<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to section 240.14a-11(c) or section 240.14a-12
</TABLE>
The McGraw-Hill Companies, Inc.
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(Name of Registrant as Specified In Its Charter)
The McGraw-Hill Companies, Inc.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
1221 Avenue of the Americas
New York, NY 10020
[The McGraw-Hill Companies Logo]
March 21, 1996
DEAR SHAREHOLDER:
On behalf of the Board of Directors and management, we cordially invite you to
the Annual Meeting of Shareholders to be held Wednesday, April 24, 1996, at 11
A.M., at the principal executive offices of the Corporation, 1221 Avenue of the
Americas, New York City.
At the Annual Meeting, we are asking shareholders to vote for the election of
directors, for the ratification of the appointment of independent auditors, and
for approval of the 1996 Key Executive Short-Term Incentive Compensation Plan
and the Director Deferred Stock Ownership Plan. These matters, together with a
shareholder proposal which may be brought before the meeting, are more fully
described in the accompanying Notice of Meeting and Proxy Statement. For the
reasons set forth in the Proxy Statement, your Board of Directors recommends
that you vote FOR Items 1, 2, 3 and 4 and AGAINST Item 5 as set forth on the
enclosed Proxy Card.
At the Annual Meeting, there will also be a report to shareholders regarding the
operations of The McGraw-Hill Companies, Inc. In addition, time will be made
available for shareholders to discuss the formal business items as well as to
ask other questions about The McGraw-Hill Companies' operations.
It is important that your shares be voted at the meeting in accordance with your
preference whether or not you plan to attend in person. We urge you to specify
your choices on the matters presented by filling in the appropriate boxes on the
enclosed Proxy Card. Please sign, date and return the Proxy Card in the prepaid
envelope provided. Your cooperation in promptly returning the Proxy Card will
save your Corporation additional solicitation costs and is appreciated. If you
do attend the meeting and wish to vote in person, you may withdraw your Proxy at
that time.
Sincerely,
/s/ JOSEPH L. DIONNE
--------------------------------
JOSEPH L. DIONNE
Chairman of the Board and Chief
Executive Officer
<PAGE> 3
1221 Avenue of the Americas
New York, NY 10020
[The McGraw-Hill Companies Logo]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 24, 1996
To the Shareholders of The McGraw-Hill Companies, Inc.:
The Annual Meeting of Shareholders of The McGraw-Hill Companies, Inc. (the
"Corporation") will be held at the principal executive offices of the
Corporation, 1221 Avenue of the Americas, New York, New York 10020, Wednesday,
April 24, 1996, at 11 A.M., for the purpose of considering and voting upon the
following:
1. Election of seven directors;
2. Approval of the 1996 Key Executive Short-Term Incentive Compensation Plan;
3. Approval of the Director Deferred Stock Ownership Plan;
4. Ratification of the appointment of independent auditors for 1996;
5. Shareholder proposal requesting elimination of election of directors by
classes; and
6. Such other business as may properly come before the Meeting or any
adjournment thereof.
Information relating to the above matters is set forth in the accompanying Proxy
Statement.
In accordance with the By-Laws and resolutions of the Board of Directors, only
shareholders of record at the close of business on March 11, 1996 shall be
entitled to notice of and to vote at the Meeting.
By Order of the Board of Directors
SCOTT L. BENNETT
Senior Vice President, Associate General
Counsel and Secretary
New York, New York
March 21, 1996
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Please sign and return the enclosed proxy in the envelope provided.
No postage is necessary, if mailed in the United States.
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<PAGE> 4
THE MCGRAW-HILL COMPANIES, INC.
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 24, 1996
PROXY STATEMENT
To the Shareholders of The McGraw-Hill Companies, Inc.:
This statement is furnished in connection with the solicitation of proxies by
the Board of Directors of The McGraw-Hill Companies, Inc. (the "Corporation")
for use at the Annual Meeting of Shareholders to be held at 11 A.M. on April 24,
1996, at the principal executive offices of the Corporation, 1221 Avenue of the
Americas, New York, New York, and at any adjournment thereof. A Notice of
Meeting is attached hereto and a form of proxy is enclosed.
THE PROXY
The persons named as proxies were selected by the Board of Directors of the
Corporation and are officers of the Corporation.
When the proxies in the enclosed form are properly executed and returned, the
shares they represent will be voted at the Meeting. If a shareholder
participates in the Corporation's Dividend Reinvestment Plan, any proxy given by
such shareholder will also govern the voting of all shares held for the
shareholder's account under the Dividend Reinvestment Plan, unless contrary
instructions are received. Any shareholder giving a proxy has the power to
revoke it at any time before it is voted at the Meeting by filing with the
Secretary of the Corporation an instrument revoking it or by filing a duly
executed proxy bearing a later date.
The cost of soliciting proxies will be borne by the Corporation. The Corporation
will request banks and brokers to solicit their customers who have a beneficial
interest in the Corporation's shares registered in the names of nominees and
will reimburse such banks and brokers for their reasonable out-of-pocket
expenses of such solicitations. In addition, officers and full-time employees of
the Corporation may solicit proxies by telephone, telegraph or personal
interview. The Corporation has retained Kissel-Blake Inc. to assist in the
solicitation of proxies. It is estimated the Corporation will pay Kissel-Blake a
fee of $16,500 for these services.
These proxy materials are being mailed to shareholders of the Corporation
commencing on March 21, 1996. A copy of the 1995 Annual Report to Shareholders
was mailed to shareholders on March 14, 1996.
VOTING SECURITIES
The outstanding securities of the Corporation on March 11, 1996 were 50,308,470
shares of Common Stock, par value $1 per share, and 1,416 shares of
$1.20 Convertible Preference Stock, par value $10 per share. Each share of
Common Stock and $1.20 Convertible Preference Stock is entitled to one vote at
the Meeting.
VOTING PROCEDURES
Under the New York Business Corporation Law (the "BCL") and the Corporation's
Restated Certificate of Incorporation, the presence, in person or by proxy, of
the holders of a majority of the outstanding shares of Common Stock and $1.20
Convertible Preference Stock is necessary to constitute a quorum of shareholders
to take action at this Annual Meeting. For these purposes, shares which are
present, or represented by a proxy, at the Meeting will be counted for quorum
purposes regardless of whether the holder of the shares or proxy fails to vote
on any particular matter or whether a broker with discretionary authority fails
to exercise its discretionary voting authority with respect to any particular
matter. Once a quorum of the shareholders is established, under the BCL and the
Corporation's Restated Certificate of Incorporation, (A) the directors standing
for election as set forth on pages 3 and 4 must be elected by a plurality of the
votes cast; (B) the affirmative vote of the holders of a majority of the
outstanding shares of Common Stock and Preference Stock, voting together as a
single class, is required to approve the Director Deferred Stock Ownership Plan,
as described on pages 21 and 22 (Proposal Three); and (C) the affirmative vote
of a majority of the votes cast is required to approve the 1996 Key Executive
Short-Term Incentive Compensation Plan, as described on pages 17 through 20
(Proposal Two), the shareholder proposal as set forth on pages 23 and 24
(Proposal Five) and to ratify the appointment of the auditors as described on
pages 22 and 23 (Proposal Four). For voting purposes (as opposed to for purposes
of establishing a quorum) abstentions and broker non-votes will not be counted
in determining whether the directors standing for election have been elected or
whether any other item has been approved; however, with respect to the approval
of the Director Deferred Stock Ownership Plan (Proposal Three) abstentions and
broker non-votes will have the effect of a negative vote.
Votes at the Meeting will be tabulated by two inspectors of election appointed
by the Board of Directors.
1
<PAGE> 5
1. ELECTION OF SEVEN DIRECTORS
Under the Corporation's Restated Certificate of Incorporation, there are three
classes of directors which are to be as equal in number as possible. Five
directors, Vartan Gregorian, John T. Hartley, Peter O. Lawson-Johnston, Paul J.
Rizzo and James H. Ross, were elected in 1994 for three-year terms expiring at
the 1997 Annual Meeting. Three directors, George B. Harvey, Richard H. Jenrette
and Lois Dickson Rice, were elected in 1995 for three-year terms expiring at the
1998 Annual Meeting. None of these eight incumbent directors is standing for
re-election at this Meeting.
Five directors, Joseph L. Dionne, Don Johnston, Linda Koch Lorimer, Harold W.
McGraw III and Alva O. Way, are to be elected at this Meeting for three-year
terms expiring at the 1999 Annual Meeting. Although Mr. Johnston will be elected
to a three-year term at this Meeting, pursuant to the Board of Director's
retirement age policy, he will be retiring from the Board at the 1997 Annual
Meeting.
Robert P. McGraw was elected a director on July 26, 1995, by action of the Board
of Directors taken pursuant to the Corporation's By-Laws, to a term expiring at
the 1996 Annual Meeting. In addition, Pedro Aspe was elected a director on
February 28, 1996, by action of the Board of Directors taken pursuant to the
Corporation's By-Laws, to a term expiring at the 1996 Annual Meeting. Messrs.
Aspe and McGraw are to be elected at this Annual Meeting for two-year terms
expiring at the 1998 Annual Meeting.
Harold W. McGraw, Jr., a director of the Corporation from 1954 to 1988, Chairman
of the Board from 1976 to 1988, and Chief Executive Officer of the Corporation
from 1975 to 1983, retired from the Board after the 1988 Annual Meeting pursuant
to the Board's retirement age policy. However, in recognition of Mr. McGraw's
past service and contributions to the Corporation and to assure his continued
close association with the Board and the Corporation, the Board of Directors
several years ago elected Mr. McGraw permanently to the position of Chairman
Emeritus.
2
<PAGE> 6
THE BOARD OF DIRECTORS' RECOMMENDATION
Unless otherwise specified by the shareholder, the Board of Directors intends
the accompanying proxy to be voted FOR the election of the named seven nominees
as directors.
The Board of Directors does not contemplate that any nominee will be unable or
unwilling to serve as a director. However, if that should occur, the individuals
named as the proxies reserve the right to substitute another person as may be
selected by the Board of Directors when voting at the Annual Meeting.
Following is information about each of the seven nominees for director who are
being proposed for election at this Annual Meeting and about each of the eight
incumbent directors.
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NOMINEES FOR ELECTION AS DIRECTORS FOR TERMS EXPIRING AT THE 1998 ANNUAL MEETING
PEDRO ASPE, age 46, has been since January 1996 Chairman of
the Board of Vector Casa de Bolsa, S.A. de C.V. ("Vector"),
an investment banking firm in Mexico providing financial
services to corporations, financial institutions and
individual investors. Vector is a subsidiary of Pulsar
International, S.A. de C.V., an industrial and financial
company headquartered in Mexico. He has also been since
January 1996 Managing Director and a partner of a newly
formed investment banking unit of Vector aimed at
[PHOTO] attracting capital and technology to Mexico. Dr. Aspe has
been since 1995 a professor at the Instituto Technologico
Autonomo de Mexico, located in Mexico City. Dr. Aspe has
held a number of positions with the Mexican government and
was most recently the Secretary of Finance and Public
Credit of Mexico from 1988 through 1994. Dr. Aspe is a
member of the Advisory Board of the Massachusetts Institute
of Technology and a member of the Board of Stanford
University's Institute of International Studies. Dr. Aspe
has served as a director of the Corporation since February
1996 and is a member of the Audit Committee.
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ROBERT P. MCGRAW, age 41, has been Executive Vice President
of the Professional Publishing Group of the Corporation
since 1989. He was Executive Vice President of the
Healthcare Group from 1987 to 1989, and Group Vice
[PHOTO] President of that same group from 1985 to 1987. Prior to
that he served in several key positions in the Health
Professions Division: as General Manager from 1983 to 1985;
as Editorial Director from 1982 to 1983; and as Editor from
1979 to 1982. He joined the Corporation in 1976 as a sales
representative for the College Division. Mr. McGraw has
served as a director of the Corporation since 1995 and is a
member of the Financial Policy Committee. (a)
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NOMINEES FOR ELECTION AS DIRECTORS FOR TERMS EXPIRING AT THE 1999 ANNUAL MEETING
JOSEPH L. DIONNE, age 62, has been Chairman of the Board
and Chief Executive Officer of the Corporation since April
1988. He was President and Chief Executive Officer of the
Corporation from 1983 to April 1988. Mr. Dionne was
President and Chief Operating Officer of the Corporation
from 1981 to 1983. He was Executive Vice President,
Operations, of the Corporation from 1979 to 1981 and
[PHOTO] President of McGraw-Hill Information Systems Company from
1977 to 1979. He is a director of The Equitable Companies
Incorporated, The Equitable Life Assurance Society of the
United States, the Harris Corporation, Ryder Systems, Inc.,
Alexander & Alexander Services, Inc. and a Trustee of
Hofstra University. Mr. Dionne has served as a director of
the Corporation since 1981 and is Chairman of the Executive
Committee.
3
<PAGE> 7
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DON JOHNSTON, age 69, was from 1978 to 1987 Chairman and
Chief Executive Officer of JWT Group, Inc., the parent
company of various advertising agencies and public
relations and market research firms, including the J.
Walter Thompson Advertising Agency. Mr. Johnston is a
[PHOTO] director of The Equitable Life Assurance Society of the
United States. He is a Trustee Emeritus of Johns Hopkins
University and Chairman Emeritus of the International
Executive Service Corps. Mr. Johnston has served as a
director of the Corporation since 1986 and is Chairman of
the Nominating and Corporate Governance Committee and is a
member of the Compensation and Executive Committees.
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LINDA KOCH LORIMER, age 44, has been Vice President and
Secretary of Yale University since 1995, having returned to
Yale as Secretary of the University in 1993. She was
President of Randolph-Macon Woman's College from 1987 to
1993 and was Associate Provost of Yale University from 1983
[PHOTO] to 1987. She is a director of Sprint Corporation. Ms.
Lorimer also serves on the Board of Governors of the Center
for Creative Leadership and is a director of Yale-New Haven
Hospital. Ms. Lorimer has served as a director of the
Corporation since 1994 and is a member of the Audit and
Financial Policy Committees.
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HAROLD W. MCGRAW III, age 47, has been President and Chief
Operating Officer of the Corporation since 1993. He was
Executive Vice President, Operations, of the Corporation
from 1989 to 1993. Prior to that he was President of the
McGraw-Hill Financial Services Company, President of the
McGraw-Hill Publications Company, publisher of
[PHOTO] McGraw-Hill's Aviation Week & Space Technology magazine and
Vice President, Corporate Planning. Before joining the
Corporation in 1980, he held several financial positions at
the GTE Corporation. He is a Trustee of Hartley House (a
New York City community settlement house). Mr. McGraw has
served as a director of the Corporation since 1987 and is a
member of the Financial Policy Committee. (a)
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ALVA O. WAY, age 66, is the Chairman of the Board of IBJ
Schroder Bank & Trust Company and a consultant and a
director of Schroder (PLC) (London). Mr. Way was the
President of the Travelers Corporation, a financial
services organization, from 1983 to 1984. He was President
of the American Express Company from 1981 to 1983 and Vice
Chairman from 1979 to 1981. Previously, Mr. Way was Senior
Vice President -- Finance for the General Electric Company
[PHOTO] from 1977 to 1979 and its Financial Vice President from
1973 to 1977. He is a director of Ryder Systems, Inc.,
Gould, Inc., Guidant Corporation and Eli Lilly and Co. He
is Chancellor of Brown University and a Trustee of the
Committee for Economic Development. Mr. Way has served as a
director of the Corporation since 1983 and is Chairman of
the Financial Policy Committee and is a member of the
Nominating and Corporate Governance and Executive
Committees.
4
<PAGE> 8
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DIRECTORS WHOSE TERMS EXPIRE AT THE 1997 ANNUAL MEETING
VARTAN GREGORIAN, age 61, has been President of Brown
University and a Professor of History at Brown University
since 1989. He was President and Chief Executive Officer of
the New York Public Library from 1981 to 1989. Prior to
1981, Dr. Gregorian taught and held administrative posts at
several American universities. Dr. Gregorian is a director
of the Institute for Advanced Study, the J. Paul Getty
Trust, the Aaron Diamond Foundation, the Institute for
International Education, the International League for Human
[PHOTO] Rights, the Fund for Free Expression, the Brookings
Institute and the Museum of Modern Art (New York). Dr.
Gregorian is currently President Emeritus of the New York
Public Library and was appointed by President Bush to be a
member of the Fulbright Commission. He is also a member of
the American Philosophical Society and a Fellow of the
American Academy of Arts and Sciences. Dr. Gregorian has
served as a director of the Corporation since 1990 and is a
member of the Financial Policy Committee.
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JOHN T. HARTLEY, age 66, is Chairman of the Executive
Committee and a director of the Harris Corporation, a
supplier of information, communication and semiconductor
systems, products and services to government and commercial
markets worldwide. He was Chairman of the Board and Chief
Executive Officer of the Harris Corporation from 1987 to
1995. Mr. Hartley was elected President and Chief Operating
Officer of the Harris Corporation in 1982, Chief Executive
Officer in 1986 and Chairman of the Board in 1987. Mr.
