Mondelez International, Inc. DEF 14A 2013
Documents found in this filing:
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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Filed by a Party other than the Registrant ¨
Check the appropriate box:
Mondelēz International, Inc.
(Name of Registrant as Specified In Its Charter)
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April 3, 2013
Dear Fellow Shareholders:
Im pleased to invite you to our 2013 Annual Meeting of Shareholders to be held at 9 a.m. CDT on Tuesday, May 21, 2013, at the North Shore Center for the Performing Arts in Skokie, Illinois. The center will open to shareholders at 8 a.m. If you wish to attend the meeting, we ask you to register in advance. The Proxy Statement contains registration instructions.
We have prepared the following materials for the meeting:
Once again, were mailing to our shareholders a Notice of Internet Availability of Proxy Materials with instructions on how to access these materials and vote online. We believe electronic delivery expedites the receipt of materials, lowers costs and reduces the environmental impact of our Annual Meeting. If you receive a Notice of Internet Availability of Proxy Materials by mail, you wont receive paper copies of these materials unless you specifically request them by following the instructions on the Notice.
Your vote is important, so we encourage you to vote promptly. The Notice contains instructions on how to vote via the Internet or by calling a toll-free number. If you receive paper copies of the proxy materials, you may also vote by signing, dating and mailing your proxy card or voting instruction form. You may also vote in person at the Annual Meeting.
Highlights of Our 2012 Financial and Business Performance
2012 was a transformational year for our company. During the first nine months, we intensely prepared for the spin-off of our North American grocery business. The separation of Kraft Foods Inc. into two world-class companies was a massive undertaking, culminating in a significant increase in shareholder value and the successful launch of both Mondelēz International and Kraft Foods Group on October 1.
Whats more, we executed all of this while delivering solid business results. The quality of our revenue and earnings growth in 2012 provides strong momentum as we enter 2013.
Multiple Competitive Advantages
Im truly excited about our future as we continue our journey as a more focused company. We now have all the ingredients in place for sustainable, profitable growth:
Were expanding distribution in traditional trade channels, particularly in markets like Brazil, India and China. And in modern grocery stores, were increasing penetration in immediate consumption channels and in the Hot Zone at the front of the stores.
In many places around the globe, we have tremendous opportunities to enter white space markets by leveraging our strong presence in one category to enter another. For example, in 2011, we introduced Oreo into India building on our strong chocolate infrastructure. Just last August, we introduced Stride gum in China, building on our substantial infrastructure in biscuits.
Fueling the Virtuous Cycle to Drive Top-Tier Growth
Our strong track record of delivering results over the past few years has been driven by a virtuous growth cycle. This cycle is the framework we use to manage our company to ensure sustainable growth on both the top and bottom lines.
At the same time, we expand gross margin through a combination of pricing to recover input costs, strong productivity and improving product mix. Last year, we increased our gross margin by 70 basis points and our adjusted gross margin3 by 50 basis points.
Were also successfully leveraging overhead costs. Overheads as a percent of revenue declined 60 basis points in 2012, despite significant investments in sales. As a result, operating margins are also expanding. Our Adjusted Operating Income Margin4 was up 70 basis points last year and 110 basis points since 2010.
By keeping a firm grasp on overheads, together with higher gross margins, we generate the fuel needed to sustain our growth. We increased our spending on advertising and consumer support by 9 percent last year to 9.4 percent of revenue.
In addition, we delivered these strong results while successfully integrating Cadbury. We generated about $800 million of cost synergies through the end of 2012. This is above our original target of $750 million. The Cadbury acquisition is also delivering on its growth promise. To date, weve generated about $700 million in incremental revenue. All in all, we remain on track to reach our target of $1 billion in revenue synergies by the end of 2013, with roughly two-thirds coming from developing markets.
Generating Strong Cash Flow, Returning Cash to Shareholders, Improving ROIC
We expect to generate about $4 billion of free cash flow5 over the next two years. This will fund the cash impact of our 2012-2014 Restructuring Program as well as provide cash to pay dividends; leaving approximately $1 billion available for deployment over the next two years.
This is how we plan to use this cash:
Finally, were committed to a steady improvement in return on invested capital, targeting an increase of 30 to 50 basis points per year. Double-digit earnings growth and tight management of working capital and capital expenditures will drive the improvement.
Protecting the Well-Being of Our Planet
From investing in sustainable agriculture to eliminating waste and promoting healthy lifestyles, we continue to evolve the way we do business to reduce our environmental impact and enhance our contributions to society, while delivering outstanding financial performance.
Cocoa Life is our largest, most comprehensive cocoa sustainability effort to date. As the worlds largest chocolate company, well invest $400 million over the next 10 years to improve the livelihoods and living conditions of more 200,000 cocoa farmers and about one million people in cocoa-farming communities.
We also remain committed to building community partnerships that empower people with the healthy habits to achieve holistic well-being. Over the last 25 years, weve contributed more than $1 billion in cash and food to charitable organizations around the world. And, through our Mondelēz International Foundation, were completing our $180 million pledge to ramp up physical activity for children and their families, while securing more fresh foods through local agriculture and better nutrition education.
To make the biggest impact possible, we work with leading non-governmental organizations, such as INMED Partnerships for Children in Brazil, Charities Aid Federation in Russia and Klasse 2000 in Germany, as well as Helen Keller International and Save the Children in Southeast Asia.
Bullish about the Future
In sum, were well-positioned for sustainable, profitable growth. We have an advantaged geographic footprint; an enviable portfolio of iconic brands; strong innovation platforms; a virtuous cycle in every geography; a long runway of future growth opportunities; and strong cash flow.
As a result, Im bullish on the future and the ability of our 110,000 employees around the world to deliver top-tier financial results.
Thank you for your continuing support.
This letter to shareholders contains a number of forward-looking statements. Words, and variations of words, such as expect, goals, plans, continue, may, will, and similar expressions are intended to identify our forward-looking statements, including but not limited to, sustainable and profitable growth; our ability to take advantage of growth opportunities; our products future revenues; our pipeline of innovation platforms; our routes to market; our ability to execute our strategies; Cadbury revenue synergies; future cash flows and uses of cash; improvement in return on invested capital; plans for protecting the well-being of our planet; and our being bullish on the future. These forward-looking statements involve risks and uncertainties, many of which are beyond our control, and important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, continued volatility of commodity and other input costs, pricing actions, increased competition, our ability to differentiate our products from retailer brands, increased costs of sales, regulatory or legal restrictions, actions or delays, a shift in our product mix to lower margin offerings, private label, risks from operating globally, continued consumer weakness, weakness in economic conditions, our labor force and tax law changes. For additional information on these and other factors that could affect our forward-looking statements, see our risk factors, as they may be amended from time to time, set forth in our filings with the SEC, including our most recently filed Annual Report on Form 10-K and subsequent reports on Forms 10-Q and 8-K. We disclaim and do not undertake any obligation to update or revise any forward-looking statement in this letter to shareholders, except as required by applicable law or regulation.
MONDELĒZ INTERNATIONAL, INC.
Three Parkway North
Deerfield, Illinois 60015
NOTICE OF 2013 ANNUAL MEETING OF SHAREHOLDERS
9501 Skokie Boulevard
Skokie, Illinois 60077
Carol J. Ward
Vice President and Corporate Secretary
April 3, 2013
TABLE OF CONTENTS
PROXY STATEMENT SUMMARY
This summary highlights information contained elsewhere in this Proxy Statement. This summary does not contain all of the information that you should consider, and you should read the entire Proxy Statement carefully before voting.
ANNUAL MEETING OF SHAREHOLDERS
We believe that our executive compensation program is strongly aligned with delivering sustainable top-tier performance and reflects competitive practices for executive compensation. The program is designed to: attract, retain and motivate talented executive officers and develop world-class business leaders; support business strategies that promote superior long-term shareholder returns; align pay and performance by making a significant portion of our Named Executive Officers and other executive officers compensation dependent on achieving financial and other critical strategic and individual goals; and align our executive officers and shareholders interests through stock ownership guidelines, equity-based incentive awards and other long-term incentive awards that link executive compensation to sustained and superior Total Shareholder Return.
The objectives described above are encouraged by basing a significant portion of total compensation for our Chief Executive Officer and our other Named Executive Officers on achieving and sustaining exceptional short-term and long-term performance results. Each Named Executive Officers compensation mix reflects a significant bias toward long-term incentives, and each long-term incentive vehicle is equity-based, and therefore directly tied to the Companys share price and shareholder returns. Further, approximately half of annual long-term incentive opportunities granted to each Named Executive Officer is granted in the form of performance shares that can be earned, if at all, based upon the satisfaction of performance goals.
Our Named Executive Officers are those individuals who served as our Chief Executive Officer and Chief Financial Officer during 2012 and our three other most highly compensated officers. In addition, two of our former executives who moved to Kraft Foods Group, Inc. after the Kraft Foods Group Spin-Off are considered our Named Executive Officers for 2012. Please read Compensation Discussion and Analysis beginning on page 34 and Executive Compensation Tables beginning on page 75 for additional details about our executive compensation programs, including information about our Named Executive Officers fiscal year 2012 compensation.
As a matter of good governance, we are asking our shareholders to ratify the Audit Committees selection of PricewaterhouseCoopers as our independent auditors for 2013. We provide information on fees billed by PwC in 2012 and 2011 on page 28 of this Proxy Statement.
In accordance with SEC rules, we include in this Proxy Statement two shareholder proposals (Items 4 and 5). The Board recommends that you vote AGAINST each of these proposals for the reasons we set forth following each proposal.
FREQUENTLY ASKED QUESTIONS
We provide answers to many frequently asked questions about the annual meeting and voting, including how to vote shares held in employee benefit plans, in the Q&A section beginning on page 103 of this Proxy Statement.
