Proxy Statement Pursuant to Section 14(a) of the
Securities
Exchange Act of 1934 (Amendment
No. )
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Registrant þ
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Registrant o
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o Preliminary
Proxy Statement.
o Confidential,
for the Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
þ Definitive
Proxy Statement.
o Definitive
Additional Materials.
o Soliciting
Material Pursuant to
Rule 14a-12.
The Pepsi Bottling Group, Inc.
(Name of Registrant as Specified in
its Charter)
(Name of Person(s) Filing Proxy
Statement, if Other Than the Registrant)
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þ
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Fee computed on table below per Exchange Act
Rules 14a-6(i)(1)
and 0-11.
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(3)
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pursuant to Exchange Act
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(set forth the amount on which the filing fee is calculated and
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Fee paid previously with preliminary materials.
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and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration
statement number, or the form or Schedule and the date of its
filing.
On behalf of your Board of Directors, we are pleased to invite
you to attend our 2009 Annual Meeting of Shareholders on
Wednesday, May 27, 2009, at 10:00 a.m. Eastern
Time. The meeting will be held at our corporate headquarters at
One Pepsi Way in Somers, New York. For your convenience, we will
offer a live webcast of our Annual Meeting through our website
at www.pbg.com.
At our Annual Meeting, you will be asked to elect our directors,
approve the amended and restated PBG Directors’ Stock Plan,
and ratify the appointment of Deloitte & Touche LLP as
our independent registered public accounting firm for fiscal
year 2009. The enclosed proxy statement contains detailed
information about the business to be conducted at the meeting.
For the second straight year, we are pleased to take advantage
of the Securities and Exchange Commission’s rules that
allow us to furnish our proxy statement and related proxy
materials to our shareholders over the Internet. We believe this
will expedite shareholders’ receipt of proxy materials,
lower our costs of delivery and reduce the environmental impact
of our Annual Meeting. The “Questions and Answers”
section of this proxy statement contains instructions on how you
can receive a paper copy of our proxy statement and annual
report.
Please know that your vote is very important to us and we
encourage you to vote promptly. Whether or not you expect to
attend the Annual Meeting in person, please vote via the
Internet or telephone, or request a paper proxy card to
complete, sign and return by mail so that your shares may be
voted.
Thank you for your ongoing support of The Pepsi Bottling Group.
Sincerely,
Eric J. Foss Chairman of the Board and Chief Executive Officer
(1) To elect as directors the ten nominees named in the
attached proxy statement.
(2) To approve an amendment and restatement of The PBG
Directors’ Stock Plan.
(3) To ratify the appointment of Deloitte &
Touche LLP as our independent registered public accounting firm
for fiscal year 2009.
(4) To transact such other business as may properly come
before the meeting and any adjournment or postponement thereof.
RECORD DATE
You are entitled to vote only if you were a holder of our common
stock as of the close of business on March 30, 2009.
MEETING ADMISSION
You are entitled to attend the Annual Meeting only if you were a
holder of our common stock as of the close of business on
March 30, 2009. If you plan to attend the Annual Meeting
and your shares are registered in your name, please call
914-767-6267
or email shareholder.relations@pepsi.comso that
we may send you an admission card. If you hold shares through an
account with a bank or broker, you must contact your bank or
broker to request a legal proxy in order to attend the meeting.
PROXY VOTING
Your vote is very important. Whether or not you plan to
attend the Annual Meeting, please promptly vote by Internet or
telephone, or by marking, signing, dating and returning your
proxy card or voting instruction card so that your shares will
be represented at the Annual Meeting.
Our Board of Directors has made these materials available to you
on the Internet or, upon your request, has delivered printed
versions of these materials to you by mail, in connection with
the Board’s solicitation of proxies for use at our Annual
Meeting of Shareholders, which will take place at
10:00 a.m. Eastern Time on Wednesday, May 27,2009. This proxy statement describes matters on which we would
like you, as a shareholder, to vote. It also gives you
information on these matters so that you can make an informed
decision.
What is
included in these materials?
These proxy materials include:
•
our proxy statement for the 2009 Annual Meeting; and
•
our 2008 Annual Report to shareholders, which includes our
audited consolidated financial statements.
If you requested printed versions of these materials by mail,
these materials also include the proxy card or voting
instruction card for the Annual Meeting.
Why did I
receive a one-page notice in the mail regarding the Internet
availability of proxy materials this year instead of printed
proxy materials?
In accordance with rules adopted by the Securities and Exchange
Commission (the “SEC”), instead of mailing a printed
copy of our proxy materials to our shareholders, we have elected
to furnish such materials by providing access to these documents
over the Internet. Accordingly, on April 7, 2009, we sent a
Notice of Internet Availability of Proxy Materials (the
“Notice”) to our shareholders of record and beneficial
owners. All shareholders have the ability to access the proxy
materials on a website referred to in the Notice
(www.proxyvote.com) or request to receive a printed set
of the proxy materials.
How can I get
electronic access to the proxy materials?
The Notice provides you with instructions regarding how to
(1) view our proxy materials for the Annual Meeting on the
Internet; (2) vote your shares after you have viewed our
proxy materials; (3) request a printed copy of the proxy
materials; and (4) instruct us how to send our future proxy
materials to you.
Choosing to receive your future proxy materials by email will
lower our costs of delivery and will reduce the impact of our
Annual Meeting on the environment. If you choose to receive our
future proxy materials by email, you will receive an email next
year with instructions containing a link to view those proxy
materials and a link to the proxy voting site. Your election to
receive proxy materials by email will remain in effect until you
terminate it.
to approve an amendment and restatement of The PBG
Directors’ Stock Plan;
•
to ratify the appointment of Deloitte & Touche LLP as
our independent registered public accounting firm for fiscal
year 2009; and
•
to transact such other business as may properly come before the
Annual Meeting or any postponement or adjournment of the meeting.
The Board of Directors is not aware of any other matters to be
presented for action at the Annual Meeting.
How does the
Board of Directors recommend that I vote?
Our Board of Directors recommends that you vote your shares
(1) “FOR” the election of our directors;
(2) “FOR” the amendment and restatement of The
PBG Directors’ Stock Plan; and (3) “FOR” the
ratification of the appointment of Deloitte & Touche
LLP as our independent registered public accounting firm for
fiscal year 2009.
Who is
entitled to vote at the Annual Meeting?
Only holders of record of our common stock and Class B
common stock at the close of business on our record date,
March 30, 2009, are entitled to receive notice of and to
vote at the Annual Meeting or at any postponement or adjournment
of the meeting. As of the record date, there were
213,404,822 shares of our common stock outstanding and
100,000 shares of our Class B common stock
outstanding. All outstanding shares of our Class B common
stock are held by PepsiCo, Inc. (“PepsiCo”).
What
constitutes a quorum in order to hold and transact business at
the Annual Meeting?
The presence, in person or by proxy, of holders of at least a
majority of the votes entitled to be cast constitutes a quorum.
A quorum is required to hold the Annual Meeting.
What are my
voting rights?
Each shareholder is entitled to one vote for each share of our
common stock held by the shareholder as of the record date and
250 votes for each share of our Class B common stock held
by the shareholder as of the record date. You may vote all
shares owned by you as of the record date, including
(1) shares held directly in your name as the shareholder of
record and (2) shares held for you as the beneficial owner
in street name through a broker, trustee or other nominee.
What is the
difference between holding shares as a shareholder of record and
as a beneficial owner?
Most of our shareholders hold their shares through a broker,
bank or other nominee rather than directly in their own name. As
summarized below, there are some distinctions between shares
held of record and those owned beneficially.
Shareholder of Record. If your shares are
registered directly in your name with our transfer agent, The
Bank of New York Mellon, you are considered the shareholder of
record of those shares, and the Notice was sent directly to you
by PBG. As the shareholder of record, you have the right to
grant your voting proxy directly to us or to vote in person at
the Annual Meeting. If you plan to attend the Annual Meeting in
person, please call
914-767-6267
or email shareholder.relations@pepsi.comso that
we may send you an admission card.
Beneficial Owner. If your shares are held in a
stock brokerage account or by a bank or other nominee, you are
considered the beneficial owner of shares held in “street
name,” and the Notice was forwarded to you by your broker,
bank or nominee who is considered the shareholder of record with
respect to those shares. As the beneficial owner, you have the
right to direct your broker, bank or nominee on how to vote and
are also invited to attend the Annual Meeting. However, since
you are not the shareholder of record, you may not vote these
shares in person at the Annual Meeting unless you request a
legal proxy from your broker, bank or nominee.
If you are a shareholder of record, you may vote in person at
the Annual Meeting. We will give you a ballot when you arrive.
If you are the beneficial owner of shares held in street name
and you wish to vote in person at the Annual Meeting, you must
obtain a valid proxy from your broker, bank or nominee. If you
do not wish to vote in person or if you will not be attending
the Annual Meeting, you may vote by proxy. You can vote by proxy
over the Internet or by telephone by following the instructions
provided in the Notice, or, if you requested printed copies of
the proxy materials by mail, you can also vote by mail.
What vote is
needed to approve each proposal and how are votes
counted?
For the election of directors, each director must be elected by
a majority of the votes cast by the shares present in person or
represented by proxy and entitled to vote. Similarly, a majority
of the votes cast by the shares present in person or represented
by proxy and entitled to vote is required for approval of all of
the other proposals properly submitted for consideration at the
Annual Meeting. A “majority of the votes cast” means
that the number of votes cast “for” a director nominee
or proposal must exceed the number of votes cast
“against” that nominee or proposal.
If a nominee who is serving as a director fails to receive a
majority of the votes cast at the Annual Meeting, Delaware law
provides that the director would continue to serve on the Board
as a “holdover director.” However, under our Corporate
Governance Principles and Practices, any nominee who does not
receive a majority of the votes cast is required to tender his
or her resignation to the Board. In such event, the Nominating
and Corporate Governance Committee will make a recommendation to
the Board as to whether to accept or reject the resignation or
whether other action should be taken. The Board is required to
act on the Committee’s recommendation within 90 days
after the certification of the election results. If a nominee
who was not already serving as a director fails to receive a
majority of votes cast at the Annual Meeting, the nominee would
not become a member of the Board.
You may abstain from voting on any matter presented for
shareholder vote. Abstentions will be treated as shares that are
present and entitled to vote for purposes of determining the
presence of a quorum, but will not be counted in the number of
votes cast on a matter.
What happens
if I do not give specific voting instructions?
Shareholder of Record. If you are a
shareholder of record and you (1) indicate when voting on
the Internet or by telephone that you wish to vote as
recommended by our Board of Directors; or (2) sign and
return a proxy card without giving specific voting instructions,
then the proxy holders will vote your shares in the manner
recommended by our Board on all matters presented in this proxy
statement and as the proxy holders may determine in their
discretion with respect to any other matters properly presented
for a vote at the meeting.
Beneficial Owner. If you are a beneficial
owner of shares held in street name and do not provide your
broker, bank or nominee with specific voting instructions, the
broker, bank or nominee that holds your shares may generally
vote on “discretionary” or routine matters under the
rules of the New York Stock Exchange but cannot vote on
“non-discretionary” or non-routine matters. If the
broker, bank or nominee that holds your shares does not receive
instructions from you on how to vote your shares on a
“non-discretionary” or non-routine matter, it will
inform our Inspector of Election that it does not have the
authority to vote on this matter with respect to your shares.
This is generally referred to as a “broker non-vote.”
When our Inspector of Election tabulates the votes for any
particular matter, broker non-votes will be counted for purposes
of determining whether a quorum is present, but will not
otherwise be counted. We encourage you to provide voting
instructions to your broker, bank or nominee by carefully
following the instructions provided in the Notice.
Votes cast by proxy or in person at the Annual Meeting will be
tabulated by Broadridge Financial Solutions, Inc. who will
determine whether or not a quorum is present and whether or not
each proposal has obtained the necessary number of
“FOR” votes to approve the proposal.
Which
proposals are considered “routine” or
“non-routine”?
Proposal 1 (election of directors) and Proposal 3
(approval of auditors) involve matters that we believe will be
considered routine.
Proposal 2 (approval of the amended and restated PBG
Directors’ Stock Plan) involves a matter that we believe
will be considered non-routine.
What if other
matters come up at the Annual Meeting?
The matters described in this proxy statement are the only
matters we know of that will be voted on at the Annual Meeting.
If other matters are properly presented at the Annual Meeting,
the persons named as proxy holders will vote your shares in
their discretion. It is the intention of the named proxy holders
to vote the shares they represent as directed by our Board of
Directors.
Can I change
or revoke my vote after I have voted?
Yes. You can revoke your proxy or change your vote at any time
before it is exercised at the Annual Meeting. You may vote again
on a later date on the Internet or by telephone (only your
latest Internet or telephone proxy submitted prior to the
meeting will be counted), or by signing and returning a new
proxy card or voting instruction card with a later date, or by
attending the meeting and voting in person. However, your
attendance at the Annual Meeting will not automatically revoke
your proxy unless you vote again at the meeting or specifically
request in writing that your prior proxy be revoked.
Is my vote
confidential?
Our policy is that proxies identifying individual shareholders
are private except as necessary to determine compliance with
law, or assert or defend legal claims, or in a contested proxy
solicitation, or in the event that a shareholder makes a written
comment on a proxy card or an attachment to it. We retain an
independent organization to tabulate shareholder votes and
certify voting results.
Can I listen
to the Annual Meeting on the Internet?
Yes. Our Annual Meeting will be webcast on May 27, 2009 at
10:00 a.m. Eastern Time. You are invited to visit
www.pbg.comto listen to the live webcast of the Annual
Meeting. An archived copy of the webcast also will be available
on our website for at least 90 days following the date of
our Annual Meeting.
Who is
soliciting my vote and who will pay for the proxy
solicitation?
This solicitation is being made on behalf of our Board of
Directors, but may also be made without additional compensation
by our officers or employees by telephone, facsimile,
e-mail or
personal interview. In addition, we have engaged
Morrow & Co., Inc. as our proxy solicitor to help us
solicit proxies by mail, telephone and personal interview for
fees estimated at approximately $8,500. We will bear the expense
of the preparation, printing and mailing of the Notice and these
proxy materials. We will request brokers, banks and nominees who
hold shares of our common stock in their names to furnish proxy
materials to beneficial owners of the shares. We will reimburse
such brokers, banks and nominees for their reasonable expenses
incurred in forwarding solicitation materials to such beneficial
owners.
How do I find
out the voting results?
Preliminary voting results will be announced at the Annual
Meeting and final voting results will be published in our
Quarterly Report on
Form 10-Q
for the quarter ending June 13, 2009, which we will file
with the SEC. We will also post the results of the voting on our
website at www.pbg.comunder Investor
Relations — Annual Meeting Results within two weeks
after the date of the Annual Meeting.
Our Board of Directors proposes the following ten nominees for
election as directors at the Annual Meeting. Proxies cannot be
voted for a greater number of persons than the nominees named.
All of the nominees are currently serving on our Board. The
directors will hold office from the date of election until the
next Annual Meeting of Shareholders, or until their successors
are elected and qualified.
LINDA G. ALVARADO, 57, was elected to our Board in
March 1999. She is the President and Chief Executive Officer of
Alvarado Construction, Inc., a general contracting firm
specializing in commercial, industrial, environmental and heavy
engineering projects, a position she assumed in 1976. Ms.
Alvarado is also a director of Pitney Bowes Inc., Qwest
Communications International Inc., Lennox International Inc. and
3M Company.
BARRY H. BERACHA, 67, was elected to our Board in
March 1999. Mr. Beracha served as our Non-Executive Chairman
from April 2007 to October 2008. Mr. Beracha served as an
Executive Vice President of Sara Lee Corporation and Chief
Executive Officer of Sara Lee Bakery Group from August 2001
until his retirement in June 2003. Mr. Beracha was the Chairman
of the Board and Chief Executive Officer of The Earthgrains
Company from 1993 to August 2001. Earthgrains was formerly part
of Anheuser-Busch Companies, where Mr. Beracha served from 1967
to 1996. From 1979 to 1993, he held the position of Chairman of
the Board of Anheuser-Busch Recycling Corporation. From 1976 to
1995, Mr. Beracha was also Chairman of the Board of Metal
Container Corporation. Mr. Beracha is also a director of Hertz
Global Holdings, Inc. and Chairman of the Board of Trustees of
St. Louis University.
JOHN C. COMPTON, 47, was elected to our Board in
March 2008. Mr. Compton is Chief Executive Officer of PepsiCo
Americas Foods, an operating unit of PepsiCo, a position he
assumed in November 2007. Mr. Compton began his career at
PepsiCo in 1983 as a Frito-Lay Production Supervisor and since
that time has held various sales, marketing, operations and
general management positions. From September 2006 until November
2007, Mr. Compton was Chief Executive Officer of PepsiCo North
America and from March 2005 until September 2006, he was
President and Chief Executive Officer of Quaker, Tropicana,
Gatorade. Mr. Compton served as Vice Chairman and President of
the North American Salty Snacks Division of Frito-Lay from March
2003 until March 2005. Prior to that, he served as Chief
Marketing Officer of Frito-Lay’s North American Salty
Snacks Division from August 2001 until March 2003.
ERIC J. FOSS, 50, was appointed Chairman of our
Board in October 2008 and has been our Chief Executive Officer
and a member of our Board since July 2006. Mr. Foss served
as our President and Chief Executive Officer from July 2006 to
October 2008. Previously, Mr. Foss served as our Chief
Operating Officer from September 2005 to July 2006 and President
of PBG North America from September 2001 to September 2005.
Prior to that, Mr. Foss was the Executive Vice President and
General Manager of PBG North America from August 2000 to
September 2001. From October 1999 until August 2000, he served
as our Senior Vice President, U.S. Sales and Field Operations,
and prior to that, he was our Senior Vice President, Sales and
Field Marketing, since March 1999. Mr. Foss joined the
Pepsi-Cola Company in 1982 where he held a variety of field and
headquarters-based sales, marketing and general management
positions. From 1994 to 1996, Mr. Foss was General Manager of
Pepsi-Cola North America’s Great West Business Unit. In
1996, Mr. Foss was named General Manager for the Central Europe
Region for Pepsi-Cola International, a position he held until
joining PBG in March 1999. Mr. Foss is also a director of UDR,
Inc. and serves on the Industry Affairs Council of the Grocery
Manufacturers of America.
IRA D. HALL, 64, was elected to our Board in March
2003. From 2002 until his retirement in late 2004, Mr. Hall was
President and Chief Executive Officer of Utendahl Capital
Management, LP. From 1999 to 2001, Mr. Hall was Treasurer of
Texaco Inc. and General Manager, Alliance Management for Texaco
Inc. from 1998 to 1999. From 1985 to 1998, Mr. Hall held
various positions with International Business Machines. Mr.
Hall is also a director of Praxair, Inc.
SUSAN D. KRONICK, 57, was elected to our Board in
March 1999. Ms. Kronick became Vice Chair of Macy’s, Inc.
(formerly known as Federated Department Stores, Inc.) in
February 2003. Previously, she had been Group President of
Federated Department Stores since April 2001. From 1997 to
2001, Ms. Kronick was the Chairman and Chief Executive Officer
of Burdines, a division of Federated Department Stores. From
1993 to 1997, Ms. Kronick served as President of
Federated’s Rich’s/Lazarus/Goldsmith’s division.
She spent the previous 20 years at Bloomingdale’s,
where her last position was Senior Executive Vice President and
Director of Stores.
BLYTHE J. MCGARVIE, 52, was elected to our Board
in March 2002. Ms. McGarvie is Chief Executive Officer of
Leadership for International Finance, a private consulting firm
providing leadership seminars for corporate and academic groups.
From 1999 to December 2002, Ms. McGarvie was Executive Vice
President and Chief Financial Officer of BIC Group. From 1994
to 1999, Ms. McGarvie served as Senior Vice President and Chief
Financial Officer of Hannaford Bros. Co. Ms. McGarvie is a
Certified Public Accountant and has also held senior financial
positions at Sara Lee Corporation, Kraft General Foods, Inc. and
Pizza Hut, Inc. Ms. McGarvie is also a director of Accenture
Ltd, The Travelers Companies, Inc. and Viacom Inc.
JOHN A. QUELCH, 57, was elected to our Board in
January 2005. Mr. Quelch has been Senior Associate Dean and
Lincoln Filene Professor of Business Administration at Harvard
Business School since 2001. From 1998 to 2001, Mr. Quelch was
Dean of the London Business School. Prior to that he was an
Assistant Professor, an Associate Professor and a full Professor
of Business Administration at Harvard Business School from 1979
to 1998. Mr. Quelch is also a director of WPP plc and Inverness
Medical Innovations, Inc.
JAVIER G. TERUEL, 58, was elected to our Board in
May 2007. Mr. Teruel has served as a partner at Spectron
Desarrollo, S.C., a management and consulting firm in Mexico,
since May 2007. Previously, he served as Vice Chairman of
Colgate-Palmolive Company until his retirement in April 2007.
While serving as Vice Chairman, a position he assumed in 2004,
Mr. Teruel was responsible for the operations of the Hill’s
Pet Nutrition Division, Global R&D, Global Supply Chain,
and Global Information Technology. Additionally, he led
Colgate’s evolving worldwide strategy, which included
overseeing Colgate’s business building and restructuring
initiative. From 2002 to 2004, Mr. Teruel served as Executive
Vice President, with responsibility for Colgate’s Asia and
South Pacific, Central Europe/Russia, and Africa/Middle East
Divisions, as well as Hill’s Pet Nutrition. Mr. Teruel
joined Colgate-Palmolive in 1971 in Mexico where he held a
variety of marketing, sales and management positions. Mr.
Teruel is also a director of Starbucks Corporation, J.C. Penney
Company, Inc. and Corporación Geo.
CYNTHIA M. TRUDELL, 55, was elected to our Board
in May 2008. Ms. Trudell is Senior Vice President, Chief
Personnel Officer of PepsiCo, a position she assumed in February
2007. Ms. Trudell served as a director of PepsiCo from January
2000 until her appointment to her current position. Prior to
joining PepsiCo, Ms. Trudell served as Vice President of
Brunswick Corporation and President of Sea Ray Group from 2001
until 2006. From 1999 until 2001, Ms. Trudell served as General
Motors’ Vice President, and Chairman and President of
Saturn Corporation, a wholly owned subsidiary of GM. From 1995
to 1999, she served as President of IBC Vehicles in Luton,
England, a joint venture between General Motors and Isuzu. Ms.
Trudell began her career with the Ford Motor Co. as a chemical
process engineer. In 1981, she joined GM and held various
engineering and manufacturing supervisory positions.
If any of these nominees for director becomes unavailable, the
persons named in the enclosed proxy intend to vote for any
alternate designated by the present Board of Directors. Barring
special circumstances, all director nominees are expected to be
present at the 2009 Annual Meeting of Shareholders.
The Board of
Directors recommends a vote FOR all of the
above-named nominees for election as directors.
Our Board of Directors is committed to transparency in financial
reporting and a high level of corporate governance. We adhere to
the following governance policies and practices which we believe
are in full compliance with the Sarbanes-Oxley Act of 2002 and
the rules and regulations promulgated by the SEC and the New
York Stock Exchange (the “NYSE”).
In assessing the independence of our directors, our Board
carefully considered all of the business relationships between
PBG and our directors or their affiliated companies. This review
was based primarily on responses of the directors to questions
in a questionnaire regarding employment, business, familial,
compensation and other relationships with our company and our
management. Where business relationships existed, the Board
determined that none of the relationships between our company
and the directors or the directors’ affiliated companies
impair the directors’ independence because the amounts
involved are immaterial to the directors or to those companies
when compared to their annual income or gross revenues. The
Board also determined for all of the relationships between our
company and our directors or the directors’ affiliated
companies, that none of the relationships would interfere with
the director’s impartial judgment as a director of PBG.
The business relationships between PBG and our directors or the
directors’ affiliated companies that were considered by the
Board were:
•
PBG sells a small amount of beverage products to Macy’s,
Inc., of which Susan D. Kronick is Vice Chair;
•
PBG sells a small amount of beverage products to the Harvard
Business School, of which John A. Quelch is Senior Associate
Dean and Lincoln Filene Professor of Business Administration.
The Board also considered the relationship between PBG and Linda
G. Alvarado, which is described in the section below entitled
“Transactions with Related Persons.”
directors. Communications relating to our accounting, internal
accounting controls or auditing matters will be referred to the
Chair of the Audit and Affiliated Transactions Committee. All
other communications will be referred to the Lead Director of
the Board or to a specified director, if so addressed.
Communications may be submitted anonymously or confidentially.
Shareholder Recommendations. Shareholders
wishing to recommend a director candidate to the Chairperson of
the Nominating and Corporate Governance Committee for its
consideration should write to the Secretary, The Pepsi Bottling
Group, Inc., One Pepsi Way, Somers, NY10589. Recommendations
must be received no later than December 8, 2009 to be
considered for inclusion in the proxy statement for the 2010
Annual Meeting of Shareholders. All recommendations meeting the
minimum requirements set forth in our Corporate Governance
Principles and Practices and summarized above under
“Director Qualifications” will be referred to the
Nominating and Corporate Governance Committee. Such letters of
recommendation must include the address and number of shares
owned by the nominating shareholder, the recommended
individual’s name and address, and a description of the
recommended individual’s background and qualifications. A
signed statement from the recommended individual must accompany
the letter of recommendation indicating that he or she consents
to being considered as a candidate and that, if nominated by the
Board of Directors and elected by the shareholders, he or she
will serve as a director of our Company.
Meetings of the Board of
Directors. Our Board of Directors held six
regular and two special meetings during fiscal year 2008.
Attendance by incumbent directors at all Board and applicable
Committee meetings in 2008 was approximately 96%. Barring
special circumstances, our directors are expected to attend all
Board and Committee meetings and the Annual Meeting of
Shareholders. All of our directors attended our 2008 Annual
Meeting of Shareholders.
