Pfizer 2010 Annual Report Download - page 95

Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
C. Employee Stock Ownership Plans
We have two employee stock ownership plans (collectively, the ESOPs), the Preferred ESOP and another that holds common stock
of the company (Common ESOP). As of January 1, 2008, the legacy Pharmacia U.S. savings plan was merged with the Pfizer
Savings Plan. Prior to the merger, a portion of the matching contributions for legacy Pharmacia U.S. savings plan participants was
funded through the ESOPs.
Allocated shares held by the Common ESOP are considered outstanding for the earnings per share (EPS) calculations and the
eventual conversion of allocated preferred shares held by the Preferred ESOP is assumed in the diluted EPS calculation. As of
December 31, 2010, the Preferred ESOP held preferred shares with a stated value of approximately $52 million, convertible into
approximately 3 million shares of our common stock. As of December 31, 2010, the Common ESOP held approximately 4 million
shares of our common stock. As of December 31, 2010, all preferred and common shares held by the ESOPs have been allocated
to the Pharmacia U.S. and certain Puerto Rico savings plan participants.
D. Employee Benefit Trust
The Pfizer Inc. Employee Benefit Trust (EBT) was established in 1999 to fund our employee benefit plans through the use of its
holdings of Pfizer Inc. stock. Our consolidated balance sheets reflect the fair value of the shares owned by the EBT as a reduction of
Shareholders’ equity. Beginning in May 2009, the Company began using the shares held in the EBT to help fund the Company’s
matching contribution in the Pfizer Savings Plan.
15. Share-Based Payments
Our compensation programs can include share-based payments. In 2010, 2009 and 2008, the primary share-based awards and
their general terms and conditions are as follows:
•Stock options, which, when vested, entitle the holder to purchase a specified number of shares of Pfizer common stock at a price per
share equal to the market price of Pfizer common stock on the date of grant.
•Restricted stock units (RSUs), which, when vested, entitle the holder to receive a specified number of shares of Pfizer common stock,
including shares resulting from dividend equivalents paid on such RSUs.
•Performance share awards (PSAs) which entitle the holder, and performance-contingent share awards (PCSAs) which entitled the
holder, upon vesting, to receive a number of shares of Pfizer common stock, within a range of shares from zero to 200% of the holder’s
target award, calculated using a formula that measures Pfizer’s performance relative to an industry peer group over a specified
performance period. The Compensation Committee of the Company’s Board of Directors had, with respect to PCSAs, and has, with
respect to PSAs, discretion to authorize the payment of fewer shares to a holder than the number of shares determined pursuant to the
formula. Dividend equivalents accumulate on PSAs and are paid, and dividend equivalents accumulated on PCSAs and were paid, at
the end of the vesting term in respect of any shares paid. PCSA grants were made prior to 2006 and have all been settled.
•Short-term Incentive Shift Awards, which entitle the holder to receive a percentage of the holder’s target award (between 0% and
200%) approximately one year following the grant, based on a combination of individual performance and Company performance (as
measured by revenue, adjusted diluted earnings per share and cash flow from operations) during the year in which the grant is made.
At the election of the holder, the award is paid: (i) in the case of the Executive Leadership Team (ELT) members (determined at the
time of the grant ), all in RSUs, or half in RSUs and half in cash; and (ii) in the case of all other holders, all in RSUs, all in cash, or half in
RSUs and half in cash.
•Stock appreciation rights (SARs), also referred to as Total Shareholder Return Units (TSRUs), which vest on the third anniversary of
the grant and entitle the holder to receive, two years after the end of the three-year vesting term, a number of shares of Pfizer common
stock with a value equal to the difference between the defined settlement price and the closing market price of Pfizer common stock on
the date of grant, plus accumulated dividend equivalents through the payment date, if and to the extent the total value is positive.
The Company’s shareholders approved the amendment and restatement of the 2004 Stock Plan at the Annual Meeting of
Shareholders held on April 23, 2009. The primary purpose of the amendment was to increase the number of shares of common
stock available for grants by 425 million shares. In addition, the amendment provided other changes, including that the number of
stock options, SARs or other performance-based awards that may be granted to any one individual during any 36-month period is
limited to eight million shares and that RSUs, PSAs and restricted stock grants count as two shares, while stock options and SARs
count as one share, toward the maximums for the incremental 425 million shares. As of December 31, 2010, 405 million shares
were available for award. The 2004 Stock Plan, as amended, is the only Pfizer plan under which equity-based compensation may
currently be awarded to executives and other employees.
The Company’s shareholders originally approved the 2004 Stock Plan at the Annual Meeting of Shareholders held on April 22,
2004, and, effective upon that approval, new stock option and other share-based awards could be granted only under the originally
approved 2004 Stock Plan. As originally approved, the 2004 Stock Plan allowed a maximum of three million shares to be awarded to
any employee per year and 475 million shares in total. RSUs, PSAs, PCSAs and restricted stock grants counted as three shares,
while stock options and SARs counted as one share, toward the maximums under the Plan.
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