Pizza Hut 2008 Annual Report Download - page 36

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ITEM 3: A PROPOSAL TO APPROVE THE COMPANY’S
EXECUTIVE INCENTIVE COMPENSATION PLAN
(Item 3 on the Proxy Card)
Introduction. The Board of Directors recommends that shareholders approve the Yum! Brands, Inc.
Executive Incentive Compensation Plan (the ‘‘Incentive Plan’’) as amended by the first amendment (the
‘‘First Amendment’’) and the second amendment (the ‘‘Second Amendment’’) thereto. The Incentive Plan
was previously approved by shareholders on May 20, 2004. The First and Second Amendments were
adopted by the Board of Directors on March 27, 2009. The First Amendment provides for recovery of
certain overpayments of compensation if the excess payment was based on a level of achievement that was
overstated, and the overstatement was the result of misconduct. The First Amendment makes other
technical changes, and is not contingent on shareholder approval. The Second Amendment, which raises
the annual payment limit from $6,000,000 to $10,000,000 for a participant, is subject to shareholder
approval. If the Incentive Plan, as amended by the First and Second Amendments, is approved by
shareholders, incentive payments made under the Plan for 2010 through 2014 will qualify as ‘‘performance-
based compensation’’ that is exempt from the $1 million deduction limit (as described below) imposed by
Section 162(m) of the Internal Revenue Code (‘‘Code’’). A summary of the material provisions of the
Incentive Plan, as amended, is set forth below and is qualified in its entirety by reference to the Incentive
Plan, as amended by the First and Second Amendments, set forth in Exhibit A hereto. If the Incentive Plan
as amended by the First and Second Amendments is not so approved, incentive payments under the
Incentive Plan will not qualify as ‘‘performance-based compensation’’ and the per participant annual
payment limitation will remain at $6,000,000.
Purpose. The purpose of the Incentive Plan is to promote the interests of the Company and its
shareholders by (i) motivating executives, by means of performance-related incentives, to achieve financial
goals; (ii) attracting and retaining executives of outstanding ability; (iii) strengthening the Company’s
capability to develop, maintain and direct a competent executive staff; (iv) providing annual incentive
compensation opportunities which are competitive with those of other major corporations; and
(v) enabling executives to participate in the growth and financial success of the Company.
Eligibility and Grant of Awards. Under the Incentive Plan, the Committee (defined below) may grant
Proxy Statement
cash incentives (‘‘Awards’’) to those employees of the Company or its subsidiaries designated by the
Committee who are Executive Officers or who otherwise are members of senior management of the
Company (‘‘Eligible Employees’’). The recipient of an Award (a ‘‘Participant’’) will become entitled to a
cash payment if certain performance goals (described below) for the Performance Period, as established by
the Committee, are satisfied. For the Award, the amount of the cash payment is to be based on the extent
to which the performance goals are achieved. At the time an Award is granted to a Participant, the
Committee shall establish, with respect to the Award, (i) a target amount, expressed as a percentage of the
Participant’s base salary for such Performance Period; (ii) the performance goal(s) for the Performance
Period with respect to the Award; (iii) the maximum payments to be made with respect to various levels of
achievement of the performance goal(s) for the Performance Period; and (iv) whether the Award is
intended to satisfy the requirements for performance-based compensation (as described below).
Performance-Based Compensation. A federal income tax deduction will generally be unavailable for
annual compensation in excess of $1 million paid to any of the five most highly compensated officers of a
public corporation. However, amounts that constitute ‘‘performance-based compensation’’ are not counted
toward the $1 million limit. The Committee may designate any Award under the Plan as intended to be
‘‘performance-based compensation.’’ Any Awards so designated shall be conditioned on the achievement
of one or more performance goals, as require by Section 162(m). The performance goals that the
Committee may establish with respect to the grant of any Award will be based on any one or more of the
following Company, subsidiary, line of business, operating unit, division or franchise system performance
measures: cash flow, earnings per share, return on operating assets, return on equity, operating profit, net
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