Pizza Hut 2009 Annual Report Download - page 62

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• providing employees with the same opportunities as shareholders, who are free to sell their equity
at the time of the change in control event and thereby realize the value created at the time of the
deal
• the Company that made the original equity grant may no longer exist after a change in control and
employees should not be required to have the fate of their outstanding equity tied to the new
company’s future success
• supporting the compelling business need to retain key employees during uncertain times
• providing a powerful retention device during change in control discussions, especially for more
senior executives whose equity awards represents a significant portion of their total pay package
• a double trigger on equity awards provides no certainty of what will happen when the transaction
closes
As shown under ‘‘Change in Control’’ beginning on page 62, the Company will provide tax gross-ups
for the NEOs for any excise taxes due under Section 4999 of the Internal Revenue Code. The effects of
Section 4999 generally are unpredictable and can have widely divergent and unexpected effects based on
an executive’s personal compensation history. Therefore, the purpose is to attempt to deliver the intended
benefit across individuals without regard to the unpredictable effect of the excise tax, the Company and
Committee continue to believe that Section 4999 tax gross-up payments are appropriate for the Company’s
most senior executives.
The Company does provide for pension and life insurance benefits in case of retirement as described
beginning at page 62 and the continued ability to exercise options in case of retirement. The Committee
does not specifically consider the change in control benefits or any of these other benefits in determining
each NEOs other compensation elements, although the Committee is aware of these items of
compensation when making annual compensation decisions. With respect to consideration of how these
benefits fit into the overall compensation policy, the change of control benefits are reviewed from time to
time by the Committee for competitiveness. When last reviewed by the Committee in 2006, its independent
consultant indicated that these benefits generally fall below the average for companies of our size and,
therefore, fall within (and arguably under) the competitive norm. As noted above, the Committee believes
Proxy Statement
the benefits provided in case of a change in control are appropriate and are consistent with the policy of
attracting and retaining highly qualified employees.
In analyzing the reasonableness of these change in control benefits, the Committee chose not to
consider wealth accumulation of the executives (although this information was provided to the Committee)
in determining whether these benefits should be provided. This is because, if properly designed, the
Committee believes a change in control program protects shareholder interests by enhancing employee
focus during rumored or actual change in control activity through:
• incentives to remain with the Company despite uncertainties while a transaction is under
consideration or pending
• assurance of severance and benefits for terminated employees
• access to equity components of total compensation after a change in control
Future Severance Agreement Policy
As recommended by shareholders in 2007, the Committee approved a new policy in 2007 to limit
future severance agreements with our executives. The Committee adopted a policy under which the
Company will seek shareholder approval for future severance payments to a NEO if such payments would
exceed 2.99 times the sum of (a) the NEO’s annual base salary as in effect immediately prior to
termination of employment; and (b) the highest annual bonus awarded to the NEO by the Company in any
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