Pizza Hut 2009 Annual Report Download - page 50

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retained Meridian going forward as its independent executive compensation consultant. During 2009,
Hewitt did not provide any services unrelated to executive compensation.
Role of Comparative Compensation Data
One of the factors used by our Committee in setting executive compensation is an evaluation of how
our compensation levels compare to compensation levels for similarly situated executives at companies
considered to be our peers. To conduct these comparisons, Hewitt provided compensation comparisons
based on information that is derived from comparable businesses. This data is used as a frame of reference
(a ‘‘benchmark’’) for establishing compensation targets for base salary, annual incentives and long-term
incentives for executive officers below our CEO.
The Committee uses a benchmark as a point of reference for measurement. Benchmarks, however,
are not the determinative factor for our executives’ compensation, and they do not supplant the analyses of
the individual performance of the executive officers. Because the comparative compensation information is
one of several factors used in the setting of executive compensation, the Committee has discretion in
determining the nature and extent of its use. Further, given the limitations associated with comparative pay
information for setting individual executive compensation, the Committee may elect not to use the
comparative compensation information at all in the course of making specific compensation decisions.
For our NEOs, other than our CEO, the Committee has set target percentiles for base salary,
performance-based annual incentives and long-term incentives as discussed at page 32. The Committee
does not set target percentiles with respect to target total compensation for our NEOs other than our CEO
(see page 38 for a discussion of Mr. Novak’s target total compensation). For the CEO, the company
generally attempts to deliver pay opportunities at the 75th percentile of the market. Specifically,
75th percentile target total cash and target total compensation. The company does not measure/benchmark
the percentile ranking of compensation actually earned since any realized value from our variable pay
programs in particular are a function of company, division, and/or individual performance. It is not
generally the objective of the company to deliver comparable pay outcomes but rather comparable pay
opportunities. Realized/earned value from the company variable pay programs is reflective of business
results and not competitive benchmarking.
Proxy Statement
Comparative Compensation Data
Revenue size often correlates to some degree with the market value of compensation for senior
executive positions. For companies with significant franchise operations measuring size is more complex.
This is because there are added complexities and responsibilities for managing the relationships,
arrangements, and overall scope of the enterprise that franchising introduces, in particular, managing
product introductions, marketing, driving new unit development, customer satisfaction and overall
operations improvements across the entire franchise system. Accordingly, in the Fall of 2008 the
Committee decided, based on input from Hewitt, to add 25% of franchisee and licensee sales to the
Company’s 2008 sales of $9.8 billion for purposes of determining the revenue scope for deriving the market
value of various components of compensation for 2009. This means that the Company, when considering
franchisee sales, is viewed as having revenues of approximately $16.3 billion. Specifically, this amount was
determined by adding 2008 estimated Company sales of $9.8 billion and 25% of estimated franchisee and
licensee sales (from which the Company derives revenues in the form of royalties) of approximately
$25.9 billion.
In the case of Messrs. Carucci, Su, Allan and Creed, the Committee decided to establish a new peer
group of companies. Previously, the group was based on a very broad industry survey data provided by the
consulting firms of Hewitt Associates and Towers Perrin through their online data tools. For 2009, the
Committee decided to move to the same peer group of companies as are used for Mr. Novak, as described
in more detail in the next paragraph. The median annual revenues (for 2007, the most recent year available
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