Pizza Hut 2009 Annual Report Download - page 56

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Long-term Incentive Compensation
The principal purpose of our long-term incentive compensation program (‘‘LTI Plan’’) is to motivate
our executives to help us achieve our long-range performance goals that will enhance our value and, as a
result, enhance our shareholders’ returns on their investments.
Under our LTI Plan, our executive officers are awarded long-term incentives in the form of
non-qualified stock options or stock settled stock appreciation rights (‘‘SARs’’). The type of award granted
is based upon the executives’ local tax jurisdiction. Each year the Committee reviews the mix of long-term
incentives to determine if it is appropriate to continue predominantly using 100% stock options and SARs
as the long-term incentive vehicle. The Committee has chosen to use stock options and SARs because they
emphasize YUM’s focus on long-term growth, they reward employees only if the stock price goes up and
they align Restaurant General Managers and senior management on the same equity incentive program.
Long-term incentive award ranges are established based upon the peer group data. In general, our stock
options and SARs have ten-year terms and vest 25% per year over four years.
For each NEO other than Mr. Novak, the 2009 Stock Option/SARs grant was awarded based on the
Committee’s subjective assessment of each executive’s performance and consideration of the peer group
data, subject to the individual’s achievement of his stock ownership guidelines. The Committee based its
assessment on factors considered with respect to the evaluation of Messrs. Carucci’s, Su’s, Allan’s, and
Creed’s individual and team performance as noted at page 36 as well as their expected contributions in
future years. The Committee did not assign a weight to any particular item.
Based on this assessment for 2009, Mr. Carucci received a stock appreciation rights grant at the
50th percentile of the peer group data. Mr. Su received a stock option grant above the 50th percentile and
Messrs. Allan and Creed received a stock appreciation rights grant above the 50th percentile of the survey
data. Each SAR and Stock Option was granted with an exercise price based on the closing market price of
the underlying YUM common stock on the date of grant. The Committee does not measure or review the
actual percentile above or below the 50th percentile when making its final LTI award decision. In addition,
the Committee does not measure or review the percentile ranking of the value realized from any LTI
award. Realized value is a function of the performance of the Company common stock and the length of
time a participant holds an award after vesting.
Proxy Statement
In March 2009, the Committee modified our long term incentive compensation for our CEO, Chief
Financial Officer and our division presidents by adding a Performance Share Plan and discontinuing the
executives’ participation in the matching restricted stock unit program under the Executive Income
Deferral Plan. The Performance Share Plan will distribute a number of shares of Company common stock
based on the 3 year compound annual growth rate (‘‘CAGR’’) of the Company’s EPS adjusted to exclude
special items believed to be distortive of consolidated results on a year over year basis. The target grant
value was set based on a value equal to 33% of the NEO’s annual bonus target. This amount was designed
to equal the value of the discontinued Company match on deferral of their annual cash incentive into
Company common stock. The performance period covers 2009-2011 fiscal years and will be leveraged up
or down based on the 3-year CAGR EPS performance against a target of 10%. The payout leverage is
0 - 200% of the target grant value. Dividend equivalents will accrue during the performance cycle but will
be distributed in shares only in the same proportion and at the same time as the original performance
shares are earned. If no performance shares are earned, no dividend equivalents will be paid. The
Performance Share Units (‘‘PSUs’’) are eligible for deferral under the Executive Income Deferral Plan.
The target, threshold and maximum potential value of these awards are described at page 46.
Mr. Novak’s long-term incentive compensation is discussed on page 38.
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