UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

 

Washington, DC 20549

 

SCHEDULE 14A INFORMATION

 

Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934

 

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PepsiCo, Inc.

 

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Notice of 2016 Annual Meeting of Shareholders and Proxy Statement

 

 

Performance with Purpose

Performance with Purpose is our vision to deliver top-tier financial performance over the long term by integrating sustainability into our business strategy, leaving a positive imprint on society and the environment.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

	Performance
	with
	Purpose

Dear Fellow PepsiCo Shareholders:

 

 

 

 

PEPSICO 2016 PROXY STATEMENT

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2	PEPSICO 2016 PROXY STATEMENT

 

 

Notice of 2016 Annual Meeting of Shareholders

 

 

PEPSICO 2016 PROXY STATEMENT

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PROXY STATEMENT SUMMARY

 

 

4	PEPSICO 2016 PROXY STATEMENT

PROXY STATEMENT SUMMARY

 

 

PEPSICO 2016 PROXY STATEMENT

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PROXY STATEMENT SUMMARY

 

 

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PROXY STATEMENT SUMMARY

 

 

PEPSICO 2016 PROXY STATEMENT

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PROXY STATEMENT SUMMARY

 

 

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PROXY STATEMENT SUMMARY

 

 

PEPSICO 2016 PROXY STATEMENT

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10	PEPSICO 2016 PROXY STATEMENT

 

Upon the recommendation of the Nominating and Corporate Governance Committee, our Board of Directors has nominated the 14 directors identified on the following pages for election at the Annual Meeting. The directors will hold office from election until the next Annual Meeting of Shareholders and until their successors are elected and qualified or until their death, resignation or removal.

 

All of the nominees are currently PepsiCo directors who were elected by shareholders at the 2015 Annual Meeting except Cesar Conde, who was elected to the Board effective March 4, 2016. Mr. Conde was recommended for consideration by the Nomination and Corporate Governance Committee by a non-management director. Alberto Ibargüen has reached the age of 72 and, pursuant to our policy, will not stand for re-election at the 2016 Annual Meeting. As a result, Mr. Ibargüen will retire from the Board of Directors, and the Board will be reduced to 14 directors, effective as of the 2016 Annual Meeting. Our Board thanks Mr. Ibargüen for his many years of exemplary service.

 

Our Board has a comprehensive, year-round director succession planning process designed to provide for a highly independent, well-qualified Board, with the diversity, experience and background to be effective and to provide strong oversight. Our Board constantly evaluates the needs of the Company and adds new skills and qualifications to the Board as necessary to best position the Company to navigate through a constantly changing global landscape.

 

The Board looks for its current and potential directors to have a broad range of skills, education, experiences and qualifications that can be leveraged in order to benefit PepsiCo and its shareholders. The Board is particularly interested in maintaining a mix of skills, qualifications and experience that include the following:

 

Directors’ Skills, Qualifications and Experience:
•	Public Company CEO	•	Science/Medical/Research/Innovation
•	Financial Expertise/Financial Community	•	Information Technology/Cybersecurity
•	Consumer Products	•	Digital Marketing/New Media/E-Commerce
•	Risk Management	•	Diversity
•	Public Policy	•	Developing and Emerging Markets/International Residence

 

Additionally, directors are expected to possess personal traits such as candor, integrity and professionalism and must be able to commit significant time to the Company’s oversight. For additional information on the Board selection process, including the Board’s consideration of diversity, see “Comprehensive, Year-Round Process for Board Succession Planning and Selection and Nomination of Directors” and “Consideration of Board Diversity” on pages 28-29 of this Proxy Statement.

 

PEPSICO 2016 PROXY STATEMENT

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ELECTION OF DIRECTORS (PROXY ITEM NO. 1)   •  DIRECTOR NOMINEES

 

Director Nominees

 

Our Nominating and Corporate Governance Committee and our Board have determined that each of the nominees possesses the right skills, qualifications and experience to collectively comprise a highly effective Board. Biographical information about each nominee, as well as highlights of certain notable skills and qualifications that contributed to the nominee’s selection as a member of our Board of Directors and nomination for re-election at our Annual Meeting, are included on the following pages. We have also included a chart immediately after the biographies to highlight the skills and qualifications of the Board as a whole.

 

Although our Board does not anticipate that any of the nominees will be unable to stand for election as a director at our Annual Meeting, if this occurs, proxies will be voted in favor of such other person or persons as may be designated by our Nominating and Corporate Governance Committee and our Board.

 

 

 

12	PEPSICO 2016 PROXY STATEMENT

DIRECTOR NOMINEES  •  ELECTION OF DIRECTORS (PROXY ITEM NO. 1) 

 

 

 

PEPSICO 2016 PROXY STATEMENT

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ELECTION OF DIRECTORS (PROXY ITEM NO. 1)   •  DIRECTOR NOMINEES

 

 

 

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DIRECTOR NOMINEES  •  ELECTION OF DIRECTORS (PROXY ITEM NO. 1) 

 

 

 

PEPSICO 2016 PROXY STATEMENT

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ELECTION OF DIRECTORS (PROXY ITEM NO. 1)   •  DIRECTOR NOMINEES

 

 

 

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DIRECTOR NOMINEES  •  ELECTION OF DIRECTORS (PROXY ITEM NO. 1) 

 

 

 

PEPSICO 2016 PROXY STATEMENT

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ELECTION OF DIRECTORS (PROXY ITEM NO. 1)   •  DIRECTOR NOMINEES

 

 

 

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SKILLS, QUALIFICATIONS AND EXPERIENCE OF OUR DIRECTOR NOMINEES  •  ELECTION OF DIRECTORS (PROXY ITEM NO. 1)

 

 

Skills, Qualifications and Experience of Our Director Nominees

 

The table below includes some of the skills, qualifications and experience of each director nominee that led our Board of Directors to conclude that he or she is qualified to serve on our Board. This high-level summary is not intended to be an exhaustive list of each director nominee’s skills or contributions to the Board.

 

Skill/Qualification

Brown

Buckley

Conde

Cook

Dublon

Fairhead

Fisher

Johnson

Nooyi

Page

Pohlad

Trotter

Vasella

Weisser

Public Company CEO

l

l

l

l

l

l

l

Financial Expertise/ Financial Community

l

l

l

l

l

l

l

l

l

l

Consumer Products

l

l

l

l

l

l

l

Risk Management

l

l

l

l

Public Policy

l

l

l

Science/Medical Research/Innovation

l

l

l

l

Information Technology/Cyber security

l

l

Digital Marketing/New Media/E-Commerce

l

l

Diversity

l

l

l

l

l

l

l

Developing and Emerging Markets/International Residence

l

l

l

l

l

l

l

l

l

l

l

l

 

PEPSICO 2016 PROXY STATEMENT

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Corporate Governance at PepsiCo

 

Our Governance Philosophy

We believe strong corporate governance is the foundation for financial integrity, investor confidence and superior performance.

 

Strong corporate governance is and has been a long-standing priority at PepsiCo. In 2002, the Board of Directors adopted Corporate Governance Guidelines for the Company that established a common set of expectations to assist the Board and its Committees in performing their duties. The Board reviews these Guidelines at least annually, and updates the Guidelines as necessary to reflect changing regulatory requirements, evolving practices and input from our shareholders and other stakeholders. Our Corporate Governance Guidelines are available at www.pepsico.com under “Who We Are”—“Corporate Governance” and are available in print to any shareholder who requests a copy.¹

 

In 2015, PepsiCo was recognized for “Best In-House Legal Team for Corporate Governance at a Large Cap Company” by New York Stock Exchange Governance Services.

 

Shareholder Engagement

We believe that regular, transparent communication with our shareholders and other stakeholders is essential to PepsiCo’s long-term success.

 

We value the views of our shareholders and other stakeholders, and the input that we receive from them is a cornerstone of our corporate governance practices. Through these partnerships, we seek to ensure that corporate governance at PepsiCo is not a formulaic exercise, but rather a dynamic framework that can accommodate the demands of a rapidly changing business environment while remaining responsive to the priorities of our shareholders and external constituencies.

 

PepsiCo was honored in 2015 by New York Stock Exchange Governance Services for “Exemplary Shareholder Engagement.”

 

Throughout 2015, members of our management team met with a significant number of our shareholders to discuss our portfolio strategy, financial and operating performance, capital allocation, corporate governance, executive compensation, sustainability and corporate social responsibility initiatives, and to solicit feedback on these and a variety of other topics. At least quarterly, the Board receives a report on shareholder engagement and is provided with the opportunity to discuss and ask questions about investor feedback. PepsiCo’s Corporate Governance Guidelines require that our Presiding Director ensure that he or she is available for consultation and direct communication, if requested by major shareholders.

 

We also engaged with other key stakeholders through our active participation in prestigious corporate governance organizations such as the Harvard Law School Program on Corporate Governance, the Stanford University Rock Center for Corporate Governance, the Council of Institutional Investors and the Weinberg Center for Corporate Governance.

 

1	The information on our website is not, and shall not be deemed to be, a part of this Proxy Statement or incorporated herein or into any of our other filings with the Securities and Exchange Commission (the “SEC”).

