Pizza Hut 2010 Annual Report Download - page 55

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We determine all elements of compensation annually at the same time, currently in January, to allow
us to take into consideration all of the elements when decisions are made.
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 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 independent members of 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 PSUs, 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.
Proxy Statement
For our executive officers (other than the CEO), the mix of total compensation is effectively targeted
at 30% fixed and 70% variable, i.e., ‘‘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, Meridian
Compensation Partners, LLC (‘‘Meridian’’), to advise it on certain compensation matters. For 2010 and
similar to prior years, the Committee told Meridian 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.
During 2010, Hewitt Associates spun off a portion of its executive compensation practice into a
separate, entirely independent entity, Meridian Compensation Partners. The Committee retained
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