Hartley is a director of The Equitable Companies
Incorporated and The Equitable Life Assurance Society of
the United States and formerly the Chairman of the National
[PHOTO] Association of Manufacturers. He was a member of President
Reagan's and President Bush's National Security
Telecommunications Advisory Committee and is a past
Chairman of the Defense Policy Advisory Committee on Trade.
Mr. Hartley is also a Trustee of the Florida Institute of
Technology. Mr. Hartley has served as a director of the
Corporation since 1989 and is a member of the Audit,
Compensation, and Nominating and Corporate Governance
Committees.
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PETER O. LAWSON-JOHNSTON, age 69, has been for more than
the past five years a general partner in Guggenheim
Brothers, a venture capital partnership. Mr. Lawson-
Johnston is also Chairman of Zemex Corporation, a
diversified industrial minerals and materials company. He
is Chairman and a Trustee of the Solomon R. Guggenheim
Foundation (which operates the Solomon R. Guggenheim
[PHOTO] Museums in New York City and the Peggy Guggenheim
Collection in Venice, Italy), Chairman of the Board and a
Trustee of the Harry Frank Guggenheim Foundation, President
and a Trustee of the Lawrenceville School, and President
and a director of Elgerbar Corporation. Mr. Lawson-Johnston
has served as a director of the Corporation since 1975 and
is a member of the Compensation and Nominating and
Corporate Governance Committees.
5
<PAGE> 9
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PAUL J. RIZZO, age 68, is a partner in Franklin Street
Partners, an investment firm. He was Vice Chairman of the
Board of International Business Machines Corporation, a
manufacturer and distributor of advanced information
technologies, from 1993 to December 1994. He was Dean of
the Graduate School of Business Administration at the
University of North Carolina from 1987 to 1993. He was Vice
[PHOTO] Chairman of the Board of Directors of the IBM Corporation
from 1983 to 1987. Prior to that, Mr. Rizzo was Senior Vice
President of the IBM Corporation from 1971 to 1982. He is a
director of Johnson & Johnson, Ryder Systems, Inc. and
Morgan Stanley Group Inc. Mr. Rizzo has served as a
director of the Corporation since 1988 and is Chairman of
the Compensation Committee and is a member of the Audit and
Executive Committees.
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JAMES H. ROSS, age 57, was Chief Executive and Deputy
Chairman of Cable & Wireless plc, an international provider
of telecommunications services, between 1992 and 1995. He
was a Managing Director of British Petroleum plc, which
engages in all phases of the petroleum business, from 1991
to 1992, and Chairman and Chief Executive Officer of BP
America Inc., a subsidiary of British Petroleum plc, from
1988 to 1991. He was Chief Executive Officer and Managing
Director of BP Oil International Limited from 1986 to 1988.
[PHOTO] Prior to that, he was General Manager of Corporate Planning
for British Petroleum plc from 1982 through 1985. Mr. Ross
is a trustee of the Cleveland Orchestra, a member of the
Advisory Board of the Center for Strategic and
International Studies and Chairman of the Board of the
Manchester Business School. Mr. Ross has served as a
director of the Corporation since 1989 and is a member of
the Financial Policy and Nominating and Corporate
Governance Committees.
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DIRECTORS WHOSE TERMS EXPIRE AT THE 1998 ANNUAL MEETING
GEORGE B. HARVEY, age 64, has been Chairman, President and
Chief Executive Officer of Pitney Bowes Inc., a
manufacturer of office equipment and business supplies and
provider of financial services, since 1983. Mr. Harvey was
[PHOTO] President and Chief Operating Officer of Pitney Bowes from
1981 to 1983. He is a director of Merrill Lynch, Pfizer,
Inc. and Connecticut Mutual Life Insurance Company. Mr.
Harvey has served as a director of the Corporation since
1985 and is Chairman of the Audit Committee and is a member
of the Executive and Financial Policy Committees.
6
<PAGE> 10
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RICHARD H. JENRETTE, age 66, was Chairman of the Board and
Chief Executive Officer from 1990 to February 1996 of The
Equitable Companies Incorporated. He was also Chairman of
Equitable's wholly-owned investment banking subsidiary,
Donaldson, Lufkin & Jenrette, Inc. Mr. Jenrette was
[PHOTO] Chairman of The Equitable Life Assurance Society of the
United States, a mutual life insurance company, prior to
its de-mutualization in 1992. He is a director of Groupe
AXA, S.A. and Alliance Capital Management Corp. He is also
a member of the Business Roundtable. Mr. Jenrette has
served as a director of the Corporation since 1993 and is a
member of the Financial Policy Committee.
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LOIS DICKSON RICE (Mrs. Alfred B. Fitt), age 63, has been a
guest scholar since 1991 in the Economics Study Program at
the Brookings Institute, a research and education
organization. Prior to that she had been for more than five
years Senior Vice President, Government Affairs, and a
director of Control Data Corporation, which applies
technology to specialized computer, information and
management needs. She has held various positions with the
College Board, an educational association, and from 1971
[PHOTO] through 1981 served as one of its Vice Presidents. Mrs.
Rice is a director of Fleet Financial Group, International
Multifoods, Hartford Steam Boiler Inspection and Insurance
Company and Unum Corporation. Mrs. Rice is a Trustee of the
Harry Frank Guggenheim Foundation, Reading Is Fundamental
and the Center for Naval Analysis. She is a member of the
President's Foreign Intelligence Advisory Board and a
director of the Public Agenda Foundation. Mrs. Rice has
served as a director of the Corporation since 1988 and is a
member of the Audit and Compensation Committees.
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(a) Harold W. McGraw III and Robert P. McGraw are brothers and the sons of
Harold W. McGraw, Jr.
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7
<PAGE> 11
INFORMATION AS TO COMMITTEES, ATTENDANCE
AND FEES OF THE BOARD OF DIRECTORS
The Corporation's Board of Directors has standing Audit, Compensation and
Nominating and Corporate Governance Committees.
The Audit Committee is comprised of Mrs. Linda Koch Lorimer and Lois Dickson
Rice and Messrs. Pedro Aspe, John T. Hartley, George B. Harvey, and Paul J.
Rizzo. During 1995 the Audit Committee held three meetings. The functions
performed by the Audit Committee include: (a) reviewing and approving the scope
and coverage of the Corporation's annual audit and the division of duties
between the Corporation's independent auditors and internal auditors; (b)
discussing any significant difficulties encountered or significant findings
made during the annual audit; (c) reviewing and approving the annual audit,
financial statements and management letters following completion of the
Corporation's annual audit; (d) reviewing with the Corporation's independent
auditors and the Corporation's management the accounting systems, financial
controls and procedures used by the Corporation; (e) reviewing and approving
the scope of the duties of the internal audit function; (f) reviewing and
approving, from time to time, with the Corporation's senior management the
Corporation's Code of Business Ethics to determine compliance with such Code;
(g) reviewing and approving the annual audit budget and actual fees paid to the
Corporation's independent auditors; and (h) recommending to the Board of
Directors each year the firm of independent auditors to be retained for the
following year.
The Compensation Committee is comprised of Mrs. Lois Dickson Rice and Messrs.
John T. Hartley, Don Johnston, Peter O. Lawson-Johnston, and Paul J. Rizzo.
During 1995 the Compensation Committee held six meetings. The functions
performed by the Compensation Committee include: (a) establishing and approving
the compensation to be paid to members of the Corporation's senior management;
(b) administering the Corporation's executive incentive plans; (c) administering
the Corporation's stock incentive plans; and (d) authorizing and approving
special compensation arrangements for senior management.
The Nominating and Corporate Governance Committee is comprised of Messrs. John
T. Hartley, Don Johnston, Peter O. Lawson-Johnston, James H. Ross and Alva O.
Way. During 1995 the Nominating and Corporate Governance Committee held four
meetings. The functions performed by the Committee include: (a) recommending to
the Board of Directors the slate of nominees for election as directors at each
Annual Meeting or for election by the Board of Directors on an interim basis;
(b) recommending to the Board of Directors individuals to fill vacancies on it;
(c) evaluating, on a continuing basis, possible candidates to serve on the Board
of Directors; (d) recommending to the Board of Directors appropriate
compensation to be paid to the directors; (e) administering the 1993 Stock
Payment Plan For Directors and the Directors Retirement Plan; (f) determining
whether any relationship exists between an outside director and the Corporation
that might affect the status of the director as independent; and (g) making
recommendations from time to time to the Board of Directors as to matters of
corporate governance and periodically monitoring the Board's performance. The
Nominating and Corporate Governance Committee is willing to consider
recommendations of nominees by a shareholder if the shareholder submits the
nomination in compliance with the advance notice, informational and other
requirements set forth in the Corporation's By-Laws. Shareholders should direct
such recommendations of nominees to the Nominating and Corporate Governance
Committee, c/o the Secretary of the Corporation at 1221 Avenue of the Americas,
New York, New York 10020. The Corporation's By-Laws also contain detailed
procedures, including time limitations, which a shareholder must comply with in
order to introduce an item of business at a meeting of shareholders.
In addition to the above mentioned three committees, the Corporation's Board of
Directors has an Executive Committee and a Financial Policy Committee.
The Board of Directors of the Corporation held a total of eight meetings during
1995. All directors attended at least 75% of (1) all meetings of the Board of
Directors and (2) all meetings of all board committees on which they served. The
overall attendance record for all directors as a group during 1995 was 92.6%.
During 1995 outside directors received from the Corporation an annual fee of
$30,000 for serving on the Board of Directors, plus $1,000 for each board
meeting which they attended. In addition, outside directors received $800 for
each meeting of the Audit, Compensation, Executive, Financial Policy and
Nominating and Corporate Governance Committees which they attended. Inside
directors, who are employees of the Corporation, do not receive any fees for
serving on the board or for attending meetings of board committees. Under the
1993 McGraw-Hill Stock Payment Plan For Directors, twenty percent of the annual
retainer fee is paid to the outside directors in the form of Common Stock in
lieu of cash, together with a cash payment equal to the product of the number of
shares of Common Stock issued to the director for the year as provided above
multiplied by the aggregate cash dividends paid by the Corporation on a share of
Common Stock during the year. Further, the Directors Retirement Plan provides
for annual retirement and disability benefits to be paid to each non-employee
director of the Corporation upon retirement at or after age 65 or in the event
of disability in an amount equal to 10% of the then annual retainer fee for each
year of service on the Board, provided that the director shall have been a Board
member for at least five years.
On January 31, 1996, the Board of Directors approved certain compensation
initiatives that seek to more closely align directors' compensation with the
financial interests of shareholders by significantly increasing the percentage
of such compensation payable in shares of the Corporation's Common Stock. First,
the Board adopted the Director Deferred Stock Ownership Plan, subject to
approval by the Corporation's shareholders at this Annual Meeting. In general,
under this Plan, fifty percent of a director's total compensation during the
year shall be paid in shares of the Corporation's Common Stock, which shall be
credited on an annual basis to a bookkeeping account maintained for each
non-employee director and which shall be delivered in the form of stock
certificates at the time such director ceases to be a member of the Board. A
full description of the Plan appears on pages 21 and 22. Second, the Board
amended the 1993 Stock Payment Plan For Directors to provide that subject to the
approval by the shareholders of the Director Deferred Stock Ownership Plan at
this Annual Meeting, the 1993 Stock Payment Plan will be terminated as of June
30, 1996. Finally, the Board amended the Directors Retirement Plan to provide
that current Board members shall not accrue any additional benefits under the
Directors Retirement Plan after
8
<PAGE> 12
June 30, 1996, and any future new Board members shall not participate in said
Directors Retirement Plan.
Pursuant to the Director Deferred Compensation Plan, the Corporation currently
has written agreements with Mrs. Linda Koch Lorimer and Lois Dickson Rice and
Messrs. Vartan Gregorian, George B. Harvey, John T. Hartley, Richard H.
Jenrette, Paul J. Rizzo and Alva O. Way, respectively, to defer payment to them
of all or a portion of their annual cash retainer and board and committee
meeting fees which would otherwise be due and payable to them in connection with
their service on the Board of Directors. Interest on the deferred amount is to
be based on the monthly equivalent of a corporate bond index for the preceding
year plus 2% (up to a maximum of 150% of the bond index), except that with
respect to agreements to defer entered into prior to December 3, 1986, interest
will be payable at the average of a corporate bond index for the previous five
calendar years plus an additional amount currently estimated at 6%.
INDEMNIFICATION
Each of the directors and certain of the executive officers have entered into an
indemnification agreement with the Corporation pursuant to which each director
and executive officer shall be indemnified against judgments, fines, amounts
paid in settlement and reasonable expenses, including attorneys' fees actually
and necessarily incurred in any action or proceeding, whether civil or criminal,
or any appeal therein, to the fullest extent permitted by the applicable
provisions of the New York Business Corporation Law. Such indemnification will
be reduced to the extent that a director or executive officer is effectively
indemnified by directors' and officers' liability insurance maintained by the
Corporation. The Corporation has for many years carried directors' and officers'
liability insurance coverage. The Corporation's current insurance coverage was
purchased for the one year period commencing at 12:01 a.m. on December 31, 1995
and extending through 12:01 a.m. of December 31, 1996, at an annual aggregate
premium of approximately $755,000. This coverage, subject to a number of
standard exceptions, indemnifies the directors and officers of the Corporation,
whether elected or appointed, for liabilities or losses incurred in the
performance of their duties up to an aggregate sum of $65,000,000. This coverage
is also subject to the following deductibles: $5,000 per director or officer per
claim; $50,000 for all directors and officers in the aggregate per claim; and
$350,000 per loss for corporate reimbursement. The Corporation has purchased
this insurance coverage from National Union Fire Insurance Company of
Pittsburgh, PA.; Federal Insurance Company; and Great American Insurance
Companies. No sums have been paid under this coverage to the Corporation or any
directors or officers nor have any claims for reimbursement been made under this
policy.
BENEFICIAL OWNERSHIP OF THE CORPORATION'S COMMON STOCK (A)
The following table indicates the beneficial ownership of the Corporation's
Common Stock as of February 6, 1996, by (1) each of the directors and nominees,
(2) the chief executive officer and the other four most highly compensated
executive officers and (3) all directors, nominees and executive officers of the
Corporation as a group, based upon information supplied by each of the
directors, nominees and officers:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Right to
Shared Acquire
Sole Voting Voting Shares within Total
Power and Power and 60 Number
Sole Shared Days by of Shares Percent of
Investment Invest- Exercise Beneficially Common
Name of Beneficial Owner Power ment Power of Options Owned Stock(a)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Pedro Aspe(b) 250 250 (c)
Robert J. Bahash 30,297 46,104 76,401 (c)
Joseph L. Dionne(d) 99,026 128,135 227,161 (c)
Vartan Gregorian 405 405 (c)
John T. Hartley 1,204 1,204 (c)
George B. Harvey 898 898 (c)
Richard H. Jenrette 204 204 (c)
Don Johnston 2,204 2,204 (c)
Robert N. Landes 10,959 16,474 27,433 (c)
Peter O. Lawson-Johnston 2,204 2,204 (c)
As a Trustee of a Trust(e) 4,700 4,700 (c)
Linda Koch Lorimer 641 641 (c)
Harold W. McGraw III 81,221 59,732 140,953 (c)
Robert P. McGraw 22,683 16,174 38,857 (c)
Lois Dickson Rice 404 404 (c)
Paul J. Rizzo 1,204 1,204 (c)
James H. Ross 739 739 (c)
Thomas J. Sullivan(f) 24,549 48,109 72,658 (c)
Alva O. Way 1,204 1,204 (c)
All Directors and Executive Officers of the
Corporation as a group (a total of 26
persons, including those named
above) (g)(h) 308,893 5,200 367,898 681,991 1.4%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 13
(a) To the Corporation's knowledge, no person is the beneficial owner of more
than 5% of the Corporation's Common Stock other than (i) Delaware Management
Company, Inc. ("Delaware Management") and (ii) Putnam Investments, Inc.
("Putnam"), both of which are registered investment advisers, and both of which
in that capacity through operating subsidiaries manage client accounts. On
February 13, 1996, Delaware Management advised the Corporation by furnishing the
Corporation with its Schedule 13G filed with the Securities and Exchange
Commission that it beneficially owned in the aggregate 4,683,290 shares or 9.36%
of the outstanding Common Stock of the Corporation. On February 2, 1996, Putnam
advised the Corporation by furnishing the Corporation with its Schedule 13G
filed with the Securities and Exchange Commission that it beneficially owned in
the aggregate 2,553,520 shares or 5.1% of the outstanding Common Stock of the
Corporation. Delaware Management and Putnam have certified in their respective
Schedule 13G filings that the Corporation's Common Stock was acquired in the
ordinary course of business and was not acquired for the purpose of changing or
influencing control of the Corporation. None of the directors, nominees or
officers owns securities of the Corporation other than Common Stock. The number
of shares of Common Stock outstanding on February 6, 1996 (excluding treasury
shares) was 50,066,772. The percent of Common Stock is based on such number of
shares and is rounded off to the nearest one percent.
