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

Exchange Act of 1934

 

CMS ENERGY CORPORATION

CONSUMERS ENERGY COMPANY

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

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

 

 

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

Externally, many stakeholders look at our business through the lens of ESG. Internally at our Company, ESG is normal operating procedure; it isn’t an afterthought or an add-on. ESG considerations are alive in our purpose, our culture, our people, our strategy, and our executive compensation. ESG is who we are.

Our Chief Executive Officer (“CEO”), Garrick Rochow has said, “As our Company’s leader, I intend to bring our purpose — world class performance delivering hometown service—to life.” These plans are outlined below.

Leading the clean energy transformation: Leading this transformation is the opportunity of our generation. We’re proud of our pledge to deliver industry-leading net-zero methane and carbon-emission energy for our customers, investors, and planet. Our success in this important work depends on innovating as well as partnering with customers to use energy wisely with energy efficiency and demand response programs. This is our moonshot moment. The best part? We get to lead the clean energy transformation for our customers, investors, state, and the planet!

Delivering excellence: Our tradition of performance excellence is a legacy that will continue. That legacy is grounded in our commitment to our lean operating system, the CE Way, which helps us serve customers better every day. As we move into the future, we will add more automation and analytics to our standard work to help our co-workers operate more efficiently. Beyond how we work, our commitment to excellence applies to our valuable and strong relationship with our unionized workforce – and our stand that every day is a safe day for all our co-workers.

Advancing our culture: A moment is an instance in time. A movement is sustained motion that spurs transformation. As a leader, I am committed to our company inspiring a movement from a diversity, equity, and inclusion perspective. At our company, I promise to work every day to create an environment where the contributions of all are heard and valued, and everyone knows they belong.

Our commitment to the triple bottom line — people, planet, and profit — is our foundation. The triple bottom line balances the interests of all stakeholders, including employees, customers, suppliers, regulators, communities we serve, and the investment community. In addition, our values of Caring, Empowered, Deliberate, Agility, and Ownership are alive and well in our culture as discussed below. We're working to ensure our employees can experience them every day. They align with our strategy and drive all our actions.

All of the operational metrics we use to determine executive incentive compensation are ESG metrics. They are material to our business and quantifiable. In 2021, our operational metrics included safety, employee empowerment, customer experience, reliability, customer value, cyber security, methane reduction, and clean energy.

Connecting the dots between our internal activities and external stakeholder expectations is the focus of our ESG communication efforts. We participate in a voluntary industry initiative, coordinated by the Edison Electric Institute (“EEI”) and the American Gas Association, to provide the public, our customers, and shareholders uniform and consistent ESG and sustainability-related metrics. We participate in the annual Carbon Disclosure Project Climate and Water Reports. Our Climate Assessment Report and Methane Reduction Plan are also great tools for outlining our ESG activities. All of these reports, our various reporting indexes, scorecards and our policies, such as those related to human rights, biodiversity, waste management, safety, environmental, greenhouse gas, and water use can all be found on our website at cmsenergy.com/sustainability. Website references throughout this Proxy Statement are provided for convenience only, and the content on the referenced websites is not incorporated by reference into this Proxy Statement.

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

These are the five values in our cultural mindset.

 

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

As part of our continued effort to ensure the culture is present in everything we do, our Culture Index will be used as the primary metric to ensure we are creating an environment where all workgroups can succeed. This environment is focused on meeting employee needs and creating a positive experience. This index is comprised of 15 questions focused on Empowerment, Engagement, and Diversity, Equity, and Inclusion (“DE&I”). By focusing on these aspects, we can ensure that we are addressing employee concerns holistically and creating an environment where everyone can succeed.

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

Our Culture: Embedding DE&I into our culture focuses on educating our employees and leaders on DE&I and highlighting opportunities where they can contribute to create an inclusive environment. A key component of this will be leveraging our eight Employee Resource Groups (“ERG”) and our Inclusion Champions to create that space of belonging for each employee.

Our Processes: Embedding DE&I into everything we do expands beyond the processes that drive our employee experience. We must ensure that all of our processes have that focus because ultimately, DE&I proficient people + DE&I proficient processes yield DE&I outcomes.

