Pizza Hut 2008 Annual Report Download - page 59

23MAR200920295069
How Compensation Decisions Are Made
In January of each year, the Committee reviews the performance and total compensation of our CEO
and Senior Leadership Team, which is comprised of the executive officers reporting to the CEO. The total
compensation review includes base salary, target bonus award opportunities, and target annual long-term
incentive award values. The Committee then sets each executive’s compensation target for the current
year. Typically, this involves establishing their base salary and annual bonus opportunities and granting
long-term incentive awards. The Committee’s decisions impacting our CEO are reviewed and ratified by
the Board.
In making these compensation decisions, the Committee relies on the CEO’s in-depth review of the
performance of the Senior Leadership Team as well as competitive market information. Compensation
decisions are ultimately made by the Committee using its judgment, focusing primarily on the executive
officer’s performance against his or her financial and strategic objectives, as well as YUM’s overall
performance. The Committee also considers a variety of qualitative factors, including the business
environment in which the results were achieved.
Alignment between Compensation and Company Performance
As noted above, a key objective of our compensation program is to maximize shareholder returns.
Our incentive programs are designed to reinforce our pay-for-performance philosophy by aligning the
payouts with the results of the Company’s business and financial performance. These incentives, which
constitute a significant portion of total compensation, consist of annual incentive compensation, which is
short-term in nature, and stock option/stock appreciation rights, which have a longer-term focus. These pay
elements are discussed in more detail below.
There is no pre-established policy or target for the allocation between either cash and non-cash or
short-term and long-term incentive compensation. The Committee reviews information provided by
management in the case of Senior Leadership Team members other than our CEO, and Hewitt Associates
in the case of our CEO, to determine the appropriate level and mix of incentive compensation.
Historically, and in fiscal 2008, the Committee granted a majority of total compensation to our executive
officers in the form of short-term and long-term incentive compensation.
Proxy Statement
Allocation between Fixed and Variable Compensation
For our NEOs (other than the CEO), in 2008 the Committee adopted guidelines for total
compensation targeted at 30% fixed and 70% variable, in other words, at risk. Fixed compensation is
comprised of base salary, while variable compensation is comprised of annual incentives and long-term
incentive compensation.
Role of Independent Consultant
The Compensation Committee’s charter states that the Committee may retain outside compensation
consultants, lawyers or other advisors. Since 2005, the Compensation Committee has retained an
independent consultant, Hewitt Associates, Inc., to advise it on certain compensation matters. For 2008,
the Compensation Committee told Hewitt that:
• they were to act independently of management and at the direction of the Compensation
Committee,
• their ongoing engagement would be determined by the Compensation Committee,
• they were to inform the Compensation Committee of relevant trends and regulatory developments,
• they were to provide compensation comparisons based on information that is derived from
comparable businesses of a similar size to us with respect to compensation of the chief executive
41