The Audit and Affiliated Transactions Committee’s primary
responsibilities are to: (i) oversee the quality and
integrity of our financial statements; (ii) appoint,
compensate, evaluate (including evaluating independence) and,
where appropriate, terminate the independent auditors;
(iii) oversee the work of the independent auditors and
ensure that they report directly to the Committee;
(iv) pre-approve all audit, audit-related and non-audit
services to be provided by the independent auditors and approve
fees to be paid for such services; (v) review and monitor
the performance of the internal audit department;
(vi) review the adequacy of our internal controls and
disclosure controls; (vii) discuss our risk assessment and
risk
management policies; (viii) review our earnings releases
and periodic reports filed with the SEC; (ix) provide an
open avenue of communication among the independent auditors,
senior management, the internal audit department and our Board;
(x) monitor our compliance with applicable laws and
regulations and with our Worldwide Code of Conduct;
(xi) establish procedures for the Committee to receive,
retain and respond to complaints regarding accounting, internal
accounting controls and auditing matters, as well as for
confidential, anonymous submission by employees of concerns
related to questionable accounting or auditing matters; and
(xii) report to shareholders in the proxy statement on
those matters required by SEC rules. The Audit and Affiliated
Transactions Committee also reviews transactions for a value in
excess of $120,000 between us and related persons (other than
PepsiCo), as well as transactions between us and PepsiCo, or any
entity in which PepsiCo has a 20% or greater interest, that are
outside the ordinary course of business and have a value of more
than $10 million. The Audit and Affiliated Transactions
Committee annually assesses its performance and effectiveness.
The Audit and Affiliated Transactions Committee held nine
meetings during fiscal year 2008. The report of the Audit and
Affiliated Transactions Committee is included in this proxy
statement.
The Nominating and Corporate Governance
Committee. The Nominating and Corporate
Governance Committee acts under a written charter that has been
approved by our Board of Directors and complies with NYSE
corporate governance rules. The charter is posted on our website
at www.pbg.comunder Investor Relations —
Company Information — Corporate Governance and is
available in print without charge to any PBG shareholder upon
request. The Nominating and Corporate Governance
Committee’s primary responsibilities are to:
(i) identify and recommend to our Board for election at the
annual meeting of shareholders qualified candidates for Board
membership; (ii) periodically review the appropriate skills
and characteristics required of directors and develop criteria
for selecting new directors; (iii) in cooperation with the
Compensation and Management Development Committee, advise our
Board in its periodic evaluation of the performance of the CEO;
(iv) periodically review and report to our Board regarding
director compensation and benefits; (v) establish policies
and procedures for receipt and consideration of director
nominations by shareholders; (vi) review and recommend to
our Board the appointment of directors to Board Committees and
the selection of the chairperson of each of the Committees;
(vii) periodically review our Corporate Governance
Principles and Practices and recommend to our Board any
modifications that the Committee deems appropriate;
(viii) periodically review our Director Independence Policy
and recommend to our Board any modifications that the Committee
deems appropriate; and (ix) report to shareholders in the
proxy statement on those matters required by SEC rules. The
Nominating and Corporate Governance Committee annually assesses
the performance and effectiveness of our Board and its
Committees. Based on the assessment, the Committee makes
recommendations to our Board concerning composition, size,
structure and activities of the Board and its Committees. The
Nominating and Corporate Governance Committee held four meetings
during fiscal year 2008.
The Compensation and Management Development
Committee. The Compensation and Management
Development Committee acts under a written charter that has been
approved by our Board of Directors and complies with the NYSE
corporate governance rules. The charter is posted on our website
at www.pbg.comunder Investor Relations —
Company Information — Corporate Governance and is
available in print without charge to any PBG shareholder upon
request. The Compensation and Management Development
Committee’s primary responsibilities are to:
(i) ensure that our executive compensation programs are
appropriately competitive, support organization objectives and
shareholder interests and provide linkage between compensation
and both individual and company performance; (ii) approve
(subject to any shareholder approval required) annual and
long-term executive compensation plans and any changes in such
plans; (iii) in cooperation with the Nominating and
Corporate Governance Committee, advise our Board in its
evaluation of the performance of our CEO and approve the base
salary of our CEO; (iv) approve annual performance goals
and objectives and maximum annual incentive awards for our CEO
and the other named executive officers identified in the Summary
Compensation Table of this proxy statement (the “Named
Executive Officers”); (v) certify year-end performance
and determine annual incentive awards for the Named Executive
Officers; (vi) evaluate the performance of the other Named
Executive Officers and approve their base salaries;
(vii) approve the aggregate amount for annual
incentive awards; (viii) review performance targets and
goals for annual incentive awards to other executives and
approve the aggregate award pool for such executives;
(ix) approve long-term compensation awards;
(x) establish Chairman, CEO and other key executive
succession planning and review management development plans for
key executives; (xi) review and discuss with management the
Compensation Discussion and Analysis section of the proxy
statement (the “CD&A”), and recommend to the
Board that the CD&A be included in the proxy statement; and
(xii) report to shareholders in the proxy statement on
those matters required by SEC rules. The Committee may delegate
any of the matters within its responsibility to the Committee
Chair, CEO, the Senior Vice President and Chief Personnel
Officer, or to his or her delegates or to any management
committee composed of Company employees, to the extent permitted
under applicable laws, regulations or NYSE listing standards.
The Compensation and Management Development Committee retains an
independent compensation consultant to assist the Committee in
carrying out its responsibilities as more fully described below,
and the Committee annually assesses its own performance and
effectiveness. The Compensation and Management Development
Committee held five meetings during fiscal year 2008. The report
of the Compensation and Management Development Committee is
included in this proxy statement.
attending all Committee meetings and participating in the
Committee’s executive session at each meeting;
•
attending Board of Directors meetings, as requested by the
Committee Chairperson;
•
participating in
one-on-one
meetings with the Committee Chairperson prior to each Committee
meeting;
•
developing and presenting a competitive range of compensation
for the CEO;
•
assisting the CEO in the development of a recommendation, for
approval by the Committee, with respect to the compensation of
each senior executive, including each Named Executive Officer
(other than the CEO);
•
providing competitive market data with respect to specific
executives and executive groups, as well as the Company’s
peer group;
•
independently reviewing competitive market data and surveys
prepared by other consulting firms;
•
reviewing the Company’s compensation levels, performance
and incentive compensation design compared to the market and
PBG’s industry peer group; and
•
reviewing the CD&A.
Mr. Johnston also provided competitive market data and
recommendations to the Nominating and Corporate Governance
Committee for non-employee director compensation.
Cook & Co. and Mr. Johnston provide minimal
services to the Company outside of their services to the Board
and its Committees.
From time to time, management also retains human resources
consulting firms, other than Cook & Co., for the
purposes of providing the Company with executive compensation
market survey data and advising the Company on certain
broad-based compensation and benefit programs (e.g., retirement
program strategy).
objectives of our program. The Committee then determines whether
any aspect of the program needs to be adjusted, deleted or
added. The program is applied to all levels of executives that
comprise our executive population. The program, however, does
not include fixed annual and long-term incentive values for our
senior executives, including our CEO and the other Named
Executive Officers. Instead, within the program design
applicable to all executives, the Committee establishes the
individual target compensation level for the CEO and each other
Named Executive Officer based on the Company’s and
individual’s performance over the prior year, the
competitive market for executive talent (as determined by the
peer group and marketplace information discussed below), and
other specific considerations regarding the particular executive.
With respect to the target total compensation (i.e., the
aggregate of base salary, target short-term incentive and target
long-term incentive) for the CEO, the Committee’s
independent compensation consultant prepares and reviews
competitive data and market trends and then meets with the
Committee Chairperson to discuss this information and obtain the
Chairperson’s perspective regarding the performance of the
Company and CEO. The Committee’s independent compensation
consultant then presents to the Committee a range of
alternatives for the CEO’s target total compensation. The
Committee discusses the alternatives and determines the
appropriate target total compensation for the CEO. With respect
to the target total compensation for each of the other Named
Executive Officers, the CEO, with the assistance of the
Committee’s independent compensation consultant, makes a
recommendation for review by the Committee. The Committee
considers these recommendations and, in its discretion,
determines the target total compensation level for each Named
Executive Officer.
Process of Designing the Non-Employee Directors
Compensation Program. The compensation of our
non-employee directors is approved by the full Board, upon
recommendation of the Nominating and Corporate Governance
Committee. The independent compensation consultant regularly
prepares and reviews market trends with respect to the
compensation of non-employee directors at the companies in our
peer group and the market in general. He then meets with the
Nominating and Corporate Governance Committee, which reviews the
market data and discusses whether any changes to the
non-employee directors’ compensation program are
appropriate. If the Nominating and Corporate Governance
Committee determines that changes to the program are
appropriate, the Committee makes a recommendation to the full
Board. The full Board then reviews and discusses the
recommendation, with input from the independent compensation
consultant, and, in its discretion, determines the terms of the
non-employee directors’ compensation program for the
subsequent year. The 2008 compensation of our non-employee
directors is detailed in the table below.
Retainers and Committee Chair fees are pro-rated based on length
of service as a Director or Committee Chair during the year as
more fully described in the Narrative to the Director
Compensation Table and Director Grants of Plan-Based Awards
Table.
(2)
Each non-employee Director receives $1,500 for each formal
Committee meeting he or she attends as a member. Neither
Mr. Compton, Ms. Trudell nor Ms. Moore served on
any Committee of the Board of Directors.
(3)
The amount included in this column is the compensation cost
recognized by the Company in fiscal year 2008 related to the
Director’s outstanding equity awards that were unvested for
all or any part of 2008, calculated in accordance with the
Statement of Financial Accounting Standards No. 123R,
Share-Based Payment (revised) (“SFAS 123R”)
without regard to forfeiture estimates. This amount encompasses
equity awards that were granted in 2007 and 2008 as more fully
described in the Narrative that follows this table and was
determined using the assumptions set forth in Note 4,
Share-Based Compensation, to our Annual Report on
Form 10-K
for the fiscal year ended December 27, 2008. Due to the
decline in the market price of our common stock, all of these
awards are currently “out of the money” and have no
intrinsic value to the Director.
(4)
The aggregate number of unvested stock awards and unexercised
stock option awards outstanding for each Director at fiscal year
end 2008 is provided in the table below:
This amount includes: (i) $8,625, which equals the total
value of all perquisites and personal benefits provided to
Ms. Alvarado in connection with an international market
visit and Board of Directors’ meeting in Russia, and is
primarily attributable to spousal travel, meals and related
expenses; and (ii) $4,120, which equals all tax
reimbursements paid to Ms. Alvarado for the tax liability
related to Company provided perquisites and personal benefits.
(6)
On October 2, 2008, Mr. Beracha ceased service as
Non-Executive Chairman of the Board of Directors. This amount
includes $151,099 which reflects a pro-rated annual cash
retainer Mr. Beracha received as Non-Executive Chairman of
the Board of Directors.
(7)
This amount includes: (i) $11,030, which equals the total
value of all perquisites and personal benefits provided to
Mr. Beracha in connection with an international market
visit and Board of Directors’ meeting in Russia, and is
primarily attributable to spousal travel, meals and related
expenses; (ii) $5,486, which equals all tax reimbursements
paid to Mr. Beracha for the tax liability related to
Company provided perquisites and personal benefits; and
(iii) $20,000, which represents the amount paid by the
Company to match Mr. Beracha’s eligible charitable
contributions in 2008.
(8)
This amount includes: (i) $549, which equals the total
value of all perquisites and personal benefits provided to
Mr. Compton in connection with an international market
visit and Board of Directors’ meeting in Russia; and
(ii) $284, which equals all tax reimbursements paid to
Mr. Compton for the tax liability related to Company
provided perquisites and personal benefits.
(9)
This amount includes: (i) $10,416, which equals the total
value of all perquisites and personal benefits provided to
Mr. Hall in connection with an international market visit
and Board of Directors’ meeting in Russia, and is primarily
attributable to spousal travel, meals and related expenses;
(ii) $5,634, which equals all tax reimbursements paid to
Mr. Hall for the tax liability related to Company provided
perquisites and personal benefits; and (iii) $20,000, which
represents the amount paid by the Company to match
Mr. Hall’s eligible charitable contributions in 2008.
(10)
This amount includes: (i) $9,790, which equals the total
value of all perquisites and personal benefits provided to
Ms. Kronick in connection with an international market
visit and Board of Directors’ meeting in Russia, and is
primarily attributable to spousal travel, meals and related
expenses; (ii) $3,521, which equals all tax reimbursements
paid to Ms. Kronick for the tax liability related to
Company provided perquisites and personal benefits; and
(iii) $20,000, which represents the amount paid by the
Company to match Ms. Kronick’s eligible charitable
contributions in 2008.
(11)
This amount includes: (i) $9,084, which equals the total
value of all perquisites and personal benefits provided to
Ms. McGarvie in connection with an international market
visit and Board of Directors’ meeting in Russia, and is
primarily attributable to spousal travel, meals and related
expenses; (ii) $4,478, which equals all tax reimbursements
paid to Ms. McGarvie for the tax liability related to
Company provided perquisites and personal benefits; and
(iii) $16,000, which represents the amount paid by the
Company to match Ms. McGarvie’s eligible charitable
contributions in 2008.
(12)
Ms. Moore did not stand for re-election at the 2008 Annual
Meeting of Shareholders and ceased service as a Director on
May 28, 2008. The amount shown in the “All Other
Compensation” column represents the tax reimbursement paid
to Ms. Moore in connection with a nominal recognition award.
(13)
This amount includes: (i) $8,678, which equals the total
value of all perquisites and personal benefits provided to
Mr. Quelch in connection with an international market visit
and Board of Directors’ meeting in Russia, and is primarily
attributable to spousal travel, meals and related expenses;
(ii) $4,785, which equals all tax reimbursements paid to
Mr. Quelch for the tax liability related to Company
provided perquisites and personal benefits; and
(iii) $10,000, which represents the amount paid by the
Company to match Mr. Quelch’s eligible charitable
contributions in 2008.
(14)
On October 2, 2008, Mr. Teruel was elected to serve as
Lead Director of the Board of Directors. This amount includes
$7,500 which represents a pro-rated amount of the $30,000 annual
cash retainer payable to the Lead Director of the Board of
Directors.
(15)
This amount includes: (i) $10,908, which equals the total
value of all perquisites and personal benefits provided to
Mr. Teruel in connection with an international market visit
and Board of Directors’ meeting in Russia, and is primarily
attributable to spousal travel, meals and related expenses;
(ii) $5,960,
which equals all tax reimbursements paid to Mr. Teruel for
the tax liability related to Company provided perquisites and
personal benefits.
(16)
This amount includes: (i) $7,887, which equals the total
value of all perquisites and personal benefits provided to
Ms. Trudell in connection with an international market
visit and Board of Directors’ meeting in Russia, and is
primarily attributable to spousal travel and related expenses;
and (ii) $4,025, which equals all tax reimbursements paid
to Ms. Trudell for the tax liability related to Company
provided perquisites and personal benefits.
Director
Grants of Plan-Based Awards In Fiscal Year 2008
All Other Stock
All Other Option
Exercise or
Closing
Grant Date Fair
Awards:
Awards:
Base Price of
Market Price
Value of Stock
Number of Shares
Number of Securities
Option
on
and Option
of Stock or Units
Underlying Options
Awards
Grant Date
Awards
Name
Grant
Date(1)
(#)(2)
(#)(2)
($/Sh)
($)
($)(3)
Linda G. Alvarado
04/01/2008
2,038
—
—
—
70,026
04/01/2008
—
6,112
34.36
34.74
47,307
Barry H. Beracha
04/01/2008
2,038
—
—
—
70,026
04/01/2008
—
6,112
34.36
34.74
47,307
04/01/2008
2,911(4)
—
—
—
100,022
John C.
Compton(5)
04/01/2008
728
—
—
—
25,014
Ira D. Hall
04/01/2008
2,038
—
—
—
70,026
04/01/2008
—
6,112
34.36
34.74
47,307
Susan D. Kronick
04/01/2008
2,038
—
—
—
70,026
04/01/2008
—
6,112
34.36
34.74
47,307
Blythe J. McGarvie
04/01/2008
2,038
—
—
—
70,026
04/01/2008
—
6,112
34.36
34.74
47,307
Margaret D.
Moore(6)
—
—
—
—
—
—
John A. Quelch
04/01/2008
2,038
—
—
—
70,026
04/01/2008
—
6,112
34.36
34.74
47,307
Javier G. Teruel
04/01/2008
2,038
—
—
—
70,026
04/01/2008
—
6,112
34.36
34.74
47,307
Cynthia M.
Trudell(5)
06/01/2008
771
—
—
—
25,027
(1)
No separate column for “Date of Board Action” appears
in this Director Grants of Plan-Based Awards Table since the
April 1 grant date for the Directors’ annual equity awards
is mandated by the terms of The PBG Directors’ Stock Plan
as amended and restated (the “Directors’ Stock
Plan”).
(2)
The 2008 stock awards and option awards were made under the
terms of the Directors’ Stock Plan.
(3)
The assumptions used in calculating the SFAS 123R grant
date fair value of the Option Awards and Stock Awards are set
forth in Note 4, Share-Based Compensation, to our Annual
Report on
Form 10-K
for the fiscal year ended December 27, 2008.
(4)
This amount reflects an award granted to Mr. Beracha in
connection with his services as Non-Executive Chairman.
Effective October 2, 2008, Mr. Beracha ceased service
as Non-Executive Chairman.
(5)
Mr. Compton and Ms. Trudell each waived receipt of
their annual equity awards.
(6)
Ms. Moore did not stand for re-election at the 2008 Annual
Meeting of Shareholders and ceased service as a Director on
May 28, 2008 and, therefore, did not receive an annual
equity award.
Narrative to the
Director Compensation Table and Director Grants of Plan-Based
Awards Table
The compensation paid to our non-employee Directors in 2008 is
reflected in the table above entitled Director Compensation In
Fiscal Year 2008. Management Directors do not receive additional
compensation or benefits for serving on the Board of Directors.
Retainers and Fees. During 2008, our Directors
received an annual retainer of $70,000 which was paid in
quarterly installments. For the year in which a Director
commences service, his or her annual retainer is pro-rated on a
quarterly basis, beginning with the quarter in which he or she
commenced services. Conversely, a Director who ceases to serve
as a Director will not receive a quarterly payment for the
quarter in which he or she ceases service unless he or she
attended a meeting during such quarter.
During 2008, the Chair of the Nominating and Corporate
Governance Committee received an additional $10,000 for her
service and each of the Chairs for the Audit and Affiliated
Transactions Committee Chair and the Compensation and Management
Development Committee Chair received an additional $15,000.
Committee Chair fees are pro-rated depending on length of
service as Chair during the year. Committee Chairs receive their
first quarterly payment in the quarter following the quarter in
which they were appointed Chair. An exiting Chair receives a
quarterly payment for any quarter during which he or she served
any portion as Chair.
During 2008, the Director serving as Non-Executive Chairman
received an additional annual retainer of $200,000. In October
2008, the Board combined the offices of Chairman and Chief
Executive Officer and vacated the position of Non-Executive
Chairman. At the same time, the Board named a Lead Director. The
Director serving in the Lead Director role receives an
additional annual retainer of $30,000. Effective October 2,2008, Javier G. Teruel was appointed Lead Director of the Board
of Directors and, as reflected in the Director Compensation
Table, he received a pro-rated amount of the annual retainer for
Lead Director.
Committee members also receive fees of $1,500 for each formal
meeting in which the Committee member participated (in person or
by telephone).
Beginning in 2009, Directors may elect to defer receipt of all
or a portion of their annual cash compensation under the PBG
Director Deferral Program (“Deferral Plan”) for a
minimum period of one year. Under this Deferral Plan, amounts
deferred by our Directors are maintained in bookkeeping accounts
that are deemed invested in our common stock and dividend
equivalents paid on such common stock are similarly deemed to be
invested in our common stock. Deferred amounts are paid out in a
lump sum cash payment on the date specified by the Director or
upon the Director’s death, if earlier.
Equity Awards. All equity awards to our
non-employee Directors are made pursuant to the terms of the
Directors’ Stock Plan which was approved by shareholders in
May 2001. The Directors’ Stock Plan expressly sets forth
the material terms relating to all equity awards available to
our Directors, including specific grant dates and award values.
Initial Grant of Restricted Shares. Under the
Directors’ Stock Plan, a new Board member receives a
one-time grant of $25,000 in restricted shares of PBG common
stock (“Restricted Shares”) upon joining the Board.
This grant vests on the first anniversary of the grant date and
the Director may elect to defer receipt of the Restricted Shares
until he or she leaves the Board. The amount shown for
Mr. Compton, Mr. Teruel and Ms. Trudell in the
“Stock Awards” column reflects the compensation
expense recognized for the Restricted Shares granted to each of
them upon their joining the Board. Mr. Teruel’s award
vested in June 2008, Mr. Compton’s award vests in
April 2009 and Ms. Trudell’s award vests in June 2009.
Annual Grant of Restricted Stock Units and Stock
Options. The Directors’ Stock Plan also
provides for annual equity grants to our Directors on April 1 of
each year. The 2008 annual equity grants were comprised of
restricted stock units (“RSUs”) with a value of
$70,000 and stock options with a face value of $210,000. The
annual award amounts are pro-rated to the extent a Director
commences services as a Director after April 1. Generally,
no award is payable to a Director who does not stand for
re-election. Also, PepsiCo Board designates typically elect to
waive the annual grant of restricted stock and stock options.
On April 1, 2008, each of our Directors, with the exception
of Mr. Compton, Ms. Trudell and Ms. Moore (each,
a PepsiCo Board designate), received an annual grant of RSUs
with a value of $70,000. The number of RSUs granted was
determined by dividing $70,000 by the “Fair Market
Value” (as defined in the Directors’ Stock Plan) of
PBG common stock on the grant date, rounded up to the nearest
whole share. The Directors’ Stock Plan defines Fair Market
Value as the average of the high and low sales price for PBG
common stock as reported on the NYSE on the grant date. Since
our definition of Fair Market Value differs from that
established under SEC regulations, we have included the
“Closing Market Price on Grant Date” column in the
Director Grants of Plan-Based Awards Table above as required by
SEC regulations. The RSUs were immediately vested and are
credited with dividend equivalents in the form of additional
RSUs at the same time and in the same amount as dividends are
paid to our shareholders. RSUs are settled in shares of PBG
common stock. Directors were given an opportunity to defer
payment of their RSUs until such time as they elect, subject to
a minimum deferral period of two years. Notwithstanding any
Director’s deferral election, all RSUs shall be immediately
payable upon a Director’s separation from service for any
reason (including death and “Disability,” as defined
in the Directors’ Stock Plan).
Our Directors, with the exception of Mr. Compton,
Ms. Trudell and Ms. Moore, also received an annual
grant of options to purchase PBG common stock with a face value
of $210,000 on April 1, 2008. The number of options granted
was determined by dividing $210,000 by the exercise price of the
stock options. The exercise price is equal to the Fair Market
Value of PBG common stock on the grant date, rounded to the
nearest penny. Under the terms of the Directors’ Stock
Plan, these options vested immediately and remain exercisable
until the earlier of the tenth anniversary of the grant date or
five years from the recipient’s termination of services as
a Director (the full ten-year term also applies in the case of
death or Disability).
Non-Executive Chairman Annual Grant of Additional Restricted
Stock Units. The Directors’ Stock Plan also
provides for an additional annual award of RSUs with a value of
$100,000 to a Director serving as Non-Executive Chairman. The
award is immediately vested and subject to mandatory deferral
until separation from service as a Director. The terms of the
Directors’ Stock Plan provide that this additional award of
RSUs to the Non-Executive Chairman shall be made annually
beginning on the first anniversary of the date the Non-Executive
Chairman commences services as Non-Executive Chairman.
Mr. Beracha was appointed Non-Executive Chairman on
April 1, 2007, and he received this additional annual award
of RSUs on April 1, 2008. On October 2, 2008, the
Board of Directors combined the offices of Chairman and Chief
Executive Officer and vacated the position of Non-Executive
Chairman.
All Other Compensation. Our Directors are
eligible to participate in the Company’s charitable gift
match program on the same basis as all Company employees. Under
this program, certain charitable donations of up to an annual,
aggregate maximum of $10,000 are matched on a one-for-one basis
or, if the Director serves on the board of the recipient
charitable institution, on a two-for-one basis. The amount of
the Company match for each Director is reflected in the
“All Other Compensation” column of the Director
Compensation Table. In addition, in certain circumstances,
limited perquisites and personal benefits may be provided by the
Company to our Directors. Tax reimbursements related to these
Company-provided perquisites and personal benefits may be
provided in these limited circumstances. In 2008, perquisites
and personal benefits were provided to our Directors in
connection with an international market visit and Board meeting
in Russia. The Directors’ spouses were encouraged to attend
this meeting, and the perquisites and personal benefits
associated with the meeting are reflected in the “All Other
Compensation” column of the Director Compensation Table.
Directors do not receive any other compensation except as
discussed above, nor do they receive retirement, health or life
insurance benefits.
Section 16(a) Beneficial Ownership
Reporting Compliance. Section 16(a) of
the Securities Exchange Act of 1934 requires our directors,
certain officers and persons who own more than ten percent of
our outstanding common stock to file with the SEC reports of
ownership and changes in ownership of our common stock held by
such persons. Officers, directors and greater than ten percent
shareholders are also required to furnish us with copies of all
forms they file under this regulation. To our knowledge, based
solely on a review of the copies of such reports furnished to
us, all Section 16(a) filing requirements applicable to all
of our reporting persons were complied with during fiscal year
2008.
PepsiCo reported its beneficial ownership on a
Schedule 13G/A filed with the SEC on February 9, 2009.
The filing indicates that, as of December 31, 2008, PepsiCo
has sole voting power and sole dispositive power for
70,166,458 shares of our common stock including
Class B common stock. As of February 13, 2009, to our
knowledge PepsiCo beneficially owned 70,166,458 shares of
our common stock including Class B common stock.
(2)
Percentage is calculated based upon the number of outstanding
shares of our common stock as of February 13, 2009.
Ownership of Common Stock by Directors and
Executive Officers. The following table
shows, as of February 13, 2009, the shares of our common
stock beneficially owned by (i) each director and director
nominee, (ii) each Named Executive Officer, and
(iii) all directors and executive officers as a group.
