Mondelez International, Inc. DEF 14A 2017
Documents found in this filing:
SECURITIES AND EXCHANGE COMMISSION
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March 28, 2017
Dear Fellow Shareholders:
Since we spun off our North American grocery business in 2012 and established Mondelēz International, the world, and our industry, have undergone a period of unprecedented change. 2016 was yet another example.
During the year, we successfully navigated an extraordinarily volatile and uncertain environment slower GDP growth globally, especially in emerging markets, currency and commodity volatility, market shocks like the Brexit vote and demonetization in India, as well as complex developments in the political landscape, including a growing backlash against globalization. Through it all, we never lost sight of our vision to build the best snacking company in the world.
In times of rapid change like these, were acting with a sense of urgency to control what we can and create contingencies for what we cannot. Last year, we continued to sharpen our focus on our core snack categories, our Power Brands and key geographies. We also continued to drive down costs by delivering strong net productivity and improving operational efficiencies throughout the business. Through these actions, we generated the fuel needed to continue to invest for sustainable growth.
While were encouraged by our 2016 performance, we also acknowledge that our top-line growth is not yet where we want it to be. Some of this is due to factors outside of our control, e.g., a strong dollar, emerging markets GDP, but some is also attributable to mixed execution on our part or deliberate tradeoffs to make our business more profitable. Not all of our actions will pay off immediately, but we will continue to act boldly and decisively to best position our business for profitable growth over the long term.
More than ever, Im convinced that our results underscore our ability to drive both top- and bottom-line growth. And while todays market realities may present some near-term hurdles, we remain confident in our ability to deliver on our commitments.
As we prepare for our Annual Meeting of Shareholders, Id like to share some highlights of where weve been and where were going.
DELIVERING COMMITMENTS IN A SLOW-GROWTH WORLD
Im proud that we delivered another year of solid results, and I give tremendous credit to my colleagues around the world for their passion, their commitment and their performance.
WERE BUILDING A COMPANY THAT WILL THRIVE
Our strategy is guided by our belief that the best companies have been and will continue to be those with the brands, platforms and capabilities to create sustainable value for shareholders. With our advantaged assets and capabilities, we believe were one of the few industry players with the potential to deliver strong top- and bottom-line growth over the long term.
Were executing on three fronts:
Focus Our Portfolio
We continue to take actions to focus our portfolio on our advantaged snacks categories, which now represent approximately 85 percent of our net revenues, and our Power Brands, like Oreo, belVita, Cadbury Dairy Milk, Milka and Trident, which account for nearly 70 percent of our global revenues. Additionally, we continue to seek opportunities to enhance our capabilities and increase our geographic reach. Last year, we successfully integrated the Kinh Do snacks business, enabling growth in our $200 million Vietnam business, and we recently announced the divesture of our grocery business in Australia and New Zealand. We also expanded the flexibility and capacity of our allergy-friendly Enjoy Life brand, with the opening of a new, state-of-the-art U.S. manufacturing facility. This increased capacity enabled our recent expansion into the U.K. and Australia.
Cost consciousness has become part of our DNA, and were full steam ahead on cost-reduction initiatives that will drive margin expansion. Last year, we delivered best-in-class net productivity thanks to our supply chain reinvention program, while zero-based budgeting and our global shared services initiatives continued to provide meaningful overhead cost savings. These cost savings not only fueled our outstanding shareholder returns, but also enabled us to continue to invest for future growth. Weve demonstrated our ability to deliver in tough times, and this strong execution gives me great confidence in our ability to deliver on our 17 to 18 percent Adjusted Operating Income margin target in 2018.(3)
Invest for Growth
The underlying trends and market dynamics that make snacking attractive globally align well to our strengths. Were not deterred by the short-term challenges facing our industry and see tremendous growth opportunities ahead of us. We, therefore, continue to leverage our advantaged global footprint and make the necessary investments in our Power Brands, innovation platforms, white-space expansions and route-to-market capabilities so that were well-positioned to accelerate growth as market conditions improve.
AS OUR CONSUMERS AND CUSTOMERS CHANGE, WERE CHANGING TOO
Its no secret: significant global power shifts are redefining the way our consumers live, eat and shop. But were not standing on the sidelines. Were on the field, actively analyzing consumer behavior and the impacts of our tactics and investments, and moving quickly and decisively to act on what we learn. Were following three strategies to accelerate growth.
Contemporizing our core business also means connecting consumers with our iconic brands through bigger, stronger and more disruptive ideas. As we generate more cost savings, were increasing our marketing investments to bring our spending to leadership levels across our categories.
Filling Key White Spaces
Were expanding our Power Brands and innovation platforms into new geographies and new consumer demand spaces to make our brands available where were underrepresented today. Nowhere is this more important than in the rapid growth of the well-being trend. Everywhere, people have become more attentive to their health and food choices. So, were renovating our existing products and introducing new ones that fit how consumers define wellness today.
Last year, among other initiatives, we launched GOOD THiNS, a delicious snack with no artificial colors and flavors, no high fructose corn syrup and no partially hydrogenated oils. Were pleased that it was recently named the No. 1 new snacking brand in the U.S.!(4)
In addition, we also expanded our products into a number of geographic white spaces last year. Were seeing early success from our launches of Milka chocolate in China and the repatriation of our Nabisco biscuit trademarks in Japan. We made a big splash into the $14 billion U.S. chocolate market at the end of last year with the introduction of Milka Oreo chocolate candy bars and Green & Blacks premium chocolate.
Beyond eCommerce, were also boosting our presence in higher growth brick-and-mortar channels, including discounters and convenience stores in developed markets as well as traditional trade outlets in emerging markets.
GROWING OUR POSITIVE IMPACT ON THE WORLD AROUND US
Embedding Sustainability in Our Agricultural Sourcing
At Mondelēz International, our growth is directly linked to enhancing the well-being of the people who make and enjoy our products, the communities we serve and our planet as a whole. Weve launched innovative, industry-leading programs in key commodities like cocoa, wheat and palm oil.
With respect to wheat production, our Harmony program promotes biodiversity and good environmental practices across Europe. The number of wheat farmers committed to follow Harmony agricultural practices covering the cultivation process from seed to crop continues to grow. The initial group of 68 farmers in France is now a partnership of more than 1,700 farmers across the continent.
In palm oil, we took steps last year to advance our goal to make sustainable palm oil the mainstream option, based on the principles that production should be on legally held land, not lead to deforestation or loss of peat land, respect human rights and not use forced or child labor. As part of our updated Palm Oil Action Plan, we laid out new milestones and requirements for suppliers to work toward a sustainable supply of palm oil. Key new provisions require suppliers to map and assess the risk for all supplying mills on Global Forest Watch, provide assurance that no deforestation occurs on their own concessions and exclude third-party suppliers who do not immediately cease deforestation and work with recognized third-party experts to protect labor rights.
We recognize concerns for the welfare of egg-laying chickens and, last year, we announced our decision to fully transition to cage-free eggs in the United States and Canada by 2020 and in Europe by 2025. This move followed years of progress in sustainable and responsible sourcing.
Helping Consumers Make Mindful Choices with Clear Nutrition Labeling
To make informed, mindful decisions for themselves and their families, consumers need the right nutritional information delivered in a simple and straightforward manner. Were committed to helping our consumers be mindful of how many calories they are taking in and are working to provide clear information about our snacks.