 

20	PEPSICO 2016 PROXY STATEMENT

OUR GLOBAL CODE OF CONDUCT  •  CORPORATE GOVERNANCE AT PEPSICO 

 

Our engagement activities have resulted in our receiving valuable feedback from our shareholders and other stakeholders who have provided important external viewpoints that inform our decisions and our strategy. For example, over the past year, as a result of collaboration with our shareholders and other stakeholders:

 

	•	The Board amended our Corporate Governance Guidelines to specify the Board’s oversight role with respect to sustainability, an integral part of the Company’s business strategy.
	•	The Board implemented proxy access, allowing a shareholder or group of up to 20 shareholders owning in aggregate three percent or more of our outstanding Common Stock continuously for at least three years to nominate and include in our proxy materials director nominees constituting up to 20% of the number of directors in office or two nominees, whichever is greater, provided the shareholder(s) and nominee(s) satisfy the requirements in the By-Laws.
	•	Taking into account the strong support demonstrated by our shareholders and feedback during individual meetings with shareholders, the Compensation Committee determined to maintain the core structure of our overall executive compensation program, while implementing several changes to the long-term incentive program for 2016, which are described on page 43 of this Proxy Statement.
	•	PepsiCo was a Founding Partner of the Berkeley Sustainable Business and Investment Forum, a finance innovation forum focused on the evolving concepts of risk management, capital allocation and sustainable business practices with a focus on long-term value creation.
	•	We have enhanced our disclosure of the Company’s sustainability goals and achievements by issuing an updated Sustainability Report and Global Reporting Initiative (GRI) Report.
	•	PepsiCo became a signatory to leading climate change initiatives including the Climate Declaration of Ceres’ Business for Innovative Climate & Energy Policy (BICEP) and the Trillion Tonne Communiqué of the Prince of Wales’s Corporate Leaders Group.

 

In addition, we have had an ongoing dialogue with various shareholders and stakeholders on the important topics of Board oversight of risk and strategy; management and Board succession planning; capital allocation; corporate governance; nutrition; the use and labeling of genetically modified ingredients, which are widely used in the United States; the impact of PepsiCo’s supply chain on human rights and environmental matters; and various other issues. In the two-month period prior to our 2015 Annual Meeting of Shareholders, we contacted our 75 largest shareholders, representing over 44% of our outstanding shares, to discuss a broad range of topics. Of this group, shareholders representing nearly 26% of our outstanding shares met with us prior to the 2015 Annual Meeting.

 

PepsiCo regularly hosts meetings with stakeholders in partnership with Ceres, a prominent network of institutional investors and public interest groups that works with companies to address sustainability challenges. During these meetings, our shareholders and other stakeholders engage on such topics as human rights, sustainable agriculture, risk management, environmental impact and sustainability reporting.

 

Our Global Code of Conduct

PepsiCo is proud of our commitment to deliver sustained growth through empowered people acting with responsibility and building trust.

 

This commitment is evidenced in part by our robust Global Code of Conduct, which is designed to provide our directors and employees with guidance on how to act legally and ethically while performing work for PepsiCo. Our Code is available on the Company’s website at www.pepsico.com under “Who We Are”—“Global Code of Conduct.” PepsiCo works hard to communicate its values clearly and regularly throughout its operations, including by conducting an annual Global Code of Conduct training program for employees. Annually, all of PepsiCo’s directors and executives, including all of our executive officers, certify their compliance with our Global Code of Conduct.

 

PEPSICO 2016 PROXY STATEMENT

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CORPORATE GOVERNANCE AT PEPSICO  •  OUR COMMITMENT TO SUSTAINABLE BUSINESS PRACTICES

 

Our Commitment to Sustainable Business Practices

 

PepsiCo is guided by Performance with Purpose—our vision to deliver top-tier financial performance over the long term by integrating sustainability into our business strategy.

 

We do this in part by offering a wide range of products, increasing the number of our nutritious foods and beverages, reducing our environmental impacts, and supporting our employees and the communities where we do business, all of which we believe will help position the Company for long-term sustainable growth.

 

At PepsiCo, sustainability is not viewed as tangential to the business, or a program owned by a dedicated team. Because sustainability matters are integrated into, and not separate from, PepsiCo’s business, the full Board considers sustainability issues an integral part of its business oversight. For example, the Board considers sustainability issues in its oversight of such areas of focus as capital allocation, supply chain management, public policy, talent retention and portfolio innovation.

 

PepsiCo is pleased to share the progress we are making in our Performance with Purpose journey. Please visit www.pepsico.com under “What We Believe”—“Performance With Purpose”—“Sustainability Reporting” to view our latest:

 

•	Sustainability Report, which presents our sustainability goals and provides data, as well as examples of our efforts to achieve those goals; and
•	Global Reporting Initiative (GRI) Report, which offers greater detail on PepsiCo’s activities in a widely accepted format.

 

Our Board of Directors

 

Our business and affairs are overseen by our Board of Directors pursuant to the North Carolina Business Corporation Act and our By-Laws. Members of the Board of Directors are kept informed of the Company’s business by participating in Board and Committee meetings, by reviewing materials provided to them and through discussions with the Chairman and CEO and with key members of management. Since the beginning of 2014, we have added six directors to the Board. The average age of our director nominees is 60.4 years and the average tenure is 5.5 years.

 

Director Election Requirements and Majority-Vote Policy

 

All members of the Board are elected annually by our shareholders by a majority of the votes cast in an uncontested election (i.e., an election where the number of nominees is not greater than the number of directors to be elected), meaning that the number of votes cast “for” a director must exceed the number of votes cast “against” that director in order to elect the director to the Board. In a contested election, where the number of director nominees exceeds the number of directors to be elected, directors will be elected by a plurality vote. Under our Director Resignation Policy set forth in our Corporate Governance Guidelines, if a director nominee in an uncontested election receives more votes “against” than votes “for” his or her election, he or she must offer to resign from the Board. The Nominating and Corporate Governance Committee will make a recommendation to the Board on the resignation offer. Within 90 days following certification of the shareholder vote, the independent directors will determine, considering the best interests of the Company and its shareholders, whether to accept the director’s resignation, and the Company will promptly publicly disclose such determination. A director who offers to resign pursuant to this Policy may not be present during the deliberations or voting by the Nominating and Corporate Governance Committee or the Board as to whether to accept the resignation offer.

 

Outstanding Board Attendance

 

Regular attendance at Board meetings and the Annual Meeting is required of each director. Our Board of Directors held seven meetings during fiscal year 2015. In fiscal year 2015, no incumbent director attended fewer than 75% of the total number of Board and applicable Committee meetings (held during the period that such director served) and average attendance of our incumbent directors at Board and applicable Committee meetings (held during the period that such director served) was 98.7%. Thirteen of the 14 directors then serving attended the 2015 Annual Meeting of Shareholders.

 

22	PEPSICO 2016 PROXY STATEMENT

BOARD LEADERSHIP STRUCTURE  •  CORPORATE GOVERNANCE AT PEPSICO 

 

Board Leadership Structure

 

PepsiCo’s governing documents allow the roles of Chairman of the Board and CEO to be filled by the same or different individuals. This approach allows the Board flexibility to determine whether the two roles should be separate or combined based upon the Company’s needs and the Board’s assessment of the Company’s leadership from time to time. Although our Board regularly considers and is open to different structures as circumstances may warrant, the Board believes that the current arrangement of having a strong independent Presiding Director combined with the leadership of our Chairman and CEO is in the best interests of PepsiCo and its shareholders at this time. As part of its most recent Board leadership assessment, the Board gave thorough consideration to the strategic goals of the Company, the unique opportunities and challenges PepsiCo is facing, the various capabilities of our directors, the dynamics of our Board, best practices in the market, the current industry environment and the status of PepsiCo’s progress with respect to key strategic initiatives, among other factors, in determining that this leadership structure continues to strike the right balance between effective independent oversight of PepsiCo’s business and Board activities and consistent corporate leadership.

 

The independent directors believe that our current Chairman of the Board and CEO, Indra K. Nooyi, as an experienced leader with extensive knowledge of the Company and the food and beverage industry, serves as a highly effective bridge between the Board and management and provides the vision and leadership to execute on the Company’s strategy and create shareholder value. As the Company continues to implement its ongoing business transformation, the independent directors believe that the Company is best served by having the leader and architect of that strategy as Chairman of the Board.

 

Our Corporate Governance Guidelines provide that if the Chairman of the Board is not an independent director, an independent director shall be designated as the Presiding Director by the independent members of the Board based on the recommendation of the Nominating and Corporate Governance Committee. The independent director who is designated as the Presiding Director is expected to serve in that role for a three-year term. The Board evaluates the Presiding Director’s performance annually under the guidance of the Nominating and Corporate Governance Committee. The duties of our Presiding Director are consistent with the responsibilities generally held by “lead directors” at public companies.