(b) Dr. Aspe was elected to the Board of Directors on February 28, 1996. On
March 11, 1996 he purchased 250 shares of the Corporation's Common Stock.
(c) Less than 1%.
(d) Joan F. Dionne, the wife of Joseph L. Dionne, is the beneficial owner of
5,598 shares of Common Stock. These shares have not been included in the above
table.
(e) The Trustee disclaims any beneficial interest in these shares.
(f) Thomas J. Sullivan, Jr., the son of Thomas J. Sullivan, is the beneficial
owner of 2,164 shares of Common Stock. Frances D. Sullivan, the wife of Thomas
J. Sullivan, is the beneficial owner of 2,574 shares of Common Stock. Thomas J.
Sullivan disclaims beneficial ownership of these shares, and they have not been
included in the above table.
(g) Spouses and children of some members of this group may own other shares in
which the members of this group disclaim any beneficial interest and which are
not included in the above table.
(h) Harold W. McGraw, Jr., Chairman Emeritus of the Corporation, is the
beneficial owner of 1,243,000 shares of Common Stock, which is approximately
2.5% of the Corporation's issued and outstanding Common Stock. In addition, Anne
P. McGraw, the wife of Harold W. McGraw, Jr., is the beneficial owner of 40,000
shares of Common Stock. None of these shares has been included in the above
table.
INFORMATION AS TO EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation of the
Corporation's chief executive officer and each of the other four most highly
compen- sated executive officers (the "Named Officers") for services rendered in
all capacities to the Corporation in 1993, 1994 and 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
LONG-TERM COMPENSATION
ANNUAL COMPENSATION Awards Payouts
Name Other ---------------------- ---------- ALL
and Annual Restricted Securities Long-Term OTHER
Principal Compen- Stock Underlying Incentive COMPEN-
Position Year Salary Bonus sation(a) Awards(b) Options Payouts SATION
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Joseph L. Dionne 1995 $850,000 $678,181 $ 66,144 0 19,750 $1,234,935 $158,698(c)
Chairman and 1994 800,000 739,480 63,737 0 19,750 958,056 174,607
Chief Executive Officer 1993 750,000 669,008 65,689 0 19,750 0 151,377
Harold W. McGraw III 1995 $560,000 $382,973 $ 39,430 0 11,600 $ 734,593 $ 89,756(c)
President and 1994 528,500 400,904 36,113 0 11,600 488,700 82,104
Chief Operating Officer 1993 479,167 351,707 142,612 0 10,000 0 71,057
Robert J. Bahash 1995 $390,000 $244,487 $ 27,814 0 7,000 $ 529,506 $ 61,574(c)
Executive Vice President, 1994 364,000 274,368 27,378 0 7,000 422,013 59,547
Chief Financial Officer 1993 340,000 291,284 28,689 0 7,000 0 52,743
Thomas J. Sullivan 1995 $374,000 $234,457 $ 27,814 0 7,000 $ 529,506 $ 58,897(c)
Executive Vice President, 1994 340,000 246,934 27,378 0 7,000 422,013 58,696
Administration 1993 325,500 228,132 28,689 0 7,000 0 54,409
Robert N. Landes(d) 1995 $349,500 $159,344 $ 11,009 0 2,800 $ 205,488 $ 46,877(c)
Senior Executive 1994 303,000 160,045 10,575 0 2,800 157,809 41,337
Vice President 1993 290,500 168,074 10,855 0 2,800 0 38,491
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 14
(a) Represents dividend equivalents paid on out-standing Long-Term Restricted
Performance Share Awards.
(b) The number and value of Restricted Stock and Restricted Performance Share
holdings at year end were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
1995
----------------------------------------------
Unearned LTIP
Restricted Value
Restricted Performance (at
Stock Shares Total $87.125)*
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
J. L. Dionne 0 27,560 27,560 $2,401,165
H. W. McGraw III 0 16,429 16,429 1,431,377
R. J. Bahash 0 11,589 11,589 1,009,692
T. J. Sullivan 0 11,589 11,589 1,009,692
R. N. Landes 0 4,587 4,587 399,642
- ---------------------------------------------------------------
</TABLE>
* Based on the closing price of the Corporation's Common Stock on December 31,
1995 of $87.125
Dividend equivalent payments equal to the dividend paid on the Corporation's
Common Stock were paid in cash on Restricted Stock and Restricted Performance
Shares in 1995.
(c) For 1995, the dollar value reported in this column includes the following
items:
<TABLE>
<CAPTION>
- -------------------------------------------------------------
1995 Company
Above Market Contribution
Interest on to Defined
Deferred Contribution
Compensation Plans Total
- -------------------------------------------------------------
<S> <C> <C> <C>
J. L. Dionne $9,227 $ 149,471 $158,698
H. W. McGraw III -- 89,756 89,756
R. J. Bahash 940 60,634 61,574
T. J. Sullivan 1,438 57,459 58,897
R. N. Landes -- 46,877 46,877
- -------------------------------------------------------------
</TABLE>
(d) Mr. Landes retired from the Corporation on December 31, 1995.
OPTION GRANTS IN 1995
The following table sets forth all grants of stock options made during 1995
pursuant to the 1987 and 1993 Key Employee Stock Incentive Plans to the Named
Officers in the Summary Compensation Table:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for Option
Individual Grants Term(a)
-------------------------------------------------- --------------------------------------
Number of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees in or Base Expiration
Name Granted 1995 Price Date 5% 10%
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
J. L. Dionne 19,750(b) 4.50% $67.1250 01/02/2005 $ 833,738 $ 2,112,855
H. W. McGraw III 11,600(b) 2.64% $67.1250 01/02/2005 $ 489,689 $ 1,240,968
R. J. Bahash 7,000(b) 1.59% $67.1250 01/02/2005 $ 295,502 $ 748,860
T. J. Sullivan 7,000(b) 1.59% $67.1250 01/02/2005 $ 295,502 $ 748,860
R. N. Landes 2,800(b) 0.64% $67.1250 12/30/1998(c) $ 118,201 $ 299,544
All Shareholders N/A N/A N/A N/A $2,101,720,452(d) $5,326,174,543(d)
All Optionees 439,150 100% $67.1307(e) (e) $ 18,540,079 $ 46,984,219
Optionees' Gain as % of
All Shareholders' Gain N/A N/A N/A N/A 0.88% 0.88%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The dollar amounts under these columns are the result of calculations at the
5% and 10% rates required by the Securities and Exchange Commission for the
maximum option term of 10 years and therefore are not intended to and may not
accurately forecast possible future appreciation, if any, of the Corporation's
Common Stock price.
(b) The awards, which were granted pursuant to the 1993 Key Employee Stock
Incentive Plan, were for nonqualified stock options and provide that one-half of
the option vests on January 3, 1996, the first anniversary of the grant, and the
remaining one-half vests on January 3, 1997, the second anniversary of the
grant. In the event of a change in control of the Corporation, the option
becomes fully vested.
(c) In accordance with the Corporation's normal retirement policy and the
post-retirement exercise period under the 1993 Key Employee Stock Incentive
Plan, Mr. Landes' option will expire on December 30, 1998.
(d) The amount shown represents the hypothetical return to all shareholders of
the Corporation's Common Stock assuming that all the shareholders purchased the
Corporation's Common Stock at the close of business on January 3, 1995 at a
purchase price of $67.1307, the average price for all optionees, and that all
shareholders hold the Common Stock continuously for a ten-year period. The
number of outstanding shares of Common Stock on January 3, 1995 was 49,782,450.
The hypothetical return presented is not intended as a projection of the future
performance of the Corporation's Common Stock, but rather is provided for
illustrative purposes only.
(e) Expiration dates range from January 2, 2005 through February 21, 2005.
$67.1307 represents the average exercise price of the grants to all optionees.
All grants were made at the fair market value of the Corporation's Common Stock
at the time of the grant.
11
<PAGE> 15
AGGREGATE OPTION EXERCISES IN 1995 AND 1995 YEAR-END OPTION VALUES
The following table sets forth information with respect to options exercised by
each of the Named Officers during 1995 and the number and value of unexercised
options as of December 31, 1995:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options
December 31, 1995 at December 31, 1995(a)
Shares Acquired Value --------------------------- --------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
J. L. Dionne 6,375 $178,475 108,385 29,625 $2,943,347 $ 584,477
H. W. McGraw III 350 9,866 48,132 17,400 1,317,515 343,288
R. J. Bahash 1,253 33,783 39,104 10,500 1,072,837 207,156
T. J. Sullivan 1,377 37,127 41,109 10,500 1,128,085 207,156
R. N. Landes 0 0 16,474 0 381,561 0
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on the closing price of the Corporation's Common Stock on December 31,
1995 of $87.125 as reported on the New York Stock Exchange Composite
Transactions Tape.
LONG TERM INCENTIVE PLAN AWARDS IN 1995
The following table sets forth information concerning long-term incentive awards
granted during 1995 to the Named Officers pursuant to the 1993 Key Employee
Stock Incentive Plan:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Estimated Future Payout
Under Non-Stock Price Based Plans
---------------------------------
Number of Performance Period Threshold Target Maximum
Restricted Until Number of Number of Number of
Name Performance Shares(a) Maturation or Payout Shares Shares Shares
- ------------------------------ ---------------------- -------------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
J. L. Dionne 9,497 shares 3 Years 1,899 9,497 14,246
H. W. McGraw III 5,663 shares 3 Years 1,133 5,663 8,495
R. J. Bahash 3,933 shares 3 Years 787 3,933 5,900
T. J. Sullivan 3,933 shares 3 Years 787 3,933 5,900
R. N. Landes 1,579 shares 3 Years(b) 316 1,579 2,369
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Restricted Performance Share Awards pursuant to the 1993 Key Employee Stock
Incentive Plan with payment in the Corporation's Common Stock based upon the
degree of achievement of a three-year cumulative compound earnings per share
growth goal (the "EPS goal") maturing on December 31, 1997. The awards do not
provide for interim payments (other than the payment of dividend equivalents).
The threshold amount will be earned at the achievement of 60% of the EPS goal,
the target amount will be earned at the achievement of 100% of the EPS goal and
the maximum award amount will be earned at the achievement of 120% or more of
the EPS goal. The Awards will be forfeited if the achievement is less than 60%
of the EPS goal. The Restricted Performance Shares are entitled to dividend
equivalent payments and voting rights comparable to the Corporation's Common
Stock based upon the target number of shares awarded.
In the event of a change in control of the Corporation, all of the financial
goals are deemed to have been satisfied, and the recipient will receive the
target amount no later than the normal maturity date of the award.
(b) As a result of Mr. Landes' retirement on December 31, 1995, this award shall
be prorated and payable in 1996, subject to the achievement of the performance
goal through December 31, 1995.
12
<PAGE> 16
SHAREHOLDER RETURN PERFORMANCE GRAPH
Set forth below is a graph comparing the yearly percentage change in the
cumulative total shareholder return on the Corporation's Common Stock with the
cumulative total return of the S&P Composite-500 Stock Index and the cumulative
total return for a group of peer companies for the five-year period commencing
on January 1, 1991 and ending on December 31, 1995.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG THE MCGRAW-HILL COMPANIES, S&P 500 INDEX AND PEER GROUP INDEX**
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) MCGRAW- HILL S&P 500 PEER GROUP
<S> <C> <C> <C>
1990 100 100 100
1991 113 130 128
1992 126 140 140
1993 144 155 161
1994 147 157 150
1995 198 215 192
</TABLE>
Assumes $100 Invested on December 31, 1990 in The McGraw-Hill Companies Common
Stock, S&P 500 Index and Peer Group Index
* Total return assumes reinvestment of dividends.
** Companies comprising the Peer Group: Dow Jones & Company, Inc., The Dun &
Bradstreet Corporation, Gannett Co., Inc., Houghton Mifflin Company,
Knight-Ridder Inc., Meredith Corporation, The New York Times Company, The
Times Mirror Company, and Tribune Company.
COMPENSATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION
INTRODUCTION
The McGraw-Hill Companies' executive compensation program (the "Program") is
administered by the Compensation Committee of the Board of Directors (the
"Committee") which is composed of the individuals listed below who are
independent non-employee directors of the Corporation. The Committee has sole
responsibility for all compensation matters with respect to the Corporation's
senior management. The Committee regularly reports to the Board of Directors on
its activities and decisions and meets in executive session with all
non-employee directors at year end to review the CEO's performance.
PHILOSOPHY
The Program has been designed to enable the Corporation to attract, motivate and
retain senior management by providing a fully competitive total compensation
opportunity based on performance. The Program consists of three key elements:
(1) base salaries which reflect competitive marketplace data and evaluated
individual performance; (2) annual incentive opportunities which are payable for
the achievement of annual financial performance goals established by the
Committee; and (3) long-term stock-based incentive opportunities consisting of
annual grants of restricted performance shares, which are
13
<PAGE> 17
payable for the achievement of three-year financial performance goals
established by the Committee, and annual stock option grants. The stock-based
incentive opportunities are intended to align the interests of senior management
with those of the Corporation's shareholders. The Corporation's executive
compensation program is structured so that at higher management levels a larger
portion of annual compensation is variable, based on company performance, and a
larger portion of total compensation is composed of stock-based compensation. At
the CEO level, approximately two-thirds of Mr. Dionne's total compensation
package is at risk depending upon the Corporation's performance.
The Committee's policy with respect to the tax deductibility of executive
compensation under Section 162(m) of the Internal Revenue Code is to qualify
such compensation for deductibility where practicable. In this regard, the
Corporation is presenting the 1996 Key Executive Short-Term Incentive
Compensation Plan to shareholders for approval at this year's Annual Meeting.
The Plan has been designed to fully comply with the requirements of Section
162(m) and, as such, all incentive payments earned under the Plan are expected
to be tax deductible by the Corporation when paid.
Additionally, the Corporation has amended the 1993 and 1987 Key Employee Stock
Incentive Plans to impose an individual limit on the maximum number of stock
option shares which may be granted to participants to ensure that any stock
option gains realized by the CEO and the other four most highly compensated
proxy-named executives will be tax deductible by the Corporation. To ensure the
continued tax deductibility of long-term incentive award payments, the Committee
approved a written definition of earnings per share for use in determining
payments for the CEO and the other four most highly compensated executives under
the 1994 and 1995 Long-Term Restricted Performance Share Awards which mature at
the end of 1996 and 1997, respectively. Finally, as it deems necessary, the
Committee may defer payment of other non-deductible compensation to the CEO and
the other four highest-paid executives until the payment of such compensation is
determined to be tax deductible by the Corporation.
Following is a discussion of each of the elements of the Program and a
description of the specific decisions and actions taken by the Committee with
regard to 1995 compensation for the CEO.
PROGRAM COMPETITIVENESS
Each element of the Program is intended to be fully competitive with comparable
elements of competitor companies in the publishing, information and media
industry. Salary ranges are established for each position annually using a
third-party consultant survey of compensation levels in the publishing,
information and media industry, which includes reported data from companies in
the peer group index of the Performance Graph (the "Peer Group"). The midpoints
of the salary ranges are established to be competitive with the median base
salary levels reported in the survey.
The annual incentive award opportunities are established by the Committee based
on recommendations developed by an independent compensation consulting firm
selected by the Committee. These recommended incentive opportunities are also
competitive with median levels of competitor incentive opportunities using
available incentive opportunity data for the competitor companies included in
the Peer Group and incentive opportunity data from a third-party media industry
compensation survey of other publishing, information and media companies.
The long-term incentive grant guidelines provide competitive long-term
compensation opportunities if the assumptions as to goal achievement and stock
price growth are realized. These restricted performance share and stock option
grant guidelines were established by the Committee in late 1992 and are
anticipated to remain in effect for a multiple-year period until reviewed and
reset by the Committee. The grant guidelines are derived from general industry
long-term incentive grant data which is adjusted by an independent compensation
consultant to reflect median long-term incentive grant practices of publishing,
information and media industry companies including those in the Peer Group.
ANNUAL SALARY AND INCENTIVE
COMPENSATION
Annual compensation for senior management consists of base salary and the annual
incentive awards earned under the Key Executive Short-Term Incentive
Compensation Plan. Base salaries are administered within a system designed to
reflect the competitive marketplace, evaluated position responsibilities and
individual performance. The base salaries for senior executives other than the
CEO are recommended by Mr. Dionne based on the above criteria, and are reviewed
and approved by the Committee.
Target awards established under the Key Executive Short-Term Incentive
Compensation Plan are expressed as a percentage of each participant's base
14
<PAGE> 18
salary. Mr. Dionne's target annual incentive award for 1995 was 70% of salary.
The maximum payment opportunity was set at 150% of the annual target award.
