions ("CIC Provisions") function in a
similar manner to the severance provisions in the ES Agreements, except that
NEOs become entitled to benefits under the CIC Provisions only if we have
undergone a Change-in-Control during the two-year period prior to the NEO's
termination of employment. A Change-in-Control of CMS is defined in both the ES
Agreements and the CIC Agreements to mean:
- the consummation of certain types of transactions, including mergers and the
sale of all, or substantially all, of our assets;
- the acquisition by any person or entity of the beneficial ownership of
securities representing 25% or more of the combined voting power of our then
outstanding voting securities;
- a change in the composition of our Board of Directors such that, within a
period of two consecutive years, individuals who at the beginning of such two-
year period constituted the Board of Directors and any new Directors elected
or nominated by at least 2/3 of the Directors who were either Directors at the
beginning of the two-year period or were so elected or nominated, cease for
any reason to constitute a majority of the Board of Directors; or
- the liquidation or distribution of all or substantially all of our assets.
As with the ES Agreements severance provisions, the rights to which an NEO is
entitled under the CIC Provisions upon a termination of his or her employment
are dependent on the circumstances of the termination. As with the ES Agreements
severance provisions, the definition of Cause and Good Reason are central to an
understanding of the NEO's rights under the CIC Provisions. Under the CIC
Provisions:
- We have Cause to terminate the NEO if the NEO has engaged in any of a list of
specified activities, including, but not limited to, willful and continued
failure to perform duties consistent with the scope and nature of his or her
position,
34
committing an act materially detrimental to the financial condition and/or
goodwill of CMS or its subsidiaries, arrest for committing an act of fraud,
embezzlement, theft, or other act constituting a felony involving moral
turpitude.
- The NEO is said to have Good Reason to terminate his or her employment (and
thereby gain access to the benefits described below) if there is a change in
the NEO's reporting responsibilities, titles or offices with us as in effect
immediately prior to the Change-in-Control that is adverse to the NEO,
assignment of duties materially inconsistent with the NEO's status, position,
authority, duties, or responsibilities, or any other action by us that results
in a substantial diminution of such position, authority, duties,
responsibilities or any reduction in the NEO's compensation, benefits, or
status (subject to the right to remedy for isolated, insubstantial and
inadvertent reductions), or under other circumstances specified in the
definition, including the NEO's principal job location or office be located
more than 35 miles from its location at the time the CIC Agreement was entered
into.
The benefits to be provided to the NEO in each of those situations are described
in the table below, which assumes that the termination had taken place on
December 31, 2006, the last day of our most recent fiscal year.
As part of the CIC Agreements we would pay all excise taxes. Restricted stock
under the CIC Agreements has double trigger (both a change in control and a
material change in employment conditions) vesting. Upon death or disability,
100% of such stock vests. Upon retirement, all restricted stock vests except for
those granted during the 12 month period immediately preceding retirement. In
the case of retirement, the Committee has the discretion to waive this provision
and allow vesting of all restricted stock. NEOs cannot receive benefits under
both the CIC and the termination provisions of the ES Agreements.
35
POTENTIAL PAYMENTS UPON CHANGE-IN-CONTROL OR TERMINATION
David W. Thomas J. John G. Thomas W. James E. Robert A.