 

	Presiding Director Duties:
	•	Presides at all meetings of the Board at which the Chairman of the Board is not present, including executive sessions of the independent directors
	•	Serves as a liaison between the Chairman and the independent directors
	•	Has authority to approve information sent to the Board
	•	Approves meeting agendas for the Board
	•	Approves meeting schedules to assure that there is sufficient time for discussion of all agenda items
	•	Has the authority to call meetings of the independent directors
	•	If requested by major shareholders, ensures that he or she is available for consultation and direct communication

 

In recognition of his skills in overseeing the Company’s strong governance policies and practices and his overall leadership and communication abilities, the independent members of the Board of Directors re-elected Ian M. Cook as the Presiding Director of the Board in February 2016. Mr. Cook is an engaged and active director who, as a current CEO of a multinational consumer products company, is uniquely positioned to work collaboratively with our Chairman and CEO, while providing strong independent oversight. In addition to the above responsibilities and assisting the Board of Directors in the fulfillment of its responsibilities in general, Mr. Cook, as the Presiding Director, has over the past year performed additional duties including:

 

•	meeting with the Chairman and CEO after the executive sessions of independent directors held at each regularly scheduled Board meeting to provide feedback on the independent directors’ deliberations;
•	regularly speaking with the Chairman and CEO between Board meetings to discuss matters of concern, often following consultation with the other independent directors;
•	meeting regularly with members of senior management other than the Chairman and CEO; and
•	meeting with shareholders.

 

PEPSICO 2016 PROXY STATEMENT

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CORPORATE GOVERNANCE AT PEPSICO   •  DIRECTOR INDEPENDENCE

 

Director Independence

Independence Determination

 

The Company’s Corporate Governance Guidelines provide that an independent director is a director who meets the New York Stock Exchange definition of independence, as determined by the Board. This definition is included in the Corporate Governance Guidelines, which are available at www.pepsico.com under “Who We Are”—“Corporate Governance.” In making a determination of whether a director is independent, the Board of Directors considers all relevant facts and circumstances, including but not limited to the director’s commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships.

 

Consistent with these considerations, the Board of Directors has affirmatively determined that all of our non-management director nominees, who are listed below, are independent within the meaning of the rules of the New York Stock Exchange. The Board also determined that Alberto Ibargüen, who will retire from the Board of Directors effective as of the 2016 Annual Meeting, is independent. The Board had previously determined that Ray L. Hunt and Sharon Percy Rockefeller, who served on the Board during a portion of 2015, were independent.

 

Independent Director Nominees
Shona L. Brown	Dina Dublon	William R. Johnson	Lloyd G. Trotter
George W. Buckley	Rona A. Fairhead	David C. Page	Daniel Vasella
Cesar Conde	Richard W. Fisher	Robert C. Pohlad	Alberto Weisser
Ian M. Cook

 

In arriving at the foregoing independence determination, the Board of Directors thoroughly considered the relationships described under “Transactions with Related Persons” on page 30 of this Proxy Statement and determined that they do not impair Mr. Pohlad’s independence or his ability to exercise independent judgment in carrying out the responsibilities of a director.

 

Executive Sessions of Independent Directors

 

The independent directors hold regularly scheduled executive sessions without Company management present. These executive sessions of independent directors are chaired by the Presiding Director. The independent directors met in executive session at all of the regularly scheduled Board meetings held in 2015.

 

24	PEPSICO 2016 PROXY STATEMENT

COMMITTEES OF THE BOARD OF DIRECTORS  •  CORPORATE GOVERNANCE AT PEPSICO 

 

Committees of the Board of Directors

 

The Board of Directors has three standing Committees: Audit, Compensation and Nominating and Corporate Governance. The table below indicates the members of each Board committee:

 

		Audit		Compensation		Nominating and Corporate Governance
Shona L. Brown				l		l
George W. Buckley		l
Cesar Conde		l
Ian M. Cook (Presiding Director)						l
Dina Dublon
Rona A. Fairhead		l
Richard W. Fisher		l
Alberto Ibargüen*				l		l
William R. Johnson		l
Indra K. Nooyi
David C. Page				l		l
Robert C. Pohlad		l
Lloyd G. Trotter						l
Daniel Vasella				l
Alberto Weisser		l

 

Committee Chair

 

*	Effective as of the 2016 Annual Meeting, Alberto Ibargüen will not stand for re-election and will retire from the Board and its Committees.

 

PEPSICO 2016 PROXY STATEMENT

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CORPORATE GOVERNANCE AT PEPSICO   •  COMMITTEES OF THE BOARD OF DIRECTORS

 

Audit Committee			Primary Responsibilities   •   Engaging and overseeing the Company’s independent registered public accounting firm (taking into account the vote on shareholder ratification) and considering the independence, qualifications and performance of the independent registered public accounting firm   •   Approving all audit and permissible non-audit services to be performed by the independent registered public accounting firm   •   Reviewing and evaluating the performance of the lead audit partner of the independent registered public accounting firm and periodically considering whether there should be a rotation of the independent registered public accounting firm   •   Overseeing the quality and integrity of PepsiCo’s financial statements and its related internal controls over financial reporting, including reviewing with management and the independent registered public accounting firm PepsiCo’s annual audited and quarterly financial statements and other financial disclosures, including earnings releases   •   Reviewing and approving the internal audit department’s audit plan, staffing, budget and responsibilities   •   Reviewing PepsiCo’s compliance with legal and regulatory requirements, by reviewing and discussing the implementation and effectiveness of PepsiCo’s compliance program   •   Establishing procedures for the receipt, retention and treatment of complaints received by the Company regarding (a) accounting, internal accounting controls or auditing matters and other federal securities law matters and (b) confidential, anonymous submissions by employees of concerns regarding accounting or auditing matters or other federal securities law matters   •   Reviewing and assessing the guidelines and policies governing PepsiCo’s risk management and oversight processes, and assisting the Board’s oversight of PepsiCo’s financial, compliance and employee safety risks   •   Reviewing related person transactions   Financial Expertise, Financial Literacy and Independence   The Board of Directors has determined that George W. Buckley, Dina Dublon, Rona A. Fairhead, Richard W. Fisher, William R. Johnson and Alberto Weisser, members of our Audit Committee, satisfy the criteria adopted by the SEC to serve as “audit committee financial experts.”   In addition, the Board of Directors has determined that George W. Buckley, Cesar Conde, Dina Dublon, Rona A. Fairhead, Richard W. Fisher, William R. Johnson, Robert C. Pohlad and Alberto Weisser, constituting all members of our Audit Committee, are independent directors pursuant to the requirements under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the New York Stock Exchange Corporate Governance listing standards, and are financially literate within the meaning of the New York Stock Exchange Corporate Governance listing standards.   Report   The Audit Committee Report is set forth beginning on page 33 of this Proxy Statement. Cesar Conde joined the Board and the Audit Committee effective March 4, 2016, subsequent to the Committee’s approval of the Audit Committee Report, and thus is not named in such report.   Charter   The Audit Committee Charter is available on the Company’s website at www.pepsico.com under “Who We Are”—“Corporate Governance” and is also available in print to any shareholder who requests a copy.
Met nine times in 2015   Committee Members   Dina Dublon (Chair) George W. Buckley Cesar Conde Rona A. Fairhead Richard W. Fisher William R. Johnson Robert C. Pohlad Alberto Weisser

 

26	PEPSICO 2016 PROXY STATEMENT

COMMITTEES OF THE BOARD OF DIRECTORS  •  CORPORATE GOVERNANCE AT PEPSICO 

 

Compensation Committee			Primary Responsibilities   •   Overseeing policies relating to compensation of the Company’s executives and making recommendations to the Board with respect to such policies   •   Overseeing engagement with shareholders on executive compensation matters   •   Producing a compensation committee report for inclusion in the Company’s proxy statement   •   Overseeing the design of all employee benefit plans and programs of the Company, its subsidiaries and divisions   •   Meeting at least annually with the CEO to discuss the CEO’s self-assessment in achieving individual and corporate performance goals and objectives   •   Evaluating and discussing with the independent directors the performance of the CEO and recommending the CEO’s compensation to the independent directors based on the CEO’s performance   •   Overseeing the evaluation of the executive officers and other key executives deemed to be under the Compensation Committee’s purview and evaluating and approving the individual elements of total compensation for such officers   •   Evaluating its relationship with any compensation consultant for any conflicts of interest and assessing the independence of any legal, compensation or other external advisors   Additional information on the roles and responsibilities of the Compensation Committee is provided in the Compensation Discussion and Analysis beginning on page 37 of this Proxy Statement.   Independence   The Compensation Committee is comprised entirely of directors who are independent under the New York Stock Exchange Corporate Governance listing standards for directors and compensation committee members, who are also “outside directors” for purposes of Section 162(m) of the Internal Revenue Code and “non-employee directors” for purposes of Section 16 of the Exchange Act.   Report   The Compensation Committee Report is set forth on page 64 of this Proxy Statement.   Charter   The Compensation Committee Charter is available on the Company’s website at www.pepsico.com under “Who We Are”—“Corporate Governance” and is also available in print to any shareholder who requests a copy.
Met five times in 2015   Committee Members   Lloyd G. Trotter (Chair) Shona L. Brown Alberto Ibargüen David C. Page Daniel Vasella

 

Compensation Advisor

 

The Compensation Committee has engaged Frederic W. Cook & Co., Inc. (“Cook”) as its independent external advisor. The Compensation Committee reviewed its relationship with Cook, considered Cook’s independence and the existence of potential conflicts of interest, and determined that the engagement of Cook did not raise any conflict of interest or other issues that would adversely impact Cook’s independence. In reaching this conclusion, the Compensation Committee considered various factors, including the six factors set forth in the SEC and New York Stock Exchange Corporate Governance listing standards regarding compensation advisor conflicts of interest and independence.