Payment of the annual incentive awards for Mr. Dionne and the other executives
named in the Summary Compensation Table was based on the Corporation's actual
performance in relation to minimum, target and maximum earnings per share goals
which were approved by the Committee at the beginning of the plan year. Each
year, the Committee establishes annual performance goals which, in its view,
represent a significant achievement in relation to the general outlook and
prospects for publishing, information and media companies during the coming year
and the Corporation's prior performance.
LONG-TERM INCENTIVE COMPENSATION
The long-term incentive compensation program for senior management consists of
two types of annual stock awards: restricted performance shares and stock
options. Restricted performance shares are granted annually under
Committee-approved grant guidelines which relate the size of the awards to
salary or salary range midpoints. The grant guideline for Mr. Dionne is 75% of
salary. The awards vest at the end of a three-year award cycle within a range of
20% to 150% of the shares awarded based on the achievement of minimum, target
and maximum cumulative compound earnings per share growth goals which are
established by the Committee at the beginning of the award cycle. These
restricted performance share awards are subject to forfeiture if the minimum
performance goal is not attained, or if a participant's employment is terminated
for certain reasons before the shares become vested. During the award cycle,
participants receive dividend equivalent payments on the shares and have the
right to vote the awarded shares.
The second component of the long-term incentive award program consists of stock
options which provide participants with the right to purchase shares of
The McGraw-Hill Companies Common Stock at its market value on the date of grant.
These grants are awarded under Committee-approved guidelines which relate the
number of shares to salary grade levels. Each stock option grant becomes
exercisable in two equal annual installments commencing one year after grant,
and each grant has a ten-year maximum term.
The size of the annual restricted performance share awards and stock option
grants provided under the Committee-approved guidelines is not reduced for any
current participant stock holdings or prior awards and is generally not
dependent upon and not adjusted for individual or company performance except in
unusual circumstances.
1995 CEO COMPENSATION AND COMPANY PERFORMANCE
Mr. Dionne's base salary is reviewed annually by the Committee which considers
competitive CEO base salary information from the Peer Group companies, Mr.
Dionne's individual performance and contributions since his last review, and the
merit increase guidelines in effect for other salaried employees during this
period. Effective January 1, 1995, the Committee increased Mr. Dionne's base
salary by 6.3% to $850,000, based on its review and assessment of the factors
and criteria described above.
In January 1995, the 1995 stock-based long-term incentive awards were granted to
Mr. Dionne and the other named executives in accordance with the
Committee-approved grant guidelines. Mr. Dionne's 1995 stock-based awards
consist of 9,497 restricted performance shares which will mature on December 31,
1997, subject to the achievement of the Committee-approved earnings per share
performance goals established for this award, and 19,750 stock option shares.
These awards are disclosed in the Long-Term Incentive Plan Awards Table and the
Option Grants Table along with the 1995 awards to the other named executives.
In early 1996, the Committee reviewed and approved the 1995 annual incentive
award payments for Mr. Dionne and the other named executives under the Key
Executive Short-Term Incentive Compensation Plan. These payments are shown in
the Bonus column of the Summary Compensation Table. Based on the $4.55 earnings
per share for 1995, as measured against the earnings per share payment goal
established by the Committee at the beginning of the plan year, the earned
incentive payments to the participants were equal to 113.98% of target
opportunity which resulted in a 1995 short-term incentive payment to Mr. Dionne
of $678,181.
Despite economic unevenness in some of The McGraw-Hill Companies' markets, 1995
was a successful year. Revenue for 1995 increased to $2.9 billion. Earnings per
share for the year were $4.55 versus $4.10 for 1994. Additionally, shareholders
realized a 1995 total return of 34.42% as compared to a 1995 total return of
28.20% for the Proxy Peer Group.
In early 1996, the Committee also reviewed and approved the degree of
achievement and award payments to Mr. Dionne and the other named executives
under the cumulative compound earnings per share growth goal established for the
1993 Long-Term Restricted Performance Share Award which matured on December 31,
1995. For purposes of this three-year Award, the Committee adjusted the earnings
per share growth for the 1993 Plan Year to exclude (1) the
15
<PAGE> 19
unusual charges associated with the 1993 purchase of the 50% interest in the
Macmillan/McGraw-Hill School Publishing Company which was not previously owned
by the Corporation, and (2) the increase in corporate federal tax rates in 1993
under the Omnibus Budget Reconciliation Act which was approved retroactively to
January 1, 1993. The resulting earnings per share growth for the Award cycle
exceeded the maximum 150% payment goal established by the Committee for this
Award. As a result, Mr. Dionne received a share payment of 13,846 shares
representing 150% of his target award. The dollar value of Mr. Dionne's 1993
Award payout is shown in the LTIP Payout column of the Summary Compensation
Table.
CLOSING STATEMENT
The Committee believes that the caliber and motivation of the Corporation's key
employees and the quality of their leadership makes a significant difference in
the long-term performance of the Corporation. The Committee further believes
that compensation should vary with the Corporation's financial performance so
that executives are well rewarded when performance meets or exceeds standards
established by the Committee, and commensurately, there should be comparable
downside risks to compensation when performance does not meet these standards.
In its view, the Committee believes that The McGraw-Hill Companies' executive
compensation program is meeting and fulfilling the goals contained in the
Program's philosophy.
The foregoing report has been furnished on behalf of the Board of Directors by
the members of its Compensation Committee
Paul J. Rizzo (Chairman)
John T. Hartley
Don Johnston
Peter O. Lawson-Johnston
Lois Dickson Rice
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is comprised of Mrs. Lois Dickson Rice and Messrs.
John T. Hartley, Don Johnston, Peter O. Lawson-Johnston and Paul J. Rizzo.
Mr. Joseph L. Dionne, the Corporation's Chairman and Chief Executive Officer, is
a director of and chairman of the compensation committee of The Equitable
Companies Incorporated and The Equitable Life Assurance Society of the United
States. Mr. Richard H. Jenrette was until February 14, 1996 Chairman, Chief
Executive Officer and a director of The Equitable Companies Incorporated and The
Equitable Life Assurance Society of the United States, as well as being a
director of The McGraw-Hill Companies.
Mr. Dionne is a director and a member of the compensation committee of the
Harris Corporation. Mr. John T. Hartley is Chairman of the Executive Committee
and a director of the Harris Corporation and a director of The McGraw-Hill
Companies. Through June 30, 1995, Mr. Hartley was Chairman of the Board and
Chief Executive Officer of the Harris Corporation. Effective July 1, 1995, Mr.
Hartley became a member of the Compensation Committee of The McGraw-Hill
Companies.
DEFINED BENEFIT RETIREMENT PLANS
The officers named in the Summary Compensation Table are entitled to retirement
benefits under three defined benefit plans maintained by the Corporation: the
Employee Retirement Plan ("ERP"), the Employee Retirement Plan Supplement ("ERP
Supplement") and the Senior Executive Supplemental Death, Disability and
Retirement Benefits Plan (the "Supplemental Benefits Plan"). Under the
Supplemental Benefits Plan, a participant is entitled to receive upon normal
retirement at age 65, an annual retirement benefit equal to 55% of the
participant's highest rate of annual base salary and highest target opportunity
under the Key Executive Short-Term Incentive Compensation Plan during the
36-month period before retirement, reduced by the participant's annual
retirement benefits under ERP and ERP Supplement, the annual annuity value of a
hypothetical savings account, the participant's annual retirement benefit under
pension plans of any previous employers and the participant's annual Social
Security retirement benefit.
ERP provides participants with retirement benefits based upon career
compensation. These benefits are subject to limitation under certain provisions
of the Internal Revenue Code. Prior to July 1, 1986, ERP required participants
to make contributions to said Plan. Subsequent to July 1, 1986, ERP was amended
so that the Corporation is to make all of the required contributions to the Plan
and participants are no longer required to make contributions thereto. In
addition, effective as of January 1, 1989, the benefit formula for service after
December 31, 1988 was amended to be 1.4% of each year's earnings for
participants age 45 with five years of continuous service as of June 30, 1986
and whose age and service totalled at least sixty, and 1.0% of each year's
earnings for other participants, and the vesting schedule of ERP was amended to
16
<PAGE> 20
provide that participants are 100% vested after completion of five years of
continuous service with the Corporation. Under ERP Supplement, participants are
provided with retirement benefits which would have been provided under ERP
except for the limitations imposed by the Internal Revenue Code.
The following table sets forth the annual benefits under ERP, ERP Supplement and
the Supplemental Benefits Plan (computed based on a straight life annuity)
payable upon retirement at age 65 to each of the Named Officers based upon the
Corporation's contributions and the executive's 1995 compensation (salary and
1995 target opportunity under the Key-Executive Short-Term Incentive
Compensation Plan for purposes of the Supplemental Benefits Plan), which are not
subject to any deduction for Social Security benefits:
ANNUAL RETIREMENT BENEFIT FROM
CORPORATE CONTRIBUTIONS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Supplemental
ERP and Benefits
Name ERP Supplement Plan Total
- ------------------------------------------------------------ -------------- ------------ ---------
<S> <C> <C> <C>
Joseph L. Dionne $244,000 $368,000 $ 612,000
Harold W. McGraw III $182,000 $138,000 $ 320,000
Robert J. Bahash $114,000 $ 94,000 $ 208,000
Thomas J. Sullivan $107,000 $116,000 $ 223,000
Robert N. Landes $ 81,000 $141,000 $ 222,000
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Pursuant to the Supplemental Benefits Plan, in the event of involuntary
termination of employment without cause or resignation of employment by the
employee for good reason within two years after a change of control of the
Corporation, or resignation by the employee for any reason during the thirty day
period following the first anniversary of such change of control, participants
shall receive a lump sum payment actuarially equivalent to the monthly
retirement benefit they would have received based upon from 44% to 55% of their
final monthly earnings and target opportunity under the Key Executive Short-Term
Incentive Compensation Plan, depending upon their age at the date of
termination. The Supplemental Benefits Plan is administered by the Compensation
Committee of the Board of Directors, which Committee approves participants who
are recommended by the Corporation's Chief Executive Officer.
SENIOR EXECUTIVE SEVERANCE PLAN
Effective January 28, 1987, the Board of Directors adopted the Senior Executive
Severance Plan, which Plan provides that if the employment of a participating
senior executive of the Corporation is involuntarily terminated without cause or
the executive resigns for good reason, the executive shall receive a minimum
severance payment of 12 months base salary and a maximum severance payment of 24
months base salary, the actual amount of severance to be based upon 1.6
multiplied by the number of years of continuous service with the Corporation. In
addition, each participant shall continue to participate in the Corporation's
retirement, life, medical and other insurance benefit plans and programs during
the period the participant receives severance payments, or in lieu thereof, each
participant shall receive an additional cash payment equal to 10% of the
severance amount. The receipt of payments by participants pursuant to the Senior
Executive Severance Plan is in lieu of receiving benefits pursuant to the
Corporation's regular separation allowance plan, which plan is applicable to all
full-time employees of the Corporation. On September 28, 1988 the Plan was
amended to provide that benefits will be payable to participants who voluntarily
terminate their employment within a thirty day period one year after a change in
control of the Corporation has occurred. The Senior Executive Severance Plan is
administered by the Compensation Committee of the Board of Directors, which
Committee approves participants who are recommended by the Corporation's Chief
Executive Officer.
2. APPROVAL OF THE 1996 KEY EXECUTIVE SHORT-TERM INCENTIVE COMPENSATION PLAN
On November 29, 1995, the Board of Directors unanimously adopted the 1996 Key
Executive Short-Term Incentive Compensation Plan (the "Plan"), subject to
approval by the Corporation's shareholders at this Annual Meeting. The Plan is
intended to increase the profitability of the Corporation by providing the
opportunity for key executives to earn incentive payments based upon individual
achievement and company per-
17
<PAGE> 21
formance. The Plan has the further purpose of fulfilling the Corporation's
objective of offering a fully competitive total compensation package to its
employees, thus enabling the Corporation to attract and retain executives of the
highest caliber and ability. The Board of Directors has decided to seek
shareholder approval for the Plan, so that compensation payable pursuant to the
Plan can qualify for tax deductibility under Section 162(m) of the Internal
Revenue Code (the "Code").
The Code was amended in 1993 to provide that, effective January 1, 1994, with
certain exceptions, a publicly held corporation such as the Corporation could
not take a federal income tax deduction for compensation paid to a "covered
employee" in a taxable year to the extent that the compensation deduction
exceeds $1,000,000. A "covered employee" is the Chief Executive Officer on the
last day of the taxable year and any other officer who is among the four highest
compensated officers (other than the CEO) as reported in the Proxy Statement.
Generally, these would be the same officers named each year in the Summary
Compensation Table in the Proxy Statement.
The $1,000,000 limit on deductibility does not apply to compensation that meets
the requirements for "qualified performance-based compensation" under
regulations adopted under the Code. These requirements include the following:
(i) the compensation must be paid solely on account of the attainment of one or
more pre-established, objective performance goals, (ii) the performance goals
must be timely established by a compensation committee comprised of solely two
or more outside directors, (iii) the material terms of the performance goals
must be disclosed to and approved by the shareholders, and (iv) the compensation
committee must certify in writing prior to payment of the compensation that the
performance goals and any other material terms were in fact satisfied.
SUMMARY OF KEY EXECUTIVE SHORT-TERM INCENTIVE COMPENSATION PLAN
The following summary of the Plan is subject to the complete terms of the Plan,
a copy of which is attached to this Proxy Statement as Exhibit A.
1. ELIGIBLE EMPLOYEES AND MAXIMUM AWARD. Key executives of the Corporation
whose decisions and actions have a demonstrable impact on corporate
profitability are eligible to participate. Currently, approximately 250
employees participate. The maximum award payable to "covered employees" in any
calendar year is $2,000,000.
2. ADMINISTRATION. The Compensation Committee of the Board of Directors (the
"Committee") shall be responsible for the implementation and administration of
the Plan. The Committee's functions shall include, but not be limited to:
interpretation of the Plan and establishment of the rules and regulations
governing Plan administration; selection of participants; approval of
performance objectives upon which the percentage of payment of awards shall be
based; determination of the degree of the attainment of the performance
objectives; and determination of the size of individual awards and payments to
participants. In reaching its decisions, the Committee shall consider
recommendations made by the CEO and such other members of management as the CEO
shall designate. Members of the Committee must be "outside directors" as defined
in the regulations under the Code and may not participate in the Plan.
3. PERFORMANCE OBJECTIVES AND TARGETS. Performance objectives for each
participant may consist of financial objectives, individual objectives, or a
combination thereof, except that with respect to "covered employees," the
performance objectives may consist of financial objectives only. Financial
objectives are established by the Committee each year based upon one or more of
the following performance measures: earnings per share, net income, net
operating income, revenue growth, return on sales, working capital, return on
equity, return on assets, total return to shareholders, and cash flow, each of
which may be established on a corporate-wide basis or established with respect
to one or more operating units, divisions, acquired businesses, minority
investments, partnerships or joint ventures. At the same time, a "range" of
achievement for financial objectives ranging from minimum to target to maximum
levels are established by the Committee. The Committee may alter or adjust
financial objectives during the course of a year, or alter or adjust the
financial results otherwise reported or achieved by the Corporation during such
year, except with respect to the "covered employees," for whom the Committee
shall have no discretion to increase, but may decrease, the amount of an award
payable based upon the range of achievement of the financial objectives.
4. OTHER AWARD CRITERIA. Except with respect to "covered employees," the
Committee may also, as to a participant, make a portion of the award opportunity
subject to qualitative or quantitative individual goals to be achieved.
Individual objectives may be altered or amended during an award year to properly
reflect changed business conditions and priorities, subject to approval by the
CEO or his delegate.
5. PAYMENT OF AWARDS. Payment of earned awards is made as soon as practicable
after the end of the year
18
<PAGE> 22
in which earned. No award is earned with respect to a financial objective at or
below the minimum level of achievement established; the target award opportunity
with respect to a financial objective is earned if the target is achieved;
achievement between the minimum and the target levels results in a pro rata
award with respect to that financial objective. An amount larger than the target
award opportunity for each financial objective can be earned for exceeding that
target.
If a participant's employment is terminated because of death, disability,
retirement or with the approval of the Committee in connection with a "no fault"
termination as provided in the Corporation's policies and procedures, the
participant shall receive a pro rata award payment based on the portion of the
year the participant was employed by the Corporation in an eligible position
while the award was outstanding and the degree to which during such year the
performance objectives were achieved. No award will be payable to any
participant who voluntarily resigns his/her employment prior to the payment date
for such award.
In addition to or in lieu of awards granted to participants under the Plan, the
Committee may from time to time make grants and awards to participants pursuant
to the 1993 Key Employee Stock Incentive Plan and/or other compensation plans of
the Corporation.
