Pizza Hut 2009 Annual Report Download - page 49

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How Compensation Decisions Are Made
In January of each year, the Committee reviews the performance and total compensation of our CEO
and the other executive officers. The total compensation review includes base salary, target bonus award
opportunities, and target annual long-term incentive award values. The Committee reviews and establishes
each executive’s total compensation target for the current year which includes base salary, annual bonus
opportunities and long-term incentive awards. The Committee’s decisions impacting our CEO are also
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 executive officers 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, qualitative factors and YUM’s overall
performance.
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, restricted stock units and performance
share units, which have a longer-term focus. These pay elements are discussed in more detail below.
Compensation Allocation
The Committee reviews information provided by the Committee’s consultant (see below) for our
CEO and executive officers, to determine the appropriate level and mix of incentive compensation.
However 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.
For our executive officers (other than the CEO), the Committee established guidelines for total
Proxy Statement
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 Committee’s charter states that the Committee may retain outside compensation consultants,
lawyers or other advisors. Since 2005, the Committee has retained an independent consultant, Hewitt
Associates, Inc., to advise it on certain compensation matters. For 2009, the Committee told Hewitt that:
• they were to act independently of management and at the direction of the Committee;
• their ongoing engagement would be determined by the Committee;
• they were to inform the Committee of relevant trends and regulatory developments; and
• they were to provide compensation comparisons based on information that is derived from
comparable businesses of a similar size to us for the CEO and other executive officers and assist the
Committee in its determination of the annual compensation package for our CEO.
After 2009 year end, but prior to the filing of this proxy statement, Hewitt Associates spun off a
portion of its executive compensation practice into a separate, entirely independent entity named Meridian
Compensation Partners, LLC. (‘‘Meridian’’). The Management Planning and Development Committee has
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