Our Talent: Building a diverse, equitable, and inclusive workforce relies on our ability to attract and retain diverse talent. That attraction starts with a strategic talent sourcing strategy that focuses on recruiting in areas representative of all demographics, allowing us to build diverse, qualified candidate pools. Creating a diverse and inclusive workforce expands beyond strategic sourcing to the processes we use in our employee lifecycle (e.g. hiring, promoting, developing, and succession planning).

As a company, our commitment to DE&I is long-standing. Consumers’ first ERG, the Women’s Advisory Panel, was founded in the mid-1980s, and over the years we have expanded the number of our flourishing ERGs. We care about the well-being of others and are deliberate in our actions to foster inclusion and take a public stand against racism, hate, and bias. In 2021:

We are inclusive in our hiring practices and ensure diverse candidate pools and hiring committees for every position posted. Within our hiring process, we not only take strategic steps in our outreach activities to deepen and diversify our talent pools, we also provide our leaders with the training, guidance, and resources needed to make sound hiring decisions within the selection process.

We are actively maturing our existing diverse supplier program by building a framework that enables a high-quality, long-term sustainable program. Our program will include an expanded diverse supplier network, validating certification of diverse vendors, and Enhanced Tier II reporting for suppliers of our suppliers. This investment will provide us a solid foundation for an expanded program enabling our five-year goal of doubling our spend with diverse suppliers by the end of 2023.

We remain committed to embedding DE&I into everything we do for our employees, customers, and communities. In 2022, we will launch our DE&I movement stands to monitor the success of our DE&I strategy to build and sustain a world-class inclusive workforce. Our stands support our strategy, are aligned with our Executive DE&I Council, and represent multi-year, measurable aspirations in the areas of culture, talent, philanthropy, and supplier diversity. We are excited about the road ahead and connecting DE&I with our core business. For the first time, we will connect our DE&I program to executive and employee compensation by including our DE&I Index measure within our incentive compensation targets:

Consumers and its foundation contributed $2.6 million to diverse organizations impacting communities of color and created the CMS Energy Emergency Hardship Relief Fund, which provides short-term financial assistance to our team members experiencing significant financial hardship.

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

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

 

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

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

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

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

As stated in our Principles, the Board has determined that for the present time, it is in the best interests of the Corporation and shareholders to keep the offices of CEO and Chairman separate to enhance oversight responsibilities. The Board believes that this leadership structure promotes independent and effective oversight of management on key issues relating to long-range business plans, long-range strategic issues, and risks. To further promote independent and effective oversight of management, our Principles also provide that at any time when the Chairman is not considered independent under NYSE listing standards, a Presiding Director will be chosen by the independent directors to coordinate the activities and preside at the executive sessions attended only by the independent members of the Board. The Presiding Director provides the independent directors with a key means for collaboration and communication. Under our Bylaws, the Presiding Director will: (1) convene and chair meetings of the independent directors in executive session no less than once each year; (2) preside at meetings of the Board at which the Chairman of the Board is not present, including executive sessions of the independent directors; (3) solicit independent directors for advice on agenda items for meetings of the Board; (4) serve as a liaison between the Chairman of the Board, the President and the independent directors; and (5) perform such other duties as may be assigned by the Board from time to time. Russell, the current Chairman, is not a member of management, but served as President and CEO of CMS and Consumers until July 2016. As of July 2019, he qualified as independent under NYSE listing standards; however, on May 7, 2021, Harvey was re-elected as Presiding Director for the Board for a one-year term.