In the U.S., were part of SmartLabel, an initiative created by manufacturers and retailers to enable consumers to get additional details about our products. As such, this year, we were one of the first companies to launch a SmartLabel app, providing in-store, on-the-spot access to detailed product information for many of our snacking products on smartphones.
In Europe, we recently announced our support for a pan-European color-coded front-of-pack labeling plan in response to consumer demand for better clarity and more understandable nutritional information. Well be working with five other multinationals to put in place a robust European approach to help consumers make balanced and mindful choices.
THE PATH AHEAD
In 2016, our advantaged business model enabled us to deliver another year of Adjusted OI margin expansion, Adjusted EPS growth and strong capital returns. Im proud of and inspired by our talented colleagues around the world and proud of our management team for successfully navigating through another challenging environment and continuing to deliver more moments of joy to all of our stakeholders.
Snacking remains an attractive space for growth. Its a $1.2 trillion market, and while near-term growth may be muted, the underlying trends indicate considerable runway for our categories to expand further.
But I also know that we must do more if we want to be the best snacking company in the world. So when the macro picture improves and were confident it will the foundation were laying today will position us to leverage the investments weve made to deliver balanced and sustainable growth on both the top and bottom lines.
On behalf of our leadership team and our Mondelēz International colleagues around the world, I thank you for another year of support of our company, and for your belief in our future.
This letter to shareholders contains a number of forward-looking statements. Words, and variations of words, such as will, expect, believe, would, position, deliver, commitment, target and similar expressions are intended to identify our forward-looking statements, including, but not limited to, statements about: our future performance, including our future revenue growth, earnings per share and margins; execution of our strategy, including our growth strategies; category growth; market conditions; new products; innovation; our investments and the results of those investments; growth in and revenues from e-commerce; our well-being initiatives; shareholder value; and our outlook, including 2018 Adjusted Operating Income margin. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control, which could cause our actual results to differ materially from those indicated in our forward looking statements. Such factors include, but are not limited to, risks from operating globally including in emerging markets; changes in currency exchange rates, controls and restrictions; continued volatility of commodity and other input costs; weakness in economic conditions; weakness in consumer spending; pricing actions; unanticipated disruptions to our business; competition; the restructuring program and our other transformation initiatives not yielding the anticipated benefits; changes in the assumptions on which the restructuring program is based; and tax law changes. Please also 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. Mondelēz International disclaims and does 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 2017 ANNUAL MEETING OF SHAREHOLDERS
March 28, 2017
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 17, 2017
Mondelēz International, Inc.s Proxy Statement and Annual Report on Form 10-K for the year ended
December 31, 2016 are available at http://materials.proxyvote.com/609207.
In this Proxy Statement Summary and throughout the Proxy Statement, we, us, our, the Company and Mondelēz International refer to Mondelēz International, Inc.
This summary highlights select information contained elsewhere in this Proxy Statement. You should read the entire Proxy Statement carefully before voting and consider all information in the Proxy Statement. For more complete information regarding the Companys 2016 performance, please see the Companys Annual Report on Form 10-K for the year ended December 31, 2016 (the 2016 Form 10-K).
2017 Annual Meeting of Shareholders (the Annual Meeting)
Items of Business
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ITEM 1. Election of Directors Nominees (Page 9 of this Proxy Statement)
The Board recommends a vote FOR each of the 13 Director Nominees listed below
The Governance, Membership and Public Affairs Committee (the Governance Committee) recommended and the Board of Directors (the Board) nominated each of the 13 incumbent directors listed here. The terms of all directors elected at the Annual Meeting will end at the 2018 Annual Meeting of Shareholders or when a directors successor has been duly elected and qualified. Additional information about the director nominees is provided under Election of Directors Director Nominees for Election at the Annual Meeting.
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Board Composition: Competencies, Diversity, Refreshment and Tenure
The composition of the Board taken as a whole enables the Board to represent effectively all shareholders. All 13 director nominees have the personal attributes including integrity, sound business judgement and vision necessary to establish a competent, ethical and well-functioning board. In addition, the individual director nominees have a variety of backgrounds and experiences that provide the Board with the key competencies needed for the Board to fulfill its current and future obligations.
Shareholders can find more information regarding the process for nominating directors, Board composition and the director nominees under Election of Directors Process for Nominating Directors and Director Nominees for Election at the Annual Meeting beginning on page 9 of this Proxy Statement.
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Corporate Governance Highlights (Pages 19 and 36 and 91 of this Proxy Statement)
We believe that a strong and balanced corporate governance framework is essential to the Companys long-term success because it promotes the long-term interests of shareholders, accountability and trust in the Company. We highlight here key aspects of the Companys corporate governance framework. Shareholders can find additional detail under Corporate Governance beginning on page 19 of this Proxy Statement under Compensation Discussion and Analysis Our Executive Compensation Design Principles and Governance Practices Reflect Best Practices to Protect and Promote our Shareholders Interests on page 36 of this Proxy Statement, and under 2018 Annual Meeting of Shareholders on page 91.
ITEM 2. Ratification of the Selection of PricewaterhouseCoopers LLP as Independent Registered Public
Accountants for Fiscal Year 2017 (Page 75 of this Proxy Statement)
The Board recommends a vote FOR this Proposal
As a matter of good governance, we are asking our shareholders to ratify the Audit Committees selection of PricewaterhouseCoopers LLP as the independent registered public accountants for the year ending December 31, 2017. We provide information on PricewaterhouseCoopers LLPs fees in 2016 and 2015 on page 29 of this Proxy Statement.
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ITEM 3. Advisory Vote to Approve Executive Compensation (Page 76 of this Proxy Statement)
The Board recommends a vote FOR this Proposal
The Human Resources and Compensation Committee (the Compensation Committee) has four primary goals for our executive compensation program:
We design our executive compensation program to achieve these goals by:
2016 Executive Compensation Reflected the Performance of our NEOs and the Company
You can find detailed information about our compensation programs and decisions in the Compensation Discussion and Analysis beginning on page 36 and Executive Compensation Tables beginning on page 60 of this Proxy Statement.
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ITEM 4. Advisory Vote on the Frequency of Future Advisory Votes to Approve Executive Compensation (Page 77 of this Proxy Statement)
The Board recommends a vote for annual (ONE YEAR) frequency
The Board recommends that shareholders vote to continue annual (ONE YEAR) advisory votes to approve executive compensation (commonly known as say-on-pay votes). The Board believes that annual advisory say-on-pay votes provide the Company timely, direct shareholder input regarding our compensation philosophy, policies and practices. An annual (ONE YEAR) advisory say-on-pay vote is consistent with our practice of seeking input from and regularly engaging with our shareholders on corporate governance matters and our executive compensation program.
In accordance with U.S. Securities and Exchange Commission (SEC) rules, this Proxy Statement includes two shareholder proposals.
ITEM 5. Report on Non-Recyclable Packaging (Page 79 of this Proxy Statement)
The Board recommends a vote AGAINST this Shareholder Proposal
ITEM 6. Create a Committee to Prepare a Report Regarding the Impact of Plant Closures on Communities and Alternatives (Page 83 of this Proxy Statement)
The Board recommends a vote AGAINST this Shareholder Proposal
Other Matters that may be Presented at the Annual Meeting
Other than Items 1 through 6 described in this Proxy Statement, we do not expect any additional matters to be presented for action at the Annual Meeting. We described the requirements for shareholders to properly submit proposals and nominations at the 2017 Annual Meeting in the 2016 proxy statement. They are similar to those described under 2018 Annual Meeting of Shareholders in this Proxy Statement. The Chairman of the Annual Meeting may refuse to allow presentation of an improperly submitted proposal or a nomination for the Board at the Annual Meeting.