 

PEPSICO 2016 PROXY STATEMENT

27

CORPORATE GOVERNANCE AT PEPSICO   •  COMMITTEES OF THE BOARD OF DIRECTORS

 

Compensation Committee Interlocks and Insider Participation

 

Shona L. Brown, Ray L. Hunt, Alberto Ibargüen, David C. Page, Sharon Percy Rockefeller, Lloyd G. Trotter and Daniel Vasella served on the Company’s Compensation Committee during all or a portion of the 2015 fiscal year. No member of the Compensation Committee is now, or was during 2015, an officer or employee of the Company. No member of the Compensation Committee had any relationship with the Company or any of its subsidiaries during 2015 pursuant to which disclosure would be required under applicable rules of the SEC pertaining to the disclosure of transactions with related persons. None of the executive officers of the Company currently serves or served during 2015 on the board of directors or compensation committee of another company at any time during which an executive officer of such other company served on PepsiCo’s Board of Directors or Compensation Committee.

 

 

Nominating and Corporate Governance Committee			Primary Responsibilities   •   Developing criteria and qualifications for selecting director candidates and identifying qualified candidates for membership on the Board and its Committees   •   Developing and recommending to the Board corporate governance principles and other corporate policies and otherwise performing a leadership role in shaping the Company’s corporate governance policies and practices   •   Developing and monitoring Board succession plans and overseeing the development of succession plans for the Company’s CEO and other executive officers   •   Making recommendations to the Board concerning the composition, size, structure and activities of the Board and its Committees   •   Assessing and reporting to the Board on the performance and effectiveness of the Board and its Committees   •   Reviewing and reporting to the Board with respect to director compensation and benefits   •   Reviewing the Company’s key public policy issues, including sustainability initiatives, and its engagement in the public policy process   Independence   The Nominating and Corporate Governance Committee is comprised entirely of directors who meet the independence requirements under the New York Stock Exchange Corporate Governance listing standards.   Charter   The Nominating and Corporate Governance Committee Charter is available on the Company’s website at www.pepsico.com under “Who We Are”—“Corporate Governance” and is also available in print to any shareholder who requests a copy.
Met six times in 2015   Committee Members   Daniel Vasella (Chair) Shona L. Brown Ian M. Cook Alberto Ibargüen David C. Page Lloyd G. Trotter

 

Comprehensive, Year-Round Process for Board Succession Planning and Selection and Nomination of Directors

 

The Board regularly reviews potential vacancies on the Board and maintains an “evergreen” compilation of potential candidates that it generally reviews at every regular Board meeting. The Nominating and Corporate Governance Committee assists this process by considering prospective candidates at each of its regular Committee meetings and identifying appropriate individuals for the Board’s further consideration.

 

In fulfilling its responsibility to identify qualified candidates for membership on the Board, the Nominating and Corporate Governance Committee considers the following attributes of candidates: (i) relevant knowledge, diversity of background and experience in areas including business, finance, accounting, technology, marketing, international business and government; (ii) personal qualities of leadership, character, judgment and whether the candidate possesses a reputation in the community at large of integrity, trust, respect, competence and adherence to the highest ethical standards; (iii) roles and contributions valuable to the business community; and (iv) whether the candidate is free of conflicts and has the time required for

 

28	PEPSICO 2016 PROXY STATEMENT

RELATED PERSON TRANSACTIONS  •  CORPORATE GOVERNANCE AT PEPSICO 

 

preparation, participation and attendance at meetings. Throughout the director selection and nomination process, the Board adheres to the Company’s philosophy of maintaining an environment free from discrimination based upon race, color, religion, sex, sexual orientation, gender identity, age, national origin, disability or veteran status or any other protected category under applicable law.

 

From time to time, the Nominating and Corporate Governance Committee engages consulting firms to perform searches for director candidates who meet the current needs of the Board. If a consulting firm is retained to assist in the search process for a director, a fee is paid to such firm.

 

Consideration of Board Diversity

 

 

The Nominating and Corporate Governance Committee seeks a Board with diverse opinions and perspectives that is representative of our global business. While not a formal policy, PepsiCo’s director nomination processes call for the consideration of a range of types of diversity, including race, gender, ethnicity, culture, nationality and geography. In fact, diversity is one of the enumerated criteria that the Board has identified as critical in maintaining among its current and potential directors. The Board annually assesses the diversity of its members as part of its self-assessment process.

 

Recommendations for Director Nominees

 

The Nominating and Corporate Governance Committee will consider recommendations for director nominees made by shareholders and evaluate them using the same criteria as for other candidates. Recommendations received from shareholders are reviewed by the Chair of the Nominating and Corporate Governance Committee to determine whether each candidate meets the minimum membership criteria set forth in the Corporate Governance Guidelines, and if so, whether the candidate’s expertise and particular set of skills and background fit the current needs of the Board. Any shareholder recommendation must be sent to the Corporate Secretary of PepsiCo at 700 Anderson Hill Road, Purchase, New York 10577 and must include detailed background information regarding the suggested candidate that demonstrates how the individual meets the Board membership criteria.

 

Related Person Transactions

 

The Board of Directors has adopted written Related Person Transaction Policies and Procedures that generally apply to, where determined by the Company’s General Counsel, any transaction or series of transactions:

 

•	in which the Company or a subsidiary was or is a participant;
•	where the amount involved exceeds or is expected to exceed $120,000 since the beginning of the Company’s last completed fiscal year; and
•	the related person (i.e., a director, director nominee, executive officer, greater than five percent beneficial owner of the Company’s common stock, or any immediate family member of any of the foregoing) has or will have a direct or indirect material interest.

 

The transactions described above will be submitted to the Audit Committee for review and approval or ratification.

 

Review and Approval of Transactions with Related Persons

 

In determining whether to approve, ratify or disapprove of the entry into a transaction, the Audit Committee will consider all relevant facts and circumstances and will take into account, among other factors:

 

•	whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances;
•	whether the transaction would impair the independence of an outside director; and
•	whether the transaction would present an improper conflict of interest for any director or executive officer of the Company.

 

PEPSICO 2016 PROXY STATEMENT

29

CORPORATE GOVERNANCE AT PEPSICO   •  THE BOARD’S OVERSIGHT OF RISK MANAGEMENT

 

The Audit Committee has considered and adopted standing pre-approvals under the policy for limited transactions with related persons. The Company’s General Counsel maintains a list of transactions deemed pre-approved under the policy for review by any Board member upon request.

 

Transactions with Related Persons

 

Robert C. Pohlad, a director of the Company, indirectly owns one-third of the voting interests in the Minnesota Twins, a Major League Baseball team, and the remaining voting interests are indirectly owned by his brothers, William Pohlad and James Pohlad. The majority of the non-voting interests in the Minnesota Twins are owned indirectly by Mr. Pohlad and members of his immediate family and through trusts for the benefit of Mr. Pohlad’s descendants and descendants of members of his immediate family. Members of Mr. Pohlad’s immediate family are employed by the Minnesota Twins, including James Pohlad, who serves as its Chief Executive Officer. In fiscal year 2015, PepsiCo made payments to the Minnesota Twins of approximately $730,000 in connection with a sponsorship agreement, and PepsiCo received payments of approximately $785,000 from the Minnesota Twins and an independent third party in connection with the sale of PepsiCo products at the Minnesota Twins’ stadium. Transactions between the Minnesota Twins and PepsiCo, individually and in the aggregate, represented less than 1% of the annual revenues of the Minnesota Twins and PepsiCo in each of 2015, 2014 and 2013. The sponsorship agreement and sale of PepsiCo products are ongoing, and Mr. Pohlad is not involved in negotiating these arms-length transactions.

 

In addition, Mr. Pohlad’s wife, Rebecca Pohlad, and their children are beneficiaries of irrevocable trusts that own Christen Group, LLC (“Christen Group”) and Mr. Pohlad’s father-in-law, Paul Christen, is an executive officer of Christen Group. In fiscal year 2015, PepsiCo made payments of approximately $170,000 to Christen Group in connection with the leasing of a distribution center owned by Christen Group. PepsiCo entered into the lease in August 2013, prior to Christen Group’s acquisition of the distribution center in December 2013. The lease expires in October 2023 and the terms of this leasing transaction remain unchanged from prior years. Transactions between Christen Group and PepsiCo, individually and in the aggregate, are not material to PepsiCo, Mr. Pohlad, any of Mr. Pohlad’s family members, or Christen Group.

 

The Board thoroughly considered these relationships and determined that they do not impair Mr. Pohlad’s independence or his ability to exercise independent judgment in carrying out the responsibilities of a director.

 

In addition, Jennifer Carey, daughter-in-law of Albert P. Carey, PepsiCo’s CEO, North America Beverages, is a Senior Account Manager at PepsiCo and received total compensation of approximately $125,000 in base salary and annual performance bonus in 2015. She also participates in the general welfare and benefit plans of PepsiCo.  Ms. Carey’s compensation was established in accordance with PepsiCo’s employment and compensation practices applicable to employees with equivalent qualifications and responsibilities and holding similar positions. Mr. Carey does not have a material interest in his daughter-in-law’s employment, nor does he share a household with her.