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

The Board is responsible for overseeing the Corporation’s cybersecurity risk. Cybersecurity risks are included in the risk reports to the Audit Committee discussed above. These risks are managed through a robust security program that includes people, processes, technology, and governance structures. Security is an integrated organization accountable for both cyber and physical security and its executive director reports to a senior vice president. Our processes include a review of all security-related projects prior to implementation. A dedicated team monitors our environment and regularly shares threat information with peers, state and federal partners. We also conduct regular drills, exercises, vulnerability assessments, and penetration tests to assess the security of our systems. Additional areas of focus include risk management, data privacy, and compliance. We have a strong security culture through annual training, which includes courses on a variety of security-related topics. We also conduct monthly phishing tests through our “Don’t Take the Bait” program, which asks employees to report suspicious emails that demonstrate common phishing tactics in real-world scenarios. When employees click on a test-phishing email, they are provided with information on cybersecurity best practices. We monitor our “Don’t Take the Bait” statistics every month and communicate this data with employees to further emphasize their important role in cybersecurity. In 2021, these results were also reviewed as part of the employee incentive compensation metrics. The Audit Committee receives cybersecurity updates that focus on our most critical assets, cybersecurity drills, exercises, mitigation of cybersecurity risks, and assessments by third-party experts. In 2021, management met with the Board once and the Audit Committee once to provide updates on and discuss cybersecurity.

The Board oversees our political engagement policies, programs, and practices. The Governance Committee is also responsible for advising and assisting the Board with respect to our political engagement. Our policies, including the governance and decision-making process for corporate political contributions, as well as our enhanced 2021 disclosures, are described in detail at cmsenergy.com/corporate-governance/political-engagement. We believe Board oversight of our political activity along with the Board’s alignment with our current disclosure standards provide the necessary accountability to ensure that political activities are conducted in the best interest of customers, shareholders, and other stakeholders. Through Board oversight, we have maintained a rigorous compliance process to ensure that our political activities are lawful, properly disclosed, and align with our Codes.

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

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

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

We provide extensive public reporting and are forthcoming in disclosures about our environmental stewardship and long-term strategy. We address issues related to climate change in SEC, Environmental Protection Agency and other regulatory agency filings, and by voluntarily reporting our climate risk strategy and related data to CDP (formerly known as the Carbon Disclosure Project). We have published ESG and Sustainability Reports, a Climate Assessment Report, which addresses the long-term implications of our electric supply fuel mix and capital expenditure plans and a Methane Reduction Plan, which explains our plans for achieving net zero methane emissions from our natural gas delivery system by 2030. In 2021, Consumers filed an updated Integrated Resource Plan, which included plans to stop using coal as a fuel source for electricity by 2025.

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

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

As part of our overall corporate governance, we have an ongoing outreach program to develop and maintain communication with our investors in regard to governance and compensation issues. We value these discussions and the Board considers pertinent feedback when evaluating corporate governance and compensation issues. In addition, management

regularly participates in investor and industry conferences throughout the year to discuss performance and ESG topics, and share its perspective on business and industry developments. Shareholders may also contact the Board with any inquiry or issue, by the methods described below, and the Board will respond as appropriate.

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

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

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

 

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

The Governance Committee is responsible for Board succession planning, which includes identifying and evaluating director candidates to serve on the Board consistent with the criteria approved by the Board, and recommending a slate of director candidates for election at the Annual Meeting. The following diagram illustrates the steps in identifying director candidates:

 

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

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

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

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

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

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

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

Directors Barfield, Butler, Darrow, Harvey, Russell, Shank, Soto, Sznewajs, Tanski, and Wright are “independent” as determined by the Board, in accordance with the NYSE listing standards, applicable rules and regulations of the SEC, our more stringent Independence Standards, as set forth in our Principles, and taking into consideration all business relationships between the Corporation and its subsidiaries and each non-employee director. Rochow is not independent due to his employment relationship with the Corporation.

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

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

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

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

At the Corporation’s expense, Board members are expected to attend at least one continuing education program annually, sponsored by a recognized utility industry or corporate governance organization. All Director nominees attended at least one continuing education

program in 2021. Also, we have an internal director education program. The internal program includes corporate and industry information disseminated through orientation programs, presentations, business training modules and reports, and operational site visits.

The Board is committed to continuous self-improvement, and Board and Committee evaluations are an important tool for promoting effectiveness. The Board conducts a performance evaluation annually and at least once every three years, engages a third party to conduct individual Director peer evaluations.