If any other matters properly come before the Annual Meeting, your proxy authorizes the designated proxies to vote on such matters in accordance with their best judgment and in their discretion.
Advance Voting Methods (Page 88 of this Proxy Statement)
Even if you plan to register for and attend the Annual Meeting in person, please vote in advance of the meeting using one of the following voting methods (see Question 12 on page 88 of this Proxy Statement for additional details). If you are voting via the Internet or by telephone, be sure to have your proxy card or voting instruction form (VIF) in hand and follow the instructions. You can vote in advance of the meeting any of three ways:
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Voting Instructions to Proxies
At the Annual Meeting, the persons named as proxies on each shareholders proxy card will vote the shares represented by the proxy card FOR or AGAINST or ABSTAIN from voting with respect to each of the nominees listed in proposal 1 and with respect to proposals 2, 3, 5 and 6 and for ONE YEAR, TWO YEARS or THREE YEARS or ABSTAIN from voting with respect to proposal 4, as indicated in the shareholders voting instructions. If no indication is made on the properly executed proxy card, proxies will vote FOR each of the director nominees listed in proposal 1, FOR proposals 2 and 3, ONE YEAR with respect to proposal 4 and AGAINST proposals 5 and 6 and in their discretion upon such other business as properly comes before the meeting.
Voting at the Annual Meeting (Page 88 of this Proxy Statement)
All shareholders of record as of March 8, 2017 may vote in person at the Annual Meeting. Generally, beneficial shareholders may vote in person at the Annual Meeting if they have a legal proxy. See Question 12 on page 88 of this Proxy Statement for detailed information.
Attending the Annual Meeting Important Note about Advance Registration Process and Admission Requirements (Page 90 of this Proxy Statement)
If you plan to attend the Annual Meeting in person, see Question 21 on page 90 of this Proxy Statement for important details about advance registration and admission requirements.
Asking Questions at the Annual Meeting
Shareholders will have the opportunity to ask questions or make comments related to the matters being voted on and more generally about the Company and its business. They may do so at the times and in the manner indicated in the meeting agenda and meeting procedures that we will distribute at the Annual Meeting registration desk and according to the Chairmans instructions.
To assist us in preparing to answer shareholder questions at the Annual Meeting, we request that shareholders who register to attend the Annual Meeting submit any questions they would like to ask at the Annual Meeting at least 10 days before the date of the Annual Meeting. Please:
Although we are asking shareholders to submit their questions in advance, we will also provide an opportunity for shareholders to make comments or ask additional questions during the Annual Meeting.
Frequently Asked Questions About the Annual Meeting and Voting (Page 85 of this Proxy Statement)
We provide answers to many frequently asked questions about the Annual Meeting and voting, including how to vote shares held in brokerage accounts and employee benefit plan accounts, in the FAQ section beginning on page 85 of this Proxy Statement.
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In Memory of Stephen Frasier Bollenbach
On October 8, 2016, the Board lost a great friend and remarkable colleague. Steve Bollenbach joined the Board in October 2012, when the Company spun off its North American grocery business to create Kraft Foods Group. His remarkable career in the family entertainment, media, hospitality, real estate and financial services industries, included senior roles at a number of major companies, among them Marriott Corporation, The Walt Disney Company and Hilton Hotels Corporation. While serving on the Companys Board, he used his vast knowledge and experience to make many contributions to the Companys success and the Boards effectiveness. He was relied upon to share powerful insights, distill complex situations, ask tough questions and, always, to speak his mind. He is missed greatly.
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Process for Nominating Directors
The Governance Committee identifies, evaluates and recommends to the Board director nominees for election at the Annual Meeting (and any adjournments or postponements of the Annual Meeting). The Governance Committee invites director nominee suggestions from the directors, management, shareholders and others. In addition, the Governance Committee has retained a third-party executive search firm to assist it in identifying and evaluating potential director nominees based on the Boards recruitment objectives.
General Qualifications for Nomination to the Board
The Board believes all directors should possess certain attributes, including integrity, sound business judgment and vision, as these characteristics are necessary to establish a competent, ethical and well-functioning board that best represents shareholders interests.
Consistent with the Corporate Governance Guidelines (the Guidelines), when evaluating the suitability of an individual for nomination, the Governance Committee considers that individuals:
The Governance Committee also considers:
Board Composition: Director Competencies, Experiences and Expertise
The Governance Committee works with the Board to determine the appropriate mix of competencies that will result in a Board that is strong in its collective knowledge, enabling the Board to fulfill its responsibilities and best perpetuate the Companys long-term success and represent all shareholders interests. Based upon its discussions with the Board, the Governance Committee has identified these key competencies that are particularly desirable in order for the Board to fulfill its current and future obligations:
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The Governance Committees director recruitment planning considers both the evolving needs of the Company and Board as well as the impact of anticipated departures on the Boards future composition and leadership of the Board. Based on that work, the Committee most recently sought to identify and recruit a sitting or recently retired CEO of a global manufacturing company with significant experience in cost management. That search identified Charles E. Bunch, who has significant experience in cost management and is a highly capable global executive and seasoned public company director. Mr. Bunch was recommended to the Governance Committee as a potential director by Nelson Peltz, an incumbent non-employee director, and also by the Governance Committees consultant in connection with the Governance Committees search. The Board appointed Mr. Bunch effective September 1, 2016.
Individual Director Self-Assessments and Considerations for Renomination of Incumbent Directors
The Governance Committee coordinates annual Board, committee and director self-assessments. The assessment process includes one-on-one discussions between each director and the Chair of the Governance Committee. Annually, the director nominees complete questionnaires to update and confirm their background, qualifications and skills and identify any potential conflicts of interest. The Governance Committee assesses the experience, qualifications, attributes, skills, diversity and contributions of each director. The Governance Committee also considers each individual in the context of the Board composition as a whole, with the objective of recruiting and recommending a slate of director nominees who can best perpetuate the Companys success and represent our shareholders interests through the exercise of sound judgment and informed decision-making.
Board Refreshment, Director Tenure and Age Limits
The Board believes that its composition should provide continuity as well as new experiences and fresh perspectives relevant to the Boards work. The Board does not believe that directors should expect to be automatically renominated. Therefore, the annual Board and director self-assessment processes are important determinants in a directors renomination and tenure.
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In addition, as amended during 2016, the Guidelines provide that:
The current Board composition reflects the Boards commitment to ongoing refreshment: five of the independent director nominees served as directors before we spun-off Kraft Foods Group, Inc. to shareholders on October 1, 2012; seven joined the Board on or after October 1, 2012.
Mondelēz International has cross-cultural and diverse employees manufacturing and marketing delicious snack food and beverage products for consumers in approximately 165 countries around the world. The Board embraces and encourages the Companys and Boards culture of diversity and inclusion.
Although the Board does not establish specific goals with respect to diversity, the Boards overall diversity is an important consideration in the director recruitment and nomination process. The Guidelines provide that when evaluating the suitability of individuals for nomination, the Governance Committee considers criteria including, among others, gender, race and national origin as they promote diversity of views, knowledge and experience that contribute to a more informed and effective decision-making process. As part of its annual assessment of the Boards composition, the Governance Committee assesses the effectiveness of the Boards efforts to promote diversity in all its forms.