 

The Board’s Oversight of Risk Management

 

The Board recognizes that the achievement of our strategic and operating objectives involves taking risks. The Board has oversight responsibility for PepsiCo’s integrated risk management framework, which is designed to identify, assess, prioritize, address, manage, monitor and communicate these risks across the Company’s operations, and foster a corporate culture of integrity and risk awareness. Consistent with this approach, one of the Board’s primary responsibilities is overseeing and interacting with senior management with respect to key aspects of the Company’s business, including risk assessment and risk mitigation of the Company’s top risks.

 

In addition, the Board has tasked designated Committees of the Board to assist with the oversight of certain categories of risk management, and the Committees report to the Board regularly on these matters.

 

•	The Audit Committee reviews and assesses the guidelines and policies governing the Company’s risk management and oversight processes and assists with the Board’s oversight of financial, compliance and employee safety risks facing the Company.
•	The Compensation Committee reviews the Company’s employee compensation policies and practices to assess whether such policies and practices could lead to unnecessary risk-taking behavior.

 

In addition, throughout the year, the Board and the relevant Committees receive updates from management with respect to various enterprise risk management issues and dedicate a portion of their meetings to reviewing and discussing specific risk topics in greater detail.

 

30	PEPSICO 2016 PROXY STATEMENT

THE BOARD’S ROLE IN STRATEGY OVERSIGHT  •  CORPORATE GOVERNANCE AT PEPSICO 

 

The Company’s integrated risk management framework also includes both division-level and key country risk committees that are comprised of cross-functional senior management teams and that work together to identify, assess, prioritize and address division- and country-specific business risks. The Company’s senior management engages with and reports to PepsiCo’s Board of Directors and the relevant Committees on a regular basis to address high-priority risks.

 

At its February 2016 meeting, the Compensation Committee reviewed the results of the 2015 annual compensation risk assessment and concluded that the risks arising from the Company’s overall compensation programs are not reasonably likely to have a material adverse effect on the Company.

 

The Company believes that the Board’s leadership structure, discussed in detail under “Board Leadership Structure” beginning on page 23 of this Proxy Statement, supports the risk oversight function of the Board by providing for open communication between management and the Board. In addition, strong independent directors chair the various Committees involved in assisting with risk oversight, and all directors are involved in the risk oversight function.

 

The Board’s Role in Strategy Oversight

 

The Board has deep experience and expertise in the areas of strategy development and governance. Setting the strategic course of the Company involves a high level of constructive engagement between management and the Board. Our entire Board acts as a strategy committee and regularly discusses the strategic priorities of our Company, taking into consideration global economic, consumer and other significant trends, as well as changes in the food and beverage industries. In addition to dedicating a multi-day meeting to an extensive review of the Company’s strategic plans annually, the Board receives information and updates from management with respect to strategy throughout the year and discusses strategy at almost every Board meeting. PepsiCo’s independent directors also hold regularly scheduled executive sessions without Company management present, at which strategy is discussed. The Board also regularly discusses and reviews feedback on strategy from our shareholders and stakeholders.

 

The Board’s Role in Talent Development

 

Our Board believes that talent development is vital to PepsiCo’s continued success. Our Board’s involvement in leadership development and succession planning is systematic and ongoing, and the Board provides input on important decisions in each of these areas. The Board’s responsibilities include succession planning for the CEO and other executive officer positions, and the Nominating and Corporate Governance Committee oversees the development and implementation of succession plans for this process. To assist the Board, the CEO annually provides the Board with an assessment of senior managers and their potential to succeed to the position of CEO, developed in consultation with the Presiding Director and the Chair of the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee also has responsibility for follow-up steps with respect to succession planning as may be delegated by the Board from time to time. The Board meets regularly with high-potential executives, both in small group and one-on-one settings.

 

Political Contributions Policy

 

In 2005, the Board of Directors adopted a Political Contributions Policy for the Company, which is amended from time to time. The Political Contributions Policy together with other policies and procedures of the Company guide PepsiCo’s approach to political contributions. As specified in its Charter, the Nominating and Corporate Governance Committee oversees this policy and annually reviews the Company’s key public policy issues and its engagement in the public policy process. The Committee also annually reviews the Company’s political activities and expenditures. PepsiCo’s Board receives information regarding the Company’s public policy initiatives and developments at every regularly scheduled Board meeting.

 

 

PEPSICO 2016 PROXY STATEMENT

31

CORPORATE GOVERNANCE AT PEPSICO  •  BOARD AND COMMITTEE SELF-ASSESSMENTS

 

Board and Committee Self-Assessments

 

Pursuant to New York Stock Exchange requirements, PepsiCo’s Corporate Governance Guidelines and the Charters of each of the Board’s Committees, the Board and each of its Committees are required to conduct a self-evaluation at least annually. Our processes enable directors to provide anonymous and confidential feedback on topics including:

 

•	Board/Committee information and materials;
•	Board/Committee meeting mechanics and structure;
•	Board/Committee composition;
•	Board/Committee responsibilities and accountability;
•	Board meeting content/conduct; and
•	overall performance of Board members.

 

To promote effectiveness of the Board and each Committee, the self-assessment results are reviewed and addressed by the Nominating and Corporate Governance Committee, the members of each Committee and the independent directors both alone in an executive session led by the Presiding Director and with members of management. Periodically, the Nominating and Corporate Governance Committee considers whether individual director interviews and/or third-party assessments should be conducted to supplement the Board and Committee self-assessment process. The Board also reviews the Nominating and Corporate Governance Committee’s periodic recommendations concerning the performance and effectiveness of the Board, each of its Committees and the Presiding Director.

 

Communications with the Board

 

The PepsiCo Corporate Law Department reviews all communications sent to the Board of Directors and regularly provides to the Board a summary of communications that relate to the functions of the Board or a Board Committee or that otherwise warrant Board attention. Directors may at any time discuss the Board communications received by the Company and request copies or summaries of such communications. In addition, the Corporate Law Department may forward certain communications only to the Presiding Director, the Chair of the relevant Committee or the individual Board member to whom a communication is directed. Concerns relating to PepsiCo’s accounting, internal control over financial reporting or auditing matters will be referred directly to members of the Audit Committee. Those items that are unrelated to a director’s duties and responsibilities as a Board member may not be provided to the Board by the Corporate Law Department, including, without limitation, solicitations and advertisements; junk mail; product-related communications; job referral materials such as resumes; surveys; and material that is determined to be illegal or otherwise inappropriate.

 

 

32	PEPSICO 2016 PROXY STATEMENT

Ratification of Appointment of Independent Registered Public Accounting Firm (Proxy Item No. 2)

 

The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the independent registered public accounting firm (taking into account the vote on shareholder ratification). The Audit Committee has appointed KPMG LLP (“KPMG”) as PepsiCo’s independent registered public accounting firm for fiscal year 2016. KPMG has served as PepsiCo’s independent registered public accounting firm since 1990. While we are not required by our By-Laws or otherwise to seek shareholder ratification of the selection of KPMG as our independent registered public accounting firm, we are doing so as a matter of good corporate governance. If the shareholders do not ratify the selection, the Audit Committee will take the vote into consideration when determining whether or not to retain KPMG. The Audit Committee believes that the continued retention of KPMG as our independent registered public accounting firm is in the best interests of our shareholders.

 

Representatives of KPMG are expected to be present and available to answer appropriate questions at the Annual Meeting and will have an opportunity to make statements during the meeting if they desire to do so.

 

		Our Board of Directors recommends that shareholders vote “FOR” the ratification of the appointment of KPMG as PepsiCo’s independent registered public accounting firm for fiscal year 2016.

 

Audit Committee Report

 

PepsiCo’s Audit Committee reports to and acts on behalf of the Board and is comprised solely of directors who satisfy the independence, financial literacy and other requirements set forth in the listing standards of the New York Stock Exchange and applicable securities laws. Six members of the Committee, including the Chair of the Committee, are “audit committee financial experts” as defined by the Securities and Exchange Commission.

 

The Audit Committee operates under a written charter, approved and adopted by the Board, which sets forth its duties and responsibilities. This charter, which is available in full on the Company’s website at www.pepsico.com under “Who We Are”—“Corporate Governance,” is reviewed annually and updated, as appropriate, to address changes in regulatory requirements, authoritative guidance, evolving oversight practices and investor feedback.

 

The Committee’s purpose is to assist the Board’s oversight of:

 

•	the quality and integrity of PepsiCo’s financial statements and its related internal controls over financial reporting;
•	PepsiCo’s compliance with legal and regulatory requirements;
•	the independent registered public accounting firm’s qualifications, independence and performance; and
•	the performance of PepsiCo’s internal audit function.