Joos Webb Russell Elward Brunner Fenech
($) ($) ($) ($) ($) ($)
-------- --------- ------- --------- -------- ---------
CHANGE IN CONTROL PAYMENTS(1):
Two times 2006 base salary...... 1,892,000 1,200,000 920,000 786,000 687,500 668,000
Two times incentive plan bonus @
100% performance target or
actual whichever is greater... 1,721,720 924,000 708,400 550,200 474,542 420,840
Prorata incentive plan bonus
based on service period in
year triggered................ 614,900 330,000 253,000 196,500 169,583 150,300
One year base salary plus
incentive plan bonus -- 'Non-
compete'...................... 1,768,185 1,039,588 777,268 650,150 486,920 539,164
Medical Coverage Payment........ 30,816 30,816 30,816 22,824 30,816 22,824
'In-the-Money' Stock
Options(2).................... 1,893,000 1,464,000 -- -- -- 102,960
Unvested restricted stock
awards(2)..................... 7,055,750 2,859,875 2,692,875 1,962,250 768,200 626,250
Excise Tax Equalization
Payment(3).................... 4,505,625 1,942,993 1,889,292 1,364,817 933,554 649,771
---------- --------- --------- --------- --------- ---------
Total......................... 19,481,996 9,791,272 7,271,651 5,532,741 3,551,115 3,180,109
---------- --------- --------- --------- --------- ---------
TERMINATION PAYMENTS(4):
Two times 2006 base salary...... 1,892,000 1,200,000 920,000 786,000 -- 668,000
Two times incentive plan bonus @
100% performance target or
actual whichever is greater... 1,721,720 924,000 708,400 550,200 -- 420,840
Prorata incentive plan bonus
based on service period in
year triggered................ 614,900 330,000 253,000 196,500 -- 150,300
Medical Coverage Payment........ 20,544 20,544 20,544 15,216 -- 15,216
---------- --------- --------- --------- --------- ---------
Total......................... 4,249,164 2,474,544 1,901,944 1,553,244 -- 1,254,356
---------- --------- --------- --------- --------- ---------
(1) Pursuant to the CIC Provisions in the ES Agreements for Messrs. Joos,
Webb, Russell, Elward and Fenech and pursuant to the Change in Control
Agreements for Mr. Brunner. In addition to the amounts shown above, in
the event of a Change-of-Control, Messrs. Joos, Webb, Russell, Elward,
Brunner and Fenech, would receive the following incremental increases in
their monthly SERP benefits: $13,606; $12,992; $5,236; $5,012; $7,966;
and $4,223, respectively.
(2) Based upon the December 31, 2006 closing price of Common Stock of $16.70
per share.
(3) As part of the CIC Agreements, we will make an Excise Tax Equalization
Payment to reimburse the NEO for all applicable excise taxes and all
income and employment taxes related to that reimbursement. The listed
Change In Control payments are generally subject to excise taxes, except
for the stock options, the non-compete payments and a small portion of
the restricted stock awards.
(4) Pursuant to the ES Agreements.
S. Kinnie Smith, Jr. is not reflected in the table above as he retired from CMS
during calendar year 2006.
36
DIRECTORS' COMPENSATION
Change in
Pension Value
Non-Equity & Nonqualified
Fees Incentive Deferred All Other
Earned or Stock Plan Compensation Compen-
Paid in Cash Awards(1)(2) Compensation Earnings(3) sation(4) Total
Name ($) ($) ($) ($) ($) ($)
---- ------------ ------------ ------------ -------------- --------- -------
(a) (b) (c) (d) (e) (f) (g)
Current Directors:
Merribel S. Ayres......... 61,500 99,341 -- -- -- 160,841
Jon E. Barfield........... 74,000 45,000 -- -- -- 119,000
Richard M. Gabrys......... 73,750 78,336 -- -- -- 152,086
Philip R. Lochner, Jr. ... 74,750 78,336 -- -- -- 153,086
Michael T. Monahan........ 75,375 114,344 -- -- 3,187 192,906
Joseph F. Paquette, Jr. .. 79,375 114,344 -- -- 5,716 199,435
Percy A. Pierre........... 64,500 112,113 -- -- 3,187 179,800
Kenneth L. Way............ 71,875 112,113 -- -- -- 183,988
Kenneth Whipple........... 169,500 83,205 -- -- 5,716 258,421
John B. Yasinsky.......... 77,375 112,113 -- -- 11,109 200,597
Former Directors:
Earl D. Holton............ 28,250 67,113 -- -- 12,922 108,285
S. Kinnie Smith, Jr. ..... -- -- -- -- 5,000 5,000
(1) These awards consist of restricted stock awarded between 2000 and 2006
under our Stock Plan and predecessor plans that have been expensed in our
2006 financial statements. In April 2006 the Stock Plan was amended, to
comply with Section 409A of the Internal Revenue Code, requiring
acceleration in 2006 of expenses associated with prior year grants. In
2006, all of the non-employee directors were granted a number of shares
of restricted stock with a fair market value at the time of grant of
approximately $45,000.
