Pizza Hut 2009 Annual Report Download - page 29

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• The annual incentive target setting process is closely linked to the annual financial planning process
and supports the Company’s overall strategic plan.
• Compensation is primarily determined by results of the business.
• Financial performance which determines employee rewards is closely monitored by and certified to
the Audit Committee and the full Board.
• Compensation performance measures are set for each division, are transparent and tied to multiple
measurable factors, none of which exceed a 50% weighting. The measures are both apparent to
shareholders and drivers of their returns.
• Strong stock ownership guidelines in place for senior 600 employees are enforced (discussed further
at page 41).
• We have implemented a recoupment or ‘‘clawback’’ policy (discussed further at page 44).
How does the Board determine which directors are considered independent?
The Company’s Corporate Governance Principles, adopted by the Board, require that we meet the
listing standards of the NYSE. The full text of the Principles can be found on the Company’s Web site
(www.yum.com/governance/principles.asp).
Pursuant to the Principles, the Board undertook its annual review of director independence. During
this review, the Board considered transactions and relationships between each director or any member of
his or her immediate family and the Company and its subsidiaries and affiliates. As provided in the
Principles, the purpose of this review was to determine whether any such relationships or transactions were
inconsistent with a determination that the director is independent.
As a result of this review, the Board affirmatively determined that all of the directors are independent
of the Company and its management under the rules of the NYSE, with the exception of David Novak,
Jing-Shyh S. Su and Jackie Trujillo. Mr. Novak and Mr. Su are not considered independent directors
because of their employment by the Company. Mrs. Trujillo, who is not standing for re-election, is
considered a non-independent outside director because the Board determined that, under the NYSE
Proxy Statement
independence standards, she has a material relationship with YUM by virtue of her employment during
2004 as Chairman of Harman Management Corporation (‘‘Harman’’), one of YUM’s largest franchisees,
and her continued relationship with Harman as Chairman Emeritus. We provide additional information
regarding royalties and other amounts paid by Harman to YUM on page 14.
In determining that the other directors did not have a material relationship with the Company, the
Board determined that Messrs. Dorman, Ferragamo, Grissom, Holland, Langone, Linen, Nelson and
Walter and Ms. Hill had no other relationship with the Company other than their relationship as director.
The Board did note, as discussed in the next paragraph, that CVS Caremark Corporation (‘‘CVS’’), which
employs Thomas Ryan, had a business relationship with the Company; however, as noted below, the Board
determined that this relationship was not material to Mr. Ryan or CVS.
Mr. Ryan is the Chairman, Chief Executive Officer and President of CVS. In 2007, YUM entered into
a transaction with CVS to sublease a long range aircraft through the Fall of 2010. At that time, YUM will
have an option to purchase the aircraft from CVS. After reviewing the terms of the transaction, including
the lease payments and option purchase price, the Board determined that the transaction did not create a
material relationship between YUM and Mr. Ryan or YUM and CVS as the total payments represent less
than 1/10 of 1% of CVS’s revenues. The Board determined that this relationship was not material to
Mr. Ryan or CVS and concluded that it does not affect the independence of Mr. Ryan. In particular, the
Board noted at that time that the overall purchase price, including consideration of the lease payments,
was at market value (as verified by two independent appraisals).
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