6. CHANGE OF CONTROL. In the event of a Change of Control of the Corporation,
then immediately after such event becomes effective, the Corporation shall pay
to each participant the pro rata amount of the participant's target award for
the applicable year. Reasonable legal fees incurred by a participant in
enforcing rights under such Change of Control provisions shall be paid for by
the Corporation in addition to sums otherwise due under the Plan. A Change of
Control generally is deemed to occur if: (i) any person becomes the owner of 20%
or more of the Corporation's voting securities; (ii) individuals who, as of the
date of the Plan, constitute the Board of Directors (the "Incumbent Board")
cease for any reason to constitute at least a majority of the Board (provided
that any person who subsequently becomes a director and is approved by a vote of
at least a majority of the directors then comprising the Incumbent Board shall
be considered as though such person were a member of the Incumbent Board); (iii)
the shareholders approve a merger or consolidation in which the Corporation's
voting securities do not continue to represent at least 50% of the surviving
entity; or (iv) the shareholders approve a liquidation, dissolution or sale of
all or substantially all of the Corporation's assets.
7. AMENDMENT. The Plan may be amended by the Board of Directors upon a
recommendation of the Committee, except that, without approval of the
shareholders, the Board or Committee may not change (i) the performance measures
with respect to awards of "covered employees," (ii) the individuals or class of
individuals eligible to participate or (iii) the maximum amount payable to a
"covered employee" under the Plan.
8. EFFECTIVENESS. If the Plan is approved by shareholders at this Annual
Meeting, it will be effective in the form approved with respect to grants of
awards to be earned during 1996 and thereafter.
19
<PAGE> 23
AWARDS UNDER THE KEY EXECUTIVE SHORT-TERM PLAN
Because the amounts to be received under the 1996 Key Executive Short-Term Plan
can only be determined in the future, the table below shows the dollar amounts
that would have been earned had the Plan been in effect during 1995 for the
named executive officers; for all current executive officers, as a group; for
all current directors who are not executive officers, as a group; and for all
employees, including all current officers who are not executive officers, as a
group.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
1996 Key Executive Short-Term
Incentive Plan(a)
----------------
Name Dollar Value($)
- --------------------------------------------------------------------------- -----------------------------
<S> <C>
Joseph L. Dionne $ 678,181
Chairman and
Chief Executive Officer
Harold W. McGraw III $ 382,973
President and
Chief Operating Officer
Robert J. Bahash $ 244,487
Executive Vice President,
Chief Financial Officer
Thomas J. Sullivan $ 234,457
Executive Vice President,
Administration
Robert N. Landes(b) $ 159,344
Senior Executive
Vice President
Executive Officer Group $ 2,345,619
Non-Executive Officer Director Group $ 165,453
Non-Executive Officer Employee Group $ 9,106,682
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(a) Actual amounts earned during 1996 may be less than, equal to, or greater
than the amount shown depending upon the Corporation's performance during 1996.
(b) Due to Mr. Landes' retirement on December 31, 1995, he will not participate
in the 1996 Key Executive Short-Term Incentive Compensation Plan.
APPROVAL AND RELATED MATTERS
The affirmative vote of the holders of a majority of the votes cast of the
Common Stock and $1.20 Convertible Preference Stock, voting together as a single
class, is required to approve the Plan.
The following resolution will be offered by the Board of Directors at the Annual
Meeting:
RESOLVED: That the Corporation's 1996 Key Executive Short-Term Incentive
Compensation Plan in the form of Exhibit A as appended to this Proxy
Statement be, and hereby is, authorized, approved and adopted.
THE BOARD OF DIRECTORS' RECOMMENDATION
Your Board recommends that you vote FOR this resolution. Unless otherwise
specified by the shareholder, the Board intends the accompanying proxy to be
voted for this resolution.
20
<PAGE> 24
3. APPROVAL OF THE DIRECTOR DEFERRED STOCK OWNERSHIP PLAN
On January 31, 1996, the Board of Directors unanimously adopted The McGraw-Hill
Companies, Inc. Director Deferred Stock Ownership Plan (the "Director Stock
Plan" or the "Plan"), subject to approval by the Corporation's shareholders at
this Annual Meeting. The Director Stock Plan is intended to replace the 1993
McGraw-Hill Stock Payment Plan for Directors and The McGraw-Hill Companies, Inc.
Directors Retirement Plan. In general, under the Director Stock Plan shares of
the Corporation's Common Stock shall be credited on an annual basis to a
bookkeeping account maintained for each non-employee director, to be delivered
in the form of stock certificates at the time such director ceases to be a
member of the Board. Before such delivery of stock certificates, no actual
shares would be set aside for the directors. The corporate purpose underlying
the Plan is to attract and retain qualified persons to serve as directors, to
enhance the equity interest of directors in the Corporation, to solidify the
common interests of its directors and shareholders, and to encourage the highest
level of director performance by providing such directors with a proprietary
interest in the Corporation's performance and progress.
SUMMARY OF DIRECTOR STOCK PLAN
The following summary of the Director Stock Plan is subject to the complete
terms of such Plan, a copy of which is attached to this Proxy Statement as
Exhibit B.
1. ELIGIBLE PARTICIPANTS. Each individual who is a director on July 1, 1996,
and each individual who becomes a director thereafter during the term of the
Director Stock Plan, shall be a participant ("Participant") in the Plan, in each
case during such period as such individual remains a director and is not an
employee of the Corporation. There are currently 12 non-employee directors.
2. ADMINISTRATION. The Director Stock Plan shall be administered by a committee
consisting of the Corporation's Chief Executive Officer, President, Chief
Financial Officer, Senior Vice President - Human Resources, and General Counsel
(the "Committee"). The Committee shall have full authority to construe and
interpret the Plan, and to take all such actions and make all such
determinations in connection with the Plan as it may deem necessary or
desirable, provided, however, that neither the Committee nor the Board shall be
authorized to exercise any discretion with respect to the selection of persons
to receive credits of shares of Common Stock or concerning the amount or timing
of such credits under the Plan.
3. SHARES AVAILABLE. The maximum number of shares of Common Stock which may be
credited to deferred stock accounts pursuant to the Director Stock Plan is
80,000, subject to adjustment upon extraordinary changes in the capitalization
of the Corporation due to merger, stock split (including the stock split to be
effected April 26, 1996), stock dividend or other similar events. Such shares
may consist in whole or in part of authorized and unissued shares or treasury
shares.
4. ACCOUNTS; CREDIT OF SHARES. The Corporation shall maintain a bookkeeping
account ("deferred stock account") for each Participant. As of the last day of
each plan year, such account shall be credited with (i) a number of shares of
Common Stock having a fair market value, as defined in the Plan, equal to the
greater of $30,000 or the average total cash compensation received during the
year by the Participants who were Participants during the entire plan year in
any capacity as directors plus (ii) a number of shares equal to the total
deferred stock account multiplied by a Dividend Equivalent for each dividend
paid with respect to the Common Stock during the year. "Dividend Equivalent" for
a given dividend means a number of shares of Common Stock having a fair market
value, as defined in the Plan, equal to the amount of cash and other property
that is distributed with respect to one share of Common Stock pursuant to such
dividend.
With respect to 1996, each Participant shall receive a pro rata payment in
shares credited to such Participant's deferred stock account for the six-month
period beginning on July 1, 1996 and ending on December 31, 1996. Any
Participant who is a member of the Board of Directors for less than a full
calendar year shall receive a pro rata payment in shares credited to such
Participant's deferred stock account for that portion of the year served on the
Board.
Each Participant may make a voluntary election to defer payment of all or part
of the total cash compensation for services as a director and to have the
Participant's deferred stock account credited with shares of Common Stock equal
in value to such deferred compensation.
5. DELIVERY OF SHARES. The shares of Common Stock in a Participant's deferred
stock account shall be delivered as of the date, or if so elected by a
Participant within five years after, a Participant ceases to be a director of
the Corporation for any reason. Upon delivery, the former director shall be
entitled to all rights of a shareholder with respect to such issued shares,
includ-
21
<PAGE> 25
ing the right to vote the shares, provided that such shares shall be subject to
a restriction against transfer for at least six months after the date the
Participant ceases to be a director.
6. CHANGE OF CONTROL. In the event of a Change of Control of the Corporation,
the shares of Common Stock held in the deferred stock accounts immediately
before such Change of Control shall automatically be converted into a cash
amount equal to the most valuable consideration per share of Common Stock paid
to any shareholder in the transaction that results in a Change of Control, and
such cash amount shall be immediately paid to the Participant.
7. EFFECTIVENESS. If the Director Stock Plan is approved by shareholders at
this Annual Meeting, it will be effective in the form approved on July 1, 1996
and will remain in effect until terminated by the Board of Directors or until no
shares of Common Stock remain available under the Plan.
8. AMENDMENT. The Board of Directors may terminate the Director Stock Plan at
any time and, except as otherwise described herein, may amend the Plan from time
to time in any respect the Board deems to be in the best interest of the
Corporation; provided, however, that no such amendment shall be effective
without the approval of the shareholders of the Corporation if shareholder
approval of said amendment is then required pursuant to the securities laws or
any other requirement applicable to the Corporation.
AWARDS UNDER THE DIRECTOR DEFERRED STOCK OWNERSHIP PLAN
Because the number of shares of Common Stock to be credited under the Director
Stock Plan will be allocated in the future, the amounts of such awards are not
readily determinable. The table below shows the number of shares of Common Stock
that would have been credited to deferred stock accounts pursuant to the Plan in
respect of all current non-employee directors as a group had the Plan been in
effect during 1995.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Number of
Share
Dollar Value($) Interests*
--------------- ----------
<S> <C> <C>
All current non-employee directors as a group.............................. $ 340,442 4,489
- -----------------------------------------------------------------------------------------------------------
</TABLE>
* The number of shares credited is based on the average 12 month price of the
Corporation's Common Stock during 1995 of $75.8450.
APPROVAL AND RELATED MATTERS
The affirmative vote of the holders of a majority of the outstanding shares of
Common Stock and $1.20 Convertible Preference Stock, voting together as a single
class, is required to approve the Director Stock Plan.
The following resolution will be offered by the Board of Directors at the Annual
Meeting:
RESOLVED: That The McGraw-Hill Companies, Inc. Director Deferred Stock
Ownership Plan covering 160,000 shares of Common Stock, as adjusted to
reflect the stock split effective April 26, 1996, in the form of Exhibit B
as appended to this Proxy Statement be, and hereby is, authorized, approved
and adopted.
THE BOARD OF DIRECTORS' RECOMMENDATION
Your Board recommends that you vote FOR this resolution. Unless otherwise
specified by the shareholder, the Board intends the accompanying proxy to be
voted for this resolution.
4. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
During the year ended December 31, 1995, Ernst & Young LLP audited the
consolidated financial statements of the Corporation and its subsidiaries.
The Board of Directors, after receiving a favorable recommendation from the
Audit Committee, has again selected Ernst & Young LLP to serve as the
Corporation's independent auditors for 1996. Although not required to do so, the
Board is submitting the selection of this firm for ratification by the
Corporation's shareholders to ascertain their views. Ernst & Young LLP has
advised the Corporation that it has no direct, nor any material indirect,
financial interest in the Corporation or any of its subsidiaries. A
representative of Ernst & Young LLP is expected to be present at the Annual
Meeting with the opportunity to make a statement if the representative desires
to do so, and such representative will be available to respond to appropriate
questions.
22
<PAGE> 26
The following resolution will be offered by the Board of Directors at the Annual
Meeting:
RESOLVED: That the selection by the Board of Directors of Ernst & Young LLP
as independent auditors for this Corporation and its subsidiaries for 1996
be, and hereby is, ratified and approved.
THE BOARD OF DIRECTORS' RECOMMENDATION
Your Board recommends that you vote FOR this resolution. Unless otherwise
specified by the shareholder, the Board intends the accompanying proxy to be
voted for this resolution.
5. SHAREHOLDER PROPOSAL TO ELIMINATE ELECTION OF
DIRECTORS BY CLASSES
Mr. William Steiner, the beneficial owner of 200 shares of the Corporation's
Common Stock, having an address of 4 Radcliff Drive, Great Neck, New York 11024,
has given notice that he intends to propose the following resolution at the
Annual Meeting. The proposed resolution and supporting statement, for which the
Board of Directors and the Corporation accept no responsibility, are as follows:
"RESOLVED, that the stockholders of the Company request that the Board of
Directors take the necessary steps, in accordance with state law, to
declassify the Board of Directors so that all directors are elected
annually, such declassification to be effected in a manner that does not
affect the unexpired terms of directors previously elected."
SHAREHOLDER'S SUPPORTING STATEMENT
At last year's annual meeting of stockholders a similar resolution was approved
by a significant number of the voting shares.
The election of directors is the primary avenue for stockholders to influence
corporate governance policies and to hold management accountable for
implementation of those policies. I believe that the classification of the Board
of Directors, which results in only a portion of the Board being elected
annually, is not in the best interests of the Company and its stockholders.
The Board of Directors of the Company is divided into three classes serving
staggered three-year terms. I believe that the Company's classified Board of
Directors maintains the incumbency of the current Board and therefore of current
management, which in turn limits management's accountability to stockholders.
The elimination of the Company's classified Board would require each new
director to stand for election annually and allow stockholders an opportunity to
register their views on the performance of the Board collectively and each
director individually. I believe this is one of the best methods available to
stockholders to insure that the Company will be managed in a manner that is in
the best interests of the stockholders.
I am a founding member of the Investors Rights Association of America and I
believe that concerns expressed by companies with classified boards that the
annual election of all directors could leave companies without experienced
directors in the event that all incumbents are voted out by stockholders, are
unfounded. In my view, in the unlikely event that stockholders vote to replace
all directors, this decision would express stockholder dissatisfaction with the
incumbent directors and reflect the need for change.
I urge your support, vote for this resolution.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL
The Corporation continues to believe it is important to maintain a classified
Board of Directors and to do so is in the best interests of its shareholders.
A classified Board offers a number of advantages. The current division of the
Board into three classes, with one class elected each year for a three-year
term, increases the likelihood that at all times at least a majority of the
directors will have experience and familiarity with the business, affairs and
issues of the Corporation. The Board of Directors believes that, as such, the
classified Board provides continuity and stability in the membership of the
Board and in its policies, permitting new directors to become familiar with the
business of the Corporation and to benefit from the experience of the continuing
directors. Moreover, the directors of the Corporation are fully accountable to
serve the shareholders' interests throughout their term of office, whether that
term is three years or one year.
The Board believes the classified Board structure also reduces the ability of a
third party to effect a sudden or surprise change in the direction of the
Corporation without the support of the Board. Existence of a classified Board
will not, and does not purport to, prevent an unsolicited takeover attempt.
However, a classified Board of Directors provides a measure of protection for
shareholders against certain potentially coercive take-
23
<PAGE> 27
over tactics. Such tactics include the accumulation, without notice, by a third
party of significant positions in the stock of a corporation as a prelude to
proposing a takeover or a restructuring or sale of all or part of a corporation
or other similar extraordinary corporate action. In some cases, the third party
may not truly be interested in acquiring the corporation, but rather uses the
threat of a proxy fight or a takeover bid as a means of attempting to force the
corporation to repurchase its equity position at a substantial premium over
market price.
Significantly, the imminent threat of removal of the Board of Directors severely
curtails its ability to negotiate effectively with third parties. The Board may
be deprived of the time and information necessary to evaluate an unsolicited
proposal, to study alternative proposals and to help ensure that the best price
for shareholders is obtained in any transaction involving the Corporation which
may ultimately be undertaken. Since gaining control of a classified Board cannot
be done immediately and would, absent Board approval, take at least two annual
meetings, a classified Board is afforded more time to study and evaluate any
transaction proposal and to attempt to develop a superior financial alternative
to any unsolicited proposal. A classified Board therefore creates some
additional negotiating leverage for the Board to seek the best terms for all
shareholders and to resist proposals that the Board determines to be contrary to
the best interests of shareholders.
Election of directors by classes is a common practice that has been adopted by
many companies and currently exists at approximately 291 of the 500 companies
comprising the Standard & Poor's 500 Stock Price Index. It is also specifically
permitted by the laws of many states, including the State of New York.
This shareholder proposal seeks to reverse the action taken by the Corporation's
shareholders at the 1985 Annual Meeting to approve classification of the Board.
Approximately 78% of the votes cast by the Corporation's shareholders at that
meeting were in favor of creating a classified Board. Under the corporate law of
the State of New York, the state in which the Corporation is incorporated,
declassification of the Board of Directors can be effected only by the Board
authorizing an amendment to the Corporation's certificate of incorporation and
directing that the amendment be submitted to a vote of the Corporation's
shareholders. With respect to such vote by the Corporation's shareholders, the
affirmative vote of 80% of all outstanding shares is required under the
Corporation's Restated Certificate of Incorporation for approval of such
amendment. Therefore, the adoption of this proposal would not in itself
reinstate the annual election of directors, but would only amount to an advisory
recommendation to the Board that it take steps to initiate such an amendment. A
similar proposal was rejected by the shareholders at the 1995 Annual Meeting.
Your Board of Directors urges that shareholders vote AGAINST this shareholder
proposal. Unless otherwise specified by the shareholder, the Board intends the
accompanying proxy to be voted against this resolution.