(2) The aggregate number of unvested stock awards outstanding as of December
31, 2006 for each director: Ms. Ayres, 10,020 shares; Mr. Barfield, 3,483
shares; Mr. Gabrys, 6,539 shares; Mr. Lochner, 6,539 shares; Mr. Monahan,
10,020 shares; Mr. Paquette, 10,020 shares; Mr. Pierre, 10,020 shares;
Mr. Way, 10,020 shares; Mr. Whipple, 6,539 shares; and Mr. Yasinsky,
10,020 shares.
(3) The amounts shown in this column, if any, include only nonqualified
deferred compensation earnings.
(4) All Other Compensation for the current directors includes imputed income
related to health or life insurance. Upon their retirement, CMS made a
contribution of $5,000 to certain charitable organizations in the names
of each of Messrs. Holton and Smith.
NARRATIVE TO DIRECTOR COMPENSATION TABLE
In 2006, directors who were not CMS or Consumers employees received an annual
retainer fee of $30,000 (which was increased to $40,000 effective January 1,
2007), $1,500 for attendance at each Board meeting, $750 per meeting for special
telephonic meetings of the Board (or one-half the regular Board meeting rates)
and $1,500 for attendance at each committee meeting. In addition, the Chair of
the Audit Committee received an annual retainer fee of $10,000 and each other
Audit Committee member received an annual retainer fee of $2,000. The Chairs of
the Compensation and Human Resources Committee, Finance Committee, and the
Governance and Public Responsibility Committee each received an annual retainer
fee of $7,500. The Chair of the Ad Hoc Litigation Oversight Committee receives a
monthly retainer fee of $625.
37
In May 2006, all of the non-employee directors were granted a number of shares
of restricted stock with a fair market value at the time of grant of
approximately $45,000. In 2007, the annual restricted stock award will have a
fair market value at the time of the May grant of $45,000. These restricted
shares must be held for at least three years from the date of grant. Stock
ownership guidelines have been adopted by the Board that align further the
interests of the directors with the long term shareholders. Board members are
required to hold Common Stock equivalent in value to 5 times their annual cash
retainer within 5 years of becoming a director.
Directors are reimbursed for expenses incurred in attending Board or committee
meetings and other company business. Directors who are CMS or Consumers
employees do not receive retainers or meeting fees for service on the Board or
as a member of any Board committee. Non-employee directors receive a single
retainer fee and restricted share award for service on the CMS and Consumers
Boards and each of their committees, as well as a single meeting attendance fee
for concurrent meetings of the CMS and Consumers Boards or committees.
Pursuant to the Directors' Deferred Compensation Plan, a CMS or Consumers
director who is not an employee may, at any time prior to a calendar year in
which a retainer and fees are to be earned, irrevocably elect to defer payment,
through written notice to CMS or Consumers, of all or a portion of any of the
retainer and 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 Directors' Deferred Compensation
Plan. 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. Any payment to the
director remains an unsecured contractual right to a payment.
Effective with the Annual Meeting of Shareholders in May of 2004, the Boards'
retirement payments policy was discontinued. Although certain current and
previously retired directors' accrued benefits under the policy will be
preserved, no further years of service will be accrued nor will future increases
in the cash retainer impact the preserved payments under this policy. Prior to
its discontinuance, the directors' retirement payments policy provided those
directors who retire with 5 years of service on the Board with annual retirement
payments equal to the retainer. These payments continue for a period of time
equal to the director's years of service on the Board. All preserved payments
will cease at the death of the retired director.
All non-employee directors historically had been offered optional life insurance
coverage, business-related travel accident insurance, and optional health care
insurance, and CMS and Consumers paid the premiums associated with participation
by directors. These insurance coverages will not be provided by the Corporation
to directors who had not elected the optional coverage prior to the Annual
Meeting of Shareholders in 2004. The imputed income for the life insurance
coverage in 2006 was: Messrs. Monahan, $3,187; Paquette, $5,716; Pierre, $3,187;
Whipple, $5,716; and Yasinsky, $3,187. The imputed income for health insurance
coverage in 2006 was: Mr. Yasinsky, $7,922.
