Pizza Hut 2014 Annual Report Download - page 45

Management Statement in Opposition to Shareholder
Proposal
What is the Company’s position regarding this proposal?
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The Board of Directors recommends that shareholders vote time when the Company and its shareholders need
AGAINST this proposal. executives to avoid distraction and operate at their best.
The Proponent’s proposal, which contemplates that equity
YUM employs an effective pay-for-performance vest on a pro-rata basis based on the period of time the
compensation program with many governance best executive is employed with the surviving entity, does not
practices, including requiring double-trigger accelerated serve this need. Under the Proponent’s proposal, even after
vesting of equity awards upon a change in control. We leading the Company through a critical time, the executive
believe the elements of our program are appropriate and would have the expectation of the loss of a portion or all of
serve the best interests of our shareholders. The the value of any award granted after the Proponent’s
Proponent’s proposal is unnecessary because our double- proposal is implemented. Importantly, this loss expectation
trigger vesting practice does not create a ‘‘windfall’’ for our will misalign executive and shareholder interests and
executives, but aligns executive and shareholder interests. incentivize executives to pursue transactions or outcomes
Our practice fosters a sense of stability for the executive so that are not in the long-term interest of shareholders, or in
that he or she may remain objective and focused while the case of a potential change in control, may incentivize the
leading the Company during a critical and uncertain time, executive to leave the Company.
and maintains our competitive edge when attracting and
retaining high caliber talent. In fact, we believe On the other hand, the Company has a pay philosophy with
implementing the Proponent’s proposal will misalign a high emphasis on long-term incentive compensation
executive and shareholder interests and incentivize (currently, 70% of CEO’s compensation and 50% of other
executives to pursue transactions or outcomes that are not NEOs’ compensation). The executive’s long-term incentive
in the long-term interest of shareholders, or in the case of a pay only creates value when the Company’s stock price
potential change in control, may incentivize the executive to increases and with favorable shareholder expectations.
leave the Company. Therefore, we believe our practice of double trigger
acceleration is an appropriate and powerful incentive for an
Our double-trigger accelerated vesting practice does executive to remain focused and vigilant in achieving a
not create a windfall for our executives. strategic transaction that maximizes shareholder value. It
avoids conflicts of interest that could arise while leading a
We implemented double-trigger accelerated vesting in the significant organizational change and, importantly, will help
event of a change in control in 2013, based on shareholder retain management during the uncertainties of a change in
feedback received in 2012. Pursuant to our double-trigger control.
accelerated vesting practice, for awards made in 2013 and
beyond, an executive’s outstanding awards will only fully Implementing Proponent’s proposal will put the
and immediately vest if the executive is (1) employed on the Company at a competitive disadvantage.
date of a change in control of the Company and (2) is then
involuntarily terminated without cause on or within two years We compete for talent with our peers and must have a
following the change in control by the surviving entity. No competitive compensation program to attract, retain and
windfall is created since an executive will not receive motivate executives. Implementing the Proponent’s
accelerated vesting just because a change in control has proposal puts the Company’s competitive edge at risk
occurred, nor if he or she leaves voluntarily or is terminated because double-trigger accelerated vesting is a dominant
with cause. governance practice. We benchmarked this practice well
before implementation and it is employed by many of our
Our double-trigger accelerated vesting treatment of peer companies. If we must implement the Proponent’s
equity awards aligns executive and shareholder pro-rata vesting proposal, we are at risk of losing our
interests during uncertain times. executives to competitors and not attracting new high
caliber talent.
Change in control transactions often mean a lengthy period
of uncertainty for the Company and its executives during a
2015 Proxy Statement YUM! BRANDS, INC. 23
MATTERS REQUIRING SHAREHOLDER ACTION
Proxy Statement