Significant Company Events During 2012
2012 was another transformational year for us. We began the year as Kraft Foods Inc., a company primarily comprised of two distinct businesses a market leading North American grocery business and a faster-growing global snack foods business. To allow each business to focus on its specific strengths and objectives, on October 1, 2012, we spun-off Kraft Foods Group, Inc. (Kraft Foods Group), our North American grocery business, to our shareholders (the Spin-Off). As a result of the Spin-Off, Kraft Foods Group became an independent, publicly-traded company. In connection with the Spin-Off, we also changed our name from Kraft Foods Inc. to Mondelēz International, Inc. (Mondelēz International or the Company). The Spin-Off has allowed us to focus on our significant opportunities for growth as consumer demand for snacks increases around the world.
Over the past several years, we have transformed our Company, catalyzed by our acquisitions of the LU biscuits business on November 30, 2007 and the Cadbury business on February 2, 2010, and culminating with the Spin-Off, from a modestly growing grocery and snacks business into a faster-growing global snacks powerhouse. Over the last three years, we have been a top-tier performer in our industry as evidenced by our significant returns to shareholders. Our portfolio is comprised of fast-growing categories with a footprint across most major developed and developing markets. We have leading share positions globally in the Biscuits, Chocolate, Candy and Powdered Beverages categories, and number two share positions in the Gum and Coffee categories. With 74% of our revenue in 2012 generated in the fast-growing snacks categories, we are well positioned to deliver top-tier growth into the future.
Further, prior to the Spin-Off, on June 26, 2012, the Company transferred its stock exchange listing from the New York Stock Exchange to the NASDAQ Global Select Market (NASDAQ). The Companys stock now trades on NASDAQ under the symbol MDLZ, and Kraft Foods Group trades under the symbol KRFT.
Like the Company, the Board of Directors underwent significant changes during 2012 in connection with the Spin-Off:
The Board currently consists of 10 members, all of whom have been nominated for election for a term of one year expiring at the 2014 Annual Meeting of Shareholders.
ITEM 1. ELECTION OF DIRECTORS
Process for Nominating Directors
The Governance, Membership and Public Affairs Committee of our Board of Directors (the Governance Committee) is responsible for identifying, evaluating and recommending to the Board nominees for election at the 2013 Annual Meeting of Shareholders (and any adjournments or postponements of the meeting) (the Annual Meeting). The Governance Committee relies on nominee suggestions from the directors, shareholders, management and others. From time to time, the Governance Committee retains executive search and board advisory firms to assist in identifying and evaluating potential nominees. The Governance Committee retained Heidrick & Struggles to assist in the Committees recruitment of individuals to replace two directors who did not stand for re-election at the 2012 Annual Meeting of Shareholders (Ajaypal S. Banga and Richard A. Lerner) and the five individuals (Myra M. Hart, Peter B. Henry, Terry J. Lundgren, Mackey J. McDonald and John C. Pope) elected at the 2012 Annual Meeting of Shareholders whom the Board asked to serve on the board of Kraft Foods Group in connection with the Spin-Off. The Committees recruitment efforts focused on identifying individuals for the new Mondelēz International Board of Directors. These recruitment efforts resulted in the Boards appointment of Stephen F. Bollenbach, Lewis W.K. Booth, Patrick T. Siewert and Ruth J. Simmons as new directors of Mondelēz International at or soon after the Spin-Off. These directors were all identified by Heidrick & Struggles and recommended to the Board as director nominees by the Governance Committee. Ratan N. Tata was recommended to the Board as a director nominee by the Chairman and Chief Executive Officer.
The Board believes all directors should possess certain personal characteristics, including integrity, sound business judgment and vision, to serve on our Board. We believe these characteristics are necessary to establish a competent, ethical and well-functioning Board that best represents the interests of our business, shareholders, employees, business partners and consumers. Under our Corporate Governance Guidelines (the Guidelines), when evaluating the suitability of individuals for nomination, the Governance Committee takes into account many factors. These include the individuals general understanding of the varied disciplines relevant to the success of a large, publicly traded company in a global business environment, understanding of our global businesses and markets, professional expertise and education. The Governance Committee also considers an individuals ability to devote sufficient time and effort to fulfill his or her Mondelēz International responsibilities, taking into account the individuals other commitments. In addition, the Board considers whether an individual meets various independence requirements, including whether his or her service on boards and committees of other organizations is consistent with our conflicts of interest policy.
In addition, under the Guidelines, the Committee generally will not recommend and the Board will not nominate an individual or re-nominate for election an independent director after he or she reaches age 75. However, from time-to-time, the Board may do so in extraordinary circumstances if the Board believes that nomination or renomination is in the shareholders best interests because the candidate is uniquely qualified to contribute to the Boards work and Corporations growth in the subsequent year. If the Committee determines that the individuals nomination or directors re-nomination is in the shareholders best interests, the Committee may recommend, and the Board may approve, the nomination or re-nomination for up to three annual terms following his or her 75th birthday.
In considering whether to nominate Mr. Tata, age 75, for election by the Companys shareholders, both the Committee and Board reviewed Mr. Tatas unique experience and expertise in leading a successful global enterprise; in Indian, Asian, and emerging markets business and cultural affairs; support for the development and promotion of innovative business practices; and insights into the continuing evolution of consumer products. They both determined that Mr. Tata would uniquely contribute to the Boards work and the Corporations growth during the coming year.
An employee director must resign from the Board upon ceasing to be a Company officer.
The Guidelines provide that the Governance Committee will consider factors that promote diversity of views and experience when evaluating the suitability of individuals for nomination. While the Board has no formal written policy regarding what specific factors would create a diversity of views and experience, the Governance Committee recognizes the significant benefit diversity provides to the Board and Mondelēz International, as varying viewpoints contribute to a more informed and effective decision-making process. The Governance Committee seeks broad experience in relevant industries, professions and areas of expertise important to our operations, including global business, manufacturing, marketing, science, finance and accounting, academia, law and government. The Governance Committee also recognizes the importance of having directors with significant international experiences and backgrounds given our global, multicultural business.
As shown below, our director nominees have varied experiences, backgrounds and personal characteristics, which provide the Board with a diversity of viewpoints and enable it to effectively represent our business, shareholders, employees, business partners and consumers:
Individual Skills and Experience
The Governance Committee works with the Board to determine the appropriate mix of backgrounds and experiences that would establish and maintain a Board that is strong in its collective knowledge, allowing the Board to fulfill its responsibilities and best perpetuate our long-term success and represent our shareholders interests. Then, when evaluating potential director nominees, the Governance Committee considers each individuals professional expertise and educational background in addition to the general qualifications. The Governance Committee evaluates each individual in the context of the Board as a whole. To help the Governance Committee determine whether director nominees qualify to serve on our Board and would contribute to the Boards current and future needs, director nominees complete questionnaires regarding their backgrounds, qualifications, skills and potential conflicts of interest. Additionally, the Governance Committee annually conducts evaluations of the Board and the Boards committees, and coordinates individual directors self-assessments, that assess the experience, skills, qualifications, diversity and contributions of each individual and of the group as a whole.
The Governance Committee regularly communicates with the Board to identify characteristics, professional experience and areas of expertise that are particularly desirable for our directors to possess to help meet specific Board needs, including:
The Board believes that all the director nominees for election at the Annual Meeting are highly qualified. Each director nominees specific skills, knowledge and experience that the Governance Committee relied upon when determining whether to nominate the individual for election are described below in the nominees biography. (A particular nominee may possess other skills, knowledge or experience even though they are not indicated.) As their biographies indicate, the nominees have significant leadership, professional experience, knowledge and skills that qualify them for service on our Board. They represent diverse views, experiences and backgrounds. Each nominee other than the Chairman satisfies independence requirements under the NASDAQ Stock Market Listing Standards and the Boards categorical standards of director independence. All director nominees satisfy the criteria set forth in our Guidelines and possess the personal characteristics that are essential for the proper and effective functioning of the Board.
All Board members are subject to annual election. Our Board currently has ten directors, all of whom are standing for election at the 2013 Annual Meeting. Shareholders elected six of the directors to one-year terms at the 2012 Annual Meeting. The Board appointed the other four directors Messrs. Bollenbach, Booth, and Siewert and Dr. Simmons in October 2012 in connection with the Spin-Off.
The Governance Committee recommended, and the Board nominated, each of the 11 director nominees listed below for election at the Annual Meeting. The terms of all directors elected at the 2013 Annual Meeting will end at the 2014 Annual Meeting or until the directors successor has been duly elected and qualified. Each nominee has consented to his or her nomination for election to the Board.
The chart below presents information regarding each director nominee as of April 1, 2013, including information about each nominees professional experience, educational background and qualifications that led the Board to nominate him or her for election. It also includes information about all public company directorships each nominee currently holds and held during the past five years. In addition to the public company directorships listed below, the nominees also serve on the boards of various charitable, educational and cultural institutions.
The persons named as proxies on each shareholders proxy card will vote the shares represented by the proxy card FOR or AGAINST the director nominees or ABSTAIN from voting, as indicated in the shareholders voting instructions. If a director nominee should become unavailable to serve as a director, the persons named as proxies intend to vote the shares for a replacement nominee designated by the Board. In lieu of naming a substitute, the Board may reduce the number of directors on our Board.
The Board recommends shareholders vote FOR the election of each of these nominees.
We believe that a strong corporate governance framework is essential to the long-term success of our Company. This section describes our governance policies, key governance practices, Board leadership structure and oversight functions.
The Board reviewed our various corporate governance documents and practices in connection with the Companys decision to delist its Class A Common Stock from the New York Stock Exchange and list the Class A Common Stock with NASDAQ beginning on June 26, 2012 and also in preparation for the Spin-Off to provide that they are consistent with Mondelēz Internationals future governance needs and objectives.