In connection with Mr. Whipple's resignation as CMS and Consumers CEO effective
October 1, 2004, and the termination of his employment agreement and its ongoing
compensatory elements as an employee, each of the Compensation and Human
Resources Committees and the Governance and Public Responsibility Committees
reviewed his new responsibilities as non-executive Chairman of CMS and
Consumers. After review of peer compensation data for such positions and in
consultation with the Committees' independent compensation consultant, the
Committees recommended, and the Boards approved, that Mr. Whipple receive the
various elements of the regular non-employee director compensation program, as
well as an additional annual cash retainer fee of $120,000 as Chairman of the
Boards. It should be noted, however, that Mr. Whipple does not serve on any of
the standing committees of the Boards, other than the Executive Committees, and
thus does not receive the retainers described above but does receive an
Executive Committee attendance fee.
38
REPORT OF THE AUDIT COMMITTEE
The Audit Committees of the Boards of Directors of CMS and Consumers oversee
CMS' and Consumers' financial reporting process on behalf of the Boards.
Management has the primary responsibility for the consolidated financial
statements and the reporting process, including the systems of internal
controls.
In fulfilling their oversight responsibilities, the Audit Committees reviewed
and discussed the audited consolidated financial statements of CMS and Consumers
set forth in CMS' and Consumers' 2006 Annual Report to Shareholders and CMS' and
Consumers' Annual Report on Form 10-K for the year ended December 31, 2006 with
management of CMS and Consumers. The Audit Committee also discussed with Ernst &
Young LLP, independent registered public accounting firm for CMS and Consumers,
who are responsible for expressing an opinion on the conformity of those audited
consolidated financial statements with United States generally accepted
accounting principles, the matters required to be discussed by Statement on
Auditing Standards No. 61, "Communication with Audit Committees," as amended.
The Audit Committees have received the written communication from Ernst & Young
LLP required by Independence Standards Board Standard No. 1, have considered the
compatibility of non-audit services with the auditors' independence, and have
discussed with Ernst & Young LLP their independence from CMS and Consumers.
In reliance on the review and discussions referred to above, the Audit
Committees recommended to the Boards that the audited consolidated financial
statements be included in CMS' and Consumers' Annual Report on Form 10-K for
2006 for filing with the Securities and Exchange Commission.
AUDIT COMMITTEE
Michael T. Monahan (Chair)
Richard M. Gabrys
Joseph F. Paquette, Jr.
Kenneth L. Way
FEES PAID TO THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP was the independent registered public accounting firm for CMS
and Consumers in each of the last two fiscal years. Fees, including expenses,
for professional services provided by Ernst & Young LLP in each of the last two
fiscal years, in each of the following categories are:
2006 2005
---------- ----------
Audit Fees........................................ $8,518,000 $8,990,000
Audit-Related Fees................................ 612,000 132,000
Tax Fees.......................................... 0 0
---------- ----------
Total Fees...................................... $9,130,000 $9,122,000
========== ==========
Amounts reported above include fees paid by Consumers.
Fees for audit services include fees associated with the annual audit, the
reviews of our quarterly reports on Form 10-Q, comfort letters, required
statutory audits, fees related to the audit of our internal controls over
financial reporting as required by the Sarbanes-Oxley Act of 2002 and other
attest services. Of the aggregate audit fees disclosed above, fees related to
the audits of internal controls over financial reporting were $2,300,000 in 2006
and $3,014,000 in 2005. Audit-related fees include fees associated with audits
of employee benefit plans and accounting consultation on proposed transactions.
Tax fees include fees for tax compliance, tax advice, and tax planning.
39
The Audit Committees have adopted a policy that requires advance approval for
all audit, audit-related, tax services, and other services performed by the
independent registered public accounting firm. The policy provides for pre-
approval by the Audit Committees of specifically defined audit and non-audit
services. Unless the specific service has been previously pre-approved with
respect to that year, the Audit Committees must approve the permitted service
before the independent registered public accounting firm is engaged to perform
it. The Audit Committees have delegated to the Chair of the Audit Committees
authority to approve permitted services, provided that the Chair reports any
decisions to the Committees at their next scheduled meeting.