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6. OTHER MATTERS
The Board of Directors knows of no other matters which may properly be brought
before the Annual Meeting. However, if other matters should properly come before
the Meeting, it is the intention of those named in the solicited proxy to vote
such proxy in accordance with their best judgment.
COMPLIANCE WITH SECTION 16(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Corporation's
directors, executive officers, and persons who own more than 10% of a registered
class of the Corporation's equity securities, to file with the Securities and
Exchange Commission and the New York Stock Exchange reports on Forms 3, 4 and 5
concerning their ownership of the Common Stock and other equity securities of
the Corporation.
Based solely on the Corporation's review of copies of such reports and written
representations that no other reports were required, the Corporation believes
that all of its directors and executive officers filed all of said reports on a
timely basis during 1995, except for James H. Ross, who inadvertently filed one
late report on Form 4 disclosing one transaction.
SHAREHOLDER PROPOSALS FOR 1997
Shareholder proposals which may be submitted for inclusion in the Corporation's
proxy statement and form of proxy for the 1997 Annual Meeting of Shareholders
must be received by the Corporation at its principal executive offices, 1221
Avenue of the Americas, New York, New York 10020, on or before November 21,
1996. Such proposals when submitted must be in full compliance with applicable
laws.
By Order of the Board of Directors
Scott L. Bennett
Senior Vice President,
Associate General Counsel and Secretary
New York, New York
March 21, 1996
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EXHIBIT A
THE MCGRAW-HILL COMPANIES, INC.
1996 KEY EXECUTIVE SHORT-TERM INCENTIVE
COMPENSATION PLAN
Section 1. PURPOSE
The 1996 Key Executive Short-Term Incentive Compensation Plan is intended to
increase the profitability of The McGraw-Hill Companies by providing the
opportunity for key executives to earn incentive payments based upon individual
achievement and company performance. It is the purpose of the Plan to motivate
key executives to the attainment of demanding goals by providing recognition and
rewards in the form of incentive awards. The Plan has the further purpose of
fulfilling the Corporation's objective of offering a fully competitive total
compensation package to its key employees, thus enabling The McGraw-Hill
Companies to attract and retain executives of the highest caliber and ability.
Section 2. DEFINITIONS
The following terms used in the Plan are defined as follows:
AWARD YEAR -- the calendar year of the Corporation during which Performance
Objectives must be achieved by the Participant.
BOARD OF DIRECTORS -- the Corporation's Board of Directors.
CEO -- the Chief Executive Officer of the Corporation.
COMMITTEE -- the Compensation Committee, or a special subcommittee thereof, of
the Board of Directors. The Committee or the special subcommittee thereof, shall
be composed solely of two or more "outside directors" as defined in the
regulations under Section 162(m) of the Internal Revenue Code ("the Code").
CORPORATION -- The McGraw-Hill Companies, Inc.
COVERED EMPLOYEE -- a key executive as contemplated by the regulations under
Section 162(m) of the Code.
DISABILITY -- "Disability" means eligibility for disability benefits under the
terms of McGraw-Hill's Long-Term Disability Plan in effect at the time the
Participant becomes disabled.
EARLY RETIREMENT -- means with the approval of the Committee termination of
employment under a retirement plan of The McGraw-Hill Companies provided that a
participant is age 55 or older with at least 10 years of service and is eligible
to receive a McGraw-Hill pension benefit payable upon termination.
MANAGEMENT -- The CEO and such other member of The McGraw-Hill Companies
management as the CEO may from time to time designate to take action with
respect to the Plan.
MCGRAW-HILL OR THE MCGRAW-HILL COMPANIES -- The McGraw-Hill Companies, Inc. and
its 20% or more owned subsidiaries and partnerships in which The McGraw-Hill
Companies own 20% or more of the partnership interests.
NORMAL RETIREMENT -- means termination of employment from the Corporation on or
after age 65.
PARTICIPANT -- a key executive of The McGraw-Hill Companies whose decisions and
actions significantly affect the Corporation's growth and profitability and who
receives an award opportunity under the Plan as determined by the Committee.
PERFORMANCE OBJECTIVES -- significant financial or individual objectives to be
achieved by the Participant during the Award Year and upon which the percentage
of payment of the Target Award shall be based.
PLAN -- The McGraw-Hill Companies, Inc. 1996 Key Executive Short-Term Incentive
Compensation Plan.
RETIREMENT -- means Normal or Early Retirement.
TARGET AWARD -- the payment that shall be made to the Participant if the
Participant's Performance Objectives are achieved during the applicable Award
Year.
Section 3. EFFECTIVE DATE
Subject to compliance with all applicable legal requirements, the Plan shall be
effective as of January 1,
<PAGE> 30
1996, subject to the approval by shareholders at the 1996 Annual Meeting. The
1996 calendar year shall be the first Award Year of the Plan. No future awards
shall be granted subsequent to the 2000 Award Year unless the Plan is extended
by the Board of Directors.
Section 4. ADMINISTRATION
The Committee shall be responsible for the implementation and administration of
the Plan. No Committee member shall be eligible for a Target Award under the
Plan while serving as a Committee member. The Committee's functions shall
include, but not be limited to: (a) interpretation of the Plan (which
interpretation shall be final and binding, unless otherwise determined by the
Board of Directors) and establishment of the rules and regulations governing
Plan administration; (b) selection of Participants; (c) determination of Target
Awards; (d) approval of Performance Objectives; (e) determination of the degree
of the attainment of the Performance Objectives; and (f) determination of the
size of individual awards and payments to Participants. In reaching its
decisions, the Committee shall consider recommendations made by Management. The
Committee may, in discharging its responsibilities under the Plan, delegate such
duties to officers or other employees of The McGraw-Hill Companies as it deems
appropriate, with the exception of decisions which affect the Covered Employees.
In addition, the Committee is authorized to use the services of the
Corporation's Corporate Audit Department and/or independent auditors to
determine the level of achievement of Performance Objectives, subject to the
certification of the Committee with respect to the achievement of the
Performance Objectives for the Covered Employees.
Section 5. ELIGIBILITY
The Committee shall select Participants based on recommendations of Management.
Selection as a Participant shall be limited to those key employees of The
McGraw-Hill Companies who, by virtue of their positions, have a demonstrable
impact on either the profitability of a major business unit of The McGraw-Hill
Companies, or upon the overall profitability of The McGraw-Hill Companies. No
Committee member shall be eligible to be a Participant while serving as a
Committee member, but a director of the Corporation who is also a full-time
employee, but not a member of the Committee, shall be eligible to be a
Participant. No Participant or employee of The McGraw-Hill Companies shall have
any right to be awarded any Target Award or actual payment under the Plan. In
addition to or in lieu of awards granted to Participants pursuant to this Plan,
the Committee may from time to time make grants and awards to Participants
pursuant to the 1993 Key Employee Stock Incentive Plan and/or other incentive
compensation plans of the Corporation.
Section 6. TARGET AWARD
The amount of the Target Award for each Participant shall be determined by the
Committee at or near the start of the applicable Award Year based upon
Management's recommendation. For Covered Employees, the Target Award, the
related award schedule and the Performance Objective(s) shall be established
within 90 days of the beginning of the Plan Year.
Section 7. PERFORMANCE OBJECTIVES
Performance Objectives for each Participant shall be established as provided in
this section at demanding levels so that their achievement reflects commendable
performance by the Participant. The Performance Objectives may consist of
Financial Objectives, Individual Objectives or a combination of Financial and
Individual Objectives. With respect to Covered Employees, the Performance
Objectives shall consist of Financial Objectives only. Financial and Individual
Objectives are defined as follows:
(a) FINANCIAL OBJECTIVES -- Financial Objectives shall be expressed in
terms of one or more of the following performance measures established by
the Committee for each year: earnings per share, net income, net operating
income, pre-tax profit, revenue growth, return on sales, return on equity,
return on assets, return on investment, total return to shareholders, and
cash flow, each of which may be established on a corporate-wide basis or
established with respect to one or more operating units, divisions,
acquired businesses, minority investments, partnerships or joint ventures.
At the same time, a "range" of achievement for financial objectives ranging
from "zero" to "target" (100% of Target Award relating to Financial
Objectives) to "maximum" shall be established. The Committee shall have the
authority to alter or adjust Financial Objectives during the course of an
Award Year, or to alter or adjust the financial results otherwise reported
or achieved by the Corporation during such Award Year, if it is deemed
appropriate to do so, except with respect to the Covered Employees who are
subject to the terms of the last sentence of Section 9(b).
(b) INDIVIDUAL OBJECTIVES -- Individual Objectives, if appropriate for a
Participant, shall be expressed in terms of significant qualitative or
quantitative individual goals to be achieved during the Award Year.
Individual Objectives usually shall
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be established jointly by the Participant and the Participant's immediate
superior, subject to approval by the CEO, or his delegate. Individual
Objectives for all Participants in Grades 28 and above shall be reviewed by
the Committee for consistency with overall Corporate goals and individual
equity. A Participant's Individual Objectives may be altered or amended
during an Award Year, if necessary, to properly reflect changed business
conditions and priorities, subject to approval by the CEO or his delegate.
Section 8. NOTICE OF AWARD
Except as may otherwise be determined by the Committee, a Participant shall be
notified in writing on or near the start of the Award Year of the amount of the
Participant's Target Award and the Performance Objectives.
Section 9. AWARD DETERMINATION
As soon as practicable following the completion of each Award Year, the level of
achievement of Performance Objectives for each Participant and the amount of the
Award payment shall be determined by Management and with respect to Covered
Employees approved by the Committee. The Award payments for Participants in
Grade 28 and above, including the Covered Employees, are subject to review and
approval by the Committee. The level of achievement of the Performance
Objectives shall be determined in the following manner:
(a) FINANCIAL OBJECTIVES -- For performance at or below the "zero" level of
achievement, there shall be no payment. Performance between the "zero"
level of achievement and the "target" level shall result in a payment in
accordance with the established range of achievement payment schedule.
Performance between the "target" and the "maximum" level of achievement
shall result in a payment in accordance with the established range of
achievement payment schedule.
(b) ADJUSTMENTS IN FINANCIAL CALCULATIONS -- Except as provided below with
respect to Covered Employees, the Committee in its sole discretion has the
authority to effect adjustments from time to time in connection with
determining the degree of achievement of the Financial Objectives for The
McGraw-Hill Companies or a business unit of The McGraw-Hill Companies for
the applicable year in question, and to make any other determinations, as
it deems equitable, fair or advisable for the purpose of ascertaining the
amount of any payments under this Plan. With respect to Covered Employees,
the Committee shall have no discretion to increase, but may decrease, the
amount of an award payable based upon the range of achievement of the
Financial Objectives established under Sections 6 and 7 hereof.
(c) INDIVIDUAL OBJECTIVES -- The attainment of Individual Objectives shall
be determined by the Participant's superior, subject to review by
Management and for Participants in Grade 28 and above by the Committee for
consistent and equitable evaluations and judgments.
(d) ACTUAL AWARDS -- The sum of the award based on achievement of Financial
Objectives and, if applicable, Individual Objectives.
(e) MAXIMUM AWARDS -- Where one or more objectives (but not necessarily
all) have been clearly and demonstrably exceeded, a Participant (other than
a Covered Employee) may be paid an amount in excess of the portion of the
award related to such objectives. The maximum award payable to any Covered
Employee for any Plan Year is $2,000,000.
Section 10. PAYMENT OF AWARDS
Award payments shall be made, less required tax and applicable benefits
withholdings, as soon as practicable after the determination and final approval
of such payments as provided in Section 9.
Section 11. TERMINATION OF EMPLOYMENT
If a Participant's employment with The McGraw-Hill Companies terminates during
an Award Year because of death, Disability, Retirement or with the approval of
the Committee in connection with a "no fault" termination as provided in the
Corporation's policies and procedures (for example, a reduction in force or a
change in job requirements), the Participant (or the Participant's designated
beneficiary or estate in the absence of a surviving designated beneficiary)
shall receive a pro rata Award payment based on the portion of the Award Year
the Participant was employed by The McGraw-Hill Companies in an eligible
position while the Target Award was outstanding and the degree to which during
such Award Year the Performance Objectives were achieved. A Participant whose
employment with The McGraw-Hill Companies terminates during an Award Year for
any other reason shall not be eligible for any payment of an Award for such
Award Year. Neither the Plan nor any action taken hereunder shall be construed
as giving any Participant any right to be retained in the employ of The
McGraw-Hill Companies. A leave of absence, approved by the Committee, shall not
be deemed to be a termination of employment for pur-
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<PAGE> 32
poses of this Plan, and may warrant a full or pro rata award as determined by
the Committee.
No Award shall be payable to any Participant who voluntarily resigns his/her
employment prior to the payment date for such Award. For purposes of the
preceding sentence, death, Disability or Retirement, or "no fault" termination
shall not be deemed a voluntary resignation.
Section 12. TRANSFER
If a Participant is transferred within The McGraw-Hill Companies during an Award
Year to a position that is not considered as eligible for participation in the
Plan, the Committee may, in its sole and absolute discretion, authorize a pro
rata Award Payment based on the number of full months during which the
Participant was in an eligible position while the Target Award was outstanding
and the degree to which during such Award Year the Performance Objectives were
achieved.
Section 13. AMENDMENT, SUSPENSION OR TERMINATION OF PLAN
The Board of Directors may at any time based upon a recommendation of the
Committee, amend, suspend, or terminate the Plan, except that, without approval
of the shareholders, the Board or Committee may not change (i) the performance
measures in Section 7(a) with respect to Covered Employees, (ii) the individuals
or class of individuals eligible to participate in the Plan, or (iii) the
maximum amount payable to a Covered Employee under the Plan.
Section 14. NON-ASSIGNMENT OF RIGHTS.
A Participant's Target Award may not be assigned or transferred, and is not
subject to attachment, garnishment, execution, or other creditor's processes. In
the event of a Participant's death, the payment of the Award as provided in the
Plan, if any, shall be made to the Participant's designated beneficiary, or
estate in the absence of a surviving beneficiary.
Section 15. COSTS OF PLAN
The expenses incurred in administering the Plan, including any Committee fees,
charges by the Corporation's independent auditors, or other costs, shall be
borne by the Corporation.
Section 16. CHANGE OF CONTROL
In the event of a Change of Control of the Corporation, then immediately after
such event becomes effective (the "Effective Date"), the Corporation shall pay
to each Participant the pro rata amount of said Participant's Target Award for
said Award Year, determined solely by the ratio which the number of calendar
quarters during which the award had been outstanding (including the calendar
quarter in which the Change of Control occurred) bears to four (4).
For purposes of this Plan, the term "Change of Control" shall mean any of the
following events:
(i) The acquisition (other than from the Corporation) by any person, entity
or "group", within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934 (the "Exchange Act"), (excluding, for this
purpose, The McGraw-Hill Companies, or its subsidiaries, or any employee
benefit plan of The McGraw-Hill Companies) of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or
more of either the then outstanding shares of common stock or the combined
voting power of the Corporation's then outstanding voting securities
entitled to vote generally in the election of directors; or
(ii) Individuals who, as of the date hereof, constitute the Board (as of
the date hereof the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board, provided that any person becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Corporation's shareholders, was approved by a vote of at
least a majority of the directors then comprising the Incumbent Board
(other than an election or nomination of an individual whose initial
assumption of office is in connection with an actual or threatened election
contest relating to the election of the Directors of the Corporation, as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) shall be, for purposes of this Plan, considered as though
such person were a member of the Incumbent Board; or
(iii) Approval by the stockholders of the Corporation of a reorganization,
merger, or consolidation, in each case, with respect to which persons who
were the stockholders of the Corporation immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter,
own, directly or indirectly, more than 50% of the combined voting power
entitled to vote generally in the election of directors of the reorganized,
merged or
4
<PAGE> 33
consolidated company's then outstanding voting securities, or a liquidation
or dissolution of the Corporation or of the sale of all or substantially
all of the assets of the Corporation.
The reasonable legal fees incurred by any Participant to enforce his/her
valid rights hereunder shall be paid for by the Corporation to the
Participant in addition to sums otherwise due under this Plan, whether or
not the Participant is successful in enforcing his/her rights or whether or
not the matter is settled.
5
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EXHIBIT B
THE MCGRAW-HILL COMPANIES, INC.
DIRECTOR DEFERRED STOCK OWNERSHIP PLAN
1. NAME OF PLAN. This plan shall be known as the "The McGraw-Hill Companies,
Inc. Director Deferred Stock Ownership Plan" and is hereinafter referred to as
the "Plan."
2. PURPOSES OF PLAN. The purposes of the Plan are to enable The McGraw-Hill
Companies, Inc., a New York corporation (the "Company"), to attract and retain
qualified persons to serve as Directors, to enhance the equity interest of
Directors in the Company, to solidify the common interests of its Directors and
stockholders, and to encourage the highest level of Director performance by
providing such Directors with a proprietary interest in the Company's
performance and progress, by crediting them annually with shares of the
Company's common stock, par value $1.00 per share (the "Common Stock").