Corporate Governance Materials Available on Our Website
We include the following documents in the Corporate Governance section of our website at www.mondelezinternational.com/investor/corporate-governance/index.aspx.
The information on our website is not, and will not be deemed to be, a part of this Proxy Statement or incorporated into any of our other filings with the U.S. Securities and Exchange Commission (SEC).
Governance Guidelines and Codes of Conduct
Corporate Governance Guidelines
The Board has adopted Corporate Governance Guidelines (the Guidelines) that articulate our governance philosophy, practices and policies in a range of areas, including: the Boards role and responsibilities; composition and structure of the Board; establishment and responsibilities of the committees of the Board; CEO and Board performance evaluations; and succession planning. At least annually, the Boards Governance Committee reviews the Guidelines and recommends any changes to the Board. Shareholders and others can access the Guidelines on our website as described above. Please read Key Corporate Governance Practices beginning on page 17.
Code of Business Conduct and Ethics for Non-Employee Directors and Code of Conduct for Employees
We have adopted a Code of Business Conduct and Ethics for Non-Employee Directors (the Directors Ethics Code). It fosters a culture of honesty and integrity, focuses on areas of ethical risk, guides non-employee directors in recognizing and handling ethical issues and provides mechanisms to report unethical conduct. Annually, each non-employee director must acknowledge in writing that he or she has received, reviewed and understands the Directors Ethics Code.
We also have a Code of Conduct that applies to all of our employees. It includes a set of employee policies that cover ethical and legal practices for nearly every aspect of our business. The Code of Conduct reflects our values, the foremost being trust, and contains important rules our employees must follow when conducting business to promote compliance and integrity. The Code of Conduct is part of our global compliance and integrity program that provides support and training throughout
our Company and encourages reporting of wrongdoing by offering anonymous reporting options and a non-retaliation policy. Shareholders and others can access our Code of Conduct on our website at www.mondelezinternational.com/DeliciousWorld/compliance-integrity/index.aspx.
We will disclose in the Corporate Governance section of our website any amendments to our Directors Ethics Code or Code of Conduct and any waiver granted to an executive officer or director under these codes.
Key Corporate Governance Practices
We design our corporate governance practices to enhance the Boards independent leadership, accountability and oversight:
Board Leadership Structure
Our current Board leadership structure consists of:
Combined Chairman and CEO
Our By-Laws provide the Board flexibility in determining its leadership structure, permitting one person to hold the offices of chief executive officer and chairman, and providing that the Board may appoint, and designate the duties of, a lead director. The Board periodically evaluates our leadership structure to determine whether the current structure is in our best interests based on circumstances existing at the time. When determining the leadership structure that will allow the Board to effectively carry out its responsibilities and best represent our shareholders interests, the Board considers various factors, including our specific business needs, our operating and financial performance, industry conditions, the economic and regulatory environment, Board and committee annual self-evaluations, advantages and disadvantages of alternative leadership structures and our corporate governance practices.
The Guidelines currently provide that the Chief Executive Officer serves as Chairman of the Board and an independent director serves as Lead Director. The Board believes that this leadership structure best meets our current and anticipated needs, as it has provided an effective balance of strong leadership and independent oversight during the last several years. Ms. Rosenfeld has served as our Chief Executive Officer and a director since June 2006. In 2007, the Board concluded that Ms. Rosenfeld should also serve as Chairman because of her extensive knowledge of the Company, the food industry and the competitive environment, her leadership experience and her dedication to working closely with the Lead Director and our other directors.
Having one individual serve as both Chief Executive Officer and Chairman benefits Mondelēz International and our shareholders by contributing to the Boards efficiency and effectiveness. The Board believes that the Chief Executive Officer is generally in the best position to inform our independent directors about our global operations and issues important to Mondelēz International. Combining these roles also allows timely communication between management and the Board on critical business matters given the complexity and geographic reach of our business and ensures alignment of our business and strategic plans. At the same time, as described below under Independent Director Leadership and Oversight, we believe that our governance practices ensure that skilled and experienced independent directors provide independent leadership.
Independent Director Leadership and Oversight
Because the Board believes that independent Board leadership is important, it established the role of Lead Director for times when one individual serves as Chairman and Chief Executive Officer. The Lead Director is an independent director who serves as the principal liaison between the Chairman and the other independent directors and has similar responsibilities to those of the Chairman. The Board created the Lead Director position to increase the Boards effectiveness and promote open communication among independent directors. The Lead Director works with the Chairman and other members of the Board to provide independent leadership of the Boards affairs on behalf of our shareholders.
Under the Guidelines, the Lead Director, in consultation with the other independent directors, is responsible for:
Our current Lead Director is Mark D. Ketchum, whom the Board appointed to that position in 2009. The Board believes that Mr. Ketchum is an effective Lead Director due to his independence, leadership and operating experience from formerly serving as President and Chief Executive Officer of a global consumer products company and his corporate governance experience acquired while serving on public company boards.
The Guidelines require that at least 75% of the directors on our Board meet the NASDAQ listing standards independence requirements and provide that the Chairman and Chief Executive Officer generally should be the only member of management to serve as a director. For a director to be considered independent, the Board must affirmatively determine, after reviewing all relevant information, that a director has no relationship with Mondelēz International or any of its subsidiaries that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. To assist in this determination, the Board adopted categorical standards of director independence, including whether a director or a member of the directors immediate family has any current or past employment or affiliation with Mondelēz International or our independent auditors. These categorical standards are listed as Annex A to the Guidelines, which are available on our website at www.mondelezinternational.com/investor/corporate-governance/index.aspx.
The Board determined that, under our categorical standards and NASDAQs listing standards, the following director nominees are independent: Stephen F. Bollenbach, Lewis W.K. Booth, Lois D. Juliber, Mark D. Ketchum, Jorge S. Mesquita, Fredric G. Reynolds, Patrick T. Siewert, Ruth J. Simmons, Ratan N. Tata, and Jean-François M.L. van Boxmeer. In addition, the Board previously determined that Myra M. Hart, Peter B. Henry, Terry J. Lundgren, Mackey J. McDonald and John C. Pope (who served on the Board until October 1, 2012) and Ajaypal S. Banga and Richard A. Lerner (who served on the Board until May 23, 2012) were independent directors. Irene B. Rosenfeld is not independent because she is an employee of Mondelēz International.
In making its determination that Mr. Tata is independent, the Board considered transactions that occurred since the beginning of 2010 between Mondelēz International and Tata Consultancy Services (TCS), a Tata Group company, relating to information technology services. Mr. Tata formerly served as Chairman of Tata Sons Limited (the holding company of the Tata Group), TCS and several other Tata Group companies and currently serves as Chairman of the Tata Trusts. The Board considered the fact that, as of December 28, 2012, Mr. Tata ceased serving as Chairman of TCS, as well as Tata Sons Limited and other Tata Group companies, and that the transactions between Mondelēz International and TCS constituted less than 0.3% of TCSs annual revenues in each of the past three years. The Board further considered the fact that the Tata Trusts are a majority shareholder of Tata Sons Limited, but the Tata Trusts have no authority to exercise, and do not exercise, operational control of Tata Sons Limited or the Tata Group companies. Mr. Tata owns less than 1% of the outstanding shares of Tata Sons Limited.
Oversight of Risk Management
Our business faces various risks, including strategic, financial, legal, regulatory, operational, accounting and reputational risks. Management is responsible for the day-to-day assessment, management and mitigation of risk. Identifying, managing and mitigating our exposure to these risks and effectively overseeing this process are critical to our operational decision-making and annual planning processes. Our Board has ultimate responsibility for risk oversight, but it has delegated primary responsibility for overseeing risk assessment and management to the Audit Committee. Pursuant to its charter, the Audit Committee reviews and discusses risk assessment and risk management guidelines, policies and processes utilized in our Enterprise Risk Management (ERM) approach. Our ERM approach is an ongoing process effected at all levels of our operations and across business units to identify, assess, monitor, manage and mitigate risk. Our ERM approach facilitates open communication between management and the Board to ensure that the Board and committees
understand our risk management process, how it is functioning, the participants in the process, key risks to our business and performance and the information gathered through the approach. The Audit Committee annually reviews our ERM process, as well as the results of our annual ERM risk assessment, to assure the process continues to function effectively.
Annually, the Audit Committee reviews and approves managements recommendation for allocating responsibility for reviewing and assessing key risk exposures and managements response to those exposures to the full Board or retaining those responsibilities. Management provides reports to the Board and Audit Committee, in advance of meetings, regarding these key risks and the actions management has taken to monitor, control and mitigate these risks. Management also attends Board and Audit Committee meetings to discuss these reports and provide any updates. The Audit Committee reports key risk discussions to the Board following its meetings. Board members may also further discuss the risk management process directly with members of management.
In addition to our ERM approach, throughout the year, the Board and each committee review and assess risks related to our business and operations as follows:
The Board frequently discusses our strategic plans, issues and opportunities in light of circumstances in the food and beverage industry and the economic environment. Additionally, the Board devotes several days each year to a highly focused review of our strategic plans, which includes discussion of strategic and operational risks.
The Board believes our current leadership structure enhances its oversight of risk management because our Chief Executive Officer, who is ultimately responsible for our risk management process, is in the best position to discuss with the Board these key risks and managements response to them by also serving as Chairman.