Four of the director nominees are women, including the Chairman and CEO; the director nominees represent varied ages (as of March 8, 2017): 55 to 75, races and national origins, and bring diverse life and professional experiences.
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The Governance Committee Welcomes Shareholder Recommendations for Candidates for Election to the Board
The Governance Committee will consider recommendations for director candidates submitted by a shareholder(s). The shareholder(s) should submit to the Corporate Secretary both the recommended candidates name along with the same information required for a shareholder to nominate a candidate for election to the Board at an Annual Meeting and in the same manner as set forth in the advance notice provisions of the Companys By-Laws (the By-Laws).
The Governance Committee evaluates director candidates recommended by shareholder(s) using the same criteria as it uses to evaluate candidates whom the Governance Committee identifies (described above). The Governance Committee makes a recommendation to the Board regarding the candidates appointment or nomination for election to the Board. The Board considers the Governance Committees recommendation, and then decides whether to appoint or nominate the candidate. The Corporate Secretary advises the shareholder(s) of the Boards decision whether to appoint or nominate the candidate.
Shareholders Elect Directors Annually
Each member of the Board is elected annually by a majority of votes cast (if the election is uncontested). The terms of all directors elected at the 2017 Annual Meeting will end at the 2018 Annual Meeting of Shareholders or when a directors successor has been duly elected and qualified.
The Governance Committee recommended and the Board nominated for election at the 2017 Annual Meeting each of the 13 incumbent directors listed below under Director Nominees for Election at the Annual Meeting. Of the 13 director nominees standing for election, shareholders elected 12 to one-year terms at the 2016 Annual Meeting of Shareholders. The Board appointed Mr. Bunch, the 13th director nominee, to the Board effective September 1, 2016. Mr. Bollenbach, whom shareholders elected at the 2016 Annual Meeting of Shareholders, passed away in October 2016.
Each director nominee consented to his or her nomination for election to the Board and to serving on the Board, if elected. 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 director nominee designated by the Board. In lieu of naming a substitute, the Board may reduce the number of directors on the Board.
Individual Nominees Experience, Qualifications, Attributes and Skills
The Board believes that each director nominee for election at the Annual Meeting is highly qualified. All 13 director nominees satisfy the criteria stated in the Guidelines and possess the personal attributes essential for the proper and effective functioning of the Board. The director nominees biographies describe the specific qualifications that the Governance Committee relied upon when determining whether to recommend the individual director nominees for election and led the Board to nominate him or her for election. The biographies also include information about current and past (covering the last five years) directorships at companies publicly listed in the U.S. and registered investment companies. A particular director nominee may have experience and qualifications in addition to those described in the biographies below, including service on the boards of various private companies, companies listed outside of the U.S. and charitable, educational and cultural institutions.
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THE BOARD RECOMMENDS SHAREHOLDERS VOTE FOR THE ELECTION OF EACH OF THE 13 DIRECTOR NOMINEES LISTED BELOW.
The following information regarding each director nominee is as of March 8, 2017.
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We believe that having and adhering to a strong corporate governance framework is essential to our long-term success. This section describes our governance policies, key practices, Board leadership structure and oversight functions.
To learn more about our corporate governance practices, you can access the following corporate governance documents at www.mondelezinternational.com/investors/corporate-governance. We will also provide copies of any of these documents to shareholders upon written request to the Corporate Secretary.
You can access our employee Code of Conduct (Code of Conduct) at www.mondelezinternational.com/about-us/compliance-and-integrity.
The Board adopted the Guidelines articulating our governance philosophy, practices and policies in a range of areas, including: the Boards role and responsibilities; Board composition and structure; responsibilities of the committees of the Board; CEO and Board performance evaluations; and succession planning. At least annually, the Governance Committee reviews the Guidelines and recommends any changes to the Board for its consideration.
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Key Elements of Corporate Governance Framework
See additional discussion below under Board Leadership Structure.
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Board Leadership Structure
The By-Laws provide the Board flexibility in determining its leadership structure. The Board may appoint and designate the duties of a Lead Director and permit one person to hold the offices of both Chairman and CEO. Within that framework, the Board annually re-evaluates its leadership structure to determine the most appropriate leadership structure at that time. In considering which leadership structure will allow it to most effectively carry out its responsibilities and best represent shareholders interests, the Board takes into account various factors. Among them are our specific business needs, our operating and financial performance, industry conditions, economic and regulatory environments, the results of Board and committee annual self-assessments, the advantages and disadvantages of alternative leadership structures based on circumstances at that time and our corporate governance practices. In keeping with this principle, the Board may determine that the CEO also serves as Chairman, but if it does so, it also appoints an independent Lead Director with substantive responsibilities.
The Board believes that this leadership structure provides an effective balance of strong leadership and independent oversight and best meets the Boards current circumstances and anticipated needs. The Board also believes that this leadership structure enhances its oversight of risk management because the CEO, who is ultimately responsible for the Companys risk management process, is in the best position as Chairman to discuss with the Board key risks and managements responses to them.
Independent Director Leadership and Oversight
The Board believes that independent Board leadership and oversight are very important. Therefore, it established the substantive and expansive position of independent Lead Director for times when one individual serves as both Chairman and CEO. The independent directors annually select the Lead Director for a one-year term. The Board created the Lead Director position to provide independent leadership of the Boards affairs on behalf of shareholders, increase the Boards effectiveness, promote open communication amongst the independent directors and serve as the principal liaison between the Chairman and the other independent directors.
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Lead Director Role and Responsibilities
Under the Guidelines, the Lead Director, in consultation with the other independent directors, has the following duties and responsibilities:
Mr. Ketchum is the Lead Director. The independent directors first appointed him to that role in 2009 and have re-appointed him annually. The independent directors believe that he is an effective Lead Director due to his independence, leadership, global operating experience and corporate governance experience.
Chairman and CEO Role and Responsibilities
Ms. Rosenfeld has served as the CEO and as a director since June 2006. In conjunction with the Companys 2007 spin-off from Altria Group, Inc., 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 in which we operate, her leadership experience and her ability and dedication to working closely with the Lead Director and the other independent directors. Based on current circumstances and anticipated needs, the Board continues to believe that having Ms. Rosenfeld serve as both Chairman and CEO promotes shareholders interests and contributes to the Boards efficiency and effectiveness. The Board believes that she is generally in the best position to inform the independent directors about our global operations and critical business matters including the Companys risk management process, and ensure alignment of our business and strategic plans. Further, the Board believes that combining these roles also expedites communication between Ms. Rosenfeld and the Board.
All directors are independent except for Ms. Rosenfeld, our Chairman and CEO
The Board determined that, under the Boards categorical standards and NASDAQs listing standards, the following directors are independent: Lewis W.K. Booth, Charles E. Bunch, Lois D. Juliber, Mark D. Ketchum, Jorge S. Mesquita, Joseph Neubauer, Nelson Peltz, Fredric G. Reynolds, Christiana S. Shi, Patrick T. Siewert, Ruth J. Simmons and Jean-François M. L. van Boxmeer. In addition, Stephen F. Bollenbach was independent during the portion of 2016 he served on the Board. Irene B. Rosenfeld is not independent because she is a Mondelēz International employee.
