September 8, 2023

Management’s MSU plan is based on 3-year TSR targets, and we applaud this long-term thinking. The payout targets are set such that management receives a 100% payout if the 3-year TSR is 20%

We believe that the 100% payout target for delivering 20% TSR (Total Shareholder Return) is appropriate. Aligning management incentives with shareholder returns is an important part of our compensation philosophy. Given that TSR is based on absolute rather than relative return and is therefore somewhat dependent on broader market activity, we split the annual MSU award into two grants each year to help smooth the effect of short-term market volatility. This practice results in grants at various prices over time. For example, some of the currently outstanding grants were made slightly below $200 per share, and some were made slightly above $300 per share. At current stock prices, some outstanding awards would have some level of payout and some awards would not pay out at all. In addition, our MSUs are valued using a Monte Carlo simulation which implies some probability of future stock prices. The implied value of each award is factored into the number of MSUs granted annually.

Our compensation committee reviews and approves all compensation practices. Our goal is to have pay structures that are aligned with best practices and the committee works closely with external consultants and considers industry benchmarks and peer practices to determine what’s best for Morningstar. In 2020, we increased our TSR hurdle from 10% to 20%, due in part to shareholder feedback.

We appreciate your feedback and will provide it to our compensation committee. The committee determines threshold payments annually.

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