Pizza Hut 2011 Annual Report Download - page 73

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salary for the first time exceeded $1 million; however, the Committee noted that Mr. Su’s compensation is
not subject to United States tax rules and therefore the one million dollar limitation does not apply in his
case. The 2011 annual bonuses were all paid pursuant to our annual bonus program and will, therefore, be
deductible. In this regard, the Committee exercises ‘‘negative discretion’’ in setting payouts under the
annual bonus plan. By setting a high amount which can then be reduced at the Committee’s discretion, our
annual bonus plan meets the requirements of Section 162(m) of the Internal Revenue Code. In 2011, the
Committee, after certifying that EPS had exceeded the 10% growth target which would permit a maximum
payout, exercised its negative discretion to reduce the payout to the CEO from $10 million to $4.54 million.
As discussed beginning at page 49, this reduction was not a negative reflection on the CEO’s performance
as he, in fact, performed above expectations (for example, EPS growth was 14%). While the Committee
does utilize ‘‘negative discretion’’ from a tax perspective, the Committee administers the plan, in particular
with the setting of objective performance criteria as discussed beginning at page 44, as if the annual bonus
plan was a non-discretionary plan. For example, if a performance measure is not attained at a certain level,
no annual bonus will be paid.
Due to the Company’s focus on performance-based compensation plans and the deferral of
compensation by certain executive officers, we expect to continue to qualify most compensation paid to the
NEOs as tax deductible.
Proxy Statement
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