The Guidelines require that at least 80% of the directors meet the NASDAQ listing standards independence requirements. In order to determine that a director is 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
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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 the independent registered public accountants. These standards are generally consistent with the NASDAQ listing standards independence requirements.
Oversight of Risk Management
Our business faces various risks, including strategic, financial, operational and compliance risks:
Our ERM process is ongoing and implemented at all levels of our operations and across business units to identify, assess, monitor, manage and mitigate risk. Our ERM process facilitates open communication between management and the Board so that the Board and committees understand key risks to our business and performance, our risk management process and how it is functioning, the participants in the process and the information gathered through the process. The Audit Committee annually reviews the functioning of our ERM process as well as the results of our annual ERM risk assessment.
Annually, the Audit Committee reviews and approves managements recommendation for allocating to the full Board or another committee or retaining for itself responsibility for reviewing and assessing key risk exposures and managements response to those exposures. Management provides reports to the Board and the appropriate committee in advance of meetings regarding key risks and the actions management has taken to monitor, control and mitigate these risks. Management also attends Board and committee meetings to discuss these reports and provide any updates. The committees report key risk discussions to the Board following their meetings. Board members may also further discuss the risk management process directly with members of management.
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During 2016, the Board and committees reviewed and assessed risks related to our business and operations as shown below. The Board annually reviews and sometimes reallocates responsibilities amongst committees. Accordingly, the allocation of responsibilities shown in this table may change during 2017.
Code of Business Conduct and Ethics for Non-Employee Directors
We have adopted the Code of Business Conduct and Ethics for Non-Employee Directors. 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 Code of Business Conduct and Ethics for Non-Employee Directors.
Code of Conduct
We have adopted the Code of Conduct that applies to all of our employees. It includes policies that cover ethical and legal practices for every aspect of the business. The Code of Conduct reflects values and contains important rules employees must follow when conducting business. The Code of Conduct is part of our global compliance and integrity program. The program provides training throughout the Company and encourages reporting of wrongdoing by offering anonymous reporting options and a non-retaliation policy.
We will disclose in the Corporate Governance section of our website any amendments to the Code of Business Conduct and Ethics for Non-Employee Directors or Code of Conduct and any waiver granted to an executive officer or director under these codes.
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Related Persons Policy and Procedures
The Board has adopted a written policy regarding related person transactions. In general, related persons are the following persons and their immediate family members: directors, executive officers and shareholders beneficially owning more than 5% of the outstanding Common Stock. A related person transaction is one in which Mondelēz International is a participant, the amount involved exceeds $120,000 and any related person had, has or will have a direct or indirect material interest. The Governance Committee reviews transactions that might qualify as related person transactions. If the Governance Committee determines that a transaction qualifies as a related person transaction, then the Governance Committee reviews and approves, disapproves or ratifies the transaction. The Governance Committee approves or ratifies only those related person transactions that are fair and reasonable to Mondelēz International and in our shareholders best interests. When it is not practicable or desirable to delay review of a transaction until a committee meeting, the chair of the Governance Committee reviews and approves or ratifies potential related person transactions and reports to the Governance Committee any transaction so approved or ratified. When reviewing and acting on a related person transaction under this policy, the Governance Committee considers, among other things:
Any member of the Governance Committee who is a related person with respect to a transaction under review may not participate in the deliberations or decisions regarding the transaction.
Review of Related Persons Transactions Since January 1, 2016
On January 25, 2017, BlackRock, Inc. (BlackRock), an investment management corporation, filed a Schedule 13G/A with the SEC reporting that it was a greater than 5% shareholder of the Company as of December 31, 2016. During 2016, BlackRock acted as an investment manager with respect to certain investment options under our U.S. retirement savings plans and Canadian, Irish and U.K. pension plans. BlackRock was selected as an investment manager by each plans designated authority for plan investments. BlackRocks selection was based on the determination of each plans designated authority that the selection met applicable standards and that the fees were reasonable and appropriate. BlackRocks fees, approximately $1.9 million during 2016, were paid from the plan assets of the specific plans for which it performed services. The plans expect to pay similar fees to BlackRock during 2017 for similar services. (Fees, based on plan asset value, are paid quarterly on a lagging basis.)
Communications with the Board
Information for shareholders and other parties interested in communicating with the Lead Director, the Board or the independent directors, individually or as a group, is available at www.mondelezinternational.com/Investors/corporate-governance#contacts. The Corporate Secretary:
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The Governance Committee considers and makes recommendations to the Board regarding the Boards committee structure and membership. The committee structure and membership is as follows:
Throughout 2016, the Board had, and currently has, four standing committees: Audit, Finance, Governance and Compensation.
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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 established the Audit Committee in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934 (the Exchange Act). The Board has determined that all of the Audit Committee members 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 are financially literate in accordance with the New York Stock Exchange listing standards. The Board has determined that Fredric G. Reynolds and Patrick T. Siewert are audit committee financial experts within the meaning of SEC regulations and has financial sophistication in accordance with NASDAQ listing standards. No Audit Committee member received any payments in 2016 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, compensation, retention and oversight of our independent registered public accountants, 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 visit http://www.mondelezinternational.com/about-us/compliance-and-integrity for information about reporting options.
Audit Committee Report for the Year Ended December 31, 2016
Management has primary responsibility for Mondelēz Internationals financial statements and the reporting process, including the systems of internal control over financial reporting. Our role as the Audit Committee of the Mondelēz International Board of Directors is to oversee Mondelēz Internationals accounting and financial reporting processes and audits of its financial statements. In addition, in 2016 we assisted the Board in its oversight of:
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Our duties include overseeing Mondelēz Internationals management, the internal audit department and the independent registered public accountants in their performance of the following functions, for which they are responsible:
Internal Audit Department
Independent Registered Public Accountants
Periodically, we meet, both independently and collectively, with management, the internal auditor and the independent registered public accountants to, among other things:
Prior to Mondelēz Internationals filing of its Annual Report on Form 10-K for the year ended December 31, 2016 with the SEC, we also:
Based upon the review and discussions described in this report and without other independent verification, and subject to the limitations of our role and responsibilities outlined in this report and in our written charter, we recommended to the Board, and the Board approved, that the audited consolidated financial statements be included in Mondelēz Internationals Annual Report on Form 10-K for the year ended December 31, 2016, which was filed with the U. S. Securities and Exchange Commission on February 24, 2017.
Fredric G. Reynolds, Chair
Jorge S. Mesquita
Christiana S. Shi
Patrick T. Siewert
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The Audit Committees policy is to pre-approve all audit and non-audit services provided by the independent registered public accountants. 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 registered public accountants will perform. Management reports to the Audit Committee on the actual fees charged by the independent registered public accountants for each category of service.
During the year, circumstances may arise when it becomes necessary to engage the independent registered public accountants for additional services not contemplated in the original pre-approval authority. In those instances, the committee approves the services before we engage the independent registered public accountants. In case approval is needed before a scheduled committee meeting, the committee has delegated pre-approval authority to its Chair. The Chair must report on such pre-approval decisions at the committees next regular meeting.
The Audit Committee pre-approved all 2016 audit and non-audit services provided by the independent registered public accountants.
Independent Registered Public Accountants Fees
Aggregate fees for professional services rendered by our independent registered public accountants, PricewaterhouseCoopers LLP, for 2016 and 2015 were:
Audit Fees include (a) the integrated audit of our consolidated financial statements, including statutory audits of the financial statements of our affiliates, and our internal control over financial reporting and (b) the reviews of our unaudited condensed consolidated interim financial statements (quarterly financial statements).