Review of Transactions with Related Persons
The Board has adopted a written policy regarding the review, approval or ratification of related person transactions. A related person transaction is one in which Mondelēz International is a participant, in which the amount involved exceeds $120,000 and in which any related person had, has or will have a
direct or indirect material interest. In general, related persons are the following persons and their immediate family members: our directors, executive officers and shareholders beneficially owning more than 5% of our outstanding common stock. In accordance with this policy, the Governance Committee reviews transactions that might qualify as related person transactions. If the Committee determines that a transaction qualifies as a related person transaction, then the Committee reviews, and approves, disapproves or ratifies the related person transaction. The Committee approves or ratifies only those related person transactions that are fair and reasonable to Mondelēz International and in our and our shareholders best interests. The chair of the Committee reviews and approves or ratifies potential related person transactions when it is not practicable or desirable to delay review of a transaction until a committee meeting. The chair reports to the Committee any transaction so approved or ratified. The Committee, in the course of its review and approval or ratification of a related person transaction under this policy, considers, among other things:
Any member of the Committee who is a related person with respect to a transaction under review may not participate in the deliberations or decisions regarding the transaction.
On January 30, 2013, BlackRock, Inc. (BlackRock), an investment management corporation, filed a Schedule 13G with the SEC notifying the Company that it became a greater than 5% shareholder as of December 31, 2012. During 2012, BlackRock acted as an investment manager with respect to certain investment options under 401(k) plans for our U.S. employees sponsored by our U.S. operating company, Mondelēz International Global LLC. BlackRock was selected as an investment manager for the 401(k) plans by the plans named fiduciary for investment, the Benefits Investment Committee (BIC). Participants in the 401(k) plans pay BlackRocks investment management fees if they invest in investment options managed by BlackRock. During 2012, BlackRock received approximately $330,000 in connection with its investment management fees. The BICs selection of BlackRock for the investment management services it provides the plans was based on its fiduciary determination that BlackRocks expertise met applicable fiduciary standards and that its fees were reasonable and appropriate. The Governance Committee reviewed our relationship with BlackRock and ratified these transactions.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 (the Exchange Act) requires our executive officers, directors and persons who beneficially own more than 10% of our common stock to report to the SEC their ownership of our common stock and changes in that ownership. As a practical matter, our Office of the Corporate Secretary assists our directors and executive officers by monitoring their transactions and completing and filing Section 16(a) reports on their behalf.
We reviewed copies of reports filed pursuant to Section 16(a) of the Exchange Act and written representations from reporting persons that all reportable transactions were reported. Based solely on that review, we believe that during the fiscal year ended December 31, 2012, all required filings were timely made in accordance with the requirements of the Exchange Act, except as follows:
Communications with the Board
Information for shareholders and other parties interested in communicating with the Lead Director, the Board or our independent directors, individually or as a group, is available on our website at www.mondelezinternational.com/Investor/corporate-governance/contact_bod.aspx. Our Corporate Secretary forwards communications relating to matters within the Boards purview to the independent directors; communications relating to matters within a Board committees area of responsibility to the chair of the appropriate committee; and communications relating to ordinary business matters, such as suggestions, inquiries and consumer complaints, to the appropriate Mondelēz International executive or employee. Our Corporate Secretary does not forward solicitations, junk mail and obviously frivolous or inappropriate communications, but makes them available to any independent director who requests them.
BOARD COMMITTEES AND MEMBERSHIP
The Governance Committee considers and makes recommendations to the Board regarding the Boards committee structure and membership. Our Board then designates the committee members and chairs based on the Governance Committees recommendations.
The Board has adopted a written charter for each committee. The charters define each committees roles and responsibilities. All current standing committee charters are available on our website at www.mondelezinternational.com/Investor/corporate-governance/index.aspx.
As mentioned above, the Board of Directors underwent significant changes during 2012 in connection with the Spin-Off. In the following tables, we lay out committee structure and membership during the course of 2012 and indicate the number of times each committee met.
Through October 1, 2012, the Board had four standing committees: Audit, Finance, Human Resources and Compensation, and Governance. From January 1 through the 2012 Annual Meeting, the committee structure and membership was:
January 1 through May 23, 2012
From the 2012 Annual Meeting through the Spin-Off, the committee structure and membership was:
May 23 through October 1, 2012
In anticipation of the Spin-Off, the Governance Committee and Board reviewed the committee structure. The Board decided to eliminate the Finance Committee effective with the Spin-Off and reallocate the Finance Committees responsibilities. The Finance Committee met a total of nine times from January 1 to October 1, 2012.
Current Committee Membership(1)
We expect directors to attend all Board meetings, the Annual Meeting and all meetings of the committees on which they serve. We understand, however, that occasionally a director may be unable to attend a meeting. The Board held 11 meetings in 2012. All directors who served for some or all of 2012 attended at least 75% of the aggregate number of meetings of the Board and all committees on which they served (held during the period that they served). All nine then-incumbent directors attended the 2012 Annual Meeting.
The Board established the Audit Committee in accordance with Section 3(a)(58)(A) of the Exchange Act. The Board determined that all members of the Audit Committee are independent within the meaning of the NASDAQ listing standards and Rule 10A-3 of the Exchange Act. The Board also determined that all Audit Committee members are able to read and understand financial statements in accordance with NASDAQ listing standards and that Lewis W.K. Booth and Fredric G. Reynolds are audit committee financial experts within the meaning of SEC regulations and have financial sophistication in accordance with NASDAQ listing standards. No Audit Committee member received any payments in 2012 from us other than compensation for service as a director.
Under its charter, the Audit Committee is responsible for overseeing our accounting and financial reporting processes and audits of our financial statements. The Audit Committee is directly responsible for the appointment and oversight of our independent auditors, including review of their qualifications, independence and performance.
Among other duties, the Audit Committee also oversees:
The Audit Committee has established procedures for the receipt, retention and treatment, on a confidential basis, of any complaints we receive. We encourage employees and third-party individuals and organizations to report concerns about our accounting controls, auditing matters or anything else that appears to involve financial or other wrongdoing. To report such matters, please e-mail us at: firstname.lastname@example.org.
Our Audit Committees policy, which it reviews annually, is to pre-approve all audit and non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services and other permissible non-audit services. The pre-approval authority details the particular service or category of service that the independent auditors will perform. The Audit Committes policy also requires management to report at committee meetings throughout the year on the actual fees charged by the independent auditors for each category of service.
During the year, circumstances may arise when it may become necessary to engage the independent auditors for additional services not contemplated in the original pre-approval authority. In those instances, the committee approves the services before we engage the independent auditors. If pre-approval is needed before a scheduled committee meeting, the committee delegated pre-approval authority to its chair. The chair must report on such pre-approval decisions at the committees next regular meeting.
During 2012, the Audit Committee pre-approved all audit and non-audit services provided by the independent auditors.
Independent Auditors Fees
Aggregate fees billed for professional services rendered by our independent auditors, PricewaterhouseCoopers LLP, for 2012 and 2011 were:
Governance, Membership and Public Affairs Committee
The Board determined that all of the Governance Committee members are independent within the meaning of the NASDAQ listing standards.
The Governance Committees responsibilities include:
The Governance Committee will consider any candidate whom a shareholder properly presents for election to the Board in accordance with the procedures set forth in the By-Laws. The Governance Committee uses the same criteria set forth in the Guidelines to evaluate a candidate suggested by a shareholder as the Governance Committee uses to evaluate a candidate it identifies, as described above under Item 1. Election of Directors Process for Nominating Directors, and makes a recommendation to the Board regarding the candidates appointment or nomination for election to the Board. After the Boards consideration of the candidate suggested by a shareholder, our Corporate Secretary will notify that shareholder whether the Board decided to appoint or nominate the candidate.
For a description of how shareholders may nominate a candidate for election to the Board at an annual meeting of shareholders and have that nomination included in the proxy statement for that meeting, see 2014 Annual Meeting of Shareholders in this Proxy Statement.
During 2011, the Governance Committee formed a subcommittee of the Governance Committee to assist in addressing director recruitment matters related to the Spin-Off. The directors who served on this subcommittee were: Myra M. Hart, Peter B. Henry and Lois D. Juliber. This subcommittee held one meeting in 2012.
Human Resources and Compensation Committee
Human Resources and Compensation Committee Interlocks and Insider Participation
The Board has determined that all of the directors who served on the Human Resources and Compensation Committee (Compensation Committee) during 2012 are independent within the meaning of the NASDAQ listing standards. None of the Compensation Committees members:
The Compensation Committees responsibilities are set forth in its charter. The Compensation Committees responsibilities include, among other duties:
The Compensation Committees Use of an Independent Compensation Consultant
The Compensation Committee has retained Compensation Advisory Partners, LLC ("Compensation Advisory Partners") since September, 2009 as its independent compensation consultant to assist the Compensation Committee in evaluating executive compensation programs and to advise the Compensation Committee regarding the amount and form of executive and director compensation. The use of a consultant provides additional assurance that our executive and director compensation programs are reasonable, competitive and consistent with our objectives. The consultant is engaged directly by the Compensation Committee, regularly participates in Compensation Committee meetings, including executive sessions of the Compensation Committee that exclude management, and advises the Compensation Committee with respect to compensation trends and best practices, plan design and the reasonableness of compensation grants.
During 2012, Compensation Advisory Partners provided the Compensation Committee advice and services, including:
For the year ended December 31, 2012, Compensation Advisory Partners provided no services to Mondelēz International other than executive and director compensation consulting services to the Compensation Committee. The Compensation Committee determined that Compensation Advisory Partners is independent and that of Compensation Advisory Partners work did not raise any conflicts of interest.
At least annually, the Compensation Committee reviews the types of advice and services provided by Compensation Advisory Partners and the fees charged for those services. Compensation Advisory Partners reports directly to the Compensation Committee on all executive and director compensation matters; regularly meets separately with the Compensation Committee outside the presence of management; and speaks separately with the Compensation Committee chair and other members between meetings as necessary or desired.