3. EFFECTIVE DATE AND TERM. The Plan shall be effective as of July 1, 1996,
provided that it is approved by holders of at least a majority of the
outstanding shares of Common Stock and $1.20 convertible preference stock,
voting together as a single class, at the Annual Meeting that occurs in 1996.
The Plan shall remain in effect until terminated by action of the Board, or
until no shares of Common Stock remain available under the Plan, if earlier.
4. DEFINITIONS. The following terms shall have the meanings set forth below:
"Annual Meeting" means an annual meeting of the shareholders of the
Company.
"Applicable Delivery Period" has the meaning set forth in Section 8(b).
"Change of Control" means any of the following events:
(a) The acquisition (other than from the Company) by any person,
entity or "group", within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934 (the "Exchange Act"),
(excluding, for this purpose, the Company or its subsidiaries, or any
employee benefit plan of the Company or its subsidiaries) of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of either the then outstanding
shares of Common Stock or the combined voting power of the Company's
then outstanding voting securities entitled to vote generally in the
election of directors; or
(b) Individuals who, as of the date hereof, constitute the Board of
Directors (as of the date hereof the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board of Directors,
provided that any person becoming a Director subsequent to the date
hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the
Directors then comprising the Incumbent Board (other than an election
or nomination of an individual whose initial assumption of office is
in connection with an actual or threatened election contest relating
to the election of the Directors of the Company, as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) shall be, for purposes of this Plan, considered as though such
person were a member of the Incumbent Board; or
(c) Approval by the stockholders of the Company of a reorganization,
merger, or consolidation, in each case, with respect to which persons
who were the stockholders of the Company immediately prior to such
reorganization, merger or consolidation do not, immediately
thereafter, own, directly or indirectly, more than 50% of the combined
voting power entitled to vote generally in the election of Directors
of the reorganized, merged or consolidated company's then outstanding
voting securities, or a liquidation or dissolution of the Company or
of the sale of all or substantially all of the assets of the Company.
"Change of Control Consideration" means, with respect to each share of
Common Stock credited to a Deferred Stock Account, (i) the amount of any
cash, plus the value of any securities and
<PAGE> 35
other noncash consideration, constituting the most
valuable consideration per share of Common Stock paid to any shareholder in
the transaction or series of transactions that results in a Change of
Control or (ii) if no consideration per share of Common Stock is paid to
any shareholder in the transaction or series of transactions that results
in a Change of Control, the highest reported sales price, regular way, of a
share of Common Stock in any transaction reported on the New York Stock
Exchange Composite Tape or other national exchange on which such shares are
listed or on NASDAQ during the 60-day period prior to and including the
date of a Change of Control. To the extent that such consideration consists
all or in part of securities or other noncash consideration, the value of
such securities or other noncash consideration shall be determined by the
Committee in good faith.
The "Committee" means the committee that administers the Plan, as more
fully defined in Section 13.
"Common Stock" has the meaning set forth in Section 2.
The "Company" has the meaning set forth in Section 2.
"Deferral Election" means an election pursuant to Section 6(a) or 6(b), as
the case may be.
"Deferred Stock Account" means a bookkeeping account maintained by the
Company for a Director representing the Director's interest in the shares
credited to such Account pursuant to Section 7.
"Delivery Date" has the meaning set forth in Section 8(a).
"Director" means an individual who is a member of the Board of Directors of
the Company.
The "Dividend Equivalent" for a given dividend or distribution means a
number of shares of Common Stock having a Value, as of the date such
Dividend Equivalent is credited to a Deferred Stock Account, equal to the
amount of cash, plus the fair market value on the date of distribution of
any property, that is distributed with respect to one share of Common Stock
pursuant to such dividend or distribution; such fair market value to be
determined by the Committee in good faith.
The "Election Amount" for each Participant who has made a Deferral Election
pursuant to Section 6 shall be, with respect to each Plan Year, (i) the
percentage that is set forth in the Participant's written notice of the
Deferral Election multiplied by (ii) the total cash compensation receivable
from the Company during the Plan Year by the Participant in such
Participant's capacity as a Director, including without limitation
retainers, fees for serving as committee members, Board meeting fees and
committee meeting fees.
The "Fraction," with respect to a person who was a Participant during part,
but not all, of a calendar year, means the amount obtained by dividing (i)
the number of calendar months during such calendar year that such person
was a Participant by (ii) 12; provided, that for purposes of the foregoing
a partial calendar month shall be treated as a whole month.
"Installment Delivery Election" has the meaning set forth in Section 8(b).
"Participant" has the meaning set forth in Section 5.
"Plan Year" means the calendar year; provided, that the First Plan Year
shall begin on July 1, 1996 and end on December 31, 1996; and provided,
further, that the last Plan Year with respect to a Director who ceases to
be a Participant during a calendar year, shall begin on the first day of
such calendar year and end on the day such Director ceases to be a
Participant.
"Stock Amount" means (i) with respect to the first Plan Year, $15,000; and
(ii) with respect to each other Plan Year, the greater of (A) $30,000 or
(B) the average total cash compensation receivable (disregarding for this
purpose Deferral Elections made by any Director) during the Plan Year by
the Participants who were Participants during the entire Plan Year in any
capacity as Directors, including without limitation retainers, fees for
serving as committee members, Board meeting fees and committee meeting
fees.
The "Value" of a share of Common Stock as of the last day of a given Plan
Year shall mean the average (rounded to the nearest cent) of the monthly
average for each of the full calendar months during such Plan Year of the
means between the reported high and low sale prices of a share of Common
Stock on the New York Stock Exchange composite tape (or, if the Common
Stock is not listed on such exchange, on any other national securities
exchange on which the Common Stock is listed) for each trading day during
each such calendar month. If the Common Stock is not traded on any national
securities exchange, the Value of the Common Stock shall be determined by
the Committee in good faith.
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5. ELIGIBLE PARTICIPANTS. Each individual who is a Director on July 1, 1996,
and each individual who becomes a Director thereafter during the term of the
Plan, shall be a participant ("Participant") in the Plan, in each case during
such period as such individual remains a Director and is not an employee of the
Company or any of its subsidiaries.
6. ELECTION TO RECEIVE SHARES IN LIEU OF CASH COMPENSATION. (a) Subject to
Section 6(b), each Participant in the Plan may make an irrevocable, one-time
Deferral Election to defer payment of all or part of the total cash compensation
for services as a Director to be earned during each Plan Year and to have the
Participant's Deferred Stock Account credited with shares of Common Stock equal
in Value to such deferred compensation. In order to make a Deferral Election
pursuant to this Section 6(a), a Participant must deliver to the Secretary of
the Company a written notice of the Deferral Election setting forth the
percentage of the Participant's total cash compensation to be deferred. In the
case of Participants who are Directors on July 1, 1996, this notice must be
delivered no later than the last business day before July 1, 1996; in the case
of Participants who become Directors after July 1, 1996 during the term of the
Plan, this notice must be delivered within thirty days of the date on which the
Participant becomes a Director.
(b) It is the intention of this Plan that Participants shall have the ability to
make a Deferral Election on an annual basis from and after such time (the
"Effective Time") as annual Deferral Elections would not cause the Plan to fail
to comply with Rule 16b-3 promulgated under the Securities Exchange Act of 1934
("Rule 16b-3"). From and after the Effective Time, a Participant may make a
Deferral Election on an annual basis to defer payment of all or part of the
total cash compensation for services as a Director to be earned during the next
succeeding Plan Year and to have the Participant's Deferred Stock Account
credited with shares of Common Stock equal in Value to such deferred
compensation. In order to make a Deferral Election pursuant to this Section
6(b), the Participant must deliver written notice of the Deferral Election
setting forth the percentage of the Participant's total cash compensation to be
deferred to the Secretary of the Company no later than the last business day
prior to the commencement of the Plan Year to which the Deferral Election
relates. Any such written notice of the Deferral Election pursuant to this
Section 6(b) shall remain in effect for subsequent Plan Years unless such
Participant delivers a written notice setting forth a different Deferral
Election which shall be applied to future Plan Years until further written
notice is received by the Secretary of the Company pursuant to this Section
6(b).
7. ACCOUNTS; CREDIT OF SHARES. (a) The Company shall maintain a Deferred Stock
Account for each Participant. As part of the compensation payable to each
Participant for service on the Board, the Deferred Stock Account of each
Participant shall be credited with shares of Common Stock as set forth in this
Section 7.
(b) As of the last day of each Plan Year, the Deferred Stock Account of each
Director who was a Participant at any time during such Plan Year shall be
credited with (i) a number of shares of Common Stock having a Value equal to the
sum of (A) the Stock Amount multiplied by the applicable Fraction and (B) the
Election Amount, if any; plus (ii) a number of shares equal to (A) the number of
shares credited as of that date pursuant to clause (i) multiplied by (B) the
Dividend Equivalent for each dividend paid or other distribution made with
respect to the Common Stock, the record date for which occurred during such Plan
Year and at a time when such Participant was a Participant.
(c) In addition, as of the last day of each Plan Year, each Deferred Stock
Account that has not, as of such date, been delivered in full pursuant to
Section 8 shall be credited with a number of shares equal to (i) the number of
shares of Common Stock in such Deferred Stock Account as of such date (before
taking into account any amounts that are credited as of such date pursuant to
Section 7(b) above) multiplied by (ii) the Dividend Equivalent for each dividend
paid or other distribution made with respect to the Common Stock, the record
date for which occurred during such Plan Year and at a time when such
Participant was a Participant.
8. DELIVERY OF SHARES. (a) The shares of Common Stock in a Director's Deferred
Stock Account as of the date the Director ceases to be a Director for any reason
(the "Delivery Date") shall be delivered or begin to be delivered in accordance
with this Section 8 as soon as practicable after the Delivery Date. Such shares
shall be delivered at one time; provided, that if the number of shares so
credited includes a fractional share, such number shall be rounded to the
nearest whole number of shares; and provided, further, that if the Director has
in effect a valid Installment Delivery Election pursuant to Section 8(b) below,
then such shares shall be delivered in equal yearly installments over the
Applicable Delivery Period, with the first such installment being delivered on
the first anniversary of the Delivery Date; provided, that if in order to
equalize such installments, fractional shares would have to be delivered, such
installments shall be adjusted by rounding to the nearest whole share. If any
such shares are to be delivered after the Director has died or become legally
incompetent, they shall be delivered to the Director's estate or legal guardian,
as the case may be, in accordance with
3
<PAGE> 37
the foregoing; provided, that if the Director dies with a valid Installment
Delivery Election in effect, the Committee shall deliver all remaining
undelivered shares to the Director's estate immediately. References to a
Director in this Plan shall be deemed to refer to the Director's estate or legal
guardian, where appropriate.
(b) An Installment Delivery Election means a written election by a Participant,
on such form as may be prescribed by the Committee, to receive delivery of
shares of Common Stock in installments over a period of up to five years (the
"Applicable Delivery Period"), as more fully described in paragraph (a) above.
Once made, an Installment Delivery Election may be superseded by another
Installment Delivery Election or revoked in writing by the Participant. However,
in order for any initial or superseding Installment Delivery Election or
revocation thereof to be valid, it must be received by the Committee prior to
the Plan Year preceding the Plan Year in which the Participant ceases to be a
Director. In the case of multiple Installment Delivery Elections and/or
revocations by any Participant, the most recent valid Installment Delivery
Election or revocation in effect as of the Delivery Date shall be controlling.
9. SHARE CERTIFICATES; VOTING AND OTHER RIGHTS. The certificates for shares
delivered to a Director pursuant to Section 8 above shall be issued in the name
of the Director, and the Director shall be entitled to all rights of a
shareholder with respect to Common Stock for all such shares issued in his or
her name, including the right to vote the shares, and the Director shall receive
all dividends and other distributions paid or made with respect thereto.
10. GENERAL RESTRICTIONS. (a) Notwithstanding any other provision of the Plan
or agreements made pursuant thereto, the Company shall not be required to issue
or deliver any certificate or certificates for shares of Common Stock under the
Plan prior to fulfillment of all of the following conditions:
(i) Listing or approval for listing upon official notice of issuance of
such shares on the New York Stock Exchange, Inc., or such other securities
exchange as may at the time be a market for the Common Stock;
(ii) Any registration or other qualification of such shares under any state
or federal law or regulation, or the maintaining in effect of any such
registration or other qualification which the Committee shall, in its
absolute discretion upon the advice of counsel, deem necessary or
advisable; and
(iii) Obtaining any other consent, approval, or permit from any state or
federal governmental agency which the Committee shall, in its absolute
discretion after receiving the advice of counsel, determine to be necessary
or advisable.
(b) Nothing contained in the Plan shall prevent the Company from adopting other
or additional compensation arrangements for the Participants.
(c) No Common Stock delivered to a Director pursuant to the Plan may be sold
until at least six months after the date that the Director ceases to be a
Director.
11. SHARES AVAILABLE. Subject to Section 12 below, the maximum number of shares
of Common Stock which may be credited to Deferred Stock Accounts pursuant to the
Plan is 80,000. Shares of Common Stock issuable under the Plan may be taken from
authorized but unissued or treasury shares of the Company or purchased on the
open market.
12. CHANGE IN CAPITAL STRUCTURE; CHANGE OF CONTROL. (a) In the event that there
is, at any time after the Board adopts the Plan, any change in the Common Stock
by reason of any stock dividend, stock split, combination of shares, exchange of
shares, warrants or rights offering to purchase Common Stock at a price below
its fair market value, reclassification, recapitalization, merger,
consolidation, spin-off or other change in capitalization of the Company,
appropriate adjustment shall be made in the number and kind of shares or other
property subject to the Plan and the number and kind of shares or other property
held in the Deferred Stock Accounts, and any other relevant provisions of the
Plan by the Committee, whose determination shall be binding and conclusive on
all persons.
(b) Without limiting the generality of the foregoing, and notwithstanding any
other provision of this Plan, in the event of a Change of Control, the following
shall occur on the date of the Change of Control (the "Change of Control Date"):
(i) the last day of the then current Plan Year shall be deemed to occur on the
Change of Control Date; (ii) the Deferred Stock Accounts shall be credited with
shares of Common Stock pursuant to Section 7 above, as if, for this purpose, the
Participants ceased to be Participants on the Change of Control Date; (iii) the
Company shall immediately pay to each Director in a lump sum the Change of
Control Consideration multiplied by the number of shares of Common Stock held in
each Director's Deferred Stock Account immediately before such Change of Control
(including shares of Common Stock credited to each Director's Deferred Stock
Account pursuant to clause (ii) above); and (iv) the Plan shall be terminated.
(c) If the shares of Common Stock credited to the Deferred Stock Accounts are
converted pursuant to this Section 12 into another form of property, references
in the Plan to the Common Stock shall be
4
<PAGE> 38
deemed, where appropriate, to refer to such other form of property, with such
other modifications as may be required for the Plan to operate in accordance
with its purposes. Without limiting the generality of the foregoing, references
to delivery of certificates for shares of Common Shares shall be deemed to refer
to delivery of cash and the incidents of ownership of any other property held in
the Deferred Stock Accounts.
13. ADMINISTRATION; AMENDMENT. (a) The Plan shall be administered by a
committee consisting of the Chief Executive Officer, the President, the Chief
Financial Officer, the General Counsel and the Senior Vice President -- Human
Resources of the Company (the "Committee"), which shall have full authority to
construe and interpret the Plan, to establish, amend and rescind rules and
regulations relating to the Plan, and to take all such actions and make all such
determinations in connection with the Plan as it may deem necessary or
desirable.
(b) The Board may from time to time make such amendments to the Plan as it may
deem proper and in the best interest of the Company without further approval of
the Company's stockholders, provided that to the extent required to qualify
transactions under the Plan for exemption under Rule 16b-3 no amendment to the
Plan shall be adopted without further approval of the Company's stockholders in
the manner prescribed in Section 3 hereof and, provided further, that if and to
the extent required for the Plan to comply with Rule 16b-3, no amendment to the
Plan shall be made more than once in any six-month period that would change the
amount, price or timing of the grants of Common Stock hereunder other than to
comport with changes in the Internal Revenue Code of 1986, as amended, the
Employee Retirement Income Security Act of 1974, as amended, or the regulations
thereunder.
(c) The Board may terminate the Plan at any time.
(d) Notwithstanding any other provision of the Plan, neither the Board nor the
Committee shall be authorized to exercise any discretion with respect to the
selection of persons to receive credits of shares of Common Stock under the Plan
or concerning the amount or timing of such credits under the Plan, and no
amendment or termination of the Plan shall adversely affect the interest of any
Director in shares previously credited to such Director's Deferred Stock Account
without that Director's express written consent.
14. MISCELLANEOUS. (a) Nothing in the Plan shall be deemed to create any
obligation on the part of the Board to nominate any Director for reelection by
the Company's shareholders or to limit the rights of the shareholders to remove
any Director.