Audit-Related Fees include professional services in connection with employee benefit plan audits, due diligence related to acquisitions and divestitures and procedures related to various other audit and special reports.
Tax Fees include professional services in connection with tax compliance and advice.
All Other Fees include professional services in connection with seminars and compliance reviews.
All fees above include out-of-pocket expenses.
The Board has determined that all of the Finance Committee members are independent within the meaning of the NASDAQ listing standards. The Finance Committees charter sets out its responsibilities, which include reviewing and making recommendations to the Board on significant financial matters, including:
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The Finance Committee also reviews and discusses with management:
Governance, Membership and Public Affairs Committee
The Board has determined that all of the Governance Committee members are independent within the meaning of the NASDAQ listing standards. The Governance Committees charter sets out its responsibilities. Among its responsibilities are:
Human Resources and Compensation Committee Independence, Interlocks and Insider Participation
The Board determined that all Compensation Committee members are independent within the meaning of the NASDAQ listing standards, including the heightened independence criteria for Compensation Committee members. All are non-employee directors under SEC rules and outsider directors under the Internal Revenue Code of 1986, as amended (the Code). None of the Compensation Committees members is or was:
The Compensation Committees charter sets out its responsibilities. Among its responsibilities are to:
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The Compensation Committee has the authority to delegate any of its responsibilities to the committees Chair, another Compensation Committee member or a subcommittee of Compensation Committee members, unless prohibited by law, regulation or any NASDAQ listing standard.
The Compensation Committees Use of an Independent Compensation Consultant
The Compensation Committee retains an independent compensation consultant to assist it in evaluating executive compensation programs and advise it regarding the amount and form of executive and director compensation. It uses a consultant to provide additional assurance that our executive and director compensation programs are reasonable, competitive and consistent with our objectives. It directly engages the consultant under an engagement letter that the Compensation Committee reviews at least annually.
Since September 2009, the Compensation Committee has retained Compensation Advisory Partners, LLC (CAP) as its independent compensation consultant. Annually, the Compensation Committee reviews CAPs engagement. During 2016, CAP provided the Compensation Committee advice and services, including:
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For the year ended December 31, 2016, CAP provided no services to Mondelēz International other than consulting services to the Compensation Committee regarding executive and non-employee director compensation.
At least annually, the Compensation Committee reviews the current engagements and the objectivity and independence of the advice that CAP provides to it on executive and non-employee director compensation. The Compensation Committee considered the six specific independence factors adopted by the SEC and NASDAQ and determined that CAP is independent and CAPs work did not raise any conflicts of interest.
Executive Officers Have a Limited Role in the Compensation Committees Determination of Executive Compensation and Recommendations to the Board Regarding Non-Employee Director Compensation
How the Compensation Committee Manages Compensation-Related Risk
As it does each year, in 2016, the Compensation Committee evaluated whether our compensation designs, policies and practices operate to discourage our executive officers and other employees from taking unnecessary or excessive risks. As described in the Compensation Discussion and Analysis, we design our compensation to incentivize executives and other employees to achieve the Companys financial and strategic goals as well as individual performance goals that promote long-term shareholder returns. Our compensation design discourages our executives and other employees from taking excessive risks for short-term benefits that may harm the Company and our shareholders in the long-term. The Compensation Committee uses various strategies to mitigate risk, including:
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In addition, the Audit Committee oversees our ethics and compliance programs that educate executives and other employees on appropriate behavior and the consequences of inappropriate actions. These programs not only drive compliance and integrity but also encourage employees with knowledge of bad behavior to report concerns by providing multiple reporting avenues while protecting reporting employees against retaliation.
CAP also reviewed the Compensation Committees risk analysis, including the underlying procedures, and confirmed the Compensation Committees conclusion below.
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 the Company.
We strive to recruit and retain highly qualified non-employee directors who will best represent our shareholders interests. Each year our Compensation Committee reviews non-employee director compensation to ensure that the compensation we offer supports our objective without being excessive.
More specifically, CAP annually benchmarks our non-employee director compensation against our Compensation Survey Group and other Fortune 100 companies and assesses the appropriateness of the form and amount of our non-employee director compensation. CAP provides the Compensation Committee with this data and its independent assessment of the competitiveness of our non-employee directors compensation. The Compensation Committee determines whether to recommend any changes to the compensation. Based upon CAPs 2016 review and recommendation, the Compensation Committee recommended to the Board and the Board determined that no changes would be made to non-employee compensation in 2016.
Additionally, our shareholder-approved Amended and Restated 2005 Performance Incentive Plan caps at $500,000 the maximum fair market value of Common Stock grants made to any non-employee director in any calendar year. All stock grants made in 2016 to non-employee directors were significantly below this amount. See the 2016 Non-Employee Director Compensation and Non-Employee Director Equity Awards tables below for specific values.
We do not pay a Company employee who also serves as a director any additional compensation for serving as a director. Currently, Irene B. Rosenfeld is the only director who is a Company employee.
Summary of 2016 Compensation Elements
Cash Compensation Board, Lead Director and Committee Chair Retainers
We pay our non-employee directors their cash retainers quarterly. The Mondelēz International, Inc. 2001 Compensation Plan for Non-Employee Directors allows directors to defer 25%, 50%, 75% or 100% of their cash retainers into notional unfunded accounts. These accounts mirror certain of the investment options under the Thrift 401(k) Plan offered to U.S. salaried employees.
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Equity Compensation Annual Equity Grant
We make our annual equity grants to our non-employee directors following the annual meeting of shareholders.
We make non-employee director annual equity grants in the form of vested deferred stock units. We distribute actual shares six months after the director ends his or her service as a director. When the Company pays a dividend on its Common Stock, we accrue the value of the dividends that the Company would have paid on the deferred stock units. Six months after the director ends his or her service as a director, we issue shares to the director equal to the accumulated accrued value.
Stock Ownership Guidelines
To align our non-employee directors and our shareholders interests, we expect our non-employee directors to hold shares of our Common Stock. The following chart summarizes our expectations:
If a non-employee director does not meet these expectations, the Lead Director will consider the non-employee directors particular situation and may take action as he deems appropriate. As of March 8, 2017, each director serving for at least five years met or exceeded the ownership expectation.
Company Match for Director Charitable Contributions
Non-employee directors are eligible to participate in a Mondelēz International Foundation (the Foundation) Matching Gift program. Each year, the Foundation will generally match up to $15,000 in contributions by a non-employee director to a 501(c)(3) non-profit organization(s).
2016 Non-Employee Director Compensation Table
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Non-Employee Director Equity Awards Table
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In the Overview section of this Compensation Discussion and Analysis (CD&A), we highlight:
In the remainder of this CD&A, we describe:
How Our Financial Performance Impacted Our NEOs 2016 Annual Cash Incentive Program Awards and Performance Share Unit Awards Subject to the 2014-2016 Performance Cycle
2016 Annual Cash Incentive Program Awards
Our 2016 financial performance included:
Overall, we achieved an above target performance rating of 123% under the 2016 Annual Cash Incentive Program.
See Individual Executive Compensation Program Elements Financial Measure Definitions for definitions of these performance measures and Individual Executive Compensation Program Elements Annual Cash Incentive Program for more information about our Annual Cash Incentive Program, including our performance targets under the program.