Limited Role of Executive Officers in the Determination of Executive Compensation
Each year, the Chief Executive Officer presents her compensation recommendations for each of the other Named Executive Officers (as described under Compensation Discussion and Analysis), her remaining direct reports and other executive officers. The Compensation Committee reviews and discusses these recommendations with the Chief Executive Officer and has full discretion over all recommended compensation actions. The Chief Executive Officer does not make recommendations or participate in deliberations regarding her compensation. Executive officers do not play a role in determining or recommending the amount or form of director compensation.
Analysis of Risk in the Compensation Architecture
Each year, including 2012, the Compensation Committee evaluates whether our compensation designs, policies and practices operate to discourage our executive officers and employees from taking unnecessary or excessive risks. As described below under Compensation Discussion and Analysis, our compensation is designed to incentivize executives and employees to achieve the Companys financial and strategic goals as well as individual performance goals that promote long-term shareholder returns. The compensation design discourages excessive risk-taking by executives and employees to obtain short-term benefits that may be harmful to the Company and our shareholders in the long term. The Compensation Committee uses various strategies to mitigate risk, including:
The Compensation Committee also analyzed our overall enterprise risks and whether our compensation programs could impact individual behavior so as to exacerbate these enterprise risks. The Compensation Committee collaborated with the Audit Committee in this analysis.
In addition to the Compensation Committees evaluation, Compensation Advisory Partners also reviewed our executive and broad-based incentive plans and noted similar terms in our incentive plans that mitigate risk.
In light of these analyses, the Compensation Committee believes that our compensation programs do not create risks that are reasonably likely to have a material adverse effect on Mondelēz International.
COMPENSATION OF NON-EMPLOYEE DIRECTORS
Any director who is a full-time employee of Mondelēz International receives no compensation for service as a director. Currently, Irene B. Rosenfeld is the only director who is an employee of the Company.
We strive to attract and retain highly qualified non-employee directors who will best represent our shareholders interests. In order to ensure that the compensation offered is sufficient to meet this objective, our Compensation Committee annually reviews non-employee director compensation. As in prior years, during 2012 the Compensation Committee used data provided by its independent compensation consultant to benchmark our non-employee director compensation against our Compensation Survey Group (discussed below in the Compensation Discussion & Analysis) and compensation paid to non-employee directors of Fortune 100 companies to consider the appropriateness of the form and amount of non-employee director compensation and to make recommendations to the Board concerning such compensation. Based on the benchmarking, the Compensation Committee determined that current total compensation levels are below median. The Compensation Committee indicated that it would reconsider compensation for non-employee directors in 2013.
Summary of Compensation Elements
The table below summarizes the compensation elements in effect during 2012 for our non-employee directors.
We pay our non-employee directors their cash retainers quarterly. Non-employee directors can defer 25%, 50%, 75% or 100% of their cash retainers into notional unfunded accounts that mirror the investment options under the Mondelēz Global LLC Thrift 401(k) Plan pursuant to the Mondelēz International, Inc. 2001 Compensation Plan for Non-Employee Directors. A non-employee director appointed by the Board during the year receives a prorated retainer based on the number of days remaining in the calendar year following the appointment.
In addition, annually at the Board meeting immediately following our annual meeting of shareholders, the Board grants our non-employee directors stock in the Company. A non-employee director appointed by the Board during the year receives a stock grant upon joining the Board in a prorated amount based on the following ratio: the number of months until the next annual meeting of shareholders over a denominator of twelve months. At the non-employee directors election, he or she may receive the annual stock award in the form of (i) unrestricted shares of our common stock,
subject to a holding period ending six months after the director no longer serves on our Board or (ii) vested DSUs where distribution of shares is deferred until six months after the director no longer serves on our Board. For those non-employee directors who receive DSUs, when dividends are paid, we accrue the value of the dividend paid and issue shares equal to the accrued value six months after the directors departure.
Equity Holding Requirement
To align the interests of our shareholders and our non-employee directors further, we require that they hold shares of our common stock in an amount equal to five times the annual Board retainer (equivalent to $550,000) within five years of becoming a director. If a non-employee director does not meet the stock ownership requirement within the timeline, the Lead Director will consider the directors particular situation and may take any further action as he deems appropriate. As of March 1, 2013, each director who has served for at least five years has met or exceeded this requirement.
Company Matching Charitable Donations at the Direction of a Director
Non-employee directors may also participate in the Mondelēz International Foundation Matching Gift Program on the same terms as our U.S. employees. Under the program, the Mondelēz International Foundation matches up to $15,000 of donations per director, per year, of contributions to 501(c)(3) non-profit organizations.
2012 Non-Employee Director Compensation Table
Non-Employee Director Stock Awards Table
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis (CD&A):
How the Committee Considered the Shareholder Advisory Vote on our 2011 Executive Compensation Program
At the 2012 Annual Meeting of Shareholders, we held our second shareholder advisory vote on NEO compensation. Our shareholders expressed strong support for our fiscal year 2011 executive compensation program with 96.3% of votes cast voting to approve the compensation.
The Committee considered these voting results when designing the 2012 NEO compensation packages. The Committee concluded that the current compensation programs are effectively aligning pay and performance and are promoting long-term shareholder value and did not make any specific program changes as a result of the voting results. Consequently, apart from issuing one time equity grants to our CEO, CFO and one other NEO in connection with their leadership in successfully transforming the company and executing the Spin-Off, the Committee approved only modest design changes to our ongoing compensation programs during 2012. In fulfilling its role, the Committee will continue to consider the results of future shareholder advisory votes as well as shareholder views about our core compensation principles, objectives and program design.
We Employ Sound Compensation Design Principles and Corporate Governance Practices
We believe that our executive compensation design principles and governance practices provide focus, a foundation for success, and clear alignment with shareholder interests. The chart below describes key principles and practices.
SEC rules require us to provide information regarding the following NEOs:
Our Compensation Program Design
The Committee regularly evaluates its compensation philosophy and makes changes it believes are appropriate. As part of the 2012 review, the Committee considered whether changes would be desirable following the Spin-Off and concluded that no changes were necessary. The Committee also determined that the strategies designed to achieve its compensation objectives continue to be appropriate for the Company after the Spin-Off.
Our executive compensation program has four primary objectives:
We design our executive compensation program to achieve these objectives by following these principles and practices:
Pay Competitively, But Not Excessively
Peer Group Approach
Each year, the Committee compares our compensation program with those companies in our Compensation Survey Group. The Committee also uses a Performance Peer Group to analyze the linkage between pay and performance and to determine the Companys relative TSR ranking for the LTIP. As a result of the Spin-Off, the Committee reviewed our Compensation Survey Group and our Performance Peer Group and adjusted both based on the Companys Post Spin-Off characteristics. For 2012, the Committee used the Post Spin-Off Compensation Survey Group to evaluate our pay practices including stock ownership guidelines and perquisites. Pay levels reflected in 2012 (as reported in the tables below) are based on the Pre Spin-Off and Post Spin-Off Compensation Survey Groups depending on timing of pay level decisions. For 2013, the Committee will use the Post Spin-Off Compensation Survey and Performance Peer Groups to evaluate all elements.
Composition and Purpose of the Compensation Survey Group
The Committee annually compares our compensation program with those companies in our Compensation Survey Group to ensure that our compensation program and our target compensation levels are consistent with market practice. This allows us to attract and retain the talent we need to drive superior long-term TSR performance.
Prior to the Spin-Off, we used the following Compensation Survey Group:
The Committee used this peer group to analyze compensation levels for our named executive officers in 2012.
In anticipation of the Spin-Off, the Committee reviewed our Compensation Survey Group and determined it needed adjustment. In making the adjustments, the Committee sought to have the Compensation Survey Group represent our market competitors, based on the Companys post Spin-Off characteristics. The Committee removed those companies with a primary focus similar to our North America grocery business, companies whose revenue significantly decreased following divestitures such that they were no longer good points of comparison, and pharmaceutical companies with significantly lower revenue than ours. The Committee added global, top-tier, high growth consumer products companies, global companies with manufacturing, and global consumer-facing companies.
Through this review process, the Committee developed a Post Spin-Off Compensation Survey Group. It consists of companies within the Consumer Products industry, selected based on the following attributes:
As well as companies outside the Consumer Products industry, included for the following reasons:
The Committees independent compensation consultant, Compensation Advisory Partners, provided independent analysis and advice regarding adjustments to our Compensation Survey Group. At the conclusion of its review, the Committee approved a Post Spin-Off, 21-company Compensation Survey Group (the Post Spin-Off Compensation Survey Group) with median revenues of $31.1 billion. Our revenue size places us above the median of the peer companies. The approved Post Spin-Off Compensation Survey Group is:
Generally, in determining appropriate compensation levels for our NEOs, the Committee reviews compensation levels for similarly situated executives at companies in the Compensation Survey Group. Aon Hewitt provides that compensation data. At the request of the Committee, CAP reviews and evaluates the data that Aon Hewitt provides.
The Committees compensation philosophy is to target total direct compensation, including base salary and annual and long-term incentives, at or near the median of the Compensation Survey Group. Company performance and individual performance will determine whether actual pay received is above or below the Compensation Survey Group median. For 2012, the Committee, using the Pre Spin-Off Compensation Survey Group, targeted a size-adjusted median since the Companys revenues were significantly greater than the median of our peer group. Following the Spin-Off, however, our revenues now approximate the median of the Post Spin-Off Compensation Survey Group and the Committee can therefore use the nominal median to position named executive officer compensation without size-adjusting the data. In general, the target total compensation for the Pre Spin-Off Compensation Survey Group does not differ significantly from the target total compensation for the Post Spin-Off Compensation Survey Group.
