Pizza Hut 2011 Annual Report Download - page 71

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on business results. Over the last four years, we have averaged six Chairman’s Award grants per year
outside of the January time frame. In 2011, we made three Chairman’s Awards on Board of Director
meeting dates other than the January meeting.
Payments upon Termination of Employment
The Company does not have agreements concerning payments upon termination of employment
except in the case of a change in control of the Company. The terms of these change in control agreements
are described beginning on page 71. The Committee believes these are appropriate agreements for
retaining NEOs and other executive officers to preserve shareholder value in case of a threatened change
in control. The Committee periodically reviews these agreements and other aspects of the Company’s
change in control program.
The Company’s change in control agreements, in general, pay, in case of an NEO’s termination of
employment for other than cause within two years of the change in control, a benefit of two times salary
and bonus and provide for a tax gross-up in case of any excise tax. In addition, unvested stock options and
stock appreciation rights vest upon a change in control (as fully described under ‘‘Change in Control’’
beginning on page 70). Other benefits (i.e., bonus, severance payments and outplacement) generally
require a change in control, followed by a termination of an NEO’s employment. In adopting the so-called
‘‘single’’ trigger treatment for equity awards, the Company is guided by:
• keeping employees relatively whole for a reasonable period but avoiding creating a ‘‘windfall’’
• ensuring that ongoing employees are treated the same as terminated employees with respect to
outstanding equity awards
• 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
Proxy Statement
• 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 71, 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 NEO or other executive’s personal compensation history. Therefore, the purpose is to attempt to
deliver the intended benefit to all covered 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 71 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 NEO’s 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 in control benefits are reviewed from time to
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