Except as otherwise noted, each of the following persons has
sole voting or investment power with respect to the shares of
common stock beneficially owned by him or her.
Number of
Shares
Beneficially
Percent of
Name of Individual
Owned
Deferral
Plans(1)
Total
Class
Linda G. Alvarado
98,814
9,612
108,426
*
Barry H. Beracha
108,400
6,066
114,466
*
John C. Compton
0
(2)
0
0
*
Victor L. Crawford
117,418
(3)(4)
0
117,418
*
Alfred H. Drewes
444,596
(4)
0
444,596
*
Eric J. Foss
1,092,433
(4)
0
1,092,433
*
Ira D. Hall
50,505
3,545
54,050
*
Robert C. King
208,119
(4)
0
208,119
*
Susan D. Kronick
99,346
8,445
107,791
*
Blythe J. McGarvie
50,827
12,425
63,252
*
Yiannis Petrides
233,950
(4)
0
233,950
*
John A. Quelch
21,271
7,060
28,331
*
Javier G. Teruel
14,005
0
14,005
*
Cynthia M. Trudell
0
(2)
0
0
*
All directors and all executive officers as a group
(16 persons)
3,067,581
47,153
3,114,734
1.5
*
Less than 1%
(1)
Reflects PBG phantom stock units and restricted stock units
deferred under deferred compensation arrangements that will be
settled in shares of PBG common stock on a one-for-one basis.
Mr. Compton and Ms. Trudell each disclaim any
beneficial ownership that he or she may have in PepsiCo’s
shares of our common stock and Class B common stock.
(3)
The shares shown for Mr. Crawford include 1,600 shares
over which Mr. Crawford shares voting power with his spouse.
(4)
Includes shares of our common stock that our executive officers
will have the right to acquire within 60 days of
February 13, 2009 through the exercise of stock options as
follows: Victor L. Crawford, 34,373 shares; Alfred H.
Drewes, 47,860 shares; Eric J. Foss, 171,065 shares;
Robert C. King, 44,381 shares; Yiannis Petrides,
47,860 shares; and all directors and executive officers as
a group, 422,113 shares.
Stock Ownership
Guidelines. Our stock ownership guidelines
call for key senior executives to own our common stock (or
deferral plan units) ranging from 15,000 shares for certain
executives and up to 175,000 shares for our Chairman and
Chief Executive Officer. The stock ownership goal must be
reached by no later than January 2012 for our Chairman and Chief
Executive Officer, and for the other executives, within five
years of their election or appointment. Annual requirements
equal to 20% of the total number of shares required must also be
met during the five-year period. Our Board maintains a mandatory
holding policy for stock options and restricted stock pursuant
to which each of our executive officers is expected to retain
20% of his shares of our common stock acquired upon the exercise
of stock options and vesting of restricted stock until such
executive officer satisfies our stock ownership guidelines
described above.
In addition, our Board amended our Corporate Governance
Principles and Practices in 2006 to include stock ownership
guidelines for non-employee directors. The stock ownership
guidelines call for non-employee directors to own
6,000 shares of common stock within five years of their
election to our Board. Outstanding stock options are not counted
towards the satisfaction of the ownership guidelines for either
executives or directors. All of our executive officers and
non-employee directors have met or exceeded their annual stock
ownership guideline requirements.
What are the
highlights of our 2008 executive compensation program as
described in this CD&A?
•
The primary objectives of our compensation program are to
attract, retain, and motivate talented and diverse domestic and
international executives
•
We provide our executive officers with the following types of
compensation: base salary, short-term performance-based cash
incentives, and long-term performance-based equity incentive
awards
•
We believe that to appropriately motivate our senior executives
to achieve and sustain the long-term growth of the Company, a
majority of their compensation should be tied to the performance
of the Company and each executive’s contribution to that
performance
•
We use equity-based compensation as a means to align the
interests of our executives with those of our shareholders
•
We believe the design of our executive compensation program
drives performance in a financially responsible way that is
sensitive to the dilutive impact on shareholders
•
We generally target total compensation within the third quartile
of companies within our peer group of companies which was
changed slightly in 2008
•
In early 2008, consistent with this philosophy, we granted a
special, one-time performance-based equity award (the
“Strategic Leadership Award”) to select senior
executives linking their long-term compensation with the
Company’s strategic imperatives and reinforcing continuity
within the senior leadership team
•
In early 2008, we added an individual, non-financial performance
component to our annual performance-based cash incentive program
for senior executives to reinforce the importance of their
individual contribution to certain non-financial objectives
•
The challenging worldwide economic environment resulted in
Company performance in 2008 that was significantly below target.
Our management nevertheless delivered solid year-over-year
financial results. Based on these results, the Committee
determined it appropriate to award a discretionary bonus amount
to each of the Named Executive Officers. The total bonus payout
for each of the Named Executive Officers was significantly below
target
•
We have never backdated or re-priced equity awards and we do not
time our equity award grants relative to the release of material
non-public information
•
Our executive officers do not have employment, severance or
change-in-control
agreements
•
We do not provide any
gross-ups
for potential excise taxes that may be incurred in connection
with a
change-in-control
of the Company
•
We have a long-standing policy in place to recoup compensation
from an executive who has engaged in misconduct
•
Our executives participate in the same group benefit programs,
at the same levels, as all employees
Who oversees
our executive compensation program?
Our executive compensation program is overseen by our
Compensation and Management Development Committee, which is
comprised solely of independent, non-employee directors. For a
description of the Committee’s composition and
responsibilities, see the section entitled “Corporate
Governance — Committees of the Board of
Directors” and for a description of the role of its
independent compensation consultant, see the section entitled
“Corporate Governance — Independent Compensation
Consultant.”
What are the
objectives of our executive compensation program?
The objectives of our executive compensation program are to:
•
Provide a total compensation program that is appropriately
competitive within our industry and reinforces our short-term
and long-term business objectives by:
n
motivating and rewarding key
executives for achieving and exceeding our business objectives;
n
providing financial consequences
to key executives for failing to achieve our business
objectives; and
n
attracting and retaining key
executives through meaningful wealth-creation opportunities;
•
Align the interests of shareholders, the Company and executives
by placing particular emphasis on performance-based and
equity-based compensation;
•
Maintain a financially responsible program that is appropriate
within our financial structure and sensitive to the dilutive
impact on shareholders; and
•
Establish and maintain our program in accordance with all
applicable laws and regulations, as well as with corporate
governance best practices.
How do we
achieve our objectives?
We achieve our objectives through the use of various executive
compensation elements that drive both short-term and long-term
Company performance, deliver to our executives fixed pay as well
as variable, performance-based pay, and provide significant
personal exposure to PBG common stock. In 2008, the principal
elements of executive compensation were base salary, an annual
performance-based cash incentive (variable, short-term pay), and
long-term incentive awards in the form of stock options and RSUs
(variable, long-term pay). These three elements of executive
compensation are referred to as “total compensation.”
Objective
Alignment with
Element of Total
Form of
Motivation
Shareholder
Compensation
Compensation
Attraction
Short-Term
Long-Term
Interests
Retention
Base Salary
Cash
ü
ü
ü
Annual Performance-Based Cash Incentive
Cash
ü
ü
ü
ü
Long-Term Performance-Based Equity Incentive
Stock Options
RSUs
ü
ü
ü
ü
Why do we
choose to pay a mix of cash and equity-based
compensation?
We view the combination of cash and equity-based compensation as
an important tool to assist us in achieving the objectives of
our program. The Committee periodically reviews the mix of cash
and equity-based compensation provided under the program to
ensure that the mix is appropriate in light of market trends and
the Company’s primary business objectives.
We pay base salary in cash so that our executives have a steady,
liquid source of compensation.
We pay our annual incentive in cash because our annual incentive
is tied to the achievement of our short-term (i.e., annual)
business objectives, and we believe a cash bonus is the
strongest way to motivate and reward the achievement of these
objectives.
Finally, we pay our long-term incentive in the form of PBG
equity because our long-term incentive is tied to our long-term
business objectives, and we believe the market value of PBG
equity is a strong indicator of whether PBG is achieving its
long-term business objectives.
For 2008, our Named Executive Officers’ percentage of cash
(based on base salary and target payout of the short-term cash
incentive) versus equity-based pay (based on the grant date fair
value of the annual
2008 equity awards and the annualized grant date fair value
(one-fourth) of the one-time Strategic Leadership Award), was
approximately as follows:
Chairman and CEO
Other Named Executive Officers (Average)
Why is the
compensation of our Named Executive Officers largely
performance-based compensation rather than fixed?
Consistent with the objectives of our program, we utilize the
performance-based elements of our program to reinforce our
short-term and long-term business objectives and to align
shareholder and executive interests. We believe that to
appropriately motivate our senior executives to achieve our
business objectives, a majority of their compensation should be
tied to the performance of the Company. Thus, we link the level
of compensation to the achievement of our business objectives.
As a result of this link, for years when the Company achieves
above-target performance, executives will be paid above-target
compensation, and for years when the Company achieves
below-target performance, executives will be paid below-target
compensation.
We also believe that the more influence an executive has over
Company performance, the more the executive’s compensation
should be tied to our performance results. Thus, the more senior
the executive, the greater the percentage of his or her total
compensation that is performance-based.
When looking at the three elements of total compensation, we
view base salary as fixed pay (i.e., once established, it is not
performance-based) and the annual incentive and long-term
incentive as performance-based pay. With respect to our
cash-based, annual incentive, our intent is to emphasize the
Company’s performance in a given year. As a result of a
design change approved by the Committee in 2008, we link eighty
percent of the annual incentive to the achievement of annual
performance measures (such as year-over-year profit and volume
growth) and twenty percent of the incentive to the achievement
of individual non-financial performance measures (such as
employee and customer satisfaction survey scores). With respect
to our equity-based, long-term incentive, we view the market
value of PBG common stock as the primary performance measure.
This is especially true in the case of stock options, which have
no value to the executive unless the market value of PBG common
stock goes up after the grant date. In the case of other
equity-based awards to the Named Executive Officers, such as
RSUs, that have value to the executive even if the market value
of PBG common stock goes down after the grant date, we typically
include a second performance component — such as a
specific earnings per share performance target — that
must be satisfied in order for the executive to vest in the
award. In addition, we may grant supplemental, performance-based
equity awards to executives in order to link long-term
compensation with the Company’s strategic imperatives and
to reinforce continuity within the senior leadership team, as we
did with the 2008 Strategic Leadership Awards.
The percentage of our Named Executive Officers’ 2008 total
target compensation that was performance-based (based on base
salary, target payout of the short-term cash incentive, the
grant date fair value of the annual 2008 equity awards and the
annualized grant date fair value (one-fourth) of the one-time
Strategic Leadership Awards) was approximately as follows:
Chairman and CEO
Other Named Executive Officers (Average)
Why do we use
earnings per share, volume and cash flow as the financial
criteria for our performance-based compensation?
In selecting the criteria on which to base the performance
targets underlying our short-term and long-term incentive pay,
we choose criteria that are leading indicators of our success,
important to our shareholders and external market professionals,
and relevant to our executives whose performance we strive to
motivate towards the achievement of the particular targets.
For our business and industry, we believe the most relevant
financial criteria on which to evaluate our success are
comparable (or operational) earnings per share
(“EPS”), profit, volume of product sold, and operating
free cash flow (as defined in our earnings releases). We view
EPS as the best composite indicator of PBG’s operational
performance. The Committee, therefore, emphasizes comparable EPS
in establishing performance targets for the Named Executive
Officers. In evaluating our performance against such EPS
targets, the Committee considers the impact of unusual events on
our reported EPS results (e.g., acquisitions, changes in
accounting practices, share repurchases, etc.) and adjusts the
reported results for purposes of determining the extent to which
the comparable EPS targets were or were not achieved. The
comparable EPS performance targets and results utilized by the
Committee under our compensation program are generally
consistent with the Company’s publicly disclosed EPS
guidance and results.
Short-Term Incentive. Under our short-term
incentive program, we establish performance targets that are
designed to motivate executives to achieve our short-term
business targets. Therefore, for the executives leading our
geographic business units, the Committee links the payment of
80% of the executives’ annual bonus to the achievement of
year-over-year profit and volume growth targets, which are set
at levels specifically chosen for each geographic territory. The
Committee believes tying a substantial portion of these
executives’ annual bonuses to local profit and volume
growth is the best way to motivate executives to achieve
business success within the regions they manage. Beginning in
2008, 20% of each senior executive’s annual bonus is tied
to individual non-financial goals which are qualitative and
specific to the executive’s area of responsibility. The
Committee implemented these goals to reinforce the importance of
certain non-financial business objectives.
For our Named Executive Officers, the Committee establishes a
table of comparable EPS targets that, depending on the level of
EPS achieved during the year, establishes the maximum bonus
payable to each executive for that year. No bonus is payable if
comparable EPS is below a certain level. The Committee then uses
its discretion to determine the actual bonus paid to each
executive, which is never greater, and is typically much less,
than the maximum bonus payable. In exercising this discretion,
the Committee refers to a separately established comparable EPS
or net operating profit before taxes (“NOPBT”) target,
as well as volume and operating free cash flow targets, and
individual non-financial targets, all of which the Committee
approves at the beginning of the year. For Named Executive
Officers with worldwide responsibilities, the financial targets
are typically consistent with the Company’s EPS, volume and
operating free
cash flow guidance provided to external market professionals at
the beginning of the year. For Named Executive Officers with
responsibility over one of our operating segments outside the
United States, these targets are typically consistent with the
Company’s internal operating plans for the particular
segment.
As a result of the 2008 introduction of individual,
non-financial targets, the Committee’s discretion is also
guided by the Chairman and CEO’s evaluation of each of the
other Named Executive Officer’s performance against these
targets. In addition, consistent with past practice, the
Committee separately considers the performance of the Chairman
and CEO and is guided by reference to certain pre-established,
non-financial targets specific to the Chairman and CEO (often
related to strategic planning, organizational capabilities
and/or
executive development).
Notably, in establishing the actual bonus paid for each Named
Executive Officer (within the limit of the maximum bonus
payable), the Committee refers to the above financial and
non-financial targets, but reserves the right to pay a bonus at
the level it deems appropriate based on the performance of the
Company and each executive. The performance targets established
by the Committee with respect to the 2008 bonus are more fully
described at page 33.
Long-Term Incentive. The Committee provides
our long-term incentive in the form of an equity-based award
because it believes the price of PBG common stock is a strong
indicator of whether PBG is meeting its long-term objectives.
The Committee, therefore, believes it important that each
executive, in particular our senior executives, have personal
financial exposure to the performance of PBG common stock. Such
exposure results in a link between shareholder and executive
interests and motivates our executives to achieve and sustain
the long-term growth of PBG. Consequently, we are committed to
paying a significant portion of executive compensation in the
form of PBG equity. We are deliberate, however, in our use of
equity compensation to avoid an inappropriate dilution of
PBG’s current shareholders.
As a way of ensuring our executives remain motivated and to
bolster the retention of our executives, the Committee does not
provide for immediate vesting of our long-term incentive awards.
Instead, consistent with the three-year time frame with respect
to which we establish our strategic plans, the Committee
typically provides for a three-year vesting period for
equity-based awards. Executives must remain an employee of the
Company through the vesting date to vest in the award. For
equity-based awards that have no intrinsic value to the
executive on the grant date, such as stock options, the
Committee typically provides for staged vesting of such awards
over the three-year vesting period (e.g., one-third vesting each
year). For equity-based awards that have value to the executive
on the grant date, such as RSUs, the Committee typically
provides for vesting of the award only at the end of the
three-year period.
Typically, for awards to our Named Executive Officers that have
actual value on the grant date (such as RSUs), the Committee
also establishes a comparable EPS performance target for the
year in which the award is granted. The achievement of this EPS
target is a prerequisite to vesting in the award at the end of
the three-year vesting period. The Committee believes such an
additional performance element is appropriate to ensure that the
executives do not obtain significant compensation if the
performance of the Company in the year of grant is significantly
below our EPS target. As our long-term incentive is designed to
reinforce our long-term business objectives, however, the
Committee typically establishes this one-year EPS performance
target at a lower level than the Company’s external
guidance. The Committee does so to ensure that executives only
lose the RSUs granted in that year if the Company misses its EPS
target to such an extent as to indicate that a performance issue
exists that is unlikely to be resolved in the near term. The
implementation of this additional EPS performance target also
ensures that the compensation paid through our long-term
incentive is deductible to the Company (see the section entitled
“Deductibility of Compensation Expenses” below).
Why do we
provide perquisites as an element of compensation?
Certain perquisites provided to our senior executives are
services or benefits designed to ensure that executives are
fully focused on their responsibilities to the Company. For
example, we make annual physicals available to our senior
executives so that they can efficiently address this important
personal issue and, therefore, maximize their productivity at
work. Other perquisites, such as our Company car program, simply
represent a Company choice on how to deliver fixed pay to our
executives.
We also provide certain specific perquisites to senior
executives who move to and work in international locations. Such
perquisites are provided based on local and competitive
practices. Perquisites such as housing allowances are typical in
the international arena.
For certain limited perquisites, the Company reimburses (or
grosses-up)
the executive for the tax liability resulting from the income
imputed to the executive in connection with the perquisite. We
do so because we do not want our provision of such perquisites
to result in a financial penalty to the executive or potentially
discourage the executive from taking advantage of the
perquisite. For example, we
gross-up an
executive with respect to his or her annual physical and
benefits provided under the Company car program. We do not,
however,
gross-up
perquisites with respect to which the Company does not have an
interest in encouraging, such as our executives’ limited
personal use of corporate transportation.
In 2008, limited perquisites were provided to our Named
Executive Officers, consistent with the Company practice
described above. These perquisites are described in more detail
in the footnotes to the Summary Compensation Table.
What other
forms of compensation do we provide to our employees, including
the Named Executive Officers, and why do we provide
them?
The Company provides a number of other employee benefits to its
employees, including the Named Executive Officers, that are
generally comparable to those benefits provided at similarly
sized companies. Such benefits enhance the Company’s
reputation as an employer of choice and thereby serve the
objectives of our compensation program to attract, retain and
motivate our executives.
Pension. During 2008, the Company maintained a
qualified defined benefit pension plan for essentially all
U.S. salaried and hourly non-union employees hired before
January 1, 2007, and a non-qualified defined benefit
pension plan (the “Excess Plan”) for such employees
with annual compensation or pension benefits in excess of the
limits imposed by the IRS. The Excess Plan provides for a
benefit under the same benefit formula as provided under the
qualified plan, but without regard to the IRS limits. The terms
of these plans are essentially the same for all participating
employees and are described in the Narrative to the Pension
Benefits Table. Our
U.S.-based
Named Executive Officers (Messrs. Foss, Drewes, King and
Crawford) have accrued pension benefits under these plans.
Mr. Petrides participates in a separate international
non-qualified defined benefit pension plan (the “PepsiCo
International Retirement Plan”), which is designed to
provide a pension benefit to senior executives who live and work
outside of the U.S. or their home country. The pension
benefit provided under this plan is essentially the same as that
provided to our U.S. employees under the above-referenced
qualified pension plan and Excess Plan and is offset by all
amounts paid to or on behalf of the executive by the Company
pursuant to any Company sponsored plan or government mandated
programs.
The Company does not provide any specially enhanced pension plan
formulas or provisions that are limited to our Named Executive
Officers.
Effective April 1, 2009, the Company amended its qualified
and non-qualified defined benefit pension plans to cease all
future accruals for salaried and non-union U.S. hourly
employees with the exception of employees who, on March 31,2009 (i) met a Rule of 65 (combined age and years of
service equal to or greater than 65) or (ii) were at
least age 50 with five years of service. The Named
Executive Officers except for Mr. Crawford satisfy the Rule
of 65 and will continue to accrue pension benefits.
Mr. Crawford will cease to accrue pension benefits and will
be eligible to receive the Company Retirement Contribution
described below.
401(k) Savings Plan. Our
U.S.-based
Named Executive Officers participate in the same 401(k) savings
program as provided to other U.S. employees. This program
includes a Company match. The Company does not provide any
special 401(k) benefits to our Named Executive Officers.
In general, salaried and non-union U.S. hourly employees
hired on or after January 1, 2007 are eligible to receive a
company retirement contribution (“CRC”) under the
401(k) plan equal to 2% of eligible compensation (annual pay and
bonus). Effective April 1, 2009, salaried and non-union
U.S. hourly employees who ceased to accrue a benefit under
the defined benefit pension plans will be eligible to
receive the CRC, and the CRC for all eligible employees with ten
or more years of service will be 3% of eligible compensation.
Deferred Income Program.The Company also
maintains an Executive Income Deferral Program (the
“Deferral Program”), through which all Company
executives, including the Named Executive Officers, paid in
U.S. dollars, may elect to defer their base salary
and/or their
annual cash bonus. The Company makes the Deferral Program
available to executives so they have the opportunity to defer
their cash compensation without regard to the limit imposed by
the IRS for amounts that may be deferred under the 401(k) plan.
The material terms of the Deferral Program are described in the
Narrative to the Nonqualified Deferred Compensation Table.
Health and Welfare Benefits.The Company also
provides other benefits such as medical, dental, life insurance,
and long-term disability coverage, on the same terms and
conditions, to all employees, including the Named Executive
Officers.
What policies
and practices do we utilize in designing our executive
compensation program and setting target levels of total
compensation?
The Committee has established several policies and practices
that govern the design and structure of PBG’s executive
compensation program.
Process of Designing the Executive Compensation
Program. Each year, the Committee reviews the PBG
executive compensation program and establishes the target
compensation level for our Chairman and CEO and the other Named
Executive Officers who appear in the tables in this proxy
statement. For a description of this process, see the section
entitled “Corporate Governance — Process of
Designing the Executive Compensation Program.”
Target Compensation — Use of Peer Group
Data. In establishing the target total
compensation for the Named Executive Officers, the Committee
considers the competitive labor market, as determined by looking
at PBG’s peer group of companies and other compensation
survey data. The Committee believes that the total compensation
paid to our executive officers generally should be targeted
within the third quartile (which for 2008 we defined as the
average of the 50th and 75th percentile) of the total
compensation opportunities of executive officers at comparable
companies. The Committee believes that this target is
appropriately competitive and provides a total compensation
opportunity that will be effective in attracting, retaining and
motivating the leaders we need to be successful.
For positions with respect to which there is widespread,
publicly available compensation data (e.g. CEO), we establish
the third quartile based on compensation data of our peer group
companies. PBG’s peer group is made up of comparably sized
companies, each of which is a PBG competitor, customer or peer
from the consumer goods or services industry. Our peer group
companies are generally world-class, industry leading companies
with superior brands
and/or
products. The Committee, with the assistance of senior
management and the Committee’s independent compensation
consultant, periodically reviews PBG’s peer group to ensure
the peer group is an appropriate measure of the competitive
labor market for the Company’s senior executives. In
January 2008, after review and discussion with the
Committee’s independent compensation consultant and senior
management, the Committee approved changes to PBG’s peer
group of companies and this peer group was used for purposes of
determining the Chairman and CEO’s target total
compensation. The peer group was modified to put greater focus
on companies that do not require the development of big
innovation platforms and are not as globally oriented. In
addition, Aramark Corporation ceased trading as a public company
and was removed from our peer group of companies. Specifically,
the peer group of companies was changed as follows:
Comparative financial measures and number of employees for the
2008 peer group are shown below:
Peer Group*
PBG*
75th
PBG
Percent
Median
Percentile
Data
Rank
Revenue
$
11,799
$
17,748
$
13,591
68
%
Net Income
$
604
$
1,027
$
532
48
%
Market Capitalization
$
12,128
$
19,052
$
8,839
26
%
Number of Employees
27,497
51,175
69,100
85
%
*
Dollars are in millions. Based on information as of
December 31, 2007.
For senior executive positions for which peer group data is not
consistently publicly available (e.g., a general manager with
specific geographic responsibilities), we establish the third
quartile based on available peer group data and other
compensation survey data from nationally-recognized human
resources consulting firms.
Based on the peer group and other survey data, the Committee
establishes the third quartile for target total compensation for
each executive, as well as for various elements of total
compensation, including base pay, total annual cash (base pay
and target annual incentive) and total compensation (total
annual cash and long-term incentive). The Committee then
establishes the midpoint of the third quartile as its
“market target.” The market target for each element of
total compensation is determined by reference to compensation
payable in U.S. dollars. To the extent a Named Executive
Officer’s salary or annual performance-based cash incentive
is paid in a currency other than U.S. dollars, the value in
U.S. dollars will fluctuate based on changes in the
exchange rate. For example, Mr. Petrides’ compensation
is paid in Euros. Consequently, as the value of the Euro changes
relative to the value of the U.S. dollar, the value of
Mr. Petrides’ salary stated in U.S. dollars
changes accordingly (even though the salary he actually receives
in Euros stays the same).
Establishing Target Compensation; Role of the Chairman and
CEO. The Committee does not formulaically set the
target total compensation for our Named Executive Officers at
the market target. In determining the appropriate target total
compensation for each executive, the Committee reviews each
individual separately and considers a variety of factors in
establishing his or her target compensation. These factors may
include the executive’s time in position, unique
contribution or value to PBG, recent performance, and whether
there is a particular need to strengthen the retention aspects
of the executive’s compensation. For a senior executive
recently promoted into a new position, his or her total
compensation will often fall below the targeted third quartile.
In such cases, the Committee may establish a multi-year plan to
raise the executive’s total compensation to the market
target and, during such time, the executive’s compensation
increases will often be greater than those of other senior
executives. This was the case for our Chairman and CEO during
2008.
In establishing the target total compensation for the Chairman
and CEO, the Committee, together with the Nominating and
Corporate Governance Committee, formally advises the Board on
the annual individual performance of the Chairman and CEO and
the Committee considers recommendations from its independent
compensation consultant regarding his compensation. The Chairman
and CEO is not
involved in determining his compensation level and he is not
present during the executive session during which the Committee
evaluates the performance of the Chairman and CEO against
pre-established qualitative and quantitative targets. The
Committee, however, does request that the Chairman and CEO
provide it with a self-evaluation of his performance against the
pre-established targets prior to such executive session.