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Performance Share Unit Awards for the 2014-2016 Performance Cycle
The results for the 2014-2016 performance cycle included:
Overall, we achieved an above target performance rating of 106% for the performance share unit awards subject to the 2014-2016 performance cycle.
See Individual Executive Compensation Program Elements Financial Measure Definitions for definitions of these performance measures and Individual Executive Compensation Program Elements Equity Program for more information about the performance share units, including the performance targets.
Our 2016 Shareholder Say-on-Pay Vote Demonstrated Strong Support for Our Executive Compensation Program
Nearly 95% of the votes cast in our 2016 shareholder advisory say-on-pay voted to approve our executive compensation program and we made no changes to our executive compensation program directly in response to the 2016 shareholder advisory say-on-pay vote. Based on this vote as well as input from and discussions with our shareholders, we believe our shareholders support our overall compensation principles, programs and practices.
We Changed the 2016 Executive Compensation Program to Refine the Alignment with Our Strategies and Objectives
The Compensation Committee regularly assesses our executive compensation program in light of our strategy, market practices and shareholder input. For 2016, we made changes to our executive compensation program to refine the alignment with our strategies and objectives. We summarize the changes below.
2016 Annual Cash Incentive Program Changes
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Our 2016 NEOs
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Reflect Best Practices to Protect and Promote our Shareholders Interests
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How We Design Our Executive Compensation Program
The Compensation Committee oversees our executive compensation program focusing on the programs primary goals:
Our executive compensation program design supports these goals by:
Using a Mix of Fixed and Variable Compensation. We heavily weight the mix toward variable compensation to attract, retain and motivate top-performing executives, as well as to appropriately align compensation levels with achieving relevant financial and strategic goals.
Using a Mix of Equity and Cash Incentives. We heavily weight the mix toward equity that vests over multiple years to focus executives on achieving long-term TSR that exceeds our peers median and to align the mix with the interests of our shareholders.
Compensating Based on Individual Performance. We consider an executives individual performance in making compensation decisions.
Requiring Our Executives to be Significant Shareholders. We require our executives to:
Benchmarking our Compensation and Performance Against Relevant Comparators. We use two groups of companies to benchmark our executives compensation and assess our relative performance:
With CAPs input, the Compensation Committee reviews the composition of these comparator groups to ensure the composition of each remains appropriate. See Composition and Purpose of our Compensation Survey Group and Composition and Purpose of our Performance Peer Group below for additional information.
Paying Competitively. Each year, we compare our compensation programs with those of our Compensation Survey Group. We assess whether our executive compensation and target compensation levels are consistent with market practice. In addition, we compare our financial and TSR performance against our Performance Peer Group. The Performance Peer Group comparison allows us to link long-term incentive compensation to the delivery of superior financial results relative to industry peers.
Composition and Purpose of our Compensation Survey Group
In constructing our Compensation Survey Group, the Compensation Committee considers global companies with the following attributes:
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The Compensation Committee also considers companies outside the consumer products industry based on the following criteria:
Based on these characteristics and input from CAP and management, the Compensation Committee selected the following companies for our 2016 Compensation Survey Group, which is unchanged from 2015. The median annual revenue of these companies at the time of our 2016 benchmarking was $33.4 billion, which was comparable to our revenue size at that time.
In determining appropriate compensation levels for our executives, the Compensation Committee reviews compensation levels for comparable roles at companies in our Compensation Survey Group. Aon Hewitt (Aon) provides the underlying compensation data. At the request of the Compensation Committee, CAP reviews and evaluates Aons data.
The Compensation Committees compensation strategy is to benchmark total direct compensation (at target levels), including base salary and annual and long-term incentives, at or near the median of our Compensation Survey Group. Company and individual performance will determine whether actual compensation received is above or below the Compensation Survey Group median.
To further validate our compensation levels, using data provided by CAP, the Compensation Committee retrospectively evaluates how well we aligned pay-for-performance compared with our Compensation Survey Group.
Composition and Purpose of our Performance Peer Group
Companies primarily focused on the production and marketing of food and non-alcoholic beverages comprise our 2016 Performance Peer Group listed below. We directly compete with these companies and comparing our performance relative to the groups performance provides a valuable measure of our performance. Specifically, we compare our annualized TSR with the median annualized TSR of our Performance Peer Group to assess our results on the TSR performance measure for our performance share units. This group of companies is less relevant when we compare compensation levels for certain executive positions because differences in size and complexity reduce comparability. Beginning with performance share units granted in 2016, we added The Kraft Heinz Company to our
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Performance Peer Group. The company was formed in 2015 following the merger of Kraft Foods Group and H.J. Heinz Holding Corporation and competes in similar markets with an expanded brand portfolio and global reach.
Our Performance Peer Group consists of 12 companies, 9 of which are also in our Compensation Survey Group. The groups differ slightly because companies in our Performance Peer Group are primarily food and non-alcoholic beverage companies. We include companies in our Performance Peer Group regardless of revenue size or market capitalization.
Overall Target Compensation Mix
The charts below compare the 2016 total target compensation mix for our CEO and, on average, our other NEOs with the average of the companies in our Compensation Survey Group. This compensation mix includes base pay, target annual incentive and equity program. The charts show that our target compensation mix aligns well with that of our Compensation Survey Group with a slightly stronger emphasis on the equity program than our peers.
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Overview of Our 2016 Executive Compensation Program Elements and Objectives
This table identifies and describes the specific elements of our 2016 executive compensation program for our NEOs, including each elements program objectives. A more detailed discussion of these elements, including definitions of the financial measures used in our Annual Cash Incentive Program and performance share unit grants, follows this table. We discuss individual compensation decisions for each NEO under Individual Executive Compensation Program Elements.
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Base salary is the principal fixed element of executive compensation. In setting base salaries for our NEOs, the Compensation Committee generally targets base salary at or near the median of our Compensation Survey Group based on the executives comparable role. The Compensation Committee also considers a number of other factors when setting base salaries for our NEOs, including Company and individual performance, level of responsibility, experience and potential to assume roles with greater responsibility. The Compensation Committee reviews our NEOs salaries annually (or more often if there is a notable change in an executive officers role and responsibilities during the year) and considers whether any increases are warranted. If awarded, salary increases for all executive officers are generally effective April 1.
None of the NEOs received a base salary increase in 2016.
Annual Cash Incentive Program
We design our Annual Cash Incentive Program to motivate our NEOs to achieve or exceed our annual financial and strategic goals. The Compensation Committee sets the formula and target, threshold and maximum annual incentive opportunities at the beginning of the year. The Compensation Committee bases actual awards made to an NEO on the Companys annual financial results and the NEOs individual performance. Annual incentive awards can vary greatly from year-to-year based on actual Company financial and individual performance relative to the target goals.
Annual Cash Incentive Program Award Formula
The Compensation Committee used the formula below to determine the awards to NEOs under the 2016 Annual Cash Incentive Program. This is the same formula it used to determine awards in 2015.
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This chart describes the Annual Cash Incentive Program elements, except for base salary (discussed above).
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2016 Corporate Rating
To determine NEO awards, the Compensation Committee evaluated the 2016 Company results against the 2016 Company performance goals:
The Compensation Committee retains discretionary authority to adjust the final corporate rating (up or down) by as much as 25 pp to recognize more subjective, less quantifiable factors such as how well we performed based on compliance, diversity and the quality of our results. The Compensation Committee did not adjust the 2016 rating.