Composition and Purpose of the Performance Peer Group
The Committee uses a performance peer group to analyze the linkage between pay and performance and to determine the Companys relative TSR ranking for the LTIP (see discussion below under Long-Term Incentives for a description of how each outstanding performance cycle was treated upon the Spin-Off). Prior to the Spin-Off, the companies in our Performance Peer Group (the Pre Spin-Off Performance Peer Group) were considered to be our market competitors or had been selected primarily on the basis of industry. The Pre Spin-Off Performance Peer Group included the following companies:
In anticipation of the Spin-Off, the Committee reviewed our Pre Spin-Off Performance Peer Group and determined that adjustments were appropriate following the Spin-Off. The Committee removed those companies with a primary focus similar to our North America grocery business and companies whose revenue significantly decreased following divestitures such that they were no longer good points of comparison. The Committee added global, top-tier, high growth consumer products companies. The Committee then approved a new 12-company Performance Peer Group (the Post Spin-Off Performance Peer Group). The Committees independent compensation consultant, Compensation Advisory Partners, also provided independent analysis and advice regarding the Post Spin-Off Performance Peer Group. The historical P/E multiples and growth rates, on average, for the companies in the revised peer group are higher than the companies in the Pre Spin-Off Performance Peer Group and better reflecting our focus on high growth markets and categories.
There is substantial overlap (10 of the 12 companies) between the Post Spin-Off Performance Peer Group and the Post Spin-Off Compensation Survey Group. The main difference between them is that the Post Spin-Off Performance Peer Group companies are primarily food and non-alcoholic beverage companies (9 of the 12 companies in the Performance Peer Group versus 8 of the 21 companies in the Compensation Survey Group) and are included regardless of revenue size or market capitalization.
In considering performance measures for the LTIP, the Committee believes that our financial performance should be compared to a group of primarily food and non-alcoholic beverage companies as our shareholders are likely comparing our financial performance to a similar group of companies when making investment decisions. The Committee believes that this group is less relevant when comparing compensation levels for certain executive positions due to our larger size and complexity relative to several companies included in this group.
Overall Pay Mix
The chart below shows the total compensation mix, on average, for our CEO and other NEOs, based on target awards in 2012, compared with the average of the Compensation Survey Group. Our mix is wellaligned to the mix paid by companies in the Compensation Survey Group. In the case of our CEO, the incentive mix is slightly more weighted towards long-term incentives and less weighted in annual incentives compared to the Compensation Survey Group, consistent with our focus on delivering top-tier sustainable performance over the long-term.
Overview of 2012 Compensation Program
The following table summarizes the elements and program objectives of our 2012 compensation program for executive officers, including NEOs.
Elements of Executive Compensation
Each element of the compensation program is described below and individual compensation decisions are discussed under Compensation Paid to Named Executive Officers in 2012.
Base salary is the principal fixed element of executive compensation. In setting base salary levels for NEOs, the Committee generally targets base salary to be at or near the median of the Compensation Survey Group based on the corresponding executive role. The Committee does also consider a number of other factors when reviewing and setting base salaries for NEOs including: Company performance and the NEOs individual performance, level of responsibility, potential to assume roles with greater responsibility, and experience. The Committee reviews salaries on an annual basis and considers merit increases, which are generally effective April 1, for all executive officers. Base salaries for NEOs for 2012 were generally at or below the median of comparable roles at companies comprising the Compensation Survey Group.
Annual Cash Incentive Program
The Annual Cash Incentive Program (Program) is designed to motivate our employees, including our NEOs, to help us reach our annual financial and strategy goals and to reward them for their contributions toward achieving those goals. The Committee determines each NEOs target and maximum annual incentive opportunity at the beginning of the performance year, and the amount actually awarded under the Program is based on the financial results achieved during the year and the NEOs contribution towards achieving those results.
Program Award Formula
The formula shown below was used to determine actual awards under the Program for our employees, including our NEOs for 2012 performance. Other than base salary, which is discussed above, each element of this formula is discussed below.
2012 Business Unit Ratings
The 2012 Business Unit Rating for the Company under the Program was based on our performance both Pre Spin-Off and Post Spin-Off.
The following are our 2012 financial targets and actual results under the Program that the Committee considered in determining awards for our NEOs:
The following are the targets, actual results and overall business unit ratings that the Committee considered in determining the 2012 awards for Mr. Cofer (responsible for our European operations) and Mr. Khosla (responsible for our Developing Market operations) under the Program:
As discussed above, in evaluating our NEOs performance for 2012 to determine awards under the Program, the Committee used a performance rating methodology which considered our Pre Spin-Off and our Post Spin-Off performance targets and actual results. Because the business unit rating measures performance quantitatively against three key internal measures, the Committee retained discretionary authority to adjust the actual business rating (up or down) by as much as 25 percentage points to recognize factors which are more subjective and therefore less quantifiablesuch as how well we performed based on innovation, portfolio management, talent management and the quality of our results. The Committee did not exercise its discretion to modify the business ratings in determining awards under the Program for 2012.
While we report our financial results in accordance with U.S. GAAP, our financial targets under our incentive programs, including the Program, are based on non-GAAP financial measures. The adjustments to the related GAAP measure and our reasons for using these measures are described in the chart below. (See Exhibit A on page A-1 for additional information.)
Long-term incentive equity grants are designed to align the interests of our executive officers with those of our shareholders. For 2012, the Committee determined that the appropriate mix of grants in our long-term incentive program for senior management, including our NEOs, was 50% performance shares, 25% non-qualified stock options and 25% restricted stock. The same mix has been used since 2008.
Equity Grants Non-Qualified Stock Options and Restricted Stock
With the objective of aligning the interests of our executives and our shareholders, historically the Committee has granted non-qualified stock options (NQSOs) and restricted stock on an annual basis. In 2012, the Committee intended the value delivered in restricted stock be equal to the value delivered in NQSOs. To maintain this balance, based on Black-Scholes valuation, the Committee continued to use a ratio of restricted stock to NQSOs of one to six in 2012. The Committee
maintained this equity mix because it balanced the retention value of restricted stock with the performance aspect of NQSOs. To help retain valued executives, restricted stock grants do not vest until three years after the grant date. The NQSOs vest one-third each year over three years. For non-U.S. employees, the Company grants deferred stock units instead of restricted stock, which have the same three year vesting schedule as restricted stock. Dividends are paid on unvested restricted stock and dividend equivalents are paid on deferred stock units at the same time and rate as dividends are paid on Mondelēz International common stock.
The Committee bases grant ranges on an analysis of competitive market practice, with the midpoint of the equity grant ranges, inclusive of the value of the target performance shares (see LTIPPerformance Shares discussion below), approximately equal to the total long-term incentive median of the Compensation Survey Group. The Committee bases its decision to grant an equity award above or below the midpoint on a qualitative review of the executive officers individual performance and an evaluation of such executive officers potential to assume roles with greater responsibility. Generally, grants are between 50% and 150% of the midpoint.
The table below shows the ranges of grant opportunities for our NEOs on the February 23, 2012 grant date.
All equity grants to our NEOs in 2012 approved by the Committee were within the respective ranges presented above.
Actual equity grants made in 2012 are presented in this Proxy Statement in the 2012 Grants of Plan-Based Awards Table under Executive Compensation Tables.
The date for annual restricted stock and NQSO grants is pre-set on the scheduled date of the Committee meeting immediately following the release of our annual financial results. The exercise price for NQSOs is determined on the date the Committee approves the grants and is the average of the high and low trading prices on that date.
Treatment of Restricted Stock and NQSOs upon Spin-Off
In connection with the Spin-Off, executives outstanding NQSOs and/or restricted shares were treated the same as Company shares with respect to the issuance of equivalent interests in Kraft Foods
Group equity. All terms of the outstanding NQSOs and restricted shares, including all vesting requirements, remained the same.
Restricted Stock: For every three restricted shares held, executives received one Kraft Foods Group restricted share.
NQSOs: In addition to their Company NQSOs, executives received NQSOs for Kraft Foods Group intended to maintain the intrinsic value of their NQSOs as of the Spin-Off.
Special CEO Equity Grant
On December 19, 2012, the Committee granted Ms. Rosenfeld a special equity grant valued at approximately $10,000,000. The value of the award was based on the Committees review of other special awards granted to other chief executive officers after major corporate transformations. Although our Companys transformation was unique to us, the special awards granted to other Chief Executive Officers were instructive in determining the amount and design of her grant. The number of restricted shares and performance-contingent restricted stock units granted was calculated based on the intended value of the grant and the Fair Market Value (average of the high and low stock price on the date of grant) of $25.935.
The Committee intended the grant to reward Ms. Rosenfeld for:
With the advice of its independent consultant, the Committee structured the grant (in size and terms) to ensure that Ms. Rosenfeld continues as the Companys CEO well into the future while further incenting her to continue delivering top-tier returns in the coming years. The award reflects the Boards confidence in Ms. Rosenfelds ability to successfully lead the Company following the Spin-Off and ensure that a long-term management development and senior leadership succession plan is in place.
To accomplish these objectives; the grant has two component elements:
Each unit represents a contingent right to receive one share of the Companys common stock. Except in case of death, disability or change in control where Ms. Rosenfeld is not retained as CEO or Company shares are not convertible into the acquiring entitys share, Ms. Rosenfeld will not receive any award of Company common stock in connection with the performance contingent grant prior to
December 19, 2015 (the three-year anniversary of the grant date). Ms. Rosenfeld will forfeit the applicable portion of the RSUs if the share price hurdle for the applicable tranche of RSUs has not been satisfied prior to the earlier of: 1) December 19, 2018 (the six-year anniversary of the grant date) or, 2) one-year following Ms. Rosenfelds retirement as CEO. She will also forfeit any unvested units as of the date she is removed involuntarily as CEO. Further, Ms. Rosenfeld will forfeit any rights to Company stock in connection with this grant if she voluntarily leaves her position as CEO prior to December 31, 2014, even if share price hurdles have been satisfied for any portion of the RSUs. If the share price hurdle for the third tranche of RSUs is satisfied, Ms. Rosenfeld is required to hold the net shares awarded for at least one year following her leaving the role of CEO.