PROPOSAL 2: RATIFY THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
The Audit Committees of the Corporation's and Consumers' Boards of Directors
have adopted the following policy:
The Audit Committee's selection of the Corporation's independent auditor
shall be submitted to the Corporation's shareholders for their ratification
at the Corporation's Annual Meeting of Shareholders. If a majority of
shares voted do not ratify the Audit Committee's selection, the Audit
Committee will consider the shareholder views when considering its
selection of a different independent auditor for the Corporation or its
continued retention of its existing auditor for that year. This policy will
be in effect commencing with the Corporation's 2004 Annual Meeting of
Shareholders.
The Audit Committees have selected PricewaterhouseCoopers LLP ("PWC"),
independent registered public accounting firm, to audit our consolidated
financial statements for the year 2007. Ernst & Young LLP served as our
registered public accounting firm for the year 2006. A representative of Ernst &
Young LLP and PWC will be present at the annual meeting of shareholders and will
have an opportunity to make a statement and respond to appropriate questions.
On November 30, 2006, CMS dismissed Ernst & Young as its independent registered
public accounting firm. The decision to dismiss Ernst & Young was recommended
and approved by the Audit Committee of the Board of Directors of CMS (the "Audit
Committee") and was the result of a competitive bidding process conducted in the
ordinary course of business. Ernst & Young continued as the auditors for the
consolidated financial statements of CMS for the fiscal year ended December 31,
2006.
During CMS' two most recent fiscal years ended December 31, 2006 and December
31, 2005 and the subsequent interim period through February 28, 2007, there were
no disagreements with Ernst & Young on any matters of accounting principles or
practices, financial statement disclosure, or auditing scope or procedures which
disagreement(s), if not resolved to the satisfaction of Ernst & Young, would
have caused them to make reference to the subject matter of the disagreement(s)
in connection with their reports on CMS' consolidated financial statements for
such years.
During CMS' two most recent fiscal years ended December 31, 2006 and December
31, 2005 and the subsequent interim period through February 28, 2007, there have
been no "reportable events" as defined in Regulation S-K, Item 304(a)(1)(v),
except for a material weakness at CMS regarding internal controls over financial
reporting relating to accounting for income taxes as of December 31, 2005, which
was subsequently remediated.
Approval of this proposal requires the affirmative vote of the holders of a
majority of shares of CMS Common Stock voting on the proposal.
YOUR BOARD RECOMMENDS RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS.
40
2008 PROXY STATEMENT INFORMATION
A shareholder who wishes to submit a proposal for consideration at the 2008
annual meeting pursuant to the applicable rules of the SEC must send the
proposal to reach our Corporate Secretary on or before December 13, 2007. In any
event, if we have not received written notice of any matter to be proposed at
that meeting by February 26, 2008, the holders of the proxies may use their
discretionary voting authority on any such matter. The proposals should be
addressed to: Corporate Secretary, CMS Energy Corporation, One Energy Plaza,
Jackson, Michigan 49201.
41
(CMS ENERGY LOGO)
Thank you for being a CMS Energy shareholder.
Please take a moment now to vote your shares for the upcoming annual
shareholders' meeting.
YOUR VOTE IS IMPORTANT!
YOU CAN VOTE IN ONE OF THREE WAYS:
OPTION 1: VOTE BY TELEPHONE: Call TOLL FREE 1-888-297-9641 using a touch
tone phone 24 hours a day, 7 days per week. Have your attached
proxy card at hand when you call and then follow the instructions.
If you wish to vote as recommended by the Board of Directors,
simply press 1. That's all there is to it...End of call. If you do
not wish to vote as the Board recommends, you need only respond to
a few simple prompts. THERE IS NO CHARGE FOR THIS CALL.
-----------------------------------------
(TELEPHONE (ARROW (COMPUTER
GRAPHIC) GRAPHIC) GRAPHIC)
FOR TOUCH TONE TELEPHONE - 1-888-297-9641
INTERNET VOTING - WWW.PROXYVOTING.COM/CMS
-----------------------------------------
(Your telephone or Internet vote authorizes the voting of your
shares in the same manner as if you had marked, signed and
returned your proxy card.)
OPTION 2: VOTE VIA THE INTERNET: Access WWW.PROXYVOTING.COM/CMS and respond
to a few simple prompts.