 

In 2015, the Audit Committee met nine times and fulfilled each of its duties and responsibilities as outlined in its charter, including:

 

•	reviewing with KPMG, PepsiCo’s independent registered public accounting firm, and PepsiCo’s internal auditors the overall scope and plans for their respective audits for 2015;
•	considering whether there should be a rotation of the independent registered public accounting firm;
•	approving all audit engagement fees and terms, as well as permissible non-audit engagements with KPMG (please refer to page 35 of this Proxy Statement for a detailed discussion of such fees);
•	receiving an update on PepsiCo’s Law Department’s compliance with Part 205 of Section 307 of the Sarbanes-Oxley Act of 2002 regarding standards of professional conduct for attorneys;
•	reviewing and assessing the guidelines and policies governing PepsiCo’s risk management and oversight processes, and assisting the Board’s oversight of financial, compliance and employee safety risks facing PepsiCo;

 

PEPSICO 2016 PROXY STATEMENT

33

RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM   •  AUDIT COMMITTEE REPORT

 

•	receiving periodic updates on PepsiCo’s financial performance and strategic initiatives, as well as other matters germane to its responsibilities;
•	reviewing and discussing earnings press releases, as well as earnings guidance provided to analysts;
•	reviewing related person transactions;
•	meeting with the internal auditors and KPMG, with and without management present, to discuss their evaluations of PepsiCo’s internal controls;
•	meeting with the internal auditors and KPMG, with and without management present, to discuss the overall quality of PepsiCo’s financial reporting; and
•	regularly meeting separately with PepsiCo’s General Counsel, Chief Compliance & Ethics Officer, General Auditor and Chief Financial Officer.

 

Review and Recommendation Regarding Financial Statements. Management has primary responsibility for preparing PepsiCo’s financial statements and establishing effective internal controls over financial reporting. KPMG is responsible for auditing those financial statements and expressing an opinion on the conformity of PepsiCo’s audited financial statements with generally accepted accounting principles and on the effectiveness of PepsiCo’s internal controls over financial reporting based on criteria established in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission. In this context, the Audit Committee met with management and KPMG to review and discuss the Company’s audited financial statements and assessment of PepsiCo’s internal control over financial reporting, asked management and KPMG questions relating to such matters and discussed with KPMG the matters required to be discussed by applicable requirements of the Public Company Accounting Oversight Board, including Statement on Auditing Standard No. 16, “Communications with Audit Committees.”These meetings and discussions included a review of the critical accounting policies applied by PepsiCo in the preparation of its financial statements and the quality (and not just the acceptability) of the accounting principles utilized, the reasonableness of significant accounting estimates and judgments, and the disclosures in PepsiCo’s consolidated financial statements. Based on the reviews and discussions described in this report, including the matters related to KPMG’s independence as discussed below, the Audit Committee recommended to the Board that the audited financial statements be included in the Annual Report on Form 10-K for the fiscal year ended December 26, 2015, for filing with the SEC.

 

Selection of Independent Registered Public Accounting Firm. As noted above, the Audit Committee assists the Board’s oversight of the independent registered public accounting firm’s qualifications, independence and performance. The Audit Committee is directly responsible for appointing, compensating, retaining and overseeing the work of PepsiCo’s independent registered public accounting firm, including reviewing and evaluating the performance of the lead audit partner responsible for PepsiCo’s audit, overseeing the required five-year rotation of the lead audit partner and, through the Audit Committee Chair as representative of the Audit Committee, reviewing and considering the selection of the new lead audit partner. KPMG’s current lead audit partner was selected in 2013 and KPMG has served as the Company’s independent registered public accounting firm since 1990.

 

The Audit Committee recognizes the importance of maintaining the independence of PepsiCo’s auditor, both in fact and in appearance. In 2015, the Audit Committee received and reviewed the written disclosures and the letter from KPMG required by applicable requirements of the Public Company Accounting Oversight Board regarding their communications with the Audit Committee concerning independence, and discussed with KPMG the firm’s independence from the Company and management. These discussions included, among other things, a review of the nature of, and fees paid to KPMG for, non-audit services and the compatibility of such non-audit services with maintaining KPMG’s independence (as discussed on page 35 of this Proxy Statement, the Audit Committee pre-approves all fees paid to KPMG in accordance with the Policy for Pre-Approval of Audit, Audit-Related and Non-Audit Services). The Audit Committee concurred with KPMG’s conclusion that they are independent from PepsiCo and its management.

 

The Audit Committee periodically considers whether there should be a rotation of the independent registered public accounting firm. In addition to KPMG’s independence from the Company and management, the Audit Committee also considered several other factors in deciding whether to re-engage KPMG, including KPMG’s qualifications, the quality of its staff and work and quality control; KPMG’s policies related to independence; KPMG’s global reach, capability and expertise to perform an audit of a company having the breadth and complexity of PepsiCo’s business and its global footprint; and the length of time KPMG has served as the Company’s independent registered public accounting firm. The Audit Committee also reviewed with KPMG the most recent report of the Public Company Accounting Oversight Board on its inspection of KPMG.

 

As a result of the foregoing, the Audit Committee has retained KPMG as the Company’s independent registered public accounting firm for the fiscal year 2016 (taking into account the vote on shareholder ratification). The Audit Committee and

 

34	PEPSICO 2016 PROXY STATEMENT

AUDIT AND OTHER FEES  •  RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

the Board believe that the continued retention of KPMG to serve as the Company’s independent registered public accounting firm is in the best interests of the Company and its shareholders and have recommended that shareholders ratify the appointment of KPMG as the Company’s independent registered public accounting firm for the fiscal year 2016.

 

The Audit Committee*

 

Dina Dublon, Chair	William R. Johnson
George W. Buckley	Robert C. Pohlad
Rona A. Fairhead	Alberto Weisser
Richard W. Fisher

 

The information contained in the above report will not be deemed to be “soliciting material” or “filed” with the SEC, nor will this information be incorporated into any future filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act except to the extent the Company specifically incorporates such report by reference.

 

Audit and Other Fees

 

The following table presents fees incurred for professional audit services rendered by KPMG, the Company’s independent registered public accounting firm, for the audit of the Company’s annual consolidated financial statements for 2014 and 2015, and fees billed for other services rendered by KPMG in 2014 and 2015.

 

		2014			2015(5)
Audit fees(1)	$	25,342,000		$	22,641,000
Audit-related fees(2)	$	1,896,000		$	2,545,000
Tax fees(3)	$	1,371,000		$	1,018,000
All other fees(4)	$	42,000		$	80,000

(1)	Audit fees for 2014 and 2015 consisted of fees for the audits of the Company’s annual consolidated financial statements, the audit of the effectiveness of the Company’s internal control over financial reporting, the reviews of the financial statements included in the Company’s Quarterly Reports on Form 10-Q and services related to statutory filings or engagements.
(2)	Audit-related fees for 2014 and 2015 consisted primarily of due diligence reviews and other procedures performed in connection with business transactions, audits of certain employee benefit plans, agreed upon procedures reports, attestation reports and the issuance of comfort letters.
(3)	Tax fees for 2014 and 2015 consisted primarily of international tax compliance services.
(4)	All other fees for 2014 and 2015 consisted of fees for services/assistance with operational process assessments.
(5)	The change in fees in 2015 versus 2014 includes the impact of foreign exchange translation.

 

Pre-Approval Policy and Procedures

 

We understand the need for the independent registered public accounting firm to maintain its objectivity and independence, both in appearance and in fact, in its audit of PepsiCo’s financial statements. Accordingly, the Audit Committee has adopted the PepsiCo Policy for Pre-Approval of Audit, Audit-Related and Non-Audit Services. The policy provides that the Audit Committee will engage the independent registered public accounting firm for the audit of PepsiCo’s consolidated financial statements and audit-related, tax and other non-audit services in accordance with the terms of the policy. The policy provides that on an annual basis the independent registered public accounting firm’s global lead audit partner will review with the Audit Committee the services the independent registered public accounting firm expects to provide in the coming year and the related fee estimates, and that the Audit Committee will consider for pre-approval a schedule of such services. The policy further provides that the Audit Committee will specifically pre-approve engagements of the independent registered public accounting firm for services that are not pre-approved through the annual process. The Audit Committee Chair is authorized under the policy to pre-approve any audit, audit-related, tax or other non-audit services between Audit Committee meetings, provided such interim pre-approvals are reviewed with the full Audit Committee at its next meeting. In addition, PepsiCo provides the Audit Committee with a status report at each of its regularly scheduled meetings regarding audit, audit-related, tax and other non-audit services that the independent registered public accounting firm has been pre-approved to perform, has been asked to provide or may be expected to provide during the balance of the year.

 

*	Although Cesar Conde joined the Audit Committee effective March 4, 2016, the Audit Committee Report was approved by the Committee prior to that date and therefore he is not referenced in and is not a signatory to this report.

 

PEPSICO 2016 PROXY STATEMENT

35

Advisory Approval of Executive Compensation (Proxy Item No. 3)

 

Pursuant to Section 14A of the Exchange Act, the Company asks shareholders to cast an advisory vote to approve the compensation of our Named Executive Officers disclosed in the “Executive Compensation” section beginning on page 37 of this Proxy Statement. While this vote is non-binding, PepsiCo values the opinions of its shareholders and, consistent with our record of shareholder engagement, will consider the outcome of the vote when making future compensation decisions.

 

In considering your vote, we invite you to review the Compensation Discussion and Analysis beginning on page 37 of this Proxy Statement. As described in the Compensation Discussion and Analysis, we believe that PepsiCo’s executive compensation programs effectively align the interests of our executive officers with those of our shareholders by tying a significant portion of their compensation to PepsiCo’s performance and by providing a competitive level of compensation needed to recruit, retain and motivate talented executives critical to PepsiCo’s long-term success.