In establishing the target total compensation for Named
Executive Officers other than the Chairman and CEO, the
Committee, with the assistance of the Chairman and CEO and its
independent compensation consultant, evaluates each
executive’s performance and considers other individual
factors such as those referenced above.
Use of Tally Sheets. The Committee annually
reviews a tally sheet of each Named Executive Officer’s PBG
compensation. This tally sheet includes detailed data for each
of the following compensation elements and includes a narrative
description of the material terms of any relevant plan, program
or award:
•
Annual direct compensation: Information regarding base salary,
annual incentive, and long-term incentive for the past three
years;
•
Equity awards: Detailed chart of information regarding all PBG
equity-based awards, whether vested, unvested, exercised or
unexercised, including total pre-tax value to the executive and
holdings relative to the executive’s Stock Ownership
Guidelines (discussed below);
•
Perquisites: Line item summary showing the value of each
perquisite as well as the value of the tax
gross-up, if
any;
•
Pension / Deferred Compensation: Value of pension plan
benefits (qualified plan, non-qualified plan and total) and
value of defined-contribution plan accounts (401(k) and deferred
compensation), including the year-over-year change in value in
those accounts;
•
Life Insurance Benefits (expressed as multiple of cash
compensation as well as actual dollar value);
•
Description of all compensation and benefits payable upon a
termination of employment.
The Committee reviews the information presented in the tally
sheet to ensure that it is fully informed of all the
compensation and benefits the executive has received as an
employee of the Company. The Committee does not, however,
specifically use the tally sheet or wealth accumulation analysis
in determining the executive’s target compensation for a
given year.
Form of Equity-Based Compensation. Under our
program, each executive annually receives an equity-based,
long-term incentive award. Our shareholder-approved Amended and
Restated 2004 Long-Term Incentive Plan (the “LTIP”)
authorizes the Committee to grant equity-based awards in various
forms, including stock options, restricted stock, and RSUs. The
Committee selects the form of equity award based on its
determination as to which form most effectively achieves the
objectives of our program. While the amount of the award varies
based on the level of executive, the form of the annual award
has historically been the same for all PBG executives regardless
of level.
The Committee periodically considers various forms of
equity-based awards based on an analysis of market trends as
well as their respective tax, accounting and share usage
characteristics. The Committee has determined that a mix of
forms is appropriate and that the annual long-term incentive
award shall be in the form of 50% stock options and 50% RSUs
(based on grant date fair value).
The Committee believes this mix of forms is the most appropriate
approach for the Company because of the balanced impact this mix
has when viewed in light of several of the objectives of our
executive compensation program, including motivating and
retaining a high-performing executive population, aligning the
interests of shareholders and executives, and creating a program
that is financially appropriate for PBG and sensitive to the
dilutive impact on shareholders.
Equity Award Grant Practices. We have a
consistent practice with respect to the granting of stock
options and other equity-based awards, which the Committee
established early in the Company’s history and which belies
any concern regarding the timing or pricing of such awards, in
particular stock options.
Timing of Grants. Executives receive
equity-based awards under three scenarios. First, all executives
annually receive an award, which has always been comprised,
entirely or in part, of stock options. Under the Company’s
long-established practice, the Committee approves this annual
award at its first meeting of the calendar year (around February
1) and establishes the grant date of the award as
March 1. March 1 was selected because it aligns with
several other PBG human resources processes for employees
generally, including the end of the annual performance review
process and the effective date of base salary increases.
Second, individuals who become an executive of PBG for the first
time within six months after the March 1 date are eligible for
an equity award equal to 50% of the annual award. This pro-rated
award is granted to all new executives on the same, fixed date
of September 1.
Finally, senior executives may, on rare occasion, receive an
additional equity-based award when they are first hired by PBG,
when they are promoted to a new position, or when there is a
special consideration related to an executive that the Committee
seeks to address. In all cases of these awards, the grant date
occurs after the award is approved.
Pricing of Stock Options. Throughout the
Company’s history, the exercise price of stock options has
been equal to the fair market value of PBG common stock on the
grant date. The Company has never backdated or repriced stock
options. We define “Fair Market Value” in the LTIP as
the average of the high and low sales prices of PBG common stock
as recorded on the NYSE on the grant date, rounded up to the
nearest penny. We believe our stock option pricing methodology
is an accurate representation of the fair market value of PBG
common stock on the grant date even though our methodology is
different from that selected by the SEC (i.e., the closing price
on the grant date).
What are some
other policies and practices that govern the design and
structure of our compensation program?
Stock Ownership Guidelines. To achieve our
program objective of aligning shareholder and executive
interests, the Committee believes that our business leaders must
have significant personal financial exposure to PBG common
stock. The Committee, therefore, has established stock ownership
guidelines for the Company’s key senior executives and
directors. These guidelines are described in the section
entitled “Ownership of PBG Common Stock — Stock
Ownership Guidelines.”
Trading Windows / Trading
Plans / Hedging. We restrict the
ability of certain employees to freely trade in PBG common stock
because of their periodic access to material non-public
information regarding PBG. Under our Insider Trading Policy, our
key executives are permitted to purchase and sell PBG common
stock and exercise PBG stock options only during limited
quarterly trading windows. Our senior executives are generally
required to conduct all stock sales and stock option exercises
pursuant to written trading plans that are intended to satisfy
the requirements of
Rule 10b5-1
of the Securities Exchange Act. In addition, under our Worldwide
Code of Conduct, all employees, including our Named Executive
Officers, are prohibited from hedging against or speculating in
the potential changes in the value of PBG common stock.
Compensation Recovery for Misconduct. While we
believe our executives conduct PBG business with the highest
integrity and in full compliance with the PBG Worldwide Code of
Conduct, the Committee believes it appropriate to ensure that
the Company’s compensation plans and agreements provide for
financial penalties to an executive who engages in fraudulent or
other inappropriate conduct. Therefore, the Committee has
included as a term of our equity-based awards that in the event
the Committee determines that an executive has engaged in
“Misconduct” (which is defined in the LTIP to include,
among other things, a violation of our Code of Conduct), then
all of the executive’s then outstanding equity-based awards
shall be immediately forfeited and the Committee, in its
discretion, may require the executive to repay to the Company
all gains realized by the executive in connection with any PBG
equity-based award (e.g., through option exercises or the
vesting of RSUs) during the twelve-month period preceding the
date the Misconduct occurred. This latter concept of repayment
is commonly referred to as a “claw back” provision.
Similarly, in the event of termination of employment for cause,
the Company may cancel all or a portion of an executive’s
annual cash incentive or require reimbursement from the
executive to the extent such amount has been paid.
As a majority of the compensation paid to an executive at the
vice president level or higher is performance-based, the
Committee believes our approach to compensation recovery through
the LTIP and annual incentive is the most direct and appropriate
for PBG.
Employment / Severance
Agreements. Neither our Chairman and CEO nor any
other Named Executive Officer has (or ever has had) an
individual employment or severance agreement with the Company
entitling him to base salary, cash bonus, perquisites, or new
equity grants following termination of employment.
Indeed, as a matter of policy and practice, the Company does not
generally enter into any individual agreements with executives.
There are limited exceptions to this policy. First, in
connection with the involuntary termination of an executive, the
Company has, in light of the circumstances of the specific
situation, entered into appropriate severance or settlement
agreements. Second, in the case of an executive’s
retirement, the Company has, on rare occasion, entered into a
short-term consulting arrangement with the retired executive to
ensure a proper transfer of the business knowledge the retired
executive possesses. Finally, our standard long-term incentive
award agreement that applies to all executives typically
provides for the accelerated vesting of outstanding, unvested
awards in the case of the executive’s approved transfer to
PepsiCo, death, disability or retirement subject to satisfaction
of any applicable performance-based vesting condition in the
case of approved transfer or retirement. With respect to our
Chairman and CEO and other Named Executive Officers, the value
of these benefits is summarized in the Narrative and
accompanying tables entitled Potential Payments Upon Termination
or Change In Control.
Approved Transfers To / From
PepsiCo. We maintain a policy intended to
facilitate the transfer of employees between PBG and PepsiCo.
The two companies may, on a limited and mutually agreed basis,
exchange employees who are considered necessary or useful to the
other’s business (“Approved Transfers”). Certain
of our benefit and compensation programs (as well as
PepsiCo’s) are designed to prevent an Approved
Transfer’s loss of compensation and benefits that would
otherwise occur upon termination of his or her employment from
the transferring company. For example, at the receiving company,
Approved Transfers receive pension plan service credit for all
years of service with the transferring company. Also, upon
transfer, Approved Transfers generally vest in their
transferring company equity awards rather than forfeit them as
would otherwise be the case upon a termination of employment.
One of our Named Executive Officers, Mr. Drewes was an
Approved Transfer from PepsiCo. As discussed in the footnotes to
the Pension Benefits Table, Mr. Drewes will be eligible for
pension benefits attributable to his service both at PepsiCo
prior to transfer and at the Company. The Potential Payments
Upon Termination or Change In Control section sets forth in more
detail the various compensation and benefits available to
Approved Transfers.
Change in Control Protections. PBG was created
in 1999 via an initial public offering by PepsiCo, and PepsiCo
holds approximately 40% of the voting power of PBG common stock.
As such, an acquisition of PBG can only practically occur with
PepsiCo’s consent. Given this protection against a
non-PepsiCo approved acquisition, the only change in control
protection we provide through our executive compensation program
is a term of our LTIP, which provides for the accelerated
vesting of all outstanding, unvested equity-based awards at the
time of a change in control of PBG. With respect to our Chairman
and CEO and other Named Executive Officers, the events that
constitute a change in control and the value of change in
control benefits provided under the LTIP are summarized in the
Narrative and accompanying tables entitled Potential Payments
Upon Termination or Change In Control. The Company does not
gross-up any
executive for potential excise taxes that may be incurred in
connection with a change in control.
Deductibility of Compensation
Expenses. Pursuant to Section 162(m) of the
Internal Revenue Code (“Section 162(m)”), certain
compensation paid to the Chairman and CEO and other Named
Executive Officers in excess of $1 million is not tax
deductible, except to the extent such excess compensation is
performance-based. The Committee has and will continue to
carefully consider the impact of Section 162(m) when
establishing the target compensation for executive officers. For
2008, we
believe that substantially all of the compensation paid to our
executive officers satisfies the requirements for deductibility
under Section 162(m).
As one of our primary program objectives, however, the Committee
seeks to design our executive compensation program in a manner
that furthers the best interests of the Company and its
shareholders. In certain cases, the Committee may determine that
the amount of tax deductions lost is insignificant when compared
to the potential opportunity a compensation program provides for
creating shareholder value. The Committee, therefore, retains
the ability to pay appropriate compensation to our executive
officers, even though such compensation is non-deductible.
What
compensation actions were taken in 2008 and why were they
taken?
In January 2008, the Committee took action with respect to each
element of total compensation (annual base salary, short-term
cash incentive and long-term equity incentive award) for each
Named Executive Officer following the principles, practices and
processes described above. The 2008 target total compensation
for each of the Named Executive Officers did not exceed the
market target based on the data considered by the Committee in
January 2008 with the exception of the target total compensation
for Messrs. Petrides and Crawford whose target total
compensation exceeded market target, largely as a result of
allocating one-fourth of the value of the Strategic Leadership
Award to 2008 target total compensation.
Messrs. Foss, King and Crawford were promoted during 2008
as discussed in more detail below. Following their promotions,
the target total compensation for Messrs. Foss and King
(including the annualized value of promotional awards for
Mr. Foss and the Strategic Leadership Award for
Mr. King) did not exceed the market target relative to
comparable positions within the revised peer group of companies,
but the target total compensation for Mr. Crawford exceeded
the market target and reflected the importance placed by the
Committee on Mr. Crawford’s operational contributions
to PBG.
Base Salary. In accordance with our practices
with respect to individual raises, the level of annual merit
increase in the base salary for each Named Executive Officer in
2008 took into consideration the performance of the Company and
the executive, any increase in the executive’s
responsibilities, and an analysis of whether the
executive’s base salary was within the third quartile of
PBG’s peer group. The Committee determined that each of the
Named Executive Officers had performed well with respect to his
role and responsibilities and the average merit increase in the
annual rate of base salary for the Named Executive Officers
receiving a merit increase was 6.9%. The Committee approved a
more substantial increase in the annual salary rate for
Messrs. Foss and King (11.1% and 9.4% respectively) in
order to bring their compensation closer to the targeted third
quartile. Mr. Petrides on the other hand, received a more
modest increase since his base salary exceeded market target in
part as a result of his time in position and the
U.S. dollar/Euro exchange rate.
In November 2008, Mr. King was promoted to Executive Vice
President and President, PBG North America and Mr. Crawford
was promoted to Senior Vice President, Global Supply Chain and
System Transformation and each of them received an increase in
their annual salary (12.9% and 5.7%, respectively) in
recognition of their expanded roles and responsibilities within
the Company.
Annual Cash Incentive Award. The Committee
established the 2008 annual incentive targets for our executives
in January 2008 with a potential payout range from 0 to 200% of
the executive’s target. At such time, the Committee made no
changes to the bonus targets for the Named Executive Officers
with the exception of Mr. Foss. In January 2008, the
Committee determined that an increase in Mr. Foss’
annual incentive target, from 140% to 150% of base pay, was
appropriate in light of his position and responsibilities and as
measured against the targeted third quartile of total
compensation of CEOs within the peer group.
In November 2008, the Committee also approved an increase in the
bonus target for Mr. King (from 85% to 100%) and
Mr. Crawford (from 75% to 85%) in recognition of their
increased responsibilities within the Company. The increased
target amounts for Messrs. King and Crawford apply
prospectively from their date of promotion resulting in a
blended annual target amount. The 2008 annual incentive target
and actual payout amounts for each Named Executive Officer is
presented below in the 2008 Annual Cash Incentive Awards table.
Actual Annual Cash Incentive Awards. In
February 2009, the Committee determined that the Company’s
2008 comparable EPS performance of $2.25, which was in excess of
the $1.75 target, resulted in a maximum bonus of $5 million
payable to each Named Executive Officer under
Section 162(m). The Committee then reviewed the
Company’s 2008 performance against the pre-established
EPS/NOPBT, volume and operating free cash flow targets which the
Committee uses to guide its negative discretion in determining
the actual bonus payable to each senior executive.
Ø Financial
Performance Targets and Results. The overall
achievement of financial targets is used to determine 80% of the
actual bonus payout, with each measure separately weighted. Each
financial measure for Messrs Foss, Drewes, King and Crawford,
was worldwide in scope and each target was consistent with the
Company’s external guidance at the start of 2008.
Worldwide Measure
Weighting
Target
Actual Result
EPS (comparable)
40%
$ 2.37
$ 2.25
Volume Growth v. Prior Year
24%
2.8%
(4.0)%
Operating Free Cash Flow
16%
$635 million
$526 million
For Mr. Petrides, the Committee established financial
measures and targets specific to Europe. Each country under
Mr. Petrides’ direction (Spain, Russia, Greece and
Turkey) had separate targets for each measure that were
expressed in local currency and that were tied to designated
financial objectives for the particular country.
Mr. Petrides’ performance targets were established
based on the weighted average of the targets for each of the
four countries with weighting based on the volume of each
country in proportion to overall volume for Europe.
Europe Segment Measure
Weighting
Target
Actual Result
NOPBT Growth v. Prior Year
46%
10%
14%
Volume Growth v. Prior Year
18%
4%
(3)%
Operating Free Cash Flow
16%
$43 million
$52 million
At its meeting in February 2009, the Committee certified the
Actual Results shown in the tables above. The Committee
determined that the Company’s performance against the
worldwide measures resulted in a financial target bonus score of
12% for Messrs. Foss, Drewes, King and Crawford. The
Committee also determined that the Company’s performance
against the Europe segment measures resulted in a financial
target bonus score of 98% for Mr. Petrides. Following this
determination, the Committee reviewed and discussed the
Company’s overall operating performance during 2008. The
Committee noted the Company’s year-over-year performance,
in particular comparable EPS and operating profit growth, which
the Company achieved despite the economic downturn and adverse
market conditions. In light of these factors, the Committee
determined to exercise its discretion and award
Messrs. Foss, Drewes, King, and Crawford a financial target
bonus score of 50%.
Ø Non-Financial
Performance Targets and Results. The overall
achievement of individual non-financial targets is used to
determine 20% of the actual bonus payout. The Committee reviewed
and concurred in the assessment of the Chairman and CEO with
respect to the performance of the other Named Executive Officers
against the pre-established non-financial goals. The goals
varied by Named Executive Officer and were similar to the
qualitative measures used by the Committee to evaluate the
performance of the Chairman and CEO, including progress on the
diversity front and development of strategic plans. Payouts
based on the non-financial measures ranged from 50% to 100%.
The Committee then determined that Mr. Foss had performed
well against his pre-established non-financial measures. In
particular, the Committee noted that Mr. Foss had been
successful in developing the Company’s global growth
strategy with the acquisition of Lebedyansky in Russia and in
expanding the Company’s product portfolio with new
products, such as Crush and Muscle Milk. The Committee also
noted that during 2008, Mr. Foss was successful in further
strengthening organization capability through greater employee
engagement and improved executive representation of minorities.
The Committee determined that an 80% payout based on
non-financial measures was appropriate for Mr. Foss.
For 2008, the annual incentive targets and actual payout amounts
for each of the Named Executive Officers were as follows:
2008 Annual Cash Incentive Awards
Target
2008 Award
Named Executive Officer
(% of Salary)
Target ($)
(% of Target)
2008 Award ($)
Eric J. Foss
150%
1,500,000
56%
840,000
Alfred H. Drewes
85%
408,000
50%
204,000
Yiannis Petrides
85%
623,300
93%
582,176
Victor Crawford
77%
325,833
60%
195,500
Robert C. King
88%
459,375
55%
252,660
The Committee believes the 2008 actual awards reflected the
Company’s overall operating performance in 2008 and each
individual’s contribution to such performance and were
consistent with its policy to link pay to performance.
Long-Term Incentive. All of the 2008 stock
option and RSU awards to our Named Executive Officers are
reflected in the Grants of Plan-Based Awards Table and their
terms and conditions are set out in the Narrative to the Summary
Compensation Table and Grants of Plan-Based Awards Table.
Strategic Leadership Awards. During 2008, the
Committee approved the Strategic Leadership Award, a special,
one-time performance-based RSU award for each of the Named
Executive Officers other than the Chairman and CEO. The
Committee awarded Messrs. Drewes, King, Petrides and
Crawford, the Strategic Leadership Award in order to emphasize
the linkage between long-term compensation and the
Company’s strategic imperatives and to reinforce continuity
within the Company’s senior leadership team over the next
four years.
The Committee established the target value of each
executive’s Strategic Leadership Award at either $1,000,000
or $1,500,000 based on the executive’s scope of
responsibilities and contribution to the Company. The Committee
made vesting of the Strategic Leadership Award contingent upon
the Company’s achievement of 2008 and 2009 comparable EPS
performance targets of at least $0.75 in each year as well as
the executive’s continued employment with the Company
through the end of 2011. In February 2009, the Committee
certified that the 2008 EPS performance target was met. Provided
the 2009 EPS target and service vesting condition are satisfied,
each executive is eligible to receive RSUs with a value up to
150% of his target value, with the final value of the award
determined by the Committee at the beginning of 2010. The
threshold, target and maximum values for each Named Executive
Officer are set forth in the Grants of Plan-Based Awards Table.
The final value will be determined by the Committee based on its
own evaluation as well as the Chairman and CEO’s assessment
of the Company’s performance in 2008 and 2009 against
performance criteria established for each of 2008 and 2009. The
performance criteria for 2008 were: (i) increased
distribution and market share of specified products within the
Company’s brand portfolio; (ii) improved customer
satisfaction, as measured by an external survey, and execution
at point of sale; (iii) year-over-year improvement in the
cost of making our products (i.e., operational efficiency); and
(iv) year-over-year improvement in the Company’s
internal employee satisfaction survey. For Messrs. King and
Petrides, the performance goals related to items (i) and
(ii) were tailored to the geographic business segments they
oversee, respectively. The specific target levels for each of
the above referenced criteria have not been externally
communicated and involve confidential, commercial information,
disclosure of which could result in competitive harm to the
Company. The targets for each criteria are set at levels
intended to incent the achievement of both short-term and
long-term growth in these key strategic areas. To achieve target
performance, the executive team must drive broad-based effort
and contribution from the geographical and functional teams
throughout the Company. The targets, individually and together,
are designed to be challenging to attain and achievement of the
targets requires performance beyond our normal operating plan
expectations for each year of the performance period.
Annual Equity Award. Consistent with its
established practice, the Committee approved the 2008 long-term
incentive awards for each of our Named Executive Officers after
reviewing comparative market data for total compensation,
including data related to what portion of total compensation was
paid in the form of long-term incentive. The Committee also
considered each executive’s role and level of
responsibility within the Company. Mr. Foss received a
long-term equity incentive award with a present value of
approximately $5,000,000. The Committee determined this award
was appropriate in light of his position and responsibilities
and as measured against the targeted third quartile of total
compensation of CEOs within the peer group. Messrs. King,
Drewes and Petrides received a long-term equity incentive award
with a present value of approximately $1,000,000 and
Mr. Crawford was granted a long-term equity incentive award
with a present value of approximately $800,000. These awards
included the same terms and conditions as the awards to all
other executives, except that consistent with its practice, the
Committee made the vesting of the RSU award granted to our Named
Executive Officers subject to the achievement of a 2008
comparable EPS performance target of $0.75. In February 2009,
the Committee determined that the 2008 EPS target had been
satisfied, such that each Named Executive Officer will vest in
his annual 2008 RSU award if he remains employed by the Company
through March 1, 2011.
Supplemental Stock Option Award for the Chairman and
CEO. In October 2008, after consultation with the
independent compensation consultant, the Committee awarded
Mr. Foss a supplemental long-term equity incentive award
comprised of 400,000 stock options to recognize his appointment
as Chairman of the Board of Directors of the Company and to
bring Mr. Foss’ target total compensation (including
the annualized value of promotional awards) closer to the peer
group market target.
What
noteworthy executive compensation actions took place during the
first quarter of 2009 and why were such actions
taken?
In February 2009, in response to the challenging worldwide
economic conditions, the Committee determined that the total
target compensation for each Named Executive Officer would not
increase from 2008 levels. Specifically, the Committee
determined to freeze salaries at 2008 levels and determined that
there would be no change to the bonus target or the annual
equity award value for any of the Named Executive Officers. The
Committee also reviewed the current design of the annual
long-term incentive program, noting that all outstanding stock
options held by the Named Executive Officers are “out-of
the money”. The Committee determined that the design
remained consistent with the primary objectives of attracting,
retaining and motivating a talented and diverse group of
executives and concluded that no design change was appropriate
at this time.
The amount included in this column is the compensation cost
recognized by the Company in fiscal year 2008 related to the
executive’s outstanding equity awards that were unvested
for all or any part of 2008, calculated in accordance with
SFAS 123R without regard to forfeiture estimates. This
amount encompasses equity awards that were granted in 2005,
2006, 2007 and 2008 and was determined using the assumptions set
forth in Note 4, Share-Based Compensation, to our Annual
Report on
Form 10-K
for the fiscal year ended December 27, 2008 (for 2008,
2007, 2006 awards) and Note 4, Share-Based Compensation, to
our Annual Report on
Form 10-K
for the fiscal year ended December 29, 2007 (for 2005
awards). As of the end of our fiscal year, the market price of
our common stock was below the exercise price of the option
awards. Therefore, all of the option awards are “out of the
money” and have no intrinsic value to the executive.
(2)
No executive earned above-market or preferential earnings on
deferred compensation in 2008 and, therefore, no such earnings
are reported in this column. Consequently, this amount reflects
only the aggregate change in 2008 in the actuarial present value
of the executive’s accumulated benefit under all
Company-sponsored defined benefit pension plans in which the
executive participates. The executive participates in such plans
on the same terms as all other eligible employees.
(3)
This amount was calculated based on the material assumptions set
forth in Note 12, Pension and Postretirement Medical
Benefit Plans, to our Annual Report on
Form 10-K
for the fiscal year ended December 27, 2008 and
Note 10, Pension and Postretirement Medical Benefit Plans,
to our Annual Report on
Form 10-K
for the fiscal year ended December 29, 2007, except for the
generally applicable assumptions regarding retirement age and
pre-retirement mortality. During 2008, the Company changed its
measurement date from September 30 to the fiscal year-end.
Consequently, we have used an annualized approach adjusting the
15 month period to a 12 month period, consistent with
SEC guidance, in determining the change in pension value.
(4)
The amount in this column reflects the actual cost of
perquisites and personal benefits provided by the Company to
each of the Named Executive Officers as well as the
reimbursements paid by the Company to the executive for his tax
liability related to certain of these Company provided benefits
and the dollar value of life insurance premiums paid by the
Company for the benefit of the Named Executive Officers each on
the same terms and conditions as all other eligible employees.
The particular benefits provided to each Named Executive Officer
are described below in footnotes 6, 7, 9, 11 and 13. In
addition, the Company purchases club memberships, season tickets
and passes to
various sporting events and other venues for purposes of
business entertainment. On limited occasions, employees
(including one or more of the Named Executive Officers) may use
such memberships, tickets or passes for personal use. There is
no incremental cost to the Company in such circumstances.
Therefore, no cost of such memberships, tickets and passes is
reflected in the “All Other Compensation” column.
(5)
Mr. Foss was elected Chairman of the Board of Directors on
October 2, 2008.
(6)
This amount includes $160,425, which equals the total cost of
all perquisites and personal benefits provided by the Company to
Mr. Foss, including a car allowance, financial advisory
services, personal use of corporate transportation, nominal
recognition awards and nominal personal expenses incurred in
connection with a Board of Directors’ meeting. The value of
Mr. Foss’ personal use of the Company-leased aircraft
is $128,225 and represents the aggregate incremental cost to the
Company. For this purpose, the Company has calculated the
aggregate incremental cost based on the actual variable
operating costs that were incurred as a result of
Mr. Foss’ use of the aircraft, which includes an
hourly occupied rate, fuel rate and other flight specific fees.