Board and Committee evaluations are conducted for the Board and each standing Committee. Each Director participates in the process as illustrated below.

 

In 2021, we enhanced our evaluation process by expanding our evaluation methodology to include interviews of Directors and members of our executive leadership team who regularly interact with the Board and the Committees by an independent third-party facilitator to be conducted at least once every three years in order to solicit candid and actionable feedback. The enhanced multi-layered approach to our Board and Committee evaluation process is illustrated below.

 

The questionnaire assesses, among other items, Board: 1) effectiveness, including but not limited to, operations, oversight, and future challenges; 2) processes; and 3) composition. Directors may choose to provide their feedback anonymously.

Director peer evaluations provide Directors an opportunity to evaluate each other and identify opportunities for their own growth and development. Peer evaluations and development follow-ups are facilitated by an independent third party and include confidential, open-ended, one-on-one interviews with each Director. The Board has conducted these periodic peer evaluations since 2008. The latest Director peer evaluation cycle began in 2021.

The CMS and Consumers Board each met ten times during 2021. Our Principles state the expectation that each Director will attend all scheduled Board and Committee meetings of which he or she is a member, as well as the Corporation’s annual meeting of shareholders. During 2021, all Directors attended more than 75% of the Board and assigned Committee meetings. Overall, the Directors attended 98.6% of the Board and assigned Committee meetings. All Board members attended the 2021 annual meeting of shareholders.

The Board has five standing Committees including an Audit Committee, a Compensation Committee, a Finance Committee, a Governance Committee, and an Executive Committee. The members and the responsibilities of the standing Committees of the Boards are listed below.

Each Committee is composed entirely of “independent” Directors, as that term is defined by the NYSE listing standards and our Principles described above. Committees may also invite members of management or others to attend their meetings as they determine appropriate. Rochow routinely attends Committee meetings.

On a regularly-scheduled basis, the non-employee Directors meet in executive session (that is, with no employee Directors present) and may invite such members of management to attend as they determine appropriate. At least once each year, the independent Directors meet in executive session in conformance with the NYSE listing standards. In 2021, the CMS independent Directors met four times and the Consumers independent Directors met four times. In 2021, Presiding Director Harvey or Chairman Russell presided over the executive sessions of independent Directors.

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

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

We have adopted an employee code of ethics, titled “CMS Energy 2022 Code of Conduct and Guide to Ethical Business Behavior” (“Employees’ Code”) that applies to the CEO, Chief Financial Officer (“CFO”) and Chief Accounting Officer (“CAO”), as well as all other officers and employees of CMS and Consumers. CMS and Consumers have also adopted a director code of ethics titled “2022 Board of Directors Code of Conduct and Guide to Ethical Business Behavior” (“Directors’ Code”) that applies to the members of the Board. The Governance Committee annually reviews the Codes and recommends changes to the Board, as appropriate. The Employees’ Code is administered by the Chief Compliance Officer, who reports directly to the Audit Committee. The Audit Committee oversees compliance with the Codes. Any alleged violation of the Directors’ Code will be investigated by disinterested members of the Audit Committee, or if none, by disinterested members of the Board. The Governance Committee would recommend appropriate action to the Board in the event a determination is made that a director violated the Directors’ Code. The Codes and any waivers of, or amendments or exceptions to, a provision of the Employees’ Code that applies to the CEO, CFO, CAO or persons performing similar functions and any waivers of, or exceptions to, a provision of our Directors’ Code will be disclosed on our website at cmsenergy.com/complianceandethics. No such waivers or exceptions have been granted.

CMS, Consumers, or their subsidiaries may occasionally enter into transactions with Related Parties. “Related Parties” include directors or executive officers, beneficial owners of more than 5% of our common stock, family members of such persons, and entities in which such persons have a direct or indirect material interest. As set forth in our Codes, we consider a related party

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

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

The policies and procedures relating to the Audit Committee’s approval of Related Party Transactions are found in the Codes, which are available at cmsenergy.com/complianceandethics, and do not apply to management contracts or compensation plans as approved under separate policies.