 

We are asking our shareholders to vote FOR, in a non-binding vote, the following resolution:

 

“Resolved, the shareholders of PepsiCo approve, on an advisory basis, the compensation of the Company’s Named Executive Officers as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, the 2015 Summary Compensation Table, the other compensation tables and the related notes and narratives on pages 37-64 of this Proxy Statement for the 2016 Annual Meeting of Shareholders.”

 

The Board has adopted a policy of providing annual advisory votes on the compensation of our Named Executive Officers. The next advisory vote to approve our executive compensation will occur at the 2017 Annual Meeting of Shareholders, unless the Board of Directors modifies its policy on the frequency of holding such advisory votes.

 

		Our Board of Directors recommends that shareholders vote “FOR” the compensation of our Named Executive Officers.

 

36	PEPSICO 2016 PROXY STATEMENT

Executive Compensation

 

 

PEPSICO 2016 PROXY STATEMENT

37

EXECUTIVE COMPENSATION  •  COMPENSATION DISCUSSION AND ANALYSIS

 

 

38	PEPSICO 2016 PROXY STATEMENT

COMPENSATION DISCUSSION AND ANALYSIS  •  EXECUTIVE COMPENSATION

 

 

PEPSICO 2016 PROXY STATEMENT

39

EXECUTIVE COMPENSATION  •  COMPENSATION DISCUSSION AND ANALYSIS

 

 

40	PEPSICO 2016 PROXY STATEMENT

COMPENSATION DISCUSSION AND ANALYSIS  •  EXECUTIVE COMPENSATION

 

 

PEPSICO 2016 PROXY STATEMENT

41

EXECUTIVE COMPENSATION  •  COMPENSATION DISCUSSION AND ANALYSIS

 

 

42	PEPSICO 2016 PROXY STATEMENT

COMPENSATION DISCUSSION AND ANALYSIS  •  EXECUTIVE COMPENSATION

 

 

PEPSICO 2016 PROXY STATEMENT

43

EXECUTIVE COMPENSATION  •  COMPENSATION DISCUSSION AND ANALYSIS

 

Summary of Compensation and Benefits Programs

 

2013 Long-Term Incentive Award Design

 

 

2013 PEPunit Design

 

 

44	PEPSICO 2016 PROXY STATEMENT

COMPENSATION DISCUSSION AND ANALYSIS  •  EXECUTIVE COMPENSATION

 

2013 Long-Term Cash Award Design

 

 

PEPSICO 2016 PROXY STATEMENT

45

EXECUTIVE COMPENSATION  •  COMPENSATION DISCUSSION AND ANALYSIS

 

2015 Annual Incentive Award

 

We provide annual cash incentive opportunities to our NEOs under the PepsiCo, Inc. Executive Incentive Compensation Plan (“EICP”). Awards granted under the EICP are designed to drive Company, business unit and individual performance.

 

Each executive officer’s target annual incentive opportunity (expressed as a percentage of base salary) is based on job responsibilities, alignment with internally comparable positions and peer company market data. If financial performance with respect to a specific measure is above or below target, the actual payout will be above or below the target annual incentive opportunity for that measure.

 

When determining the actual annual incentive award payable to each executive officer, the Compensation Committee considers both business and individual performance. The graphic below illustrates the weighting of performance metrics for each NEO, with the exception of the Chairman and CEO, whose annual cash award is determined by the Compensation Committee and the independent members of the Board based on their assessment of the Company’s performance and her leadership. Beginning with the 2015 performance year, business performance weighting increased from 60% to 70%.

 

 

Business Performance Metrics. Our annual incentive plan applies Company-wide performance criteria, as well as business-unit performance metrics that executives directly influence to ensure a link between annual performance and actual incentive payments. The performance measures used in the annual incentive program relate to Company-wide performance or business-unit performance depending on the NEO’s position and scope of responsibility. The 2015 performance metrics used by the Compensation Committee for each NEO are listed in the table below:

 

Business Performance Growth Metrics

Name

Weighting

Organic Revenue(1)

EPS(2)

Core Net ROIC(3)

Cash Flow(4)

Share of Retail Sales(5)

Net Income(2)

NOPBT(6)

Indra K. Nooyi

100% PepsiCo

·

·

·

·

Hugh F. Johnston

100% PepsiCo

·

·

·

·

Albert P. Carey

100% NAB(7)

·

·

·

·

Thomas Greco

100% FLNA

·

·

·

·

Ramon Laguarta

100% ESSA(8)

·

·

·

·

 

(1)	Represents revenue growth adjusted for the items reflected in the reconciliation included in Exhibit A to this Proxy Statement.
(2)	Measured on a core constant currency basis, as calculated in accordance with the reconciliation included in Exhibit A to this Proxy Statement.
(3)	“Core Net ROIC” represents core net income attributable to PepsiCo plus after-tax core net interest expense, divided by a quarterly average of invested capital less cash, cash equivalents and short-term investments adjusted for the non-core items. See Exhibit A to this Proxy Statement for a reconciliation of core net ROIC growth to reported ROIC growth.
(4)	“Cash Flow” represents Free Cash Flow adjusted for the items reflected in the reconciliation included in Exhibit A to this Proxy Statement.
(5)	“Share of Retail Sales” represents food and beverage share of retail sales in certain categories and markets in which PepsiCo operates.
(6)	“NOPBT” represents net operating profit before taxes, excluding net interest expense and corporate unallocated expenses measured on a core constant currency basis.
(7)	Effective beginning with the third quarter of 2015, PepsiCo made certain changes to its organizational structure, including the combination of PepsiCo’s Latin America food and beverage businesses into the newly formed Latin America business unit. As a result of these changes, PepsiCo Americas Beverages, which previously included the Latin America Beverage business, was renamed as North America Beverages. Until July 2015, Mr. Carey served as CEO of PepsiCo Americas Beverages and his performance growth metrics included the Latin America Beverage business.
(8)	Effective beginning with the third quarter of 2015, PepsiCo’s Sub-Saharan Africa business, which was formerly part of PepsiCo Asia, Middle East and Africa, moved to the Europe business unit and, as a result the Europe business unit was renamed Europe Sub-Saharan Africa (“ESSA”). Mr. Laguarta’s performance growth metrics included the Sub-Saharan Africa business effective July 2015.

 

46	PEPSICO 2016 PROXY STATEMENT

COMPENSATION DISCUSSION AND ANALYSIS  •  EXECUTIVE COMPENSATION

 

Business Results. In determining annual incentive awards for 2015, the Compensation Committee considered actual Company performance against the pre-established performance targets noted in the table below. Our executive officers’ performance targets were set at levels necessary to meet or exceed the financial goals PepsiCo communicated to shareholders at the beginning of 2015. This ensures the performance targets are challenging and that our executive officers are motivated to deliver on our financial goals.

 

Performance Measures		Financial Goals		Performance Targets		Actual Results
Organic Revenue Growth		Mid-single digits		4.2%		5.2%
Core Constant Currency Net Income Growth		*		5.3%		7.2%
Core Constant Currency EPS Growth		7%		7%		10.2%
Free Cash Flow Excluding Certain Items		>$7B		$7.7B		$8.1B
Core Net ROIC Improvement		+50bps		+50bps		+210bps

 

*	PepsiCo does not publicly disclose net income goals.

 

PepsiCo’s business unit performance targets and share of retail sales targets, which were intended to be challenging, are not disclosed because such disclosure would result in competitive harm to PepsiCo. Consistent with financial targets communicated to shareholders, business unit targets for revenue and profit were set at levels necessary to deliver mid-single-digit organic revenue growth and high-single-digit core constant currency EPS growth.

 

Individual Performance Metrics. The Compensation Committee evaluates individual performance based on metrics related to an individual’s contribution to PepsiCo’s strategic business imperatives, such as improving operating efficiencies, driving sustainable innovation, increasing customer satisfaction and managing and developing a diverse and talented workforce. The strategic business imperatives are intended to be challenging. They can be both qualitative and quantitative and vary for each executive officer.

 

Individual Results. In determining annual incentive awards for 2015, the Compensation Committee considered the following individual accomplishments by NEOs, other than the Chairman and CEO.

Mr. Johnston:  During 2015, Mr. Johnston’s leadership was critical to PepsiCo’s strong financial results. Mr. Johnston remained focused on generating cash flow through more efficient working capital management and continued tight controls over capital spending. This resulted in PepsiCo increasing its dividend for the 43rd consecutive year in 2015 and returning $9 billion to shareholders through share repurchases and dividends. In December 2014, Mr. Johnston undertook the additional responsibility of the Quaker Foods North America business, which began a marked turnaround in 2015 and delivered positive organic revenue results and gained market share across its breakfast categories.

 

Mr. Carey:        Mr. Carey led NAB to strong performance in 2015. Due in part to Mr. Carey’s attention to portfolio innovation, brand investment and execution, the NAB business delivered overall positive organic top-line and core constant currency bottom line results. Under Mr. Carey’s leadership, NAB contributed more growth to retail customers - more than $1 billion in retail sales - than any food or beverage company in the United States. With stepped-up advertising and marketing investment, NAB had four of the top six brands driving retail sales growth in 2015.