Mr. Foss is responsible for all taxes associated with any
personal use of corporate transportation.
The amount shown in the above table also includes:
(i) $17,629, which equals all tax reimbursements paid to
Mr. Foss for the tax liability related to Company provided
perquisites and personal benefits, including his car allowance,
financial advisory services, nominal recognition awards and
nominal personal expenses incurred in connection with a Board of
Directors’ meeting; (ii) a standard Company matching
contribution of $9,038 to Mr. Foss’ 401(k) account;
and (iii) $4,656, which represents the dollar value of life
insurance premiums paid by the Company for the benefit of
Mr. Foss.
(7)
This amount includes: (i) $25,896, which equals the total
cost of all perquisites and personal benefits provided by the
Company to Mr. Drewes, including a car allowance, financial
advisory services and a nominal recognition award;
(ii) $13,489, which equals all tax reimbursements paid to
Mr. Drewes for the tax liability related to Company
provided perquisites and personal benefits, including his car
allowance, financial advisory services and a nominal recognition
award; (iii) a standard Company matching contribution of
$9,200 to Mr. Drewes’ 401(k) account; and
(iv) $2,084, which represents the dollar value of life
insurance premiums paid by the Company for the benefit of
Mr. Drewes.
(8)
Mr. Petrides’ salary, non-equity incentive plan
compensation and compensation indicated in the “All Other
Compensation” column are paid in Euros. The values stated
are in U.S. dollars and are based on the average exchange rate
of Euros to one U.S. dollar for the years shown. The average
exchange rate of one U.S. dollar to Euros was 0.68 in 2008.
(9)
This amount includes: (i) $72,562, which equals the total
cost of all perquisites and personal benefits provided by the
Company to Mr. Petrides, including a company car and
related car expenses, housing allowances, tax advisory services
and financial advisory services. The following perquisite and
personal benefit provided by the Company to Mr. Petrides
met or exceeded the threshold for individual quantification and
is as follows: $42,760 represents the cost of providing a
company car to Mr. Petrides and related car expenses. The
total amount shown in the table above also includes
(i) $16,205, which equals all tax reimbursements payable to
Mr. Petrides for the tax liability related to Company
provided perquisites and personal benefits, including his
financial advisory services and a portion of his housing
allowances; and (ii) $1,421, which represents the dollar
value of life insurance premiums paid by the Company for the
benefit of Mr. Petrides.
This amount includes: $101,234, which equals the total cost of
all perquisites and personal benefits provided by the Company to
Mr. Crawford, including a car allowance, financial advisory
services, personal use of corporate transportation, relocation
assistance and a nominal recognition award. The following
perquisite and personal benefit provided by the Company to
Mr. Crawford met or exceeded the threshold for individual
quantification and is as follows: $70,360 which represents
relocation assistance. The total amount shown in the above table
also includes: (i) $62,995, which equals all tax
reimbursements paid to Mr. Crawford for the tax liability
related to Company provided perquisites and personal benefits,
including his car allowance, financial advisory services,
relocation assistance and a nominal recognition award;
(ii) a standard Company matching contribution of $9,200 to
Mr. Crawford’s
401(k) account; and (iii) $1,404, which represents the
dollar value of life insurance premiums paid by the Company for
the benefit of Mr. Crawford.
(12)
Mr. King was promoted to Executive Vice President and
President of North America on November 10, 2008.
(13)
This amount includes: (i) $25,896, which equals the total
cost of all perquisites and personal benefits provided by the
Company to Mr. King, including a car allowance, financial
advisory services and a nominal recognition award;
(ii) $11,740, which equals all tax reimbursements paid to
Mr. King for the tax liability related to Company provided
perquisites and personal benefits, including his car allowance,
financial advisory services and a nominal recognition award;
(iii) a standard Company matching contribution of $9,200 to
Mr. King’s 401(k) account; and (iv) $1,795, which
represents the dollar value of life insurance premiums paid by
the Company for the benefit of Mr. King.
Amounts shown reflect the threshold, target and maximum payout
amounts under the Company’s annual incentive program which
is administered under the shareholder-approved 2005 Executive
Incentive Compensation Plan (“EICP”). The target
amount is equal to a percentage of each executive’s salary,
which for 2008 ranged from 77% to 150%, depending on the
executive’s role and level of responsibility. The maximum
amount equals 200% of the target amount. The actual payout
amount is contingent upon achievement of certain financial and
non-financial performance goals. Please refer to the narrative
below for more detail regarding each executive’s target
amount, the specific performance criteria used to determine the
actual payout and how such payout is typically the result of the
Committee’s exercise of negative discretion with respect to
separate maximum payout amounts established for purposes of
Section 162(m).
(2)
In addition to the 2008 annual RSU awards, this column reflects
a special award of performance-based RSUs (Strategic Leadership
Award or SLA RSUs) granted to Messrs. Drewes, Petrides,
Crawford and King. Please refer to the narrative below for more
detail regarding the Strategic Leadership Awards.
The 2008 stock option awards and RSU awards, including the
Strategic Leadership Awards, were made under the LTIP, which was
approved by shareholders in 2008.
(4)
The assumptions used in calculating the SFAS 123R grant
date fair value of the option awards and stock awards are set
forth in Note 4, Share-Based Compensation, to our Annual
Report on
Form 10-K
for the fiscal year ended December 27, 2008. As of the end
of our fiscal year, the market price of our common stock was
below the exercise price of the option awards. Therefore, all of
the option awards are “out of the money” and have no
intrinsic value to the executive.
Narrative to the
Summary Compensation Table and Grants of Plan-Based Awards
Table
Salary. The 2008 annual salary of each Named
Executive Officer is set forth in the “Salary” column
of the Summary Compensation Table. Compensation levels for each
of the Named Executive Officers are at the discretion of the
Committee. There are no written or unwritten employment
agreements with any Named Executive Officer. A salary increase
or decrease for a Named Executive Officer may be approved by the
Committee at any time in the Committee’s sole discretion.
Typically, the Committee considers salary increases for each of
the Named Executive Officers based on considerations such as the
performance of the Company and the executive, any increase in
the executive’s responsibilities and the executive’s
salary level relative to similarly situated executives at peer
group companies.
Stock Awards. Awards of RSUs are made under
the LTIP at the discretion of the Committee. The annual RSU
awards were approved by the Committee in January 2008, with a
grant date of March 1, 2008, to all executives of the
Company, including the Named Executive Officers. The number of
RSUs awarded was determined based on an award value established
by the Committee for each executive. The actual number of RSUs
awarded was calculated by dividing the respective award value by
the “Fair Market Value” of a share of PBG common stock
on the grant date, rounded up to the next whole share. The LTIP
defines Fair Market Value as the average of the high and low
sales price for PBG common stock as reported on the NYSE on the
grant date.
Vesting of the annual RSUs awarded to the Named Executive
Officers in 2008 was made subject to the achievement of a
pre-established EPS performance goal as well as continued
employment for three years. In February 2009, the Committee
determined that this EPS goal was met. Thus, the RSUs will fully
vest after three years provided the Named Executive Officer
remains continuously employed through the third anniversary of
the grant date.
Each of Messrs. Drewes, Petrides, Crawford and King also
received an additional, special award of performance-based RSUs
(Strategic Leadership Award) in January 2008. These Strategic
Leadership Awards will vest only if pre-established EPS targets
and performance criteria are met in both 2008 and 2009 and the
executive remains employed through January 1, 2012.
Provided the pre-established EPS targets are satisfied, each
executive is eligible to receive a maximum award equal to 150%
of the award value. The actual value of the award (from
0 – 150% of the award value) will be determined
by the Committee based on achievement of the performance
criteria.
All RSUs are credited with dividend equivalents in the form of
additional RSUs at the same time and in the same amount as
dividends are paid to shareholders of the Company. If the
underlying RSUs do not vest, no dividend equivalents are paid.
RSUs are paid out in shares of PBG common stock upon vesting.
With the exception of the Strategic Leadership Awards, vesting
of the RSUs in the event of death, disability, retirement, or
Approved Transfer is the same as described below for stock
options; provided, however, that accelerated vesting in the case
of retirement or Approved Transfer to PepsiCo is subject to
satisfaction of any performance-based condition. The Strategic
Leadership Awards do not vest upon retirement or Approved
Transfer to PepsiCo. All RSUs vest and are paid out upon the
occurrence of a “Change In Control” as defined under
the LTIP (“CIC”), as more fully discussed in the
narrative and accompanying tables entitled Potential Payments
Upon Termination or Change In Control. RSUs and shares received
upon certain prior payouts of RSUs are subject to forfeiture in
the event an executive engages in Misconduct.
Option Awards. Stock option awards are made
under the LTIP at the discretion of the Committee. The annual
stock option awards were approved by the Committee in January
2008, with a grant date of
March 1, 2008, to all executives of the Company, including
the Named Executive Officers. The exercise price was equal to
the Fair Market Value of a share of PBG common stock on the
grant date, rounded to the nearest penny. The stock options have
a term of ten years and no dividends or dividend rights are
payable with respect to the stock options. The 2008 stock option
awards for all executives, including the Named Executive
Officers, become exercisable in one-third increments, on the
first, second and third anniversary of the grant date provided
the executive is actively employed on each such date.
However, the vesting is accelerated in the event of death,
disability, retirement, a CIC or Approved Transfer to PepsiCo.
In the event of death or Approved Transfer to PepsiCo, unvested
stock options fully vest immediately. In the event of retirement
or disability, unvested stock options immediately vest in
proportion to the number of months of active employment during
the vesting period over the total number of months in such
period. In the event of death, disability, retirement or an
Approved Transfer to PepsiCo, the vested options remain
exercisable for their original ten-year term, provided that in
the case of an Approved Transfer, the Named Executive Officer
remains actively employed at PepsiCo. In the event of a
subsequent termination of employment from PepsiCo, the Named
Executive Officer must exercise vested stock options within 90
calendar days of termination or the stock options are
automatically cancelled. Vesting is also accelerated upon the
occurrence of a CIC as more fully discussed in the narrative and
accompanying tables entitled Potential Payments Upon Termination
or Change In Control. Stock option awards, including certain
gains on previously exercised stock options, are subject to
forfeiture in the event an executive engages in Misconduct.
In October 2008, the Committee approved a supplemental stock
option award for Mr. Foss as a result of his appointment to
the position of Chairman of the Board of Directors of the
Company. This supplemental award will vest on October 2,2013 provided Mr. Foss is actively employed on such date
and is subject to the same accelerated vesting and exercise
provisions described above.
Non-Equity Incentive Plan Compensation. The
2008 annual, performance-based cash bonuses paid to the Named
Executive Officers are shown in the “Non-Equity Incentive
Plan Compensation” column of the Summary Compensation Table
and the threshold, target and maximum bonus amounts payable to
each Named Executive Officer are shown in the Grants of
Plan-Based Awards Table. These award amounts were approved by
the Compensation Committee and were paid under the EICP, which
was approved by shareholders in 2005 in order to ensure that PBG
may recognize a tax deduction with respect to such awards under
Section 162(m) of the Code. The threshold, target and
maximum payout amounts are shown in the “Estimated Possible
Payouts Under Non-Equity Incentive Plan Awards” column in
the Grants of Plan-Based Awards Table. The pre-established
performance criteria, actual performance and each Named
Executive Officer’s target and actual payout amounts are
discussed in detail in the CD&A.
Change in Pension Value and Nonqualified Deferred
Compensation Earnings. The material terms of the
pension plans governing the pension benefits provided to the
Named Executive Officers are more fully discussed in the
narrative accompanying the Pension Benefits Table. The material
terms of the non-qualified elective deferred compensation plan
are more fully discussed in the narrative accompanying the
Nonqualified Deferred Compensation Table.
All Other Compensation. The perquisites, tax
reimbursements and all other compensation paid to or on behalf
of the Named Executive Officers during 2008 are described fully
in the footnotes to the Summary Compensation Table.
Proportion of Salary to Total Compensation. As
noted in the CD&A, we believe that the total compensation
of our business leaders should be closely tied to the
performance of the Company. Therefore, the percentage of total
compensation that is fixed generally decreases as the level of
the executive increases. This is reflected in the ratio of
salary in proportion to total compensation for each Named
Executive Officer. In 2008, Mr. Foss’ ratio of salary
in proportion to total compensation shown in the Summary
Compensation Table was 13%, and the ratio for
Messrs. Drewes, Petrides, Crawford and King was
approximately: 19%, 20%, 16% and 21%, respectively.
The vesting schedule with respect to this 2002 stock option
award is as follows: 25% of the options vested and became
exercisable on March 30, 2003; 25% of the options vested
and became exercisable on March 30, 2004; and the remaining
50% of the options vested and became exercisable on
March 30, 2005.
(2)
The vesting schedule with respect to this 2003 stock option
award is as follows: 25% of the options vested and became
exercisable on March 30, 2004; 25% of the options vested
and became exercisable on March 30, 2005; and the remaining
50% of the options vested and became exercisable on
March 30, 2006.
(3)
The vesting schedule with respect to this 2004 stock option
award is as follows: 25% of the options vested and became
exercisable on March 30, 2005; 25% of the options vested
and became exercisable on March 30, 2006; and the remaining
50% of the options vested and became exercisable on
March 30, 2007.
The vesting schedule with respect to this 2005 stock option
award is as follows: 25% of the options vested and became
exercisable on March 30, 2006; 25% of the options vested
and became exercisable on March 30, 2007; and the remaining
50% of the options vest and become exercisable on March 30,2008, provided the executive remains employed through such date.
(5)
The vesting schedule with respect to this 2006 stock option
award is as follows: 33% of the options vested and became
exercisable on March 1, 2007; 33% of the options vest and
become exercisable on March 1, 2008; and the remaining 34%
of the options vest and become exercisable on March 1,2009, provided the executive remains employed through the
applicable vesting dates.
(6)
This stock option award was granted to Mr. Foss in
recognition of his role and responsibilities as President and
Chief Executive Officer of the Company. The award fully vests
and becomes exercisable on July 24, 2011, provided
Mr. Foss remains employed through such date.
(7)
The vesting schedule with respect to this 2007 stock option
award is as follows: 33% of the options vest and become
exercisable on March 1, 2008; 33% of the options vest and
become exercisable on March 1, 2009; and the remaining 34%
of the options vest and become exercisable on March 1,2010, provided the executive remains employed through the
applicable vesting dates.
(8)
The vesting schedule with respect to this 2008 stock option
award is as follows: 33% of the options vest and become
exercisable on March 1, 2009; 33% of the options vest and
become exercisable on March 1, 2010; and the remaining 34%
of the options vest and become exercisable on March 1,2011, provided the executive remains employed through the
applicable vesting dates.
(9)
This stock option award was granted to Mr. Foss in
recognition of his new role and responsibilities as Chairman of
the Board of Directors of the Company. The award fully vests and
becomes exercisable on October 2, 2013, provided
Mr. Foss remains employed through October 2, 2013.
(10)
Since the pre-established earnings per share performance target
was met, these RSUs fully vest on October 7, 2010, provided
the executive remains employed through October 7, 2010.
(11)
Since the pre-established earnings per share performance target
was met, these RSUs fully vest on March 1, 2009, provided
the executive remains employed through March 1, 2009.
(12)
Since the pre-established earnings per share performance target
was met, these RSUs fully vest on March 1, 2010, provided
the executive remains employed through March 1, 2010.
(13)
Since the pre-established earnings per share performance target
was met, these RSUs fully vest on March 1, 2011, provided
the executive remains employed through March 1, 2011.
(14)
The vesting of this RSU award is contingent upon the
satisfaction of a pre-established 2008 and 2009 earnings per
share performance target, achievement of specific performance
criteria and continued employment through January 1, 2012.
This amount includes 1,521 RSUs accumulated as a result of
dividend equivalents credited to the executive at the same time
and in the same amount as dividends were paid to shareholders of
common stock in accordance with the governing RSU agreement.
(17)
This amount includes 2,016 RSUs accumulated as a result of
dividend equivalents credited to the executive at the same time
and in the same amount as dividends were paid to shareholders of
common stock in accordance with the governing RSU agreement.
(18)
This amount includes 1,175 RSUs accumulated as a result of
dividend equivalents credited to the executive at the same time
and in the same amount as dividends were paid to shareholders of
common stock in accordance with the governing RSU agreement.
(19)
This amount includes 760 RSUs accumulated as a result of
dividend equivalents credited to the executive at the same time
and in the same amount as dividends were paid to shareholders of
common stock in accordance with the governing RSU agreement.
(20)
This amount includes 504 RSUs accumulated as a result of
dividend equivalents credited to the executive at the same time
and in the same amount as dividends were paid to shareholders of
common stock in accordance with the governing RSU agreement.
This amount includes 235 RSUs accumulated as a result of
dividend equivalents credited to the executive at the same time
and in the same amount as dividends were paid to shareholders of
common stock in accordance with the governing RSU agreement.
(22)
This amount includes 437 RSUs accumulated as a result of
dividend equivalents credited to the executive at the same time
and in the same amount as dividends were paid to shareholders of
common stock in accordance with the governing RSU agreement.
(23)
This amount includes 403 RSUs accumulated as a result of
dividend equivalents credited to the executive at the same time
and in the same amount as dividends were paid to shareholders of
common stock in accordance with the governing RSU agreement.
(24)
This amount includes 188 RSUs accumulated as a result of
dividend equivalents credited to the executive at the same time
and in the same amount as dividends were paid to shareholders of
common stock in accordance with the governing RSU agreement.
(25)
This amount includes 608 RSUs accumulated as a result of
dividend equivalents credited to the executive at the same time
and in the same amount as dividends were paid to shareholders of
common stock in accordance with the governing RSU agreement.
(26)
This amount includes 609 RSUs accumulated as a result of
dividend equivalents credited to the executive at the same time
and in the same amount as dividends were paid to shareholders of
common stock in accordance with the governing RSU agreement.
(27)
This amount includes 406 RSUs accumulated as a result of
dividend equivalents credited to the executive at the same time
and in the same amount as dividends were paid to shareholders of
common stock in accordance with the governing RSU agreement.
(28)
The closing price for a share of PBG common stock on
December 26, 2008, the last trading day of PBG’s
fiscal year, was $22.00. This price is below the exercise price
of the option awards. Therefore, all of the option awards are
“out of the money” and have no intrinsic value to the
executive.
The value realized on exercise and vesting reflects the pre-tax
amount.
(2)
Mr. Crawford’s 2005 award of 84,345 restricted stock
units vested on December 19, 2008. The value realized upon
vesting was $1,836,191, determined by multiplying the number of
vested restricted stock units by the closing price of $21.77 on
December 19, 2008.
The number of years of service shown for each executive includes
service with PepsiCo, the Company’s parent company prior to
March 31, 1999, at which time the Company became a
separate, publicly traded company. The executive’s service
with PepsiCo prior to March 31, 1999 has not been
separately identified and the benefit attributable to such
service has not been separately quantified for such period. Any
benefit amount attributable to the executive’s service with
PepsiCo after March 31, 1999 has been separately identified
and quantified. In this regard, periods of PepsiCo service that
Mr. Drewes accrued after we became a separate company has
been separately identified and quantified in footnote 3 below.
The Company’s policy for granting extra years of credited
service is discussed in more detail in the CD&A and in the
Narrative to the Pension Benefits Table.
(2)
The material assumptions used to quantify the present value of
the accumulated benefit for each executive are set forth in
Note 12, Pension and Postretirement Medical Benefit Plans,
to our Annual Report on
Form 10-K
for the fiscal year ended December 27, 2008, except for the
generally applicable assumptions regarding retirement age and
pre-retirement mortality.
(3)
Mr. Drewes transferred from PepsiCo on June 25, 2001.
The years of credited service shown above include all prior
PepsiCo service. However, only the portion of the pension
benefit attributable to Mr. Drewes’ PepsiCo service
that accrued after March 31, 1999 (2 years of service)
has been separately quantified as follows: $33,000 under the PBG
Salaried Employees Retirement Plan and $120,000 under the PBG
Pension Equalization Plan. PepsiCo transferred to the PBG
Salaried Employees Retirement Plan an amount equal to the
present value of Mr. Drewes’ pension benefit under the
PepsiCo Salaried Employees Retirement Plan at the time
Mr. Drewes transferred to the Company.
(4)
The PepsiCo International Retirement Plan benefit is offset by
all amounts paid to or on behalf of Mr. Petrides by the
Company pursuant to any Company sponsored plan or government
mandated programs.
Narrative to the
Pension Benefits Table
This narrative describes the terms of the PBG Salaried Employees
Retirement Plan (“Salaried Plan”), the Pension
Equalization Plan (“PEP”) and the PepsiCo
International Retirement Plan (“PIRP”) in effect
during 2008. The narrative does not describe certain changes to
the Salaried Plan and the PEP that became effective during 2009,
which are discussed in the CD&A.
The PBG Salaried Employees Retirement
Plan. The Salaried Plan, a tax qualified defined
benefit pension plan, generally covers salaried employees in the
U.S. hired by the Company or PepsiCo in the case of an
Approved Transfer before January 1, 2007, who have
completed one year of service. Eligible employees hired after
January 1, 2007 participate in a defined contribution plan
and receive an annual employer contribution of two percent of
eligible pay. All of our Named Executive Officers were hired
before January 1, 2007.
Benefits are payable under the Salaried Plan to participants
with five or more years of service commencing on the later of
age 65 or retirement. Benefits are determined based on a
participant’s earnings (which generally include base pay or
salary, regular bonuses, and short term disability pay; and
exclude income resulting from equity awards, extraordinary
bonuses, fringe benefits, and earnings that exceed the
applicable dollar limit of Section 401(a)(17) of the Code)
and credited service (generally, service as an eligible
employee). The primary purpose of the Salaried Plan is to
provide retirement income to eligible employees.
The annual retirement benefit formula for a participant with at
least five years of service on December 31, 1999 is
(a) 3% of the participant’s average earnings in the
five consecutive calendar years in which earnings were the
highest for each year of credited service up to ten years, plus
(b) an additional 1% of such average earnings for each year
of credited service in excess of ten years, minus (c) 0.43%
of average earnings up to the Social Security covered
compensation multiplied by years of credited service up to
35 years (“Basic Formula”). If a participant did
not have five years of service on December 31, 1999, the
retirement benefit formula is 1% of the participant’s
average earnings in the five consecutive calendar years in which
earnings were the highest for each year of credited service
(“Primary Formula”).
A participant who has attained age 55 and completed ten
years of vesting service may retire and begin receiving early
retirement benefits. If the participant retires before
age 62, benefits are reduced by
1/3
of 1% for each month (4% for each year) of payment before
age 62.
Retirees have several payment options under the Salaried Plan.
With the exception of the single lump sum payment option, each
payment form provides monthly retirement income for the life of
the retiree. Survivor options provide for continuing payments in
full or part for the life of a contingent annuitant and, if
selected, the survivor option reduces the benefit payable to the
participant during his or her lifetime.
A participant with five or more years of service who terminates
employment prior to attaining age 55 and completing ten
years of service is entitled to a deferred vested benefit. The
deferred vested benefit of a participant entitled to a benefit
under the Basic Formula described above is equal to the Basic
Formula amount calculated based on projected service to
age 65 prorated by a fraction, the numerator of which is
the participant’s credited service at termination of
employment and the denominator of which is the
participant’s potential credited service had the
participant remained employed to age 65. The deferred
vested benefit of a participant entitled to a benefit under the
Primary Formula described above is the Primary Formula amount,
determined based on earnings and credited service as of the date
employment terminates. Deferred vested benefits are payable
commencing at age 65. However, a participant may elect to
commence benefits as early as age 55 on an actuarially
reduced basis to reflect the longer payment period. Deferred
vested benefits are payable in the form of a single life annuity
or a joint and survivor annuity with the participant’s
spouse as co-annuitant.
The Salaried Plan also provides survivor spouse benefits in the
event of a participant’s death prior to commencement of
benefits under the Salaried Plan. After a participant’s
benefits have commenced, any survivor benefits are determined by
the form of payment elected by the participant.
The Salaried Plan provides extra years of credited service for
participants who become totally and permanently disabled after
completing at least ten years of vesting service, and with
respect to pre-participation service in connection with
specified events such as plan mergers, acquired groups of
employees, designated employees who transfer to the Company from
PepsiCo, and other special circumstances. Salaried Plan benefits
are generally offset by any other qualified plan benefit the
participant is entitled to under a plan maintained or
contributed to by the Company.
The PBG Pension Equalization Plan. The PEP is
an unfunded nonqualified defined benefit pension plan designed
to provide (i) additional benefits to participants whose
Salaried Plan benefits are limited due to the annual
compensation limit in Section 401(a)(17) of the Code and
the annual benefit limit in Section 415 of the Code, and
(ii) a subsidized 50% joint and survivor annuity for
certain retirement eligible employees based on the Salaried
Plan’s benefit formula using the participant’s total
compensation including earnings that otherwise would be used to
determine benefits payable under the Salaried Plan. Generally,
for benefits accrued and vested prior to January 1, 2005
(“grandfathered PEP benefits”), a participant’s
PEP benefit is payable under the same terms and conditions of
the Salaried Plan, which
include various actuarially equivalent forms as elected by
participants, including lump sums. In addition, if the lump sum
value of the grandfathered PEP benefit does not exceed $10,000,
the benefit is paid as a single lump sum. Benefits accrued or
vested on or after January 1, 2005 are payable as a lump
sum at termination of employment; provided that a PEP
participant who attained age 50 on or before
January 1, 2009 was provided a one-time opportunity to
elect to receive such benefits in the form of an annuity
commencing on retirement. The PEP benefit, calculated under the
terms of the plan in effect at fiscal year end, is equal to the
Salaried Plan benefit, as determined without regard to the
Code’s annual compensation limit and the annual benefit
limit, less the actual benefit payable under the Salaried Plan.
However, the PEP benefit of a participant who had eligible
earnings in 1988 in excess of $75,000, including
Mr. Drewes, is payable as a subsidized 50% joint and
survivor annuity benefit. The subsidized 50% joint and survivor
benefit pays an unreduced benefit for the lifetime of the
participant and 50% of that benefit amount to the surviving
spouse upon the death of the participant.