Special Equity Grant to Select Executives to Recognize Successful Execution of Spin-Off
On November 13, 2012, the Committee approved special one-time equity grants to certain select executives to recognize their leadership roles in the success of the Spin-Off. Two of our NEOs received special equity grants:
The restrictions on the shares lapse on November 13, 2014, as long as Ms. West and Mr. Brearton continue to be active employees of the Company.
Long-Term Incentive Plan Performance Shares
The Committee designed the LTIP to motivate executive officers to achieve long-term financial goals and top-tier shareholder returns. The Committee sets performance goals for a three year period relating to a grant. The grant made in 2012 is for the three year period ending December 31, 2014. At the end of the three year period, the Committee will only award Company shares if we meet or exceed performance thresholds set at the beginning of the cycle. The number of shares awarded to an executive officer will depend on the achievement of key internal financial measures and total shareholder return results relative to our Performance Peer Group. No individual performance factor is used in the calculation, and no dividends or dividend equivalents are paid or earned on unvested performance shares for grants made prior to 2013. For the grant made in early 2013 for the 2013-2015 performance cycle, the Committee will award dividend equivalents on shares earned for the performance cycle. Any dividend equivalents will accrue during the performance period and be paid out in cash as of the award date for the performance cyclewhich generally occurs in the first quarter following the end of the performance cycle, provided shares are awarded.
The Committee uses the following formula to determine actual awards for participants, including our NEOs. Other than base salary, each element of this formula is discussed below.
Treatment of Performance Share Units upon Spin-Off
In order to avoid decreasing the value of participants LTIP performance share units solely as the result of the Spin-Off, the number of unvested target performance share units allocated to each LTIP participant for the 2010 2012, 2011 2013 and 2012 2014 performance cycles was adjusted by a conversion ratio of 1.5266. This adjustment reflects that participants did not receive any interest in Kraft Foods Group with respect to their performance share units in the LTIP.
2012 2014 LTIP Performance Cycle
Treatment of 2012-2014 Performance Cycle Upon Spin-Off: Any award made for the 2012 2014 performance cycle will be based on a weighted average performance rating that includes the Companys performance during the Pre Spin Period (January 1, 2012 September 30, 2012) and its performance during the Post Sppin Period (October 1, 2012 December 31, 2014). The Committee also determined to continue using the same measures and weightings of operational goals and relative TSR goals. However, the targets have been adjusted to reflect our Post Spin-Off attributes. With regard to determining relative TSR performance, the Pre Spin-Off Performance Peer Group was used to assess results until the Spin-Off. For the Post Spin-Off Period, relative TSR performance will be assessed against the Post Spin-Off Performance Peer Group.
2011 2013 LTIP Performance Cycle
Treatment of 2011-2013 Performance Cycle Upon Spin-Off: Any award made for the 2011 2013 performance cycle will be based on a weighted average performance rating that includes the Companys performance during the Pre Spin Period (January 1, 2011 September 30, 2012) and its performance during the Post Spin Period (October 1, 2012 December 31, 2013). The Committee also determined to continue using the same measures and weightings of operational goals and relative TSR goals. However, the targets have been adjusted to reflect our Post Spin-Off attributes. With regard to determining relative TSR performance, the pre-Spin-Off Performance Peer Group was used to assess results until the Spin-Off. For the Post Spin-Off Period, relative TSR performance will be assessed against the Post Spin-Off Performance Peer Group.
2010 2012 LTIP Performance Cycle
Each of our NEOs, with the exception of John Cahill, participated in the 2010 2012 LTIP. In 2010, the Committee set the performance cycle at three years; however, at the December 2011 Committee meeting, the period was shortened to 33 months (January 1, 2010 September 30, 2012) due to the Spin-Off. Following the Spin-Off, the Committee determined that the LTIP rating for the Pre Spin-Off Period was 160%, and awarded shares based on this rating. Because the performance period was set to end within three months of the Spin-Off, the Committee truncated the performance cycle so that the award would be based solely on the Companys performance during the 33-month Pre Spin-Off Period. The Committee applied time-based vesting for the remaining period.
Business Performance Rating and Awards for 2010-2012 Performance Cycle
The following chart reflects the key financial measures, weightings and performance standards that the Committee set for the 2010 2012 performance cycle. It also reflects our actual performance for the cycle and the resulting performance rating that the Committee approved for determining the final awards for the cycle.
In evaluating our performance for the cycle, the Committee determined that we exceeded our targets for Organic Net Revenue Growth and Operating EPS Growth. Our TSR for the performance cycle significantly exceeded our target. Because the Committee determined that the performance rating for the performance cycle comported with its overall evaluation of our performance and economic conditions, the Committee did not exercise its discretion to adjust the final performance ratings.
Based on target awards as a percent of salary and the business performance rating of 160% of target, the chart below shows the share awards (before taxes) for each of our NEOs.
As Executive Chairman, Kraft Foods North America and due to the date of his hiring, Mr. Cahill was not eligible for a LTIP performance share award.
Mr. Vernon is no longer employed by the Company following the Spin-Off, and therefore, did not receive an award under our 2010-2012 LTIP.
Requiring Stock Ownership
To further align the interests of our senior management (approximately 150 executives), including our NEOs, with those of our shareholders, and to incent the executives to focus on shareholder interests, the Committee requires each executive to acquire and hold a significant amount of our common stock. The following chart summarizes our stock ownership and holding requirements. Our stock ownership requirements are comparable to, or are more stringent than, stock ownership requirements than the majority of our Compensation Survey Group, and we monitor compliance with these levels regularly.
Special Holding Requirements Following Spin-Off
For the first full year after the Spin-Off, our continuing NEOs have agreed to hold 100% of net Kraft Foods Group shares acquired through stock option exercises or the vesting of restricted stock awards.
Voluntary Non-Qualified Deferred Compensation
U.S. Deferred Compensation Plan
In 2012, certain U.S. senior management (approximately 80 employees), including our NEOs, were eligible for the Mondelēz Global LLC Executive Deferred Compensation Plan (MEDCP), a voluntary non-qualified deferred compensation plan. The program is similar to those provided to executive
officers at many of the companies within the Compensation Survey Group and is provided for retention and recruitment purposes. The deferred compensation plan provides an opportunity for executives to defer, on a pre-tax basis, up to 50% of their salary and up to 100% of their award under the Annual Cash Incentive Program. The amounts deferred may be invested among eight notional investment options under the plan.
U.S. Supplemental Benefits Plan
We also provide an unfunded non-qualified plan, the Mondelēz Global LLC Supplemental Benefits Plan (Supplemental Plan), for eligible U.S. employees. The Supplemental Plan provides benefits which are not able to be provided under the tax-qualified Mondelēz Global LLC Retirement Plan (Retirement Plan) or Mondelēz Global LLC Thrift Plan (Thrift Plan) due to an employees compensation exceeding the tax-qualified plan compensation limit under Section 401(a)(17) of the Internal Revenue Code of 1986, as amended (the Code), an employees election to defer compensation under the MEDCP or under the Supplemental Plan, or a Retirement Plan participants benefit exceeding the limits under Section 415 of the Code.
Our NEOs receive limited perquisites, including a car allowance, a financial counseling allowance and, for the CEO only, personal use of the corporate aircraft. For security and personal safety reasons, we require Ms. Rosenfeld to use the corporate aircraft for both business and personal travel. This allows Ms. Rosenfeld to be more productive and efficient when she travels. Taxes on all perquisites are the sole responsibility of the NEO. The types and total costs of perquisites we offer are similar to the types and costs offered within the Compensation Survey Group. The Committee believes that these perquisites are important for retention and recruitment purposes. Specific executive officer perquisites are listed in the footnotes to the 2012 Summary Compensation Table under Executive Compensation Tables.
Post-termination compensation consists of both separation pay and retirement benefits. We do not have employment agreements with any of our NEOs as these individuals, including Ms. Rosenfeld, are at will employees.
Change in Control Plan
We have a Change in Control Plan (the CIC Plan) for senior executive officers. The provisions in the CIC Plan are consistent with similar plans maintained by companies in the Compensation Survey Group, including eligibility, severance benefit levels and treatment of cash and equity incentive compensation. The separation payments are structured to help assure that key personnel, including our NEOs, would be available to assist in the successful transition following a change in control and provide a competitive level of severance protection if the executive officer is involuntarily terminated without cause following a change in control. Under the CIC Plan, restricted stock and stock options only vest upon a change in control if the participant is terminated without cause or resigns for good reason within two years following the change in control or if the acquiring entity does not assume the awards (double trigger). In 2009, we eliminated the excise tax gross up for all executives who first become eligible to participate in the CIC Plan after December 31, 2009. In 2012, the CIC Plan was amended to eliminate excise tax gross-ups for all participants effective January 1, 2013even those who had first become eligible to participate in the CIC Plan before January 1, 2010.
The Spin-Off did not constitute a Change in Control for purposes of any benefit plan maintained by the Company or any of our subsidiaries or affiliates.
The severance arrangements and other benefits provided under the CIC Plan (as well as the equity treatment upon certain separations in the event of a change in control) are described under Executive Compensation Tables Potential Payments upon Termination or Change in Control.
