Pizza Hut 2014 Annual Report Download - page 154

13MAR201517272138
PART II
ITEM 8 Financial Statements and Supplementary Data
compensation on a pre-tax basis. Participants may allocate their compensation. We recognized as compensation expense our total
contributions to one or any combination of multiple investment options matching contribution of $12 million in both 2014 and 2013 and
or a self-managed account within the 401(k) Plan. We match 100% of $13 million in 2012.
the participant’s contribution to the 401(k) Plan up to 6% of eligible
Share-based and Deferred Compensation Plans
Our Executive Income Deferral (‘‘EID’’) Plan allows participants to
Overview defer receipt of a portion of their annual salary and all or a portion of
At year end 2014, we had four stock award plans in effect: the YUM! their incentive compensation. As defined by the EID Plan, we credit
Brands, Inc. Long-Term Incentive Plan and the 1997 Long-Term the amounts deferred with earnings based on the investment options
Incentive Plan (collectively the ‘‘LTIPs’’), the YUM! Brands, Inc. selected by the participants. These investment options are limited to
Restaurant General Manager Stock Option Plan (‘‘RGM Plan’’) and cash, phantom shares of our Common Stock, phantom shares of a
the YUM! Brands, Inc. SharePower Plan (‘‘SharePower’’). Under all Stock Index Fund and phantom shares of a Bond Index Fund.
our plans, the exercise price of stock options and SARs granted must Investments in cash and phantom shares of both index funds will be
be equal to or greater than the average market price or the ending distributed in cash at a date as elected by the employee and therefore
market price of the Company’s stock on the date of grant. are classified as a liability on our Consolidated Balance Sheets. We
recognize compensation expense for the appreciation or the
Potential awards to employees and non-employee directors under the depreciation, if any, of investments in cash and both of the index
LTIPs include stock options, incentive stock options, SARs, restricted funds. Deferrals into the phantom shares of our Common Stock will be
stock, stock units, restricted stock units (‘‘RSUs’’), performance distributed in shares of our Common Stock, under the LTIPs, at a date
restricted stock units, performance share units (‘‘PSUs’’) and as elected by the employee and therefore are classified in Common
performance units. We have issued only stock options, SARs, RSUs Stock on our Consolidated Balance Sheets. We do not recognize
and PSUs under the LTIPs. While awards under the LTIPs can have compensation expense for the appreciation or the depreciation, if any,
varying vesting provisions and exercise periods, outstanding awards of investments in phantom shares of our Common Stock. Our EID plan
under the LTIPs vest in periods ranging from immediate to five years. also allows participants to defer incentive compensation to purchase
Stock options and SARs expire ten years after grant. phantom shares of our Common Stock and receive a 33% Company
match on the amount deferred. Deferrals receiving a match are similar
Potential awards to employees under the RGM Plan include stock
to a RSU award in that participants will generally forfeit both the match
options, SARs, restricted stock and RSUs. We have issued only stock
and incentive compensation amounts deferred if they voluntarily
options and SARs under this plan. RGM Plan awards granted have a
separate from employment during a vesting period that is two years
four-year cliff vesting period and expire ten years after grant. Certain
from the date of deferral. We expense the intrinsic value of the match
RGM Plan awards are granted upon attainment of performance
and the incentive compensation over the requisite service period
conditions in the previous year. Expense for such awards is
which includes the vesting period.
recognized over a period that includes the performance condition
period. Historically, the Company has repurchased shares on the open
market in excess of the amount necessary to satisfy award exercises
Potential awards to employees under SharePower include stock
and expects to continue to do so in 2015.
options, SARs, restricted stock and RSUs. We have issued only stock
options and SARs under this plan. These awards generally vest over a
period of four years and expire ten years after grant.
At year end 2014, approximately 14 million shares were available for
future share-based compensation grants under the above plans.
Award Valuation
We estimated the fair value of each stock option and SAR award as of the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions:
2014 2013 2012
Risk-free interest rate 1.6% 0.8% 0.8%
Expected term (years) 6.2 6.2 6.0
Expected volatility 29.7% 29.9% 29.0%
Expected dividend yield 2.1% 2.1% 1.8%
We believe it is appropriate to group our stock option and SAR awards post-vesting termination behavior, we have determined that our
into two homogeneous groups when estimating expected term. These restaurant-level employees and our executives exercised the awards
groups consist of grants made primarily to restaurant-level employees on average after 4.75 years and 6.25 years, respectively.
under the RGM Plan, which cliff-vest after four years and expire ten When determining expected volatility, we consider both historical
years after grant, and grants made to executives under our other stock volatility of our stock as well as implied volatility associated with our
award plans, which typically have a graded vesting schedule of 25% publicly traded options. The expected dividend yield is based on the
per year over four years and expire ten years after grant. We use a annual dividend yield at the time of grant.
single weighted-average term for our awards that have a graded
vesting schedule. Based on analysis of our historical exercise and
60 YUM! BRANDS, INC. - 2014 Form 10-K
NOTE 14
Form 10-K