The PepsiCo International Retirement Plan. The
PIRP is a nonqualified defined benefit pension plan sponsored
and administered by PepsiCo in which certain Company employees
participate, including Mr. Petrides. The Company has had a
very limited number of active PIRP participants since 1999. The
primary purpose of the PIRP is to provide retirement income to
eligible international employees.
The PIRP generally covers
non-U.S. citizens
who are on their second assignment outside of their home
country. The material terms and conditions of the PIRP generally
mirror the Basic Formula provisions of the Salaried Plan,
without the Social Security offset, and the PIRP benefit is
payable under the same terms and conditions as the Salaried
Plan. Benefits are determined based on a participant’s
earnings (which generally include base pay or salary, regular
bonuses, and short term disability pay; and exclude income
resulting from equity awards, extraordinary bonuses, fringe
benefits) and credited service (generally, service as an
eligible employee). The PIRP benefit is reduced by any benefits
paid to or on behalf of a participant by the Company including
benefits paid under any other Company provided retirement plan
or pursuant to any government mandated retirement or severance
plan.
$1,965,025 of Mr. Foss’ aggregate balance was
previously reported as compensation in Summary Compensation
Tables for prior years.
(2)
$675,899 of Mr. Drewes’ aggregate balance was
previously reported as compensation in Summary Compensation
Tables for prior years.
(3)
Mr. Petrides is ineligible to participate in the
Company’s deferred compensation program, which is available
only to Company executives on the U.S. payroll.
(4)
Mr. Crawford did not participate in the Company’s
deferred compensation program in fiscal year 2008. In addition,
since Mr. Crawford was not a named executive officer of the
Company in any prior year, none of Mr. Crawford’s
aggregate balance has been previously reported as compensation
in Summary Compensation Tables for prior years.
(5)
$348,478 of Mr. King’s aggregate balance was
previously reported as compensation in Summary Compensation
Tables for prior years.
(6)
The amounts reflected in this column for Messrs. Drewes and
King include compensation deferred by the Named Executive
Officer over the entirety of their career at both PepsiCo and
the Company.
Narrative to the
Nonqualified Deferred Compensation Table
The Deferral Program is the only nonqualified elective deferred
compensation program sponsored by the Company. The Deferral
Program is administered by the Committee. All Company executives
on the U.S. payroll, including our Named Executive
Officers, are eligible to participate in the Deferral Program.
The Deferral Program allows executives to defer receipt of
compensation in excess of compensation limits imposed by the
Internal Revenue Code under the Company’s 401(k) plan and
to defer federal and state income tax on the deferred amounts,
including earnings, until such time as the deferred amounts are
paid out. The Company makes no contributions to the Deferral
Program on behalf of executives. The Deferral Program is
unfunded and the executive’s deferrals under the Deferral
Program are at all times subject to the claims of the
Company’s general creditors.
The terms and conditions of the Deferral Program vary with
respect to deferrals made or vested on and after January 1,2005. Such deferrals are subject to the requirements of
Section 409A of the Code (“409A”) which became
effective on such date. Deferrals made or vested before
January 1, 2005 are not subject to the requirements of 409A
(“grandfathered deferrals”).
Deferrals of Base Salary and Annual Non-Equity Incentive
Award. Executives may irrevocably elect to defer
up to 80% of their annual base salary and 100% of their annual
non-equity incentive award (“Bonus”). In addition to
elective deferrals, the Committee may mandate deferral of a
portion of an executive’s base salary in excess of one
million dollars.
Phantom Investment Options. Executives select
the phantom investment option(s) from those available under the
terms of the Deferral Program. The phantom investment options
available under the Deferral Program are a subset of the funds
available under the Company’s 401(k) plan. Consequently,
amounts deferred under the Deferral Program are subject to the
same investment gains and losses during the deferral period as
experienced by the participants in the Company’s 401(k)
plan. Executives may change investment option elections and
transfer balances between investment options on a daily basis.
The phantom investment options currently available under the
Deferral Program and their 2008 rates of return are:
Fye Return
Phantom Fund
Rate (%)
The Phantom PBG Stock Fund
(41.00
)
The Phantom Security Plus Fund
4.19
The Phantom Bond Index Fund
5.46
The Phantom Total U.S. Equity Index Fund
(37.01
)
The Phantom Large Cap Equity Index Fund
(36.93
)
The Phantom Mid Cap Equity Index Fund
(36.09
)
The Phantom Small Cap Equity Index Fund
(33.66
)
The Phantom International Equity Index Fund
(43.26
)
Time and Form of Payment. Prior to deferral,
executives are required to elect a specific payment date or
payment event as well as the form of payment (lump sum or
quarterly, semi-annual, or annual installments for a period of
up to twenty years). The Committee selects the time and form of
payment for mandatory deferrals. Executives with grandfathered
deferrals are required to elect a specific payment date or event
prior to deferral, but may elect the form of payment at a later
date nearer to the payment date (not later than December 31 of
the calendar year preceding the year of the scheduled payment
and at least six months in advance of the scheduled payment
date).
Deferral Periods. Salary and Bonus deferrals
are subject to minimum and maximum deferral periods. The minimum
deferral period for salary deferrals is one year after the end
of the applicable base salary year. The minimum deferral period
for Bonus deferrals is two years after the Bonus payout would
have been made but for the deferral.
Distribution Rules. In general, deferrals are
paid out in accordance with the executive’s deferral
election, subject to the minimum deferral periods. The Deferral
Program provides that, notwithstanding the
minimum deferral periods or the executive’s time and form
of payment elections, deferrals will automatically be paid out
in a lump sum in the event of death, disability or a separation
from service for reasons other than retirement (unless
installment payments have already begun in which case they would
continue to be paid without acceleration). Generally, payment
will be made three months after the end of the quarter in which
the separation from service occurred. However, special rules
apply for “key employees,” as defined under 409A
(which would encompass all Named Executive Officers). In the
event of a separation from service, the Named Executive Officers
may not receive a distribution for at least six months following
separation from service. This six month rule does not apply in
the event of the Named Executive Officer’s death or
disability.
Generally, payment of grandfathered deferrals is made in the
form of a lump sum in the event of voluntary termination of
employment or termination of employment as a result of
misconduct but only after the minimum deferral periods have been
satisfied. If the executive’s balance is greater than
$25,000, the executive will be paid out in a lump sum a year
after his last day of employment. However, special distribution
rules apply when an executive separates from service after
reaching retirement eligibility (age 55 with ten years of
service). In such case, payment is made in the time and form
elected by the executive.
Deferral Extensions (Second-Look
Elections). In general, executives may extend
their original deferral period by making a subsequent deferral
election. This modification of an original deferral election is
often referred to as a “second-look” election. More
stringent requirements apply to second-look elections related to
deferrals subject to 409A since 409A requires that any
second-look election must be made at least 12 months prior
to the originally scheduled payout date and the second-look
election must provide for a deferral period of at least five
years from the originally scheduled payment date. Grandfathered
deferrals may also be extended at the election of the executive
provided the election is made no later than December 31 of the
year preceding the originally scheduled payout date and at least
six months in advance of the originally scheduled payout date
and is for a minimum deferral of at least two years from the
originally scheduled payment date.
Hardship Withdrawals. Accelerated distribution
is only permissible upon the executive’s showing of severe,
extraordinary and unforeseen financial hardship.
The terms and conditions of the Company’s compensation and
benefit programs govern all payments to all eligible employees,
including the Named Executive Officers. The Company does not
have any separate written or unwritten agreement with any Named
Executive Officer regarding payment of any kind at, following or
in connection with termination of employment for any reason
including, without limitation, retirement, an Approved Transfer
to PepsiCo, a change in responsibilities, or upon a change in
control of the Company (collectively, “Termination”).
As such, the Named Executive Officers are not entitled to any
payment outside the written terms of the LTIP or the
Company-sponsored (i) qualified and nonqualified pension
plans, (ii) qualified and nonqualified defined contribution
plans,
(iii) non-U.S. pension
and severance plans, or (iv) employee welfare benefit
plans. None of the Company’s compensation or benefit
programs provide for any perquisites or tax reimbursements by
the Company upon Termination.
This narrative and the accompanying tables are intended to show
the value of all potential payments that would be payable, under
the terms of the plans in effect on December 26, 2008, to
the Named Executive Officers upon any event of Termination to
the extent that the Termination would result in a payment or
benefit that is not generally available to all salaried
employees of the Company and that is incremental to, or an
enhancement of, the payments and benefits described or shown in
any preceding narrative or table in this proxy statement.
Nonqualified Pension Benefits. The PEP
benefits accrued and vested before 2005 would provide a deferred
vested pension benefit, payable as an annual annuity for the
life of the executive or as a joint and survivor annuity with
the executive’s spouse commencing at the same time and in
the same form as the qualified plan benefit. An unreduced
benefit would commence at age 65; actuarially reduced
benefits may be elected as early as age 55. PEP benefits
accrued or vested after 2004 are generally payable in a single
lump sum payment on termination of employment (six months
following termination in the case of key employees). The PIRP
would provide a deferred vested pension benefit, payable as an
annual annuity for the life of the executive commencing at
age 65, if the executive were to terminate employment on
December 26, 2008, prior to age 55. The deferred
vested PIRP benefit would be payable to the executive as early
as age 55, but would be reduced on an actuarially
equivalent basis given the longer payment period. The deferred
vested PEP and PIRP benefit are significantly less than the
benefit that would be payable to the executive had he remained
employed until age 55 and is significantly less than the
benefit valued in the Pension Benefits Table, which was
calculated assuming the executive works until age 62, the
earliest age at which unreduced benefits are available to a plan
participant. No pension benefit would be payable in an enhanced
form or in an amount in excess of the value shown in the Pension
Benefits Table except in the event of death or, with respect to
Mr. Petrides, disability. Therefore, we have not separately
quantified pension benefits payable upon any event of
Termination other than death under the terms of the PEP and the
PIRP in effect on December 26, 2008.
Disability. Under the terms of the PIRP,
Mr. Petrides’ disability pension benefit would be
calculated based on additional service that would be credited
during the executive’s period of “Disability” (as
defined under the Company’s broad-based long-term
disability plan) up to the age of 65, assuming he remains
Disabled and does not elect a distribution prior to such age.
The disability pension benefit amount based on the foregoing
assumptions would be $606,400. The executive could elect a
distribution as early as age 55 but the benefit would be
reduced by 4% for each year of payment prior to age 62. No
incremental disability pension benefits are payable under the
PEP to the other Named Executive Officers.
Death. Under the terms of the PEP, a
pre-retirement survivor spouse benefit would be payable with
respect to pre-2005 accrued and vested PEP benefits, payable in
the form of an annuity for the life of the surviving spouse.
Surviving spouse benefits for post-2004 accrued and vested PEP
benefits are payable in a single lump sum payment. Under the
terms of the PIRP, a pre-retirement survivor spouse benefit
would be immediately payable as an annual annuity to the
executive’s surviving spouse for
his/her
lifetime.
The table below reflects the PEP and PIRP pension benefit that
would be payable to the surviving spouse of each Named Executive
Officer in the event of the executive’s death on
December 26, 2008. To the extent the Named Executive
Officer continues active service, the amounts shown below
generally will increase year over year based on increases in
eligible pay and service credit. The payments would be in lieu
of the benefit valued in the Pension Benefits Table.
Death
Name
Plan Name
Annual Annuity
Lump Sum
Eric J. Foss
PBG Pension Equalization Plan
$
34,000
$
3,239,000
Alfred H. Drewes
PBG Pension Equalization Plan
16,000
1,199,000
Yiannis Petrides
PepsiCo International Retirement Plan
151,600
N/A
Victor L. Crawford
PBG Pension Equalization Plan
N/A
330,000
Robert C. King
PBG Pension Equalization Plan
6,000
756,000
LTIP. The LTIP’s provisions apply to all
equity awards made to employees of the Company, including the
Named Executive Officers, and, with few exceptions, the terms of
the individual LTIP agreements provide for accelerated vesting
of stock options and RSUs upon death, disability, retirement and
Approved Transfer to PepsiCo. This accelerated vesting is
pro-rata or 100% depending on the triggering event as more fully
described below. The payments that would result from each
triggering event are quantified for each Named Executive Officer
in the table below. The amounts were calculated based on the
closing market price of PBG common stock on December 26,2008, the last trading day of fiscal 2008, and reflect the
incremental value to the executive that would result from the
accelerated vesting of unvested equity awards.
Disability. In the event of the Disability of
a Named Executive Officer, a pro-rata number of stock options
vest based on the executive’s active employment during the
vesting period. The stock options would remain exercisable for
the remainder of their original ten-year term. RSUs vest in the
same pro-rata manner and would be paid out immediately upon
vesting.
Death. In the event of the death of a Named
Executive Officer, all unvested stock options vest automatically
and remain exercisable by the executive’s estate for the
remainder of their original ten-year term. In general, RSUs
similarly vest automatically and are immediately paid out in
shares of PBG common stock to the executive’s legal
representative or heir. This automatic vesting does not apply to
the October 7, 2005 RSU awards granted to Messrs. Foss
and Petrides as reflected in the Outstanding Equity Awards
Table, and the special award of performance-based RSUs
(Strategic Leadership Award) granted to Messrs. Drewes,
Petrides, Crawford and King on January 1, 2008 as reflected
in the Grants of Plan-Based Awards Table, that instead provide
for pro-rata vesting upon the death of the executive. The
pro-rata number of RSUs that would vest is determined based on
the executive’s active employment during the vesting period.
Retirement. In general, if a Named Executive
Officer retires from the Company (generally, after attaining
age 55 with ten or more years of service), a pro-rata
number of stock options and RSUs would vest in proportion to the
executive’s active employment during the vesting period
subject to achievement of any applicable performance-based
vesting condition. Certain RSU awards to the Named Executive
Officer contain different retirement provisions. In particular,
the October 7, 2005 RSU awards granted to Messrs. Foss
and Petrides as reflected in the Outstanding Equity Awards
Table, and the special award of performance-based RSUs
(Strategic Leadership Award) granted to Messrs. Drewes,
Petrides, Crawford and King on January 1, 2008 as reflected
in the Grants of Plan-Based Awards Table, do not provide for
accelerated vesting and payout upon retirement. Since no Named
Executive Officer was eligible for early or normal retirement
during 2008, there is no quantification of vesting or payout
based upon such occurrence.
Approved Transfer to PepsiCo. In general, if a
Named Executive Officer transfers to PepsiCo with the approval
of the Company, all stock options and RSUs would fully vest on
the date of transfer subject to achievement of any applicable
performance-based vesting condition. The stock options would
remain exercisable for the remainder of their original ten-year
term provided the Named Executive Officer remains actively
employed at PepsiCo. In the event of termination from PepsiCo
during the original term, the Named Executive Officer would have
a limited number of days from the date of termination to
exercise his stock options or they would be automatically
cancelled. Generally, RSUs would vest and be paid out
immediately upon an Approved Transfer to PepsiCo subject to
achievement of any applicable performance-based vesting
condition. However, the October 7, 2005 RSU awards granted
to Messrs. Foss and Petrides as reflected in the
Outstanding Equity Awards Table, and the special award of
performance-based RSUs (Strategic Leadership Award) granted to
Messrs. Drewes, Petrides, Crawford and King on
January 1, 2008 as reflected in the Grants of Plan-Based
Awards Table, do not provide for accelerated vesting and payout
upon Approved Transfer.
Change in Control. The LTIP change in control
provisions apply to equity awards made to all employees of the
Company, including the Named Executive Officers. The LTIP
defines a CIC in the context of two circumstances, one related
to a change in control of the Company and the other related to a
change in control of PepsiCo.
A CIC of the Company occurs if: (i) any person or entity,
other than PepsiCo, becomes a beneficial owner of 50% or more of
the combined voting power of the Company’s outstanding
securities entitled to vote for directors; (ii) 50% of the
directors (other than directors approved by a majority of the
Company’s directors or by PepsiCo) change in any
consecutive two-year period; (iii) the Company is merged
into or consolidated with an entity, other than PepsiCo, and is
not the surviving company, unless the Company’s
shareholders before and after the merger or consolidation
continue to hold 50% or more of the voting power of the
surviving entity’s outstanding securities; (iv) there
is a disposition of all or substantially all of the
Company’s assets, other than to PepsiCo or an entity
approved by PepsiCo; or (v) any event or circumstance that
is intended to effect a change in control of the Company results
in any one of the events set forth in (i) through (iv).
A CIC of PepsiCo occurs if: (i) any person or entity
acquires 20% or more of the outstanding voting securities of
PepsiCo; (ii) 50% of the directors (other than directors
approved by a majority of the PepsiCo directors) change in any
consecutive two-year period; (iii) PepsiCo shareholders
approve, and there is
completed, a merger or consolidation with another entity, and
PepsiCo is not the surviving company; or, if after such
transaction, the other entity owns, directly or indirectly, 50%
or more of PepsiCo’s outstanding voting securities;
(iv) PepsiCo shareholders approve a plan of complete
liquidation of PepsiCo or the disposition of all or
substantially all of PepsiCo’s assets; or (v) any
event or circumstance that is intended to effect a change in
control of PepsiCo results in any one of the events set forth in
(i) through (iv).
In general, in the event of a CIC of the Company or PepsiCo, all
unvested stock options immediately vest and are exercisable
during their original term. RSUs immediately vest in the event
of a CIC of the Company or PepsiCo and are payable upon vesting.
The following table reflects the incremental value the executive
would receive as a result of accelerated vesting of unvested
stock options and RSUs had a triggering event occurred on
December 26, 2008. The value was calculated using the
closing market price of a share of PBG common stock on
December 26, 2008, the last trading day of fiscal 2008.
Approved
Change
Transfer to
In
Name
Disability
Death
PepsiCo
Control
Eric J. Foss
$
3,836,177
$
5,666,101
$
3,882,352
$
6,648,148
Alfred H. Drewes
882,373
1,291,910
1,085,159
1,929,391
Yiannis Petrides
1,901,661
2,311,197
1,085,159
3,509,849
Victor L. Crawford
595,312
917,789
779,954
1,342,782
Robert C. King
808,584
1,213,545
1,006,794
1,851,025
Nonqualified Deferred Compensation Plan. The
Named Executive Officers’ deferred compensation balances
under the Deferral Program and a description of the Deferral
Program’s payment provisions are set forth in the
Nonqualified Deferred Compensation Table and accompanying
narrative. No triggering event would serve to enhance such
amounts. However, under the terms of the Deferral Program, the
deferred compensation balances set forth in the Nonqualified
Deferred Compensation Table would be payable in the form of a
lump sum in the event of death or separation from service for
reasons other than retirement notwithstanding the Named
Executive Officer’s election as to time and form of payment.
Severance.The Company has no agreement to
provide any form of severance payment to a Named Executive
Officer.
Benefits Generally Available to All Salaried
Employees. There are a number of employee
benefits generally available to all salaried employees upon
termination of employment. In accordance with SEC guidelines,
these benefits are not discussed above since they do not
discriminate in scope, terms or operation in favor of the
Company’s executive officers. These include tax-qualified
retirement benefits, life insurance, long-term disability,
retiree medical, health care continuation coverage mandated by
the Consolidated Omnibus Budget Reconciliation Act of 1986
(“COBRA”) and government mandated termination benefits
in
non-U.S. locations,
such as Greece.
The table below sets forth certain information as of
December 27, 2008, the last day of the fiscal year, for
(i) all equity compensation plans previously approved by
our shareholders and (ii) all equity compensation plans not
previously approved by our shareholders.
Number of Securities
Remaining Available for
Number of Securities
Weighted-Average
Future Issuance Under
to be Issued Upon Exercise
Exercise Price of
Equity Compensation Plans
of Outstanding Options,
Outstanding Options,
(Excluding Securities
Warrants and Rights
Warrants and Rights
Reflected in Column (a))
Plan Category
(a)
(b)
(c)
Equity compensation plans approved by security holders
30,000,777
(1)
24.01
16,407,474
Equity compensation plans not approved by security holders
1,403,460
(2)
14.81
Total
31,404,237
23.60
16,407,474
(3)
(1)
The securities reflected in this category are authorized for
issuance (i) upon exercise of awards granted under the
Directors’ Stock Plan and the 2004 Long-Term Incentive Plan
and (ii) upon exercise of awards granted prior to
May 26, 2004 under the following PBG plans: (A) 1999
Long-Term Incentive Plan; (B) 2000 Long-Term Incentive
Plan; and (C) 2002 Long-Term Incentive Plan. Effective
May 26, 2004, no securities were available for future
issuance under the 1999 Long-Term Incentive Plan, the 2000
Long-Term Incentive Plan or the 2002 Long-Term Incentive Plan.
(2)
The securities reflected in this category are authorized for
issuance upon exercise of awards granted prior to May 26,2004 under the PBG Stock Incentive Plan (the “SIP”).
Effective May 26, 2004, no securities were available for
future issuance under the SIP.
(3)
The 2004 Long-Term Incentive Plan and the Directors’ Stock
Plan, both of which have been approved by our shareholders, are
the only equity compensation plans that provide securities
remaining available for future issuance.
Description of
the PBG Stock Incentive Plan
Effective May 26, 2004, no securities were available for
future issuance under the SIP. The SIP is a non-shareholder
approved, broad-based plan that was adopted by our Board of
Directors on March 30, 1999. No grants, other than stock
option awards, have been made under the SIP. All stock options
were granted to select groups of non-management employees with
an exercise price equal to the fair market value of our common
stock on the grant date. The options generally become
exercisable three years from the date of grant and have a
ten-year term. At year-end 2008, options covering
1,403,460 shares of our common stock were outstanding under
the SIP. The SIP is filed as Exhibit 10.11 to our Annual
Report on
Form 10-K
for the year ended December 25, 1999 and qualifies this
summary in its entirety.
The Compensation and Management Development Committee reviewed
and discussed the Compensation Discussion and Analysis with
management and, based on that review and discussion, the
Compensation and Management Development Committee recommended to
our Board of Directors that the Compensation Discussion and
Analysis be included in this proxy statement.
Linda G. Alvarado, Blythe J. McGarvie and Javier G. Teruel were
members of the Compensation and Management Development Committee
during fiscal year 2008 and through March 26, 2009.
Respectfully submitted,
The Compensation and Management Development Committee
Stock Ownership and Director Relationships with
PepsiCo. We were initially incorporated in
January 1999 as a wholly owned subsidiary of PepsiCo to effect
the separation of most of PepsiCo’s company-owned bottling
businesses. We became a publicly traded company on
March 31, 1999. As of February 13, 2009,
PepsiCo’s ownership represented 33.1% of our outstanding
common stock and 100% of our outstanding Class B common
stock, together representing 40.2% of the voting power of all
classes of our voting stock. PepsiCo also owns approximately
6.6% of the equity of Bottling Group, LLC, our principal
operating subsidiary (“Bottling LLC”). In addition,
two of our directors, John C. Compton and Cynthia M. Trudell,
are executive officers of PepsiCo.
Agreements and Transactions with PepsiCo and
Affiliates. We and PepsiCo (and certain of
its affiliates) have entered into transactions and agreements
with one another, incident to our respective businesses, and we
and PepsiCo are expected to enter into material transactions and
agreements from time to time in the future. As used in this
section, “PBG,”“we,”“us” and
“our” include PBG and our subsidiaries.
Material agreements and transactions between PBG and PepsiCo
(and certain of its affiliates) during 2008 are described below.
Beverage Agreements and Purchases of Concentrates and
Finished Products. We purchase concentrates from
PepsiCo and manufacture, package, distribute and sell carbonated
and non-carbonated beverages under license agreements with
PepsiCo. These agreements give us the right to manufacture, sell
and distribute beverage products of PepsiCo in both bottles and
cans and fountain syrup in specified territories. The agreements
also provide PepsiCo with the ability to set prices of such
concentrates, as well as the terms of payment and other terms
and conditions under which we purchase such concentrates. In
addition, we bottle water under the Aquafina trademark pursuant
to an agreement with PepsiCo, which provides for the payment of
a royalty fee to PepsiCo. In certain instances, we purchase
finished beverage products from PepsiCo. During 2008, total
payments by PBG to PepsiCo for concentrates, royalties and
finished beverage products were approximately $2.9 billion.
There are certain manufacturing cooperatives whose assets,
liabilities and results of operations are consolidated in our
financial statements. Concentrate purchases from PepsiCo by
these cooperatives for the years ended 2008, 2007 and 2006 were
$140 million, $143 million and $72 million,
respectively.
Transactions with Joint Ventures in which PepsiCo holds an
equity interest. We purchase tea concentrate and
finished beverage products from the Pepsi/Lipton Tea
Partnership, a joint venture of Pepsi-Cola North America, a
division of PepsiCo, and Lipton. During 2008, total amounts paid
or payable to PepsiCo for the benefit of the Pepsi/Lipton Tea
Partnership were approximately $279 million.
We purchase finished beverage products from the North American
Coffee Partnership, a joint venture of Pepsi-Cola North America
and Starbucks in which PepsiCo has a 50% interest. During 2008,
amounts paid or payable to the North American Coffee Partnership
by us were approximately $278 million.
Under tax sharing arrangements we have with PepsiCo and PepsiCo
joint ventures, we received approximately $1 million in tax
related benefits in 2008.
As a result of the formation of PR Beverages Limited, our
Russian venture with PepsiCo, PepsiCo has agreed to contribute
$83 million plus accrued interest to the venture in the
form of property, plant and equipment. During 2008, PepsiCo
contributed $34 million in regards to this note.
During the second half of 2008, together with PepsiCo, we
completed a joint acquisition of JSC Lebedyansky
(“Lebedyansky”) for approximately $1.8 billion.
Lebedyansky was acquired 58.3 percent by PepsiCo and
41.7 percent by PR Beverages Limited. We and PepsiCo have
an ownership interest in PR Beverages Limited of 60 percent
and 40 percent, respectively. As a result, PepsiCo and we
have acquired a 75 percent and 25 percent economic
stake in Lebedyansky, respectively.