Individual Performance Ratings
At the beginning of each year, based on the Companys annual contract and Strategic Plan, Ms. Rosenfeld and the other NEOs develop annual quantitative and qualitative objectives. Ms. Rosenfeld discusses her objectives with the Compensation Committee. Following this discussion and input, the Compensation Committee approves her annual goals.
At the conclusion of the annual performance period:
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Based on its evaluation, the Compensation Committee determined each NEOs individual performance rating considering primarily the factors described in the following table:
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Annual Cash Incentive Program Decisions
Based on the 2016 corporate rating and individual performance determined by the Compensation Committee following its evaluation of each NEOs individual performance against the annual objectives described above, the Compensation Committee approved the following annual incentive cash payments:
We design our equity grants to align our executive officers and shareholders interests. For our 2016 equity program, the Compensation Committee used the same mix used in 2015: 75% performance share units and 25% NQSOs.
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The Compensation Committee bases equity grant value ranges for performance share units and NQSOs on an analysis of competitive market practice. The midpoint of the equity grant value ranges, inclusive of the value of the target performance share units, is approximately equal to the median total long-term incentives of our Compensation Survey Group. The Compensation Committee may make an equity grant to an NEO above or below the midpoint based on the Compensation Committees qualitative review of the NEOs individual performance. Generally, the equity grant value is between 50% and 150% of the midpoint. All annual equity grants made to our NEOs in 2016 fell within that range.
The table below shows the 2016 annual equity grants to our NEOs. The grants reflect individual performance, Company performance and external market positioning.
We present the actual equity grants, including grant date fair value, in the 2016 Summary Compensation Table and 2016 Grants of Plan-Based Awards table under Executive Compensation Tables in this Proxy Statement. Our 2016 annual equity grant date was the regularly scheduled Compensation Committee meeting following the release of our annual financial results. The exercise price for all NQSO grants equals the closing trading price on the grant date.
Performance Share Units
The Compensation Committee grants performance share units to motivate executives to 1) achieve or exceed our long-term financial goals and 2) deliver top-tier shareholder returns. The Compensation Committee sets performance targets for a three-year performance cycle.
At the end of the three-year performance cycle, the Compensation Committee will only award shares if Company results meet or exceed the performance thresholds set at the beginning of the cycle. The number of shares awarded to an executive depends on the achievement of key financial measures and annualized TSR relative to the median of our Performance Peer Group. Share awards occur in the first quarter following the end of the performance cycle, provided the Compensation Committee certifies performance at or above threshold levels.
To address unforeseen or unintended consequences, the Compensation Committee retains discretion to adjust the final business performance rating for a performance cycle (up or down) by as much as 25 pp, allowing it to factor in a subjective review of quality of financial results, portfolio management, innovation and talent development. The Compensation Committee does not consider an NEOs individual contributions as the basis for an award; awards related to performance share units are based solely on how the Company performed against performance targets. Dividend equivalents accrue during the performance period and are paid out in cash in the first quarter following the award payout date based on the actual share award.
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The Compensation Committee uses the following formula to determine actual awards for participants, including our NEOs. Each element of this formula is discussed below.
2016-2018 Performance Cycle
For performance share units with a 2016-2018 performance cycle, the target objective set for Annualized Relative TSR is the median of the Performance Peer Group. The Compensation Committee sets our financial performance targets for Organic Net Revenue Growth and Adjusted ROIC Increase taking into consideration our long-term strategy. The Company does not publicly disclose specific financial performance targets on a prospective basis. Revealing these specific targets prospectively would provide competitors and other third parties with insights into our confidential planning process and strategies and potentially harm us competitively. We design our financial performance targets to be challenging, and there is a plausible risk that no awards will be made or awards will be below target.
We base cash awards under our Annual Cash Incentive Program and share awards for our performance share units in part on our Organic Net Revenue Growth. However, the Compensation Committee uses a different benchmark to measure performance for each. The following chart highlights these differences:
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2014-2016 Performance Cycle
The Compensation Committee determined the share award for the 2014-2016 performance cycle based on a performance rating that included the Companys performance on key financial goals (Organic Net Revenue Growth and Adjusted ROIC Increase) and Annualized Relative TSR goals. In determining our Annualized Relative TSR performance, we used our 2016 Performance Peer Group (excluding The Kraft Heinz Company). See How We Design Our Executive Compensation Program Paying Competitively Composition and Purpose of our Performance Peer Group above. The following chart details:
The Compensation Committee did not adjust the final business performance rating for the 2014-2016 performance cycle.
Based on target awards determined as a percentage of salary and the performance rating of 106% of target, the share award (before taxes) for each NEO for the 2014-2016 performance cycle was as follows:
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Requiring Stock Ownership
To further align our NEOs and our shareholders interests, and to incent our NEOs to focus on shareholders interests, the Compensation Committee requires all executives to hold a significant amount of Common Stock. The following chart summarizes our requirements.
We believe our stock ownership requirements are comparable to or more stringent than such requirements at the majority of the companies in our Compensation Survey Group.
We monitor our executives compliance with these requirements. As of March 1, 2017, all of our required NEOs satisfied or exceeded these requirements and adhered to the holding requirements.
Other 2016 Compensation Elements
The following compensation elements occurred for specific reasons described below. They are not part of our recurring compensation program.
2016 Retention Equity Grant for Mr. Abelenda
On January 4, 2016, the Compensation Committee made a retention-based equity grant to Mr. Abelenda. This grant consisted of 57,100 stock options that fully vest on the third anniversary of the grant date with the same terms and conditions as the 2015 annual equity grants made to eligible employees generally. The Committee made this grant to Mr. Abelenda as an incentive to defer his retirement until the end of 2016 to ensure leadership continuity at an important time in the Latin America region and to provide a smooth transition to his successor. The Committee determined this amount based on a review of Mr. Abelendas compensation and the value of outstanding equity grants for comparable positions at peer companies. This one-time grant did not affect any of Mr. Abelendas regular compensation arrangements.
International Assignment Payments for Mr. Cofer
Prior to his current role, Mr. Cofer was based in Singapore and served as Executive Vice President and President, Asia Pacific and Eastern Europe, Middle East and Africa until December 31, 2015. As a former U.S. expatriate, Mr. Cofer received payments in 2016 related to his repatriation from Singapore to the U.S. These payments to Mr. Cofer were similar to the amounts and types of payments generally made to other employees who repatriate from an international assignment under our International Assignment Policy. We designed our International Assignment Policy to facilitate relocation of employees to positions in other countries by covering expenses over and above those that the employees would have incurred had they remained in their home countries. Such payments cover housing expenses, a cost of living adjustment, education and some travel expenses. Similarly, our International Assignment Policy pays the additional taxes employees incur due solely to their international assignments.
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Financial Measure Definitions
We report our financial results in accordance with U.S. GAAP. However, we use non-GAAP financial measures in making financial, operating and planning decisions and in evaluating our performance. Therefore, we also base financial targets for our Annual Cash Incentive Program and performance share units on non-GAAP and other financial measures. The chart below defines each measure and describes the adjustments to the related GAAP measure (if applicable), modifications to our non-GAAP measures for purposes of our compensation targets and our reasons for using these measures. (See our 2016 Form 10-K for additional information on our Non-GAAP Financial Measures and definitions of terms used in the Definitions column below.)