THANK YOU FOR VOTING BY TELEPHONE OR INTERNET AND SAVING COSTS!
OPTION 3: If you do not have access to a touch tone phone or to the
Internet, please complete and return the proxy card below.
PLEASE FOLD AND DETACH PROXY CARD AT PERFORATION
(AFTER YOU VOTE BY PHONE OR INTERNET, PLEASE THROW AWAY THIS CARD.)
(CMS ENERGY LOGO) COMMON STOCK PROXY
SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF SHAREHOLDERS
The undersigned appoints KENNETH WHIPPLE, DAVID W. JOOS and CATHERINE M.
REYNOLDS, and each of them, proxies with full power of substitution, to vote on
behalf of the undersigned at the annual meeting of shareholders of CMS Energy
Corporation to be held at the Corporate Headquarters located at One Energy
Plaza, Jackson, Michigan, at 9:00 AM Eastern Daylight Saving Time on May 18,
2007 and at any adjournment(s) thereof. Said proxies, and each of them present
and acting at the meeting, may vote upon the matters set forth on the reverse
side hereof and with discretionary authority on all other matters that come
before the meeting, all as more fully set forth in the Proxy Statement received
by the undersigned. The shares represented hereby will be voted on the proposals
as specified. IF THIS PROXY IS RETURNED SIGNED BUT NOT COMPLETED, IT WILL BE
VOTED AS RECOMMENDED BY THE BOARD OF DIRECTORS ON ALL ITEMS.
IF YOU CANNOT VOTE BY TOUCH TONE PHONE
OR INTERNET, PLEASE VOTE, SIGN AND DATE
THIS PROXY ON THE REVERSE SIDE AND
RETURN IT IN THE ENCLOSED ENVELOPE.
THANK YOU FOR YOUR PROMPT RESPONSE.
PLEASE VOTE BY TOUCH TONE TELEPHONE OR INTERNET IF POSSIBLE TO MINIMIZE COSTS.
[ ] TO VOTE AS RECOMMENDED by the Board of Directors on all items, PLEASE MARK
THIS BOX, SIGN, DATE AND RETURN THIS PROXY. (No additional boxes need to be
marked. If additional boxes are marked, this box will take precedence.)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1 AND 2.
(1) ELECTION OF [ ] FOR all nominees listed below (except as indicated below)
DIRECTORS [ ] WITHHOLD AUTHORITY to vote for all nominees listed below
(01) Merribel S. Ayres, (02) Jon E. Barfield, (03) Richard M. Gabrys,
(04) David W. Joos, (05) Philip R. Lochner, Jr., (06) Michael T. Monahan,
(07) Joseph F. Paquette, Jr., (08) Percy A. Pierre, (09) Kenneth L. Way,
(10) Kenneth Whipple, and (11) John B. Yasinsky.
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.)
FOR AGAINST ABSTAIN
(2) Ratification of independent registered public accounting firm. [ ] [ ] [ ]
IF YOU CANNOT VOTE BY TELEPHONE OR INTERNET, PLEASE SIGN, DATE AND Signed ______________
RETURN THIS PROXY IN THE ENCLOSED ENVELOPE. NO POSTAGE IS NEEDED
IF MAILED IN THE UNITED STATES. Dated _________, 2007
[ ] INTERNET ACCESS: I would prefer to access annual reports and proxy
statements on the internet. (No paper copies. You do not need to provide an
E-mail address.)
[ ] ANNUAL REPORTS: I receive more than one CMS annual report. Please do not
send annual reports for this account in the future.
(CMS ENERGY LOGO)
CMS Energy Corporation and
Consumers Energy Company
ANNUAL SHAREHOLDERS
MEETING
CORPORATE HEADQUARTERS
ONE ENERGY PLAZA
Jackson, Michigan
Phone: (517) 788-0550
MAY 18, 2007 AT 9:00 A.M.
website: www.cmsenergy.com
DIRECTIONS TO ONE ENERGY PLAZA
- Take I-94 to Cooper Street, Exit 139, south
- Travel one mile south on Cooper Street then veer right on N. Francis Street
- Turn left on drive into Corporate Headquarters
- Park in parking garage immediately to your right