(b) The Company shall have the right to require, prior to the issuance or
delivery of any shares of Common Stock pursuant to the Plan, that a Director
make arrangements satisfactory to the Committee for the withholding of any taxes
required by law to be withheld with respect to the issuance or delivery of such
shares, including without limitation by the withholding of shares that would
otherwise be so issued or delivered, by withholding from any other payment due
to the Director, or by a cash payment to the Company by the Director.
15. GOVERNING LAW. The Plan and all actions taken thereunder shall be governed
by and construed in accordance with the laws of the State of New York.
5
<PAGE> 39
THE MCGRAW-HILL COMPANIES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints Scott L. Bennett and Thomas J. Sullivan, and
each of them, proxies with full power of substitution, to vote the shares of
stock of The McGraw-Hill Companies, Inc., which the undersigned is entitled to
vote, at the Annual Meeting of Shareholders of said Corporation to be held at
the principal executive offices of the Corporation, 1221 Avenue of the Americas,
New York, N.Y. 10020 on Wednesday, April 24, 1996, at 11 A.M., and any
adjournment thereof.
THE MATTERS TO BE VOTED UPON AND THE INSTRUCTIONS ARE SET FORTH ON THE REVERSE
SIDE. PLEASE VOTE, SIGN AND RETURN PROMPTLY.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
[ X ] PLEASE MARK YOUR VOTES LIKE THIS
THIS PROXY WILL BE VOTED AS DIRECTED BY THE SHAREHOLDER(S). IF NOT OTHERWISE
SPECIFIED, THE PROXY WILL BE VOTED FOR THE ELECTION OF DIRECTORS AND FOR
PROPOSALS 2, 3 AND 4 AND AGAINST PROPOSAL 5.
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE FOR PROPOSALS 1, 2, 3 AND 4:
1a. Election of the following nominees as directors for two-year terms
expiring at the 1998 Annual Meeting:
Pedro Aspe and Robert P. McGraw
FOR THE WITHHOLD AUTHORITY
NOMINEES(S) to vote for the nominee(s)
[ ] [ ]
1b. Election of the following nominees as directors for three-year
terms expiring at the 1999 Annual Meeting:
Joseph L. Dionne, Don Johnston, Linda Koch Lorimer, Harold W. McGraw III
and Alva O. Way
[ ] [ ]
INSTRUCTION: To withhold authority to vote for any individual nominee(s) write
that nominee(s) name below.
- --------------------------------------------------------------------------------
2. Approval of the 1996 Key Executive Short-Term Incentive Compensation Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Approval of the Director Deferred Stock Ownership Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. Ratification of the appointment of independent auditors for 1996.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE AGAINST PROPOSAL 5:
5. Shareholder Proposal requesting elimination of election of directors by
classes.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
And, in their discretion, in the transaction of such other business as may
properly come before the Meeting.
Signature(s)
------------------------------------------------------------
Date
---------------------------
NOTE: Please sign exactly as your name appears on this card and return the
card in the enclosed envelope.
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
<PAGE> 40
THE MCRAW-HILL COMPANIES, INC.
VOTING INSTRUCTIONS FOR ANNUAL MEETING OF SHAREHOLDERS
WEDNESDAY, APRIL 24, 1996
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
TO: THE NORTHERN TRUST COMPANY, AS TRUSTEE UNDER EMPLOYEES INVESTMENT PLAN
OF MCGRAW-HILL BROADCASTING COMPANY, INC. AND ITS SUBSIDIARIES ("EIP")
The Trustee named is hereby instructed to vote all the shares of
Common Stock of The McGraw-Hill Companies, Inc. which are credited to the
undersigned's account as of March 11, 1996, at the Annual Meeting of
Shareholders to be held on April 24, 1996, and any adjournment thereof, on the
items set forth on the reverse hereof, as described in the accompanying Proxy
Statement and upon such other business as may properly come before the Meeting.
Voting rights will be exercised by the Trustee as directed, provided
instructions are received by April 17, 1996. Your instructions will be kept
confidential by the Trustee.
PLEASE MARK, SIGN AND DATE ON THE REVERSE SIDE AND RETURN THIS VOTING
INSTRUCTIONS CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
[ X ] PLEASE MARK YOUR VOTES LIKE THIS
- ---------------
EIP
THIS PROXY WILL BE VOTED AS DIRECTED BY THE PLAN PARTICIPANT. IF NOT OTHERWISE
SPECIFIED, THE PROXY WILL BE VOTED FOR THE ELECTION OF DIRECTORS AND FOR
PROPOSALS 2, 3 AND 4 AND AGAINST PROPOSAL 5.
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE FOR PROPOSALS 1, 2, 3 AND 4:
1a. Election of the following nominees as directors for two-year terms expiring
at the 1998 Annual Meeting:
Pedro Aspe and Robert P. McGraw
FOR THE WITHHOLD AUTHORITY
NOMINEES(S) to vote for the nominee(s)
[ ] [ ]
1b. Election of the following nominees as directors for three-year terms
expiring at the 1999 Annual Meeting:
Joseph L. Dionne, Don Johnston, Linda Koch Lorimer, Harold W. McGraw III
and Alva O. Way
[ ] [ ]
INSTRUCTION: To withhold authority to vote for any individual nominee(s) write
that nominee(s) name below.
- --------------------------------------------------------------------------------
2. Approval of the 1996 Key Executive Short-Term Incentive Compensation Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Approval of the Director Deferred Stock Ownership Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. Ratification of the appointment of independent auditors for 1996:
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE AGAINST PROPOSAL 5:
5. Shareholder Proposal requesting elimination of election of directors by
classes.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
And, in their discretion, in the transaction of such other business as may
properly come before the Meeting.
Signature(s)
------------------------------------------------------------
Date
---------------------------
NOTE: Please sign exactly as your name appears on this card and return the
card in the enclosed envelope.
- -------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
<PAGE> 41
THE MCGRAW-HILL COMPANIES, INC.
VOTING INSTRUCTIONS FOR ANNUAL MEETING OF SHAREHOLDERS
WEDNESDAY, APRIL 24, 1996
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
TO: THE NORTHERN TRUST COMPANY, AS TRUSTEE UNDER THE EMPLOYEE RETIREMENT
ACCOUNT PLAN OF STANDARD & POOR'S ("ERAP")
The Trustee named is hereby instructed to vote all the shares of Common
Stock of The McGraw-Hill Companies, Inc. which are credited to the undersigned's
account as of March 11, 1996, at the Annual Meeting of Shareholders to be held
on April 24, 1996, and any adjournment thereof, on the items set forth on the
reverse hereof, as described in the accompanying Proxy Statement and upon such
other business as may properly come before the Meeting.
Voting rights will be exercised by the Trustee as directed, provided
instructions are received by April 17, 1996. Your instructions will be kept
confidential by the Trustee.
PLEASE MARK, SIGN AND DATE ON THE REVERSE SIDE AND RETURN THIS VOTING
INSTRUCTIONS CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
[ X ] PLEASE MARK YOUR VOTES LIKE THIS
- ----------------
S&P ERAP
THIS PROXY WILL BE VOTED AS DIRECTED BY THE PLAN PARTICIPANT. IF NOT OTHERWISE
SPECIFIED, THE PROXY WILL BE VOTED FOR THE ELECTION OF DIRECTORS AND FOR
PROPOSALS 2, 3 AND 4 AND AGAINST PROPOSAL 5.
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE FOR PROPOSALS 1, 2, 3 AND 4:
1a. Election of the following nominees as directors for two-year terms
expiring at the 1998 Annual Meeting:
Pedro Aspe and Robert P. McGraw
FOR THE WITHHOLD AUTHORITY
NOMINEE(S) to vote for the nominee(s)
[ ] [ ]
1b. Election of the following nominees as directors for three-year terms
expiring at the 1999 Annual Meeting:
Joseph L. Dionne, Don Johnston, Linda Koch Lorimer, Harold W. McGraw III
and Alva O. Way
[ ] [ ]
INSTRUCTION: To withhold authority to vote for any individual nominee(s) write
that nominee(s) name below.
- --------------------------------------------------------------------------------
2. Approval of the 1996 Key Executive Short-Term Incentive Compensation Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Approval of the Director Deferred Stock Ownership Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. Ratification of the appointment of independent auditors for 1996.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE AGAINST PROPOSAL 5:
5. Shareholder Proposal requesting elimination of directors by classes.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
And, in their discretion, in the transaction of such other business as may
properly come before the Meeting.
Signature(s)
------------------------------------------------------------
Date
---------------------------
NOTE: Please sign exactly as your name appears on this card and return the
card in the enclosed envelope.
- -------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
<PAGE> 42
THE MCGRAW-HILL COMPANIES, INC.
VOTING INSTRUCTIONS FOR ANNUAL MEETING OF SHAREHOLDERS
WEDNESDAY, APRIL 24, 1996
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
TO: THE NORTHERN TRUST COMPANY, AS TRUSTEE UNDER THE EMPLOYEE RETIREMENT
ACCOUNT PLAN OF THE MCGRAW-HILL COMPANIES, INC.
AND ITS SUBSIDIARIES ("ERAP")
The Trustee named is hereby instructed to vote all the shares of
Common Stock of The McGraw-Hill Companies, Inc. which are credited to the
undersigned's account as of March 11, 1996, at the Annual Meeting of
Shareholders to be held on April 24, 1996, and any adjournment thereof, on the
items set forth on the reverse hereof, as described in the accompanying Proxy
Statement and upon such other business as may properly come before the Meeting.
Voting rights will be exercised by the Trustee as directed, provided
instructions are received by April 17, 1996. Your instructions will be kept
confidential by the Trustee.
PLEASE MARK, SIGN AND DATE ON THE REVERSE SIDE AND RETURN THIS VOTING
INSTRUCTIONS CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
[ X ] PLEASE MARK YOUR VOTES LIKE THIS
- --------------
MCGRAW-HILL
ERAP
THIS PROXY WILL BE VOTED AS DIRECTED BY THE PLAN PARTICIPANT. IF NOT OTHERWISE
SPECIFIED, THE PROXY WILL BE VOTED FOR THE ELECTION OF DIRECTORS AND FOR
PROPOSALS 2, 3 AND 4 AND AGAINST PROPOSAL 5.
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE FOR PROPOSALS 1, 2, 3, AND 4:
1a. Election of the following nominees as directors for two-year terms
expiring at the 1998 Annual Meeting:
Pedro Aspe and Robert P. McGraw
FOR THE WITHHOLD AUTHORITY
NOMINEE(S) to vote for the nominee(s)
[ ] [ ]
1b. Election of the following nominees as directors for three-year terms
expiring at the 1999 Annual Meeting:
Joseph L. Dionne, Don Johnston, Linda Koch Lorimer, Harold W. McGraw III
and Alva O. Way
[ ] [ ]
INSTRUCTION: To withhold authority to vote for any individual nominee(s) write
that nominee(s) name below.
- --------------------------------------------------------------------------------
2. Approval of the 1996 Key Executive Short-Term Incentive Compensation Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Approval of the Director Deferred Stock Ownership Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. Ratification of the appointment of independent auditors for 1996.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE AGAINST PROPOSAL 5:
5. Shareholder Proposal requesting elimination of election of directors
by classes.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
And, in their discretion, in the transaction of such other business as may
properly come before the Meeting.
Signature(s)
------------------------------------------------------------
Date
---------------------------
NOTE: Please sign exactly as your name appears on this card and return the
card in the enclosed envelope.
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
<PAGE> 43
THE MCGRAW-HILL COMPANIES, INC.
VOTING INSTRUCTIONS FOR ANNUAL MEETING OF SHAREHOLDERS
WEDNESDAY, APRIL 24, 1996
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
TO: THE NORTHERN TRUST COMPANY, AS TRUSTEE UNDER THE SAVINGS INCENTIVE PLAN OF
THE MCGRAW-HILL COMPANIES, INC. AND ITS SUBSIDIARIES ("SIP")
The Trustee named is hereby instructed to vote all the shares of
Common Stock of The McGraw-Hill Companies, Inc. which are credited to the
undersigned's account as of March 11, 1996, at the Annual Meeting of
Shareholders to be held on April 24, 1996, and any adjournment thereof, on the
items set forth on the reverse hereof, as described in the accompanying Proxy
Statement and upon such other business as may properly come before the Meeting.
Voting rights will be exercised by the Trustee as directed, provided
instructions are received by April 17, 1996. Your instructions will be kept
confidential by the Trustee.
PLEASE MARK, SIGN AND DATE ON THE REVERSE SIDE AND RETURN THIS VOTING
INSTRUCTIONS CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
[ X ] PLEASE MARK YOUR VOTES LIKE THIS
- -------------
MCGRAW-HILL
SIP
THIS PROXY WILL BE VOTED AS DIRECTED BY THE PLAN PARTICIPANT. IF NOT OTHERWISE
SPECIFIED, THE PROXY WILL BE VOTED FOR THE ELECTION OF DIRECTORS AND FOR
PROPOSALS 2, 3 AND 4 AND AGAINST PROPOSAL 5.
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE FOR PROPOSALS 1, 2, 3 AND 4:
1a. Election of the following nominees as directors for two-year terms expiring
at the 1998 Annual Meeting:
Pedro Aspe and Robert P. McGraw
FOR THE WITHHOLD AUTHORITY
NOMINEES(S) to vote for the nominee(s)
[ ] [ ]
1b. Election of the following nominees as directors for three-year terms
expiring at the 1999 Annual Meeting:
Joseph L. Dionne, Don Johnston, Linda Koch Lorimer, Harold W. McGraw III and
Alva O. Way
[ ] [ ]
INSTRUCTION: To withhold authority to vote for any individual nominee(s) write
that nominee(s) name below.
- --------------------------------------------------------------------------------
2. Approval of the 1996 Key Executive Short-Term Incentive Compensation Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Approval of the Director Deferred Stock Ownership Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. Ratification of the appointment of independent auditors for 1996.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE AGAINST PROPOSAL 5:
5. Shareholder Proposal requesting elimination of election of directors by
classes.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
And, in their discretion, in the transaction of such other business as may
properly come before the Meeting.
Signature(s)
------------------------------------------------------------
Date
---------------------------
NOTE: Please sign exactly as your name appears on this card and return the
card in the enclosed envelope.
- ---------------------------------------------------------------------------
- FOLD AND DETACH HERE -
<PAGE> 44
THE MCGRAW-HILL COMPANIES, INC.
VOTING INSTRUCTIONS FOR ANNUAL MEETING OF SHAREHOLDERS
WEDNESDAY, APRIL 24, 1996
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
TO: THE NORTHERN TRUST COMPANY, AS TRUSTEE UNDER THE SAVINGS
INCENTIVE PLAN OF STANDARD & POOR'S ("SIP")
The Trustee named is hereby instructed to vote all the shares of
Common Stock of The McGraw-Hill Companies, Inc. which are credited to the
undersigned's account as of March 11, 1996, at the Annual Meeting of
Shareholders to be held on April 24, 1996, and any adjournment thereof, on the
items set forth on the reverse hereof, as described in the accompanying Proxy
Statement and upon such other business as may properly come before the Meeting.
Voting rights will be exercised by the Trustee as directed, provided
instructions are received by April 17, 1996. Your instructions will be kept
confidential by the Trustee.
PLEASE MARK, SIGN AND DATE ON THE REVERSE SIDE AND RETURN THIS VOTING
INSTRUCTIONS CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
[ X ] PLEASE MARK YOUR VOTES LIKE THIS
- ----------------
S&P SIP
THIS PROXY WILL BE VOTED AS DIRECTED BY THE PLAN PARTICIPANT. IF NOT OTHERWISE
SPECIFIED, THE PROXY WILL BE VOTED FOR THE ELECTION OF DIRECTORS AND FOR
PROPOSALS 2, 3 AND 4 AND AGAINST PROPOSAL 5.
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE FOR PROPOSALS 1, 2, 3 AND 4:
1a. Election of the following nominees as directors for two-year terms
expiring at the 1998 Annual Meeting:
Pedro Aspe and Robert P. McGraw
FOR THE WITHHOLD AUTHORITY
NOMINEES(S) to vote for the nominee(s)
[ ] [ ]
1b. Election of the following nominees as directors for three-year terms
expiring at the 1999 Annual Meeting:
Joseph L. Dionne, Don Johnston, Linda Koch Lorimer, Harold W. McGraw III
and Alva O. Way
[ ] [ ]
INSTRUCTION: To withhold authority to vote for any individual nominee(s) write
that nominee(s) name below.
- --------------------------------------------------------------------------------
2. Approval of the 1996 Key Executive Short-Term Incentive Compensation Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Approval of the Director Deferred Stock Ownership Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. Ratification of the appointment of independent auditors for 1996.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE AGAINST PROPOSAL 6:
5. Shareholder Proposal requesting elimination of election of directors by
classes.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
And, in their discretion, in the transaction of such other business as may
properly come before the Meeting.
Signature(s)
------------------------------------------------------------
Date
---------------------------
NOTE: Please sign exactly as your name appears on this card and return the
card in the enclosed envelope.
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