Purchase of Frito-Lay Snack Food
Products. Pursuant to a Distribution Agreement
between PR Beverages and Frito-Lay Manufacturing, LLC, a
wholly-owned subsidiary of PepsiCo, PR Beverages purchases snack
food products from Frito-Lay Manufacturing for sale and
distribution through Russia. In 2008, amounts paid or payable by
PR Beverages to Frito-Lay Manufacturing were approximately
$355 million.
Shared Services. PepsiCo provides various
services to us pursuant to a shared services agreement and other
arrangements, including information technology maintenance and
the procurement of raw materials. During 2008, amounts paid or
payable to PepsiCo for these services totaled approximately
$52 million. Pursuant to the shared services agreement and
other arrangements, we provide various services to PepsiCo,
including credit and collection, international tax and supplier
services. During 2008, payments to us from PepsiCo for these
services totaled approximately $3 million.
Rental Payments. Amounts paid or payable by
PepsiCo to us for rental of office space at certain of our
facilities were approximately $4 million in 2008.
National Fountain Services. We provide certain
manufacturing, delivery and equipment maintenance services to
PepsiCo’s national fountain customers in specified
territories. In 2008, net amounts paid or payable by PepsiCo to
us for these services were approximately $187 million.
Bottler Incentives. PepsiCo provides us with
marketing support in the form of bottler incentives. The level
of this support is negotiated annually and can be increased or
decreased at the discretion of PepsiCo. These bottler incentives
are intended to cover a variety of programs and initiatives,
including direct marketplace support (including
point-of-sale
materials) and advertising support. For 2008, total bottler
incentives received from PepsiCo, including media costs shared
by PepsiCo, were approximately $691 million.
Bottling Group, LLC Distribution. PepsiCo has
approximately a 6.6% ownership interest in Bottling LLC, our
principal operating subsidiary. In accordance with Bottling
LLC’s Limited Liability Company Agreement, PepsiCo received
a $73 million cash distribution from Bottling LLC in 2008.
Review and Approval of Transactions with
PepsiCo. The Audit and Affiliated
Transactions Committee is responsible for reviewing and
approving transactions between us and PepsiCo, or any entity in
which PepsiCo has a 20% or greater interest, that are outside
the ordinary course of business and have a value of more than
$10 million. This policy is embodied in the charter of the
Audit and Affiliated Transactions Committee. None of the
transactions described above involving PepsiCo or its
affiliates, other than the acquisition of Lebedyansky, required
the review, approval or ratification of the Audit and Affiliated
Transactions Committee because the transactions were not outside
the ordinary course of business.
Brands franchise restaurant companies that purchase beverage
products from us. In 2008, the total amount of these purchases
was approximately $593,000.
Review and Approval of Transactions Involving
our Management and Others. We have procedures
to determine whether any related-person transaction impairs the
independence of a director or presents a conflict of interest on
the part of a director or executive officer. In 2007, the Board
adopted a written Policy and Procedures Governing Related-Person
Transactions that requires our Audit Committee to review and
approve any transaction or series of transactions with related
persons where the aggregate amount involved exceeds $120,000 in
any calendar year. The policy is posted on our website at
www.pbg.comunder Investor Relations — Company
Information — Corporate Governance. Under the policy,
a “related person” includes:
•
any person who is or was an executive officer, director or
director nominee (since the beginning of the last fiscal year);
•
a 5% or more beneficial owner of our voting securities; and
•
immediate family members of the people listed above.
We annually require each of our directors and executive officers
to complete a questionnaire that elicits information about
related-person transactions. Our Audit Committee must review the
material facts of any related-person transaction and approve or
ratify such transaction. In determining whether to approve or
disapprove a related-person transaction, our Audit Committee
should consider all material factors, including without
limitation:
•
the extent of the related person’s interest in the
transaction;
•
if applicable, the availability of other sources of comparable
products or services;
•
whether the terms of the transaction are no less favorable than
terms generally available in unaffiliated transactions under
like circumstances;
•
the benefit to us; and
•
the aggregate value of the transaction.
The transaction described above involving Ms. Alvarado was
ratified by the Audit and Affiliated Transactions Committee
pursuant to this policy.
Compensation Committee Interlocks and Insider
Participation. During fiscal year 2008, the
following individuals served as members of our Compensation and
Management Development Committee: Linda G. Alvarado, Barry H.
Beracha, Ira D. Hall, Susan D. Kronick, Blythe J. McGarvie, John
A. Quelch and Javier G. Teruel. None of these individuals has
ever served as an officer or employee of PBG or any of our
subsidiaries. Ms. Alvarado has an indirect business
relationship with PBG as described above under
“Relationships and Transactions with Management and
Others.” The Compensation and Management Development
Committee members have no interlocking relationships requiring
disclosure under the rules of the SEC.
Deloitte & Touche LLP has served as our independent
registered public accounting firm since June 2005. In addition
to retaining independent accountants to audit our consolidated
financial statements for 2008, we and our affiliates retained
Deloitte & Touche LLP, as well as other accounting
firms, to provide various services in 2008. The aggregate fees
billed for professional services by Deloitte & Touche
LLP in 2007 and 2008 were as follows:
Audit and
Non-Audit Fees
(in millions)
2008
2007
Audit
Fees(1)
$
5.8
$
5.6
Audit-Related
Fees(2)
$
0.8
$
0.7
Tax
Fees(3)
$
0.4
$
0.3
All Other Fees
$
0.0
$
0.0
Total
$
7.0
$
6.6
(1)
Represents fees for the audit of our consolidated financial
statements, audit of internal controls, the reviews of interim
financial statements included in our
Forms 10-Q
and all statutory audits.
(2)
Represents fees primarily related to audits of employee benefit
plans and other audit-related services.
(3)
Represents fees primarily related to assistance with tax
compliance matters.
Pre-Approval Policies and
Procedures. We have a policy that
defines audit, audit-related and non-audit services to be
provided to us by our independent registered public accounting
firm and requires such services to be pre-approved by the Audit
and Affiliated Transactions Committee. In accordance with our
policy and applicable SEC rules and regulations, the Committee
or its Chairperson pre-approves such services provided to us.
Pre-approval is detailed as to the particular service or
category of services. If the services are required prior to a
regularly scheduled Committee meeting, the Committee Chairperson
is authorized to approve such services, provided that they are
consistent with our policy and applicable SEC rules and
regulations, and that the full Committee is advised of such
services at the next regularly scheduled Committee meeting. The
independent accountants and management periodically report to
the Committee regarding the extent of the services provided by
the independent accountants in accordance with this
pre-approval, and the fees for the services performed to date.
The Audit and Affiliated Transactions Committee pre-approved all
audit and non-audit fees of Deloitte & Touche LLP
billed for fiscal years 2008 and 2007.
During 2008, the Audit and Affiliated Transactions Committee of
our Board of Directors was comprised of four directors, Blythe
J. McGarvie (Chairperson), Barry H. Beracha, Ira D. Hall and
Susan D. Kronick, each of whom has been determined by our Board
of Directors to be an independent director. The Committee
operates under a written charter that was approved by our Board
of Directors and complies with the NYSE corporate governance
rules and applicable SEC rules and regulations. The charter is
posted on our website at www.pbg.comunder Investor
Relations — Company Information — Corporate
Governance. The Committee appoints and evaluates our independent
auditors.
Management is responsible for our disclosure controls, internal
controls over financial reporting and the financial reporting
process. The independent auditors are responsible for performing
an independent audit of our consolidated financial statements
(in accordance with the Standards of the Public Company
Accounting Oversight Board (United States)), and of the
effectiveness of our internal controls over financial reporting,
and for issuing a report thereon. The Committee’s
responsibility is to monitor and oversee these processes.
During 2008, the Committee met and held discussions with our
independent auditors, with and without management present.
Management represented that the consolidated financial
statements were prepared in accordance with accounting
principles generally accepted in the United States of America.
The Committee reviewed and discussed the audited consolidated
financial statements and our critical accounting policies with
management and the independent auditors. For 2008, management
completed the documentation, testing and evaluation of our
internal controls over financial reporting as required by
Section 404 of the Sarbanes-Oxley Act of 2002. Throughout
the year, management kept the Committee apprised of the progress
of its evaluation of internal controls and the Committee
provided oversight of the evaluation process. At the end of the
year, management issued a report on the effectiveness of our
internal control over financial reporting. The Committee
reviewed this report and discussed with management, the senior
most internal auditor and the independent auditors the adequacy
of our internal controls over financial reporting and disclosure
controls. The Committee also discussed with the independent
auditors matters required to be discussed by SEC
Rule 2-07
of
Regulation S-X
and Statement on Auditing Standards No. 114 (The
Auditor’s Communication With Those Charged With
Governance). The Committee evaluated the independent
auditors’ performance, including a review of
Deloitte & Touche’s internal quality-control
procedures report.
The independent auditors also provided the Committee with the
written disclosures required by applicable requirements of the
Public Company Accounting Oversight Board, including a letter
from the independent auditors confirming its independence. The
Committee discussed with the independent auditors that
firm’s independence from management and our company.
The Committee maintains a policy requiring pre-approval by the
Committee or its Chairperson of audit, audit-related and
non-audit services performed by our independent auditors. The
Committee has determined that the provision of all non-audit and
audit-related services performed for us by the independent
auditors is compatible with maintaining that firm’s
independence. The Committee also maintains a policy that
restricts our hiring of employees and former employees of our
independent auditors. Additionally, the Committee established
procedures for us to receive, retain and respond to complaints
regarding accounting, internal accounting controls and auditing
matters, as well as for confidential, anonymous submission by
employees of concerns related to questionable accounting or
auditing matters.
Based on reviews and discussions of the audited financial
statements with management and the independent auditors and
discussions with the independent auditors regarding matters
required by SEC
Rule 2-07
and Statement on Auditing Standards No. 114, a review of
written disclosures from the independent auditors required by
applicable requirements of the Public Company Accounting
Oversight Board, and a discussion of the independent
auditors’ independence, the Committee recommended to our
Board of Directors that the audited financial statements be
included in our Annual Report on
Form 10-K
for fiscal year 2008 to be filed with the SEC.
Susan D. Kronick was a member of the Audit and Affiliated
Transactions Committee during fiscal year 2008 and through
March 26, 2009.
Respectfully submitted,
The Audit and Affiliated Transactions Committee
Blythe J. McGarvie (Chairperson)
Barry H. Beracha
Ira D. Hall
Susan D. Kronick
Introduction. The Directors’ Stock Plan
(the “Plan”) was last approved by our shareholders in
2001 when shareholders authorized the issuance of
600,000 shares of PBG common stock for future awards to our
non-employee directors. We are now asking our shareholders to
approve an amendment and restatement of the Plan that would
authorize an additional 500,000 shares for issuance. This
amendment is necessary to permit us to continue our equity
compensation program for our non-employee directors. The
amendment also amends the Plan to expressly prohibit material
amendments to the Plan or awards, including option repricing,
without shareholder approval.
The Board of Directors believes that the Plan enables the
Company to compete for, motivate and retain high-caliber
non-employee directors and therefore recommends that
shareholders approve the amended and restated Plan which was
adopted by the Board of Directors on March 26, 2009,
subject to shareholder approval. Under the amended and restated
Plan, 500,000 shares of PBG common stock will be authorized
and available for awards under the Plan, in addition to the
102,447 authorized but unissued shares remaining under the Plan
as of April 2, 2009. The additional 500,000 shares
represents approximately one quarter of one percent (0.25%) of
the Company’s outstanding shares of common stock as of
April 2, 2009.
A summary of the material terms of the Plan is set forth below
and is qualified in its entirety by reference to the Plan as set
out in Appendix A hereto. If the proposed amended and
restated Plan is not approved, it will not become effective, and
the Plan, as currently existing, will remain in effect.
Purpose. The purposes of the Plan are to
assist PBG in attracting and retaining qualified Non-Employee
Directors (as defined below), to provide compensation to such
directors consistent with market practice and the Company’s
peer group, and to associate more fully the interests of such
directors with those of PBG shareholders.
Eligibility. Directors of PBG who are not
employees of PBG (“Non-Employee Directors”).
Awards. The terms of the Plan provide for an
initial award of restricted stock and an annual award of stock
options and restricted stock units. The grant date and the
formula for deriving the amount of each of these awards is
pre-determined and set out in the Plan as described below.
Initial Award. Shortly after commencing
service as a Non-Employee Director, each such director is
awarded a formula grant of restricted stock which vests on the
first anniversary of the date granted except that the restricted
stock vests automatically upon the death or
“Disability” (as defined in the Plan) of such
Non-Employee Director. The formula grant of restricted stock is
determined by dividing $25,000 by the Fair Market Value of a
share of PBG common stock on the date of grant, rounded to the
nearest whole share. The grant amount may be adjusted by vote of
the Board. “Fair Market Value” is defined in the Plan
as the average of the high and low per share sales price for PBG
common stock on the composite tape for securities listed on the
New York Stock Exchange (the “NYSE”) rounded up (if
necessary) to the nearest penny. If the date of grant is not a
trading day on the NYSE, the immediately preceding trading day
is used.
The Non-Employee Director is entitled to all of the rights of a
stockholder with respect to the restricted stock including the
right to dividends or other distributions paid or made with
respect to the stock. However, such restricted stock (and any
such dividends or distributions) may not be transferred or sold
until the Non-Employee Director ceases to serve as a director of
PBG.
Prior to the commencement of services, Non-Employee Directors
are given an opportunity to elect to receive restricted stock
units rather than shares of restricted stock. These stock units
are payable in shares of PBG common stock, with the payment
deferred until the director ceases to serve as a director.
During the deferral period, the stock units are credited with
dividend equivalents in the form of additional stock units at
the same time and in the same amount as dividends are paid to
shareholders.
Annual Award of Stock Options. On April 1 of
each year, Non-Employee Directors who are actively serving as a
director of PBG receive a formula grant of options to purchase
PBG common stock. The number of stock options is determined by
dividing the grant amount of $210,000 by the grant price which
equals the Fair Market Value of PBG common stock on the date of
the grant, rounded up, if necessary, to the nearest whole share.
The grant amount is periodically adjusted by vote of the Board.
A Non-Employee Director who becomes a director after April 1
receives a pro-rated award as set forth in the Plan. Generally,
no award is granted to a director who has indicated that he or
she will not stand for re-election.
Under the terms of the Plan, these options vest immediately and
remain exercisable until the earlier of the tenth anniversary of
the grant date or five years from the recipient’s
termination of services as a director. The full ten-year term
also applies in the case of death or Disability.
Annual Award of Restricted Stock Units. On
April 1 of each year, Non-Employee Directors who are actively
serving as a director also receive a formula grant of restricted
stock units. The number of restricted stock units granted is
determined by dividing the grant amount of $70,000 by the Fair
Market Value of PBG common stock on the grant date, rounded up,
if necessary, to the nearest whole share. The grant amount is
periodically adjusted by vote of the Board. The restricted stock
units are immediately vested and are settled in shares of PBG
common stock. Prior to the year of grant, directors are given an
opportunity to defer payment of their restricted stock units
until such time as they elect, subject to a minimum deferral
period of two years. During the deferral period, restricted
stock units are credited with dividend equivalents in the form
of additional restricted stock units at the same time and in the
same amount as dividends are paid to shareholders.
Notwithstanding any director’s deferral election, all
restricted stock units are immediately payable upon a
director’s separation from service for any reason
(including death and Disability). A Non-Employee Director who
becomes a director after April 1 receives a pro-rated award as
set forth in the Plan. Generally, no award is granted to a
director who has indicated that he or she will not stand for
re-election.
Non-Executive Chairman Restricted Stock Unit
Award. If the Board names a Non-Executive Chair
of the Board (“Non-Executive Chair”), then upon
commencement of such service and on each anniversary of such
date, such Non-Executive Chair is eligible to receive a formula
grant of restricted stock units. The number of restricted stock
units is determined by dividing the grant amount of $100,000 by
the Fair Market Value of PBG common stock on the grant date,
rounded up, if necessary, to the nearest whole share. These
restricted stock units are immediately vested and are payable in
shares of PBG common stock with the payment deferred until the
Non-Executive Chair ceases to serve as a director for any
reason. During the deferral period, the restricted stock units
are credited with dividend equivalents in the form of additional
restricted stock units at the same time and in the same amount
as dividends are paid to shareholders. Currently, no director
serves as Non-Executive Chair.
U.S. Federal Income Tax Consequences. The
following discussion is a general summary of certain current
U.S. federal income tax consequences of awards made under
the Plan, and does not purport to be a complete analysis of all
of the potential tax aspects relating to the Plan or the awards
thereunder.
Non-Qualified Options. The grant of a
non-qualified option under the Plan should not result in taxable
income to the Non-Employee Director. Generally, the Non-Employee
Director would realize ordinary income at the time of exercise
in an amount equal to the excess of the fair market value at the
date of exercise of the shares of PBG common stock acquired over
the exercise price for those shares, and PBG would be entitled
to a corresponding deduction. Gains or losses realized by the
Non-Employee Director upon the subsequent disposition of such
shares will be treated as capital gains and losses, with the
basis in such PBG common stock equal to the fair market value of
the shares at the time of exercise.
Restricted Stock and Stock Units. The
Non-Employee Director will generally recognize compensation
taxable as ordinary income (i) at the time restrictions on
restricted stock lapse in an amount equal to the excess of the
fair market value of the shares of PBG common stock at such time
over the amount, if any, paid for the shares; (ii) at the
time of settlement of restricted stock units in an amount equal
to the fair market value of any shares of PBG common stock
delivered by PBG and (iii) at the time of grant of a
nonforfeitable stock award an amount equal to the fair market
value of the shares of PBG common stock at such time. PBG will
generally be entitled to a corresponding U.S. federal
income tax deduction at the same time the Non-Employee Director
recognizes ordinary income.
A Non-Employee Director may elect pursuant to Section 83(b)
of the Internal Revenue Code to have income recognized at the
date of grant of a restricted stock award (rather than at the
date the restrictions lapse). If such election is made, the
amount of ordinary income would be equal to the fair market
value of the restricted stock at the date of grant, and PBG
would be entitled to a corresponding deduction at such time. The
tax basis of such stock will then be equal to the ordinary
income recognized by the Non-Employee Director. Gain or loss
realized upon a subsequent disposition of those shares would
generally be treated as a capital gain or loss. Elections for
Code Section 83(b) treatment must be made within
30 days of the date of grant by filing an election with PBG
and the Internal Revenue Service.
The Plan also allows Non-Employee Directors to make an advance
election to defer the receipt of payment of the restricted stock
unit awards. During the deferral period, the Non-Employee
Director is credited with a certain amount of stock units which
in turn are credited with dividend equivalents in the form of
additional units which are payable at the same time and in the
same amount as dividends are paid to shareholders. These
deferred awards and dividend equivalents should not be subject
to income taxation until PBG common stock is distributed to the
Non-Employee Director in payment of the restricted stock units.
At the time of distribution, the then current value of the stock
units and dividend equivalents would be subject to income
taxation, and PBG would be entitled to a corresponding deduction.
Section 409A of the Code. It is intended
that awards granted under the Plan will satisfy the requirements
of Section 409A of the Code and any regulations or guidance
that may be adopted thereunder from time to time.
Shares of Stock Subject to the Plan. The
shares that may be issued in connection with awards granted
after the effective date of this amended and restated Plan shall
not exceed an aggregate of 602,447 shares of PBG common
stock (as adjusted, if appropriate, consistent with the terms of
the Plan).
Dilution and Other Adjustments. The number and
kind of shares of PBG common stock issuable under the Plan, or
which may or have been awarded to any Non-Employee Director
shall be adjusted proportionately by the Board of Directors, as,
and to the extent (if any), determined to be necessary and
appropriate by the Board of Directors, to reflect stock
dividends, stock splits, reverse stock splits,
recapitalizations, mergers, consolidations, combinations or
exchanges of shares, any spin off or other
distribution of assets of the Company to its shareholders, any
partial or complete liquidation, or other similar corporate
changes. Such adjustment shall be conclusive and binding for all
purposes of the Plan.
Effect of Misconduct. Notwithstanding any
other provision of the Plan, if a Non-Employee Director engages
in Misconduct (as defined by the Plan), he or she shall forfeit
all rights to any unexercised options, restricted stock and
stock units.
Withholding. PBG shall have the right to
require the payment (through withholding from any amount payable
from PBG to the Non-Employee Directors or otherwise) of any
withholding taxes required by federal, state, local or foreign
law in respect of any award.
Resale Restrictions, Assignment and
Transfer. Options (unless the Board of Directors
determines otherwise), restricted stock, and restricted stock
units may not be sold, transferred or assigned except in the
event of the Non-Employee Director’s death, in which case
his or her options, restricted stock or restricted stock units
may be transferred by will or by the laws of descent and
distribution. All restrictions on restricted stock granted to a
Non-Employee Director shall lapse upon his or her death. Options
may be exercised by the decedent’s personal representative
or by whomever inherits the options, at any time through and
including their original expiration date.
Funding. The Plan is unfunded and PBG shall
not be required to establish any special or separate fund or to
make any other segregation of assets to assure the payment of
any award under the Plan.
Duration, Amendment and Termination. The Board
of Directors may amend or terminate the Plan in whole or in part
at any time; provided, however, that the Board of Directors may
not make any amendment to the Plan that materially modifies the
Plan, including option repricing, without shareholder approval;
provided further, however, that no such action shall adversely
affect any rights or obligations with respect to any awards
theretofore granted under the Plan, unless consented to by the
recipients of such awards. The Plan shall continue until
terminated.
Administration. The Plan shall be administered
by the Board of Directors of PBG. The Board of Directors shall
have full power and authority to administer and interpret the
Plan and to adopt such rules, regulations, guidelines and
instruments for the administration of the Plan and for the
conduct of its business as the Board deems necessary or
advisable. The Board’s interpretations of the Plan, and all
actions taken and determinations made by the Board pursuant to
the powers vested in them hereunder, shall be conclusive and
binding on all parties concerned, including PBG, its Directors
and shareholders and any employee of PBG. The costs of
administering the Plan shall be borne by PBG and not charged
against any award to any Non-Employee Director.
New Plan Benefits. The following table shows,
in the aggregate, the number of shares that were awarded on
April 1, 2009 to our Non-Employee Directors pursuant to the
Plan’s formula grant of stock options and restricted stock
units and the grant date value of the stock options and
restricted stock units.
Group
Dollar Value ($)
Number of Shares
Non-Employee Directors
1,960,000
88,648
The Board of
Directors recommends that shareholders vote FOR the approval of
the
amendment and restatement of the PBG Directors’ Stock
Plan.
Deloitte & Touche LLP has served as our independent
registered public accounting firm since June 2005. The Audit and
Affiliated Transactions Committee has appointed
Deloitte & Touche LLP, subject to ratification by our
shareholders, to serve as our independent registered public
accounting firm for fiscal year 2009. Pursuant to its charter,
the Audit and Affiliated Transactions Committee has the sole,
discretionary authority to appoint, retain and terminate our
independent registered public accounting firm. Representatives
of Deloitte & Touche LLP are expected to be present at
the Annual Meeting and will be available to answer questions and
are free to make statements during the meeting.
The Board of Directors recommends that shareholders vote FOR
the ratification of Deloitte & Touche LLP as our
independent registered public accounting firm for fiscal year
2009.
Householding. The SEC’s
rules permit us to deliver a single Notice or set of proxy
materials to one address shared by two or more of our
shareholders. This delivery method is referred to as
“householding” and can result in significant cost
savings. To take advantage of this opportunity, we have
delivered only one Notice or one proxy statement and annual
report to multiple shareholders who share an address, unless we
received contrary instructions from the impacted shareholders
prior to the mailing date. We agree to deliver promptly, upon
written or oral request, a separate copy of the Notice or proxy
materials, as requested, to any shareholder at the shared
address to which a single copy of those documents was delivered.
If you prefer to receive separate copies of the Notice or proxy
materials, contact Broadridge Financial Solutions, Inc. at
1-800-542-1061
or in writing at Broadridge, Householding Department, 51
Mercedes Way, Edgewood, New York11717.
Year 2010 Shareholders’
Proposals. We welcome comments or suggestions
from our shareholders. If a shareholder wants to have a proposal
formally considered, including recommendations for director, at
the 2010 Annual Meeting of Shareholders, our Bylaws provide that
the proposal must be included in the proxy materials for that
meeting, and we must receive notice of the proposal in writing
on or before December 8, 2009. The proposal will need to
comply with
Rule 14a-8
of the Exchange Act, which lists the requirements for the
inclusion of shareholder proposals in company-sponsored proxy
materials. Please see the section entitled “Corporate
Governance — Consideration of Director Nominees”
for a description of the procedures to be followed for
shareholder recommendations for director. Proposals should be
sent to the Secretary of The Pepsi Bottling Group, Inc. at One
Pepsi Way, Somers, New York, 10589.
The PBG
Directors’ Stock Plan
(As Amended and Restated as of May 27, 2009)
1.
Purposes
The principal purposes of The PBG Directors’ Stock Plan
(the “Plan”) are to provide compensation to those
members of the Board of Directors of The Pepsi Bottling Group,
Inc. (“PBG”) who are not also employees of PBG, to
assist PBG in attracting and retaining outside directors with
experience and ability on a basis competitive with industry
practices, and to associate more fully the interests of such
directors with those of PBG’s shareholders.
2.
Effective
Date
The Plan was unanimously approved by the Board of Directors of
PBG, conditional on shareholder approval, and became effective
on May 23, 2001, superseding The PBG Directors’ Stock
Plan of 1999. The Plan has been amended from time to time and
was most recently amended and restated October 2, 2008 to
comply with Section 409A of the Internal Revenue Code of
1986, as amended (the “Code”). This amendment and
restatement of the Plan was approved by the Board of Directors
of PBG on March 26, 2009, subject to shareholder approval,
and upon shareholder approval, it will become effective.
3.
Administration
The Plan shall be administered and interpreted by the Board of
Directors of PBG (the “Board”). The Board shall have
full power and authority to administer and interpret the Plan
and to adopt such rules, regulations, guidelines and instruments
for the administration of the Plan and for the conduct of its
business as the Board deems necessary or advisable. The
Board’s interpretations of the Plan, and all actions taken
and determinations made by the Board pursuant to the powers
vested in them hereunder, shall be conclusive and binding on all
parties concerned, including PBG, its directors and shareholders
and any employee of PBG. The costs and expenses of administering
the Plan shall be borne by PBG and not charged against any award
or to any award recipient.