 

Mr. Greco:        Under Mr. Greco’s leadership, FLNA delivered balanced growth in 2015 with positive organic revenue and core constant currency operating profit results. FLNA’s growth was supported with product and packaging innovation and standout campaigns, including the U.S. launch of our Doritos Roulette campaign as the largest limited-time offer in the brand’s history. In 2015, FLNA led absolute retail sales growth in the U.S. for major Consumer Packaged Goods food companies.

 

Mr. Laguarta:   Mr. Laguarta’s leadership was paramount to ESSA’s delivery of solid growth in 2015 despite challenging macroeconomic conditions in both developed and emerging markets, as well as several markets experiencing political and civil unrest. Even with these significant headwinds, ESSA succeeded in generating full-year gains in organic revenue and core constant currency operating profit by executing effective pricing strategies, launching innovative products and driving productivity that provided investment funding to propel future growth.

 

PEPSICO 2016 PROXY STATEMENT

47

EXECUTIVE COMPENSATION  •  COMPENSATION DISCUSSION AND ANALYSIS

 

Overall Results. The following table summarizes the actual annual incentive awards paid to the NEOs in March 2016. The Chairman and CEOs annual incentive award is determined by the Compensation Committee based on its assessment of the Company’s performance and her leadership. Awards for the other NEOs are based on 2015 business and individual performance in the context of the target annual incentive opportunity and the potential range of payouts.

 

Name				Range of Potential				Actual Annual
				Payouts Based on		Actual		Incentive as a
		Target Annual		Business &		Annual		% of Target
		Incentive (% of		Individual		Incentive		Annual
		Base Salary)		Results ($000)		Award ($000)		Incentive
Indra K. Nooyi		215%		0 – 7,095		5,250		148%
Hugh F. Johnston		150%		0 – 2,592		1,654		123%
Albert P. Carey		150%		0 – 2,477		1,896		147%
Thomas Greco		150%		0 – 2,304		1,374		115%
Ramon Laguarta		150%		0 – 2,160		1,119		100%

 

Base Salary

 

The Compensation Committee annually reviews our NEOs’ salaries, and annual salary increases are not automatic or guaranteed. When considering any adjustments, the Compensation Committee takes into account data for similar positions among our peer group and other Fortune 500 companies, internal pay equity, the underlying accountabilities and scope of responsibility for each position and the recommendations of the Chairman and CEO. The base salaries paid to our NEOs in 2015 are presented in the 2015 Summary Compensation Table on page 54 of this Proxy Statement. The Compensation Committee made the following market-based adjustments to annual base salaries effective February 2016:

 

•	Ms. Nooyi: $1,650,000 to $1,700,000
•	Mr. Johnston: $900,000 to $950,000
•	Mr. Carey: $860,000 to $900,000
•	Mr. Greco: $800,000 to $850,000

 

Retirement Programs

 

Our NEOs participate in the same retirement programs as other similarly situated employees and receive no enhancements in determining their benefits not available to other employees. The Company’s retirement programs are designed to facilitate the retirement of employees who have performed at PepsiCo over the long term. The Company maintains defined benefit pension plans for the majority of U.S. salaried employees hired before January 1, 2011 and defined contribution pension plans for U.S. employees hired in 2011 and later. A separate retirement plan is also maintained for certain employees working outside the U.S. who are unable to participate in their home country retirement plans. The terms of the Company’s retirement plans are substantially the same for all participating employees and are described in the introduction to the 2015 Pension Benefits Table beginning on page 60 of this Proxy Statement.

 

Our NEOs are also eligible for retiree medical coverage on the same terms as other similarly situated employees. PepsiCo does not provide executive officers any special benefit plans such as executive life insurance, and the Company does not provide any enhanced retirement benefit formulas to our NEOs.

 

Benefits and Perquisites

 

Benefits. Executive officers receive the same healthcare benefits as other similarly situated employees. U.S.-based medical benefits are the same for all participants in the Company’s healthcare program. However, our executive officers are required to pay two to three times as much as non-executive employees for their coverage. International medical benefit plans vary, but executives typically receive the benefits offered in the relevant broad-based plan.

 

48	PEPSICO 2016 PROXY STATEMENT

COMPENSATION DISCUSSION AND ANALYSIS  •  EXECUTIVE COMPENSATION

 

PepsiCo’s global mobility program facilitates the assignment of employees to positions in other countries by minimizing any financial detriment or gain to the employee from the international assignment. As CEO of ESSA, Mr. Laguarta participates in the global mobility program on an international assignment in Geneva, Switzerland. Under the program, Mr. Laguarta’s compensation package is linked to the U.S. compensation structure as a result of being considered global talent with continued PepsiCo assignments outside his home country. Mr. Laguarta economically pays taxes at a U.S. income tax rate on compensation and receives housing and other allowances to reflect the incremental cost of living in his work location, as compared to the United States.

 

In addition, executive officers who relocate at PepsiCo’s request are supported under the relocation program available to all PepsiCo salaried employees. The program covers relocation expenses, such as household goods shipment, and applicable reimbursement of taxes associated with moving.

 

Perquisites. Consistent with our pay-for-performance philosophy, we limit executive perquisites to a Company car allowance, an annual physical and limited personal use of Company aircraft and ground transportation.

 

Ms. Nooyi is required by the Compensation Committee to use company aircraft and ground transportation for all travel to enhance her personal safety and to increase her time available for business purposes.

 

Executives are fully responsible for personal income tax liability associated with personal use of Company ground transportation and Company aircraft. Business Unit CEOs must reimburse PepsiCo for the full variable operating cost of personal flights in excess of a limited number of hours per year as established by the Compensation Committee. Personal use of Company ground transportation and Company aircraft for executive officers other than the Chairman and CEO must be approved by the Chairman and CEO on a case-by-case basis.

 

Change in Control Provisions

 

NEOs are not eligible to receive any cash severance, continued health and welfare benefits, pension service credit, tax gross-ups or any other change in control benefits other than change in control protections under our shareholder-approved LTI plans.

 

Our LTI incentive plans provide all employees, NEOs and non-employee directors change-in-control protection for their LTI awards. Outstanding unvested awards, stock options and Restricted Stock Units (“RSUs”) vest, and PSUs and PEPunits are paid at target, even if results are above target, if the participant is terminated without cause or resigns for good reason within two years following a change-in-control of PepsiCo (i.e., “double trigger” vesting) or if the acquiring entity fails to assume the awards. We utilize “double trigger” vesting to ensure management talent will be available to assist in the successful integration following a change in control and to align with prevailing governance practices.

 

Executive Deferral

 

Under the PepsiCo Executive Income Deferral Program (the “EIDP”), most U.S.-based executives can elect to defer up to 75% of their base salary and up to 100% of their annual cash incentive awards into phantom investment funds on a tax-deferred basis. Executives have the opportunity to invest their deferrals into market-based funds, including the PepsiCo Common Stock Fund. The EIDP does not guarantee a rate of return, and none of the funds provides “above market” earnings. PepsiCo does not match any executive’s deferrals.

 

The PepsiCo EIDP is a non-qualified and unfunded program in which account balances are unsecured and at risk. This means that the participants’ balances may be forfeited in the event of the Company’s bankruptcy. The narrative accompanying the 2015 Non-Qualified Deferred Compensation Table beginning on page 62 of this Proxy Statement describes the material features of the EIDP.

 

PEPSICO 2016 PROXY STATEMENT

49

EXECUTIVE COMPENSATION  •  COMPENSATION DISCUSSION AND ANALYSIS

 

 

50	PEPSICO 2016 PROXY STATEMENT

COMPENSATION DISCUSSION AND ANALYSIS  •  EXECUTIVE COMPENSATION

 

Peer Group

 

The Compensation Committee utilizes a peer group to evaluate whether executive officer pay levels are aligned with Company performance on a relative basis. The Compensation Committee primarily identifies companies that are of comparable size (based on revenue and market capitalization), maintain strong consumer brands, have an innovative culture, compete with PepsiCo for executive talent and/or possess significant international operations.

 

The Compensation Committee reaffirmed in 2015 that the current peer group companies used for pay and performance benchmarking continue to meet the above criteria. The peer group was updated to reflect the merger of Heinz and Kraft Foods Group.

 

 

	PepsiCo 2015 Compensation Peer Group
	3M Company	Kellogg Company		PepsiCo vs. Peer Group
	Abbott Laboratories	The Kraft Heinz Company		*   Based on the four fiscal quarters ended prior to December 31, 2015 and publicly available as of March 4, 2016 **  Based on 2015 year-end
	Anheuser-Busch InBev SA/NV	McDonald’s Corporation
	Apple, Inc.	Mondelēz International, Inc.
	The Coca-Cola Company	Nestlé S.A.
	Colgate-Palmolive Company	Nike, Inc.
	General Electric Company	The Procter & Gamble Company
	General Mills, Inc.	Unilever PLC
	Groupe Danone	United Parcel Service, Inc.
	Hewlett-Packard Company	Wal-Mart Stores, Inc.
	International Business Machines Corp.	The Walt Disney Company
	Johnson & