This excerpt taken from the YUM DEF 14A filed Apr 6, 2007.
What am I voting on?
Trowel Trade S&P 500 Index Fund has advised us that they intend to present the following shareholder proposal at the annual meeting. We will furnish the addresses and the share ownership of the proponent upon request.
RESOLVED: that the shareholders of YUM! Brands, Inc. (the Company) urge the Board of Directors to seek shareholder approval of future severance agreements with senior executives that provide benefits in an amount exceeding 2.99 times the sum of the executives base salary plus bonus. Future severance agreements include employment agreements containing severance provisions, special retirement provisions and agreements renewing, modifying or extending existing such agreements. Benefits include lump-sum cash payments (including payments in lieu of medical and other benefits); the payment of any gross-up tax liability; the estimated present value of special retirement provisions; any stock or option awards that are awarded under any severance agreement; any prior stock or option awards as to which the executives access is accelerated under the severance agreement; fringe benefits; and consulting fees (including reimbursable expenses) to be paid to the executive.
In our opinion, severance agreements as described in this resolution, commonly known as golden parachutes, are excessive in light of the high levels of compensation enjoyed by senior executives at the Company and U.S. corporations in general.
We believe that requiring shareholder approval of such agreements may have the beneficial effect of insulating the Board of Directors from manipulation in the event a senior executives employment must be terminated by the Company. Because it is not always practical to obtain prior shareholder approval, the Company would have the option if this proposal were implemented of seeking shareholder approval after the material terms of the agreement were agreed upon.
For those reasons, we urge shareholders to vote for this proposal.
What is the recommendation of the Board of Directors?
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE AGAINST THIS PROPOSAL.
What is the Companys position regarding a policy requiring shareholders approval of future severance agreements?
As discussed in more detail in the Compensation Discussion and Analysis at page 37, our executive compensation program is designed to attract, motivate, reward, retain and engage talented people who can deliver strong performance and help the Company to achieve our business objectives, thereby maximizing shareholder value.
The Compensation Committee of the Board of Directors, composed exclusively of independent Directors, oversees executive compensation arrangements, including severance arrangements. We believe that the Compensation Committee should retain discretion in setting the appropriate level of benefits in severance arrangements, based on facts and circumstances existing at the time the benefits are determined. Placing an arithmetic ceiling or restriction on what the Company may offer as a severance payment, or to require shareholder approval of the terms of a severance agreement, could significantly limit the
Companys ability to successfully attract new executives by making it difficult for the Company to provide a new executive with a competitive employment package in a timely manner.
Except for change in control agreements (which only pay severance in case of termination of employment following a change in control of the Company and which are discussed in more detail on page 64), we do not currently have any agreements with employees concerning payments upon termination of employment. The change in control agreements are with 22 employees, including members of executive management. The Compensation Committee believes these agreements allow management to remain focused and objective during a potential change in control, thus allowing them to act decisively to maximize value for all shareholders. These change in control agreements are consistent with the practices of many other large corporations. The Compensation Committee periodically reviews such arrangements (and did so in 2006) and believes such arrangements are reasonable, appropriate and necessary to ensure an appropriate transition in the event of a change in control. The change in control agreements provide for a payment of two times salary plus bonus, except for one change in control agreement, approved for one senior leadership team member as part of his hiring package, which provides a three times salary and bonus benefit.
Your Board of Directors recognizes the need to balance the Companys desire to attract and retain the most qualified executives with the interests of shareholders in limiting the Companys compensation costs. In this regard, we believe that we have been good stewards of the Companys resources. For example, all but one of our executives change in control agreements provide a benefit equal to two times base salary and bonus. This is below the threshold recommended by this proposal and below what many other companies provide.
Why does the Company oppose this proposal?
The Compensation Committee, on an ongoing basis, devotes considerable time and effort to compensation issues, including the balance to be struck among various objectives of that program. The Board believes that it is ultimately in the shareholders best interests that the responsibility for this ongoing process continue to be vested in the Compensation Committee rather than being preempted and inhibited by a rigid arithmetic limitation, such as that reflected in the proposed resolution. An obligation to limit the value or to obtain shareholder approval of a severance provision would severely inhibit the Companys ability to recruit and retain talented executives by impeding the Companys ability to develop and negotiate agreements that address the competitive market, the Companys needs and the individual nature of these situations.
What vote is required to approve this proposal?
Approval of this requires the affirmative vote of a majority of the shares present in person or represented by proxy and entitled to vote at the Annual Meeting.