Angela Thompkins, a sister to Tonya Berry, an executive officer, is employed by the Corporation in a non-executive officer position and received compensation approved by the Compensation Committee in accordance with its compensation practices described in our Compensation Discussion and Analysis.

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

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

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

For the fiscal year ended December 31, 2021, the median of the annual total compensation of all CMS employees (other than Rochow, President and CEO), was $135,987; and the annual total compensation of the President and CEO was $6,871,068. Based on this information the ratio of the annual total compensation of the President and CEO to the median of the annual total compensation of all CMS employees was 50.5 to 1.

For the fiscal year ended December 31, 2021, the median of the annual total compensation of all Consumers employees (other than Rochow, President and CEO), was $129,141; and the annual total compensation of the President and CEO was $6,871,068. Based on this information the ratio of the annual total compensation of the President and CEO to the median of the annual total compensation of all CMS employees was 53.2 to 1.

In determining the median employee for each of CMS and Consumers, our calculation includes employees as of December 31, 2021, as follows:

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

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

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

The median employee’s compensation for fiscal year 2021 was calculated in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K as prescribed for inclusion in the 2021 Summary Compensation Table included in this Proxy Statement. With respect to the annual total compensation of the President and CEO, the amount reported in the “Total” column of our 2021 Summary Compensation Table included in this Proxy Statement was used.

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

In 2021, directors who were not CMS or Consumers employees each received an annual cash retainer fee. The following table describes the annual cash retainer fee and other fees for Director services received for service in 2021 as well as the fees that will be received for service in 2022. Annual retainer fees are paid based on the number of months served on the Board in each respective capacity.

In May 2021, non-employee directors, were awarded a number of shares of restricted stock with a fair market value at the time of award of $150,000, which did not increase from the 2020 annual stock retainer grant value. These shares of restricted stock are 100% tenure-based and vest 100% at the next annual meeting date. In 2022, the annual restricted stock award will have a fair market value at the time of the May 2022 award of approximately $160,000, an increase of $10,000 from 2021. These shares of restricted stock will be 100% tenure-based and vest at the next annual meeting date. Under our Performance Incentive Stock Plan in effect at the time of grant, non-employee directors may defer receipt of their annual equity awards until a deferral date selected by the director. If a deferral election is made by the director, the equity awards subject to the deferral election will be granted as restricted stock units rather than restricted stock awards. Directors Butler, Darrow, Shank, Soto, and Sznewajs elected to defer their 2021 equity grants.

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

Pursuant to the Directors’ Deferred Compensation Plan (“DCP”), a director who is not an employee may, at any time prior to a calendar year in which cash retainer fees are to be earned, irrevocably elect to defer payment, through written notice, of all or a portion of any of the cash retainer fees that would otherwise be paid to the director. Deferred amounts will be distributed in a lump sum or in annual installments in cash, as specified in the director’s initial election. Fidelity Investments, an independent record keeper, administers the DCP. The participant decides how contributions are invested among a broad array of mutual funds selected by and provided by the record keeper. Funds equal to the amounts deferred are transferred to Fidelity Investments. Our payment obligations to the directors remain an unsecured contractual right to a payment. Directors Barfield, Butler, Darrow, Shank, Soto, Sznewajs, and Tanski elected to defer receipt of their 2021 fees under the DCP.

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

The following table shows the beneficial ownership of CMS common stock as of March 8, 2022 by the directors and named executive officers of both CMS and Consumers and by all directors and executive officers as a group:

In this section, we describe and discuss our executive compensation program, including its objectives and elements, as well as determinations made by the Compensation Committee regarding the compensation of the CEO, CFO, and the three other most highly compensated executive officers of each of CMS and Consumers, who we collectively refer to as the “named executive officers” (“NEOs”). As of December 31, 2021, the NEOs for each of CMS and Consumers are:

In 2021, we continued to deliver strong financial performance marking 19 years of meeting or exceeding our adjusted earnings guidance. We believe that our highlights reflect on a successful year of world class performance delivering hometown service with achievements in our triple bottom line of people, planet, and profit.

PEOPLE – serving our customers, communities and employees.