Non-Change in Control Severance Agreements
We do not have individual severance or employment agreements with any of our NEOs. We do maintain a broad-based severance plan in the United States that provides for certain severance payments in the event of job elimination or a workforce reduction. Similar plans are generally available in other countries where we have employees. The plans facilitate recruitment and retention, as most of the companies in the Compensation Survey Group offer similar benefits to their executives. The severance arrangements and other benefits provided for under these severance plans are described under Executive Compensation Tables Potential Payments upon Termination or Change in Control.
All of our NEOs are eligible for U.S. employee benefit plans. The sponsor of the employee benefits plans covering our NEOs is Mondelēz Global LLC, a wholly owned subsidiary of Mondelēz International, Inc. which is our operating company in the U.S. In the U.S., employees hired on or after January 1, 2009 are not eligible to participate in the Retirement Plan or the defined benefit portion of the Supplemental Plan. U.S. employees hired on or after January 1, 2009, are eligible to receive an enhanced defined contribution benefit under the Thrift Plan. Based on the significant cost volatility associated with continuing a defined benefit pension plan, the Retirement Plan was closed to new participants after December 31, 2008. In addition, accruals under the Retirement Plan for current participants will cease after 2019. We provide Ms. Rosenfeld with an enhanced pension benefit that credits her pension service for the period of time that she was not employed by us between 2004 and 2006. We provided this enhanced pension benefit to Ms. Rosenfeld because she forfeited her right to a pension benefit at her previous employer when she rejoined our employment. This benefit was part of a broader incentive program to help encourage her to return to become our CEO. Additional details of this benefit are presented in the 2012 Pension Benefits Table and the accompanying narrative to the table under Executive Compensation Tables.
The Committee believes that the U.S. tax-qualified Retirement Plan, Thrift Plan and the non-qualified Supplemental Plan are integral parts of our overall executive compensation program. The supplemental defined contribution program is important because it encourages executive officers, including our NEOs, to save for retirement. The Committee believes that our NEOs should be able to defer the same percentage of their compensation, and receive the corresponding notional matching contributions, as all other employees, without regard to the compensation limit established by the Code, for tax-qualified plan contributions.
Compensation Paid to Named Executive Officers in 2012
There are no material differences in compensation policies with respect to each NEO. We designed each of our NEOs target compensation levels to be at or near the Compensation Survey Groups size-adjusted median (or median in 2012). Actual compensation will be dependent on both business and individual performance in any given year.
Below are the specific compensation actions for each of our NEOs in 2012.
Base Salary Increase
Ms. Rosenfeld did not receive a base salary increase in 2012.
Actual Annual Cash Program Award
The Committee determined Ms. Rosenfelds annual cash incentive award for 2012 in accordance with the 2012 Annual Cash Incentive Program. Based on our performance relative to target (business unit rating of 91%) and Ms. Rosenfelds individual performance, Ms. Rosenfelds actual annual incentive
award was 91% of her target in 2012. For 2012, the Committee considered the following factors in determining Ms. Rosenfelds individual performance assessment:
Equity Grant (Stock Options and Restricted Stock)
As part of our annual equity grant program, on February 23, 2012 the Committee granted Ms. Rosenfeld 87,000 shares of restricted stock and 521,950 non-qualified stock options (combined value on grant date of $6,611,000). This equity grant along with the 2012 2014 LTIP opportunity is above the size-adjusted median of our Pre Spin-Off Compensation Survey Group and above the median of our Post Spin-Off Compensation Survey Group. As discussed under Long-Term Incentives, on December 19, 2012 the Committee granted Ms. Rosenfeld a special equity award of 77,116 restricted stock shares and 308,464 performance-contingent restricted stock units.
Applying the 160% rating for the 2010-2012 LTIP performance cycle, Ms. Rosenfeld was awarded 407,381 shares of Company common stock.
Defined Benefit Accrual
The present value of Ms. Rosenfelds retirement benefit increased as measured at the end of 2012. The factors leading to the increase over 2011 were/are as follows:
There were no changes to the terms of the plan for Ms. Rosenfeld in 2012.
Other Named Executive Officers
The chart below shows specific compensation actions for each of the other NEOs in 2012 followed by a description of these decisions:
Base Salary Increase
Mr. Breartons salary increase was commensurate with Company guidelines for increases, taking into account his individual performance assessment and external market positioning. His salary is below the median of our Post Spin-Off Compensation Survey Group for chief financial executives.
Actual Annual Cash Program Award
In 2012, Mr. Breartons individual performance rating primarily related to his delivering solid financial results and his significant leadership role in successfully executing the Spin-Off while managing ongoing operations.
Equity Grant (Non-Qualified Stock Options and Restricted Stock)
Mr. Brearton received an annual equity grant on February 23, 2012. This equity grant, along with the 2012 2014 LTIP target opportunity, is below the median of our Post Spin-Off Compensation Survey Group. He received an additional equity grant on November 13, 2012 for his leadership in helping to execute the Spin-Off.
Base Salary Increase
Mr. Cofers received both a merit salary increase in April 2012 and an increase on the date of the Spin-Off (October 1, 2012) to improve his market positioning. His salary is below the median of our Post Spin-Off Compensation Survey Group.
Actual Annual Cash Incentive Program Award
In 2012, Mr. Cofers individual performance rating primarily related to his leadership in delivering solid business results across the European region, including top-tier organic net revenue growth culminating in our 12th consecutive quarter of growth at the end of the year, despite tough European Union economic conditions.
Equity Grant (Non-Qualified Stock Options and Restricted Stock)
This equity grant, along with the 2012 2014 LTIP target opportunity, is below the median of our Post Spin-Off Compensation Survey Group.
International Assignment Payments
Mr. Cofer, as a U.S. expatriate, received payments in 2012 in conjunction with his international assignment based in Switzerland. These payments to Mr. Cofer were similar to the types of payments generally made to other employees who accept an international assignment with the Company. The payments are designed to facilitate the relocation of employees to positions in other countries by covering expenses over and above those that employees accepting assignments would have incurred had they remained in their home countries. These payments include housing expenses, cost of living adjustment, schooling and travel expenses. Similarly, the tax payments are made pursuant to our International Assignment Policy, which is designed to cover the additional taxes that an employee incurs due solely to the international assignment.
Base Salary Increase
Mr. Khosla received both a merit salary increase in April 2012 and a promotional increase at the time he assumed the role of Executive Vice President and President, Developing Markets. His salary is above the median of our Post Spin-Off Compensation Survey Group.
Actual Annual Cash Incentive Program Award
In 2012, Mr. Khoslas individual performance rating primarily related to Developing Markets slower revenue growth, which was hampered by executional issues in Brazil and Russia in the third quarter.
Equity Grant (Non-Qualified Stock Options and Restricted Stock)
This equity grant, along with the 2012 2014 LTIP target opportunity, is at the median of our Post Spin-Off Compensation Survey Group.
Mr. Khosla retired from Mondelēz International effective April 1, 2013. The Company has engaged him as a consultant for the balance of 2013.
On December 19, 2012, on terms approved by the Compensation Committee, we entered into an Agreement Upon Retirement and General Release (the Agreement) with Mr. Khosla to provide him with additional benefits following his retirement. Although we typically do not do so for similarly situated retiring employees, we provided additional benefits in consideration of Mr. Khoslas agreement to certain restrictive covenants. Specifically, under the terms of the Agreement, Mr. Khosla receives a pro-rata 2013 Management Incentive Plan payment for the period from January 1, 2013 through March 31, 2013, based upon his individual target and the actual 2013 business unit rating. With regard to performance shares awarded under the LTIP, based upon the respective actual ratings determined by the HRCC, Mr. Khoslas target performance shares will be adjusted to equal two-thirds of the original target shares granted for the 2011 2013 LTIP, and one-third of the original target shares granted for the 2012 2014 LTIP. Under the terms of the 2005 Mondelez International Amended and Restated Performance Incentive Plan, upon his retirement, Mr. Khosla will forfeit his unvested Mondelez International restricted stock awards, granted in 2011 and 2012. However, if Mr. Khosla complies with all of the restrictive covenants, the Company will replace the forfeited restricted stock awards with the equivalent value of deferred stock award units that vest in accordance with a specified vesting schedule. The Kraft Foods Group restricted stock awarded Mr. Khosla in 2011 and 2012 vested on March 31, 2013.
On December 19, 2012, the Company also entered into a Consulting Agreement with Mr. Khosla. Under the Consulting Agreement, Mr. Khosla will provide consulting services in the leadership development arena from April 1, 2013 to December 31, 2013. For 25 days of consulting services, we agreed to pay Mr. Khosla a monthly retainer of $13,888.89 from April 2013 to December 2013. If Mr. Khosla provides consulting services in excess of 25 days, we will pay him a daily rate of $5,000.00. We will reimburse Mr. Khosla for any reasonable expenses connected with his consulting services.
Base Salary Increase
Ms. West did not receive a salary increase in 2012. Her position did not have an appropriate match within the Post Spin-Off Compensation Survey Group; however, her salary is well-positioned based on her responsibilities, performance and tenure as well as other factors in comparison to her internal peers.
Actual Annual Cash Incentive Program Award
In 2012, Ms. Wests individual performance rating primarily related to her role in building stronger marketing capabilities, improving the innovation pipeline, advancing our global category model and strategies and being a key leader in forming the two new companies in connection with the Spin-Off.
Equity Grant (Non-Qualified Stock Options and Restricted Stock)
Ms. West received an annual equity grant on February 23, 2012. She received an additional equity grant on November 13, 2012 for her impact and effort in successfully executing the Spin-Off. Her position did not have an appropriate match within the Compensation Survey Group; however, her equity grants, along with the 2012-2014 LTIP target opportunity, are well-positioned based on her responsibilities, performance and tenure as well as other factors in comparison to her internal peers.