4.
Eligibility
Directors of PBG who are not employees of PBG
(“Non-Employee Directors”) are eligible to receive
awards under the Plan. Directors of PBG who are employees of PBG
are not eligible to participate in the Plan, but shall be
eligible to participate in other PBG benefit and compensation
plans.
5.
Initial
Award
Under the Plan, each Non-Employee Director shall, on the first
day of the month after commencing service as a Non-Employee
Director of PBG, receive a formula grant of restricted stock
(“Restricted Stock”). The number of shares of
Restricted Stock to be included in each such award shall be
determined by dividing $25,000 by the Fair Market Value (as
defined below) of a share of PBG Common Stock on the date of
grant (the “Stock Grant Date”), or if such day is not
a trading day on the New York Stock Exchange (“NYSE”),
on the immediately preceding trading day. The number of shares
so determined shall be rounded up to the nearest number of whole
shares. If the recipient of the Restricted Stock continuously
remains a director of PBG, the Restricted Stock granted
hereunder shall vest and any restrictions thereon shall lapse on
the first anniversary of the Stock Grant Date; provided,
however, that, in the event of a Non-Employee
Director’s death or Disability (as defined in
Section 6(c)), the Restricted Stock granted to such
Non-Employee Director shall vest and any restrictions thereon
shall lapse immediately. Notwithstanding the foregoing, a
Non-Employee Director may not sell or otherwise transfer any
Restricted Stock granted to him or her prior to the date such
Non-Employee Director ceases to serve as a director for any
reason. The Non-Employee Director shall have all of the rights
of a stockholder with respect to such Restricted Stock,
including the right to receive all dividends or other
distributions paid or made with respect to the stock. Any
dividends or distributions that are paid or made in PBG Common
Stock shall be subject to the same restrictions as the
Restricted Stock in respect of which such dividends or
distributions were paid or made. However, any dividends or
distributions paid or made in cash shall not be subject to the
restrictions. Each Restricted Stock award shall be evidenced by
an agreement setting forth the terms and conditions thereof,
which terms and conditions shall not be inconsistent with those
set forth in this Plan.
Under the Plan, each Non-Employee Director shall receive an
annual formula grant of options to purchase shares of PBG Common
Stock (“Options”) at a fixed price (the “Exercise
Price”). Such grant shall be made annually on April 1 (the
“Option Grant Date”); provided, however,
that each individual who commences services as a Non-Employee
Director after April 1 of a year shall receive a pro-rated
annual formula grant of options (a “Pro-Rated Grant”)
with respect to his or her first year of service, on the first
day of the month following the date he or she commences service
(the “Pro-Rated Option Grant Date”). To receive a
grant of Options, a Non-Employee Director must be actively
serving as a director of PBG on the Option Grant Date or the
Pro-Rated Option Grant Date, as applicable.
(b)
The number of Options to be included in each annual option award
shall be determined by dividing the Grant Amount (as defined
below) by the Fair Market Value (as defined below) of a share of
PBG Common Stock on the Option Grant Date or Pro-Rated Option
Grant Date, as applicable, or if such day is not a trading day
on the NYSE, on the immediately preceding trading day. Grant
Amount shall mean $210,000, except that, in the case of a
Pro-Rated Grant, Grant Amount shall mean the following:
(i) $157,500 in the case of an individual who commences
service as a Non-Employee Director of PBG on or after April 2
and on or before June 30; (ii) $105,000 in the case of an
individual who commences service as a Non-Employee Director of
PBG on or after July 1 and on or before September 30;
(iii) $52,500 in the case of an individual who commences
service as a Non-Employee Director of PBG on or after October 1
and on or before December 31. No Pro-Rated Grant shall be
made in the case of an individual who commences service as a
Non-Employee Director of PBG on or after January 1 and on or
before April 1. The number of Options so determined shall
be rounded up (if necessary) to the nearest number of whole
Options. “Fair Market Value” shall mean the average of
the high and low per share sale prices for PBG Common Stock on
the composite tape for securities listed on the NYSE for the day
in question, except that such average price shall be rounded up
(if necessary) to the nearest cent.
(c)
Options shall vest and become immediately exercisable on the
Option Grant Date or Pro-Rated Option Grant Date, as applicable.
Each Option shall have an Exercise Price equal to the Fair
Market Value of PBG Common Stock on the Option Grant Date or
Pro-Rated Option Grant Date, as applicable, or if such day is
not a trading day on the NYSE, on the immediately preceding
trading day. Each Option shall have a term of ten years;
provided, however, in the event the holder thereof
shall cease to be a director of PBG, or its successor, for a
reason other than death or Disability (as defined below), such
Options shall terminate and expire upon the earlier of
(i) the expiration of the original term, or (ii) five
years from the date the holder ceased to be a director. For
purposes of this Section 6 and Section 5 above, a
Non-Employee Director has a “Disability” if he or she
is totally disabled as determined using the standards PBG
applies under its long term disability program.
(d)
Non-Employee Directors may exercise their Options by giving an
exercise notice to PBG in the manner specified from time to time
by the Board. Options may be exercised by using either a
standard cash exercise procedure or a cashless exercise
procedure. From time to time, the Board may change or adopt
procedures relating to Option exercises. If, at any time, a
Non-Employee Director suffers a Disability or is otherwise
incapable of exercising his or her Options before the expiration
thereof, the Board may take any steps it deems appropriate to
prevent such Options from lapsing prior to being exercised.
(e)
Each Option award shall be evidenced by a written agreement
setting forth the terms and conditions thereof, which terms and
conditions shall not be inconsistent with those set forth in
this Plan.
(f)
No Option shall contain a feature for the deferral of
compensation within the meaning of Treasury Regulation
section 1.409A-1(b)(5)(i)(A)(3).
Under the Plan, each Non-Employee Director shall receive an
annual formula grant of restricted stock units
(“RSUs”). When a Non-Employee Director’s RSUs
become payable, they shall be settled in shares of PBG Common
Stock with the Non-Employee Director receiving one share of PBG
Common Stock for each RSU. The grant of RSUs shall be made
annually on April 1 (the “RSU Grant Date”);
provided, however, that each individual who
commences service as a Non-Employee Director after April 1 of a
year shall receive a pro-rated annual formula grant of RSUs (a
“Pro-Rated RSU Grant”) with respect to his or her
first year of service on the first day of the month following
the date he or she commences service (the “Pro-Rated RSU
Grant Date”). To receive a grant of RSUs, a Non-Employee
Director must be actively serving as a director of PBG on the
RSU Grant Date or the Pro-Rated RSU Grant Date, as applicable.
(b)
The number of RSUs to be included in each annual RSU award shall
be determined by dividing the RSU Grant Amount (as defined
below) by the Fair Market Value of a share of PBG Common Stock
on the RSU Grant Date or Pro-Rated RSU Grant Date, as
applicable, or if such day is not a trading day on the NYSE, on
the immediately preceding trading day. RSU Grant Amount shall
mean $70,000, except that, in the case of a Pro-Rated RSU Grant,
RSU Grant Amount shall mean the following: (i) $52,500 in
the case of an individual who commences service as a
Non-Employee Director on or after April 2 and on or before June
30; (ii) $35,000 in the case of an individual who commences
service as a Non-Employee Director on or after July 1 and on or
before September 30; (iii) $17,500 in the case of an
individual who commences service as a Non-Employee Director on
or after October 1 and on or before December 31. No
Pro-Rated RSU Grant shall be made in the case of an individual
who commences service as a Non-Employee Director on or after
January 1 and on or before April 1. The number of RSUs so
determined shall be rounded up (if necessary) to the nearest
number of whole RSUs.
(c)
RSUs shall vest on the RSU Grant Date or Pro-Rated RSU Grant
Date, as applicable. RSUs shall be payable on the RSU Grant Date
or Pro-Rated RSU Grant Date, as applicable, unless the
Non-Employee Director timely elects to defer the payment of such
RSUs. In general, any such deferral election with respect to
RSUs must be made in the calendar year preceding the year of the
grant. However, in the case of a Pro-Rated RSU Grant, any such
deferral election may be made as late as one day prior to the
Pro-Rated RSU Grant Date, provided that when the election is
made, the Non-Employee Director is then initially eligible to
participate in the Plan, within the meaning of Treasury
Regulation
section 1.409A-2(a)(7)(ii),
taking into account any other plan that would be aggregated with
the Plan pursuant to Treasury Regulation
section 1.409A-1(c)(2).
Any such election to defer the payment date of an RSU Grant or a
Pro-Rated RSU Grant must specify a future payment date (the
beginning of any calendar quarter) that will result in a minimum
deferral period of at least two years.
(d)
Notwithstanding any deferral election made pursuant to the
immediately preceding provision, a Non-Employee Director’s
RSUs shall be paid as of the beginning of the calendar quarter
following the Non-Employee Director’s Permanent Disability
(as defined below), Separation from Service (as defined below)
with PBG or death. For purposes of this Plan, a Non-Employee
Director shall be considered to have a Permanent Disability as
of the first date on which the Non-Employee Director would be
considered disabled within the meaning of
Section 409A(a)(2)(C) of the Code. For purposes of this
Plan, the determination of when a Non-Employee Director has
incurred a separation from service with PBG shall be made in
accordance with Section 409A(a)(2)(A)(i) of the Code
(“Separation from Service”).
(e)
During any period that the payment of RSUs is deferred, the
Non-Employee Director whose RSUs are deferred shall be entitled
to be credited with dividend equivalents. Dividend equivalents
shall equal the dividends actually paid with respect to a
corresponding amount of PBG Common Stock during the deferral
period, while the RSUs remain unpaid, and shall be credited on
the date such dividends are actually paid. Upon crediting, a
Non-Employee Director’s dividend equivalents shall be
immediately converted to additional RSUs (whole
and/or
fractional, as appropriate) by dividing the aggregate amount of
dividend equivalents credited to the Non-Employee Director
on a day by the Fair Market Value of a share of PBG Common Stock
on such day, or if such day is not a trading day on the NYSE, on
the immediately preceding trading day. Additional RSUs credited
under this Section 7(e) are in turn entitled to be credited
with dividend equivalents, and a Non-Employee Director’s
aggregate additional RSUs shall be paid out at the same time as
the underlying RSUs to which they relate. Any cumulative
fractional RSU remaining at such time shall be rounded up to a
whole RSU prior to its settlement in PBG Common Stock.
(f)
Each RSU award shall be evidenced by a written agreement setting
forth the terms and conditions thereof, which terms and
conditions shall not be inconsistent with those set forth in
this Plan.
8.
Non-Executive
Chair Annual Award
(a)
Under the Plan, a Non — Employee Director serving as
Non-Executive Chair of the Board (the “Chair”) shall
receive an additional annual formula grant of restricted stock
units (“Chair RSUs”). Such grant shall be made upon
commencement of services as Chair, unless otherwise determined
by the Board; and annually, thereafter, on the anniversary of
formal commencement of services as Chair, except as otherwise
determined by the Board (the “Chair RSU Grant Date”).
When the Chair’s RSUs become payable, they shall be settled
in shares of PBG Common Stock with the Chair receiving one share
of PBG Common Stock for each Chair RSU.
(b)
The number of Chair RSUs to be included in each Chair RSU award
shall be determined by dividing the Chair RSU Grant Amount (as
defined below) by the Fair Market Value of a share of PBG Common
Stock on the Chair RSU Grant Date or, if such day is not a
trading day on the NYSE, on the immediately preceding trading
day. The Chair RSU Grant Amount shall mean $100,000. The number
of Chair RSUs so determined shall be rounded up (if necessary)
to the nearest number of whole RSUs.
(c)
Chair RSUs shall vest on the Chair RSU Grant Date.
Notwithstanding the foregoing, payment of the Chair RSUs shall
be deferred until such time as the Chair ceases to serve as a
director of PBG for any reason. The Chair RSUs shall be paid as
of the beginning of the calendar quarter following the
Chair’s Permanent Disability, Separation from Service with
PBG or death.
(d)
During any period that the payment of Chair RSUs is deferred,
the Chair shall be entitled to be credited with dividend
equivalents. Dividend equivalents shall equal the dividends
actually paid with respect to a corresponding amount of PBG
Common Stock during the period payment of the Chair RSUs is
deferred, and shall be credited on the date such dividends are
actually paid. Upon crediting, the Chair’s dividend
equivalents shall be immediately converted to additional RSUs
(whole
and/or
fractional, as appropriate) by dividing the aggregate amount of
dividend equivalents credited to the Chair on a day by the Fair
Market Value of a share of PBG Common Stock on such day, or if
such day is not a trading day on the NYSE, on the immediately
preceding trading day. Additional RSUs credited under this
Section 8(d) are in turn entitled to be credited with
dividend equivalents, and the Chair’s aggregate additional
RSUs shall be paid out at the same time as the underlying Chair
RSUs to which they relate. Any cumulative fractional RSU
remaining at such time shall be rounded up to a whole RSU prior
to its settlement in PBG Common Stock.
(e)
Each Chair RSU award shall be evidenced by a written agreement
setting forth the terms and conditions thereof, which terms and
conditions shall not be inconsistent with those set forth in
this Plan.
9.
Shares of Stock
Subject to the Plan
The shares that may be delivered under this Plan in connection
with awards granted after the effective date of this amended and
restated Plan shall not exceed an aggregate of
602,447 shares of PBG Common Stock, adjusted, if
appropriate, in accordance with Section 11 below. The
shares granted or delivered under the Plan may be newly issued
shares of Common Stock or treasury shares.
10.
Deferral of
Initial Awards
(a)
Non-Employee Directors may make an advance, one-time election to
defer into PBG phantom stock units all of the shares of
Restricted Stock otherwise granted under Section 5. Any
such election shall be made at least one day prior to the grant
date of such Restricted Stock. The deferral period shall equal
the Non-Employee Director’s period of service as a director
of PBG
(i.e., such deferral period shall end in the event of the
Non-Employee Director’s Permanent Disability, Separation
from Service or death), and such deferral shall be paid as of
the beginning of the calendar quarter following such Separation
from Service. Non-Employee Directors who elect to defer receipt
of such shares shall be credited on the grant date with a number
of phantom stock units equal to that number of shares of
Restricted Stock which they would have received had they not
elected to defer. During the deferral period, the value of the
phantom stock units will fluctuate based on the market value of
PBG Common Stock. At the end of the deferral period, all
payments of deferred awards shall be made in shares of PBG
Common Stock (one share of PBG Common Stock for each PBG phantom
stock unit), unless the Board in its discretion decides to make
the distribution in cash or in a combination of cash and shares
of PBG Common Stock. To the extent that a distribution is made
in cash, in whole or in part, the Non-Employee Directors will
receive the aggregate value of the PBG phantom stock units
credited to them which are to be paid in cash. The value of PBG
phantom stock units will be determined by multiplying the number
of PBG phantom stock units which are to be paid in cash by the
Fair Market Value of PBG Common Stock on the last NYSE trading
day of the deferral period.
(b)
During the deferral period, the Non-Employee Director whose
Restricted Stock is deferred as phantom stock units shall be
entitled to be credited with dividend equivalents. Dividend
equivalents shall equal the dividends actually paid with respect
to a corresponding amount of PBG Common Stock during the
deferral period and shall be credited on the date such dividends
are actually paid. Upon crediting, a Non-Employee
Director’s dividend equivalents shall be immediately
converted to additional phantom stock units (whole
and/or
fractional, as appropriate) by dividing the aggregate amount of
dividend equivalents credited to the Non-Employee Director on a
day by the Fair Market Value of a share of PBG Common Stock on
such day, or if such day is not a trading day on the NYSE, on
the immediately preceding trading day. Additional phantom stock
units credited under this Section 10(b) are in turn
entitled to be credited with dividend equivalents, and a
Non-Employee Director’s aggregate additional phantom stock
units shall be paid out at the same time as the underlying
phantom stock units to which they relate. Any fractional phantom
stock unit remaining at such time shall be rounded up to a whole
phantom stock unit prior to its settlement in PBG Common Stock.
11.
Dilution and
Other Adjustments
The number and kind of shares of PBG Common Stock issuable under
the Plan, or which may or have been awarded to any Non-Employee
Director, shall be adjusted proportionately by the Board, as may
be, and to such extent (if any), determined to be appropriate
and equitable by the Board, to reflect stock dividends, stock
splits, recapitalizations, mergers, consolidations, combinations
or exchanges of shares, any spin off or other distribution of
assets of the Company to its shareholders, any partial or
complete liquidation, or other similar corporate changes. Such
adjustment shall be conclusive and binding for all purposes of
the Plan.
12.
Effect of
Misconduct
Notwithstanding anything to the contrary herein, if a
Non-Employee Director commits “Misconduct,” he or she
shall forfeit all rights to any unexercised Options, any RSUs
and Restricted Stock, as well as any phantom stock units
credited to him or her under Section 10. For purposes of
this Plan, Misconduct occurs if a majority of the Board
determines that a Non-Employee Director has: (a) engaged in
any act which is considered to be contrary to the Company’s
best interests; (b) violated the Company’s Code of
Conduct or engaged in any other activity which constitutes gross
misconduct; (c) engaged in unlawful trading in the
securities of PBG or of any other company based on information
gained as a result of his or her service as a director of PBG;
or (d) disclosed to an unauthorized person or misused
confidential information or trade secrets of the Company.
13.
Withholding Taxes
and Code Section 409A
(a)
Except to the extent other arrangements are made by a
Non-Employee Director that are satisfactory to the Company, the
Company shall withhold a number of shares of PBG Common
Stock otherwise deliverable having a Fair Market Value
sufficient to satisfy the minimum withholding taxes (if any)
required by federal, state, local or foreign law in respect of
any award.
(b)
At all times, this Plan shall be interpreted and operated
(i) in accordance with the requirements of
Section 409A with respect to deferred compensation that is
subject to Code Section 409A, and (ii) to maintain the
exemption from Code Section 409A of stock option awards and
undeferred Restricted Stock (collectively, “Excepted
Awards”), and (iii) to preserve the status of
deferrals made prior to the effective date of Code
Section 409A (“Prior Deferrals”) as exempt from
Section 409A, i.e., to preserve the grandfathered
status of Prior Deferrals. Thus, for example, a Non-Employee
Director’s ability to defer a Pro-Rated RSU Grant is
conditioned on the Non-Employee Director not having been
previously eligible for a PBG deferral plan of the same type. In
addition, if a Non-Employee Director is determined to be a
specified employee (within the meaning of Code
Section 409A(a)(2)(B)(i)), any payment of deferred
compensation subject to Section 409A made based on
Separation from Service with PBG shall not be made until the
beginning of the calendar quarter that occurs at least six
months after such Separation from Service with PBG. Similarly,
any election that must be made at least one day prior to a
specified date must be effectively made and irrevocable, under
the applicable requirements of Code Section 409A, by the
day preceding such specified date.
14. Resale
Restrictions, Assignment and Transfer
Options (unless the Board of Directors specifically determines
otherwise), RSUs, Chair RSUs, Restricted Stock and PBG phantom
stock units may not be sold, transferred or assigned, except in
the event of the Non-Employee Director’s death, in which
case his or her Options, Restricted Stock or PBG phantom stock
units may be transferred by will or by the laws of descent and
distribution. All restrictions on Restricted Stock granted to a
Non-Employee Director shall lapse upon his or her death. Options
may be exercised by the decedent’s personal representative,
or by whomever inherits the Options, at any time, through and
including their original expiration date.
Once awarded, the shares of PBG Common Stock received by
Non-Employee Directors may be freely transferred, assigned,
pledged or otherwise subjected to lien, subject to restrictions
imposed by the Securities Act of 1933, as amended, and subject
to the trading restrictions imposed by Section 16 of the
Securities Exchange Act of 1934, as amended. PBG phantom stock
units may not be transferred or assigned except by will or the
laws of descent and distribution.
15.
Funding
The Plan shall be unfunded. PBG shall not be required to
establish any special or separate fund or to make any other
segregation of assets to assure the payment of any award under
the Plan.
16.
Duration,
Amendments and Terminations
The Board of Directors may at any time terminate or from time to
time amend the Plan in whole or in part; provided,
however, that the Board of Directors shall not, without
the requisite affirmative approval of shareholders of the
Company, make any amendment to the Plan that (i) materially
modifies the Plan, including but not limited to amendments that
would permit repricing of outstanding stock options, expand the
types of awards available or the class of eligible participants,
increase the number of securities which may be issued; or
(ii) requires shareholder approval under any applicable law
or regulation of the NYSE. No termination or amendment shall
materially adversely affect any rights or obligations with
respect to any awards theretofore granted under the Plan without
the consent of the recipients of such awards (unless the
amendment is required to comply with Code Section 409A in
which case, the amendment shall be effective without consent of
the recipient unless the recipient expressly denies consent to
such amendment in writing); and provided further,
however, that no such amendment or termination of the
Plan shall violate Code Section 409A or adversely affect
the exemption of Excepted Awards or the grandfather of the Prior
Deferrals. The Plan shall continue until terminated.
VOTE BY INTERNET — www.proxyvote.com
Use the Internet to transmit your voting
instructions and for electronic delivery of
information up until 11:59 P.M. Eastern Time the
day before the meeting date. Have your proxy card
in hand when you access the web site and follow the
instructions to obtain your records and to create
an electronic voting instruction form.
ELECTRONIC DELIVERY OF FUTURE SHAREHOLDER COMMUNICATIONS
If you would like to reduce the costs incurred by
The Pepsi Bottling Group, Inc. in mailing proxy
materials, you can consent to receiving all future
proxy statements, proxy cards and annual reports
electronically via e-mail or the Internet. To sign
up for electronic delivery, please follow the
instructions above to vote using the Internet and,
when prompted, indicate that you agree to receive
or access shareholder communications electronically
in future years.
VOTE BY PHONE — 1-800-690-6903
Use any touch-tone telephone to transmit your
voting instructions up until 11:59 P.M. Eastern
Time the day before the meeting date. Have your
proxy card in hand when you call and then follow
the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it
in the postage-paid envelope we have provided or
return it to The Pepsi Bottling Group, Inc., c/o
Broadridge, 51 Mercedes Way, Edgewood, NY11717.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
M11178
KEEP THIS PORTION FOR YOUR RECORDS
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
DETACH AND RETURN THIS PORTION ONLY
THE PEPSI BOTTLING GROUP, INC.
THE BOARD RECOMMENDS A VOTE “FOR” ITEMS 1, 2, AND 3.
1. Election of Directors
For
Against
Abstain
Nominees:
1a) Linda G. Alvarado
o
o
o
1b) Barry H. Beracha
o
o
o
1c) John C. Compton
o
o
o
1d) Eric J. Foss
o
o
o
1e) Ira D. Hall
o
o
o
1f) Susan D. Kronick
o
o
o
1g) Blythe J. McGarvie
o
o
o
1h) John A. Quelch
o
o
o
For address changes and/or comments, please check this box
and write them on the back where indicated.
o
Important: Please sign exactly as your name or names
appear(s) on this Proxy. Where shares are held
jointly, both holders should sign. When signing as
attorney, executor, administrator, trustee or
guardian, please give full title as such. If the
holder is a corporation, execute in full corporate
name by authorized officer.
Signature [PLEASE SIGN WITHIN BOX]
Date
For
Against
Abstain
1i) Javier G. Teruel
o
o
o
1j) Cynthia M. Trudell
o
o
o
Vote on Proposals
For
Against
Abstain
2. Approval of the Amended and Restated PBG Directors’
Stock Plan.
o
o
o
3. Ratification of the appointment of Deloitte & Touche
LLP as the Company’s Independent Registered Public
Accounting Firm for fiscal year 2009.
o
o
o
Receipt is hereby acknowledged of The Pepsi Bottling
Group, Inc. Notice of Meeting and Proxy Statement.
Where no voting instructions are given, the shares
represented by this proxy will be voted FOR Items 1,
2, and 3.
Directions to The Pepsi Bottling Group, Inc.
Somers, New York
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice and Proxy Statement and Annual Report are available at
www.proxyvote.com.
M11179
THE PEPSI BOTTLING GROUP, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS MAY 27, 2009
The undersigned hereby appoints Eric J. Foss, Steven M. Rapp and David Yawman, and
each of them, proxies for the undersigned, with full power of substitution, to vote all
shares of The Pepsi Bottling Group, Inc. Common Stock which the undersigned may be entitled
to vote at the Annual Meeting of Shareholders of The Pepsi Bottling Group, Inc., in Somers,
New York, on Wednesday, May 27, 2009 at 10:00 a.m., or at any adjournment thereof, upon the
matters set forth on the reverse side and described in the Notice of 2009 Annual Meeting of
Shareholders and Proxy Statement and upon such other business as may properly come before
the meeting or any adjournment thereof.
This Proxy is Solicited on Behalf of the Board of Directors of The Pepsi Bottling
Group, Inc. Please mark your Proxy as indicated on the reverse side to vote on any item. If
you wish to vote in accordance with the Board of Directors’ recommendations, please sign
the reverse side, no boxes need to be checked.
Attention PBG 401(k) Plan Participants and PBG Canada Stock Incentive Plan
Participants: If you hold shares of The Pepsi Bottling Group, Inc. Common Stock through
the PBG 401(k) Plan or the PBG Canada Stock Incentive Plan, you must vote by Internet or
telephone or complete, date, sign and return this proxy card to instruct the respective
trustees/administrators of such plans how to vote these shares. Your proxy must be received
no later than 11:59 p.m., Eastern Daylight Time, the day before the meeting date so that
the respective trustees/administrators of such plans (who vote the shares on behalf of
plan participants) have adequate time to tabulate the voting instructions. Your voting
instructions will be kept confidential. Any shares held in the PBG 401(k) Plan or the PBG
Canada Stock Incentive Plan that are not voted or for which the respective
trustees/administrators do not receive timely voting instructions will be voted by the
respective trustee/administrator in the same proportion as the shares held in the
respective plans that are timely voted.
Address Changes/Comments:
(If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.)
(Continued and to be signed on the other side)
Dates Referenced Herein and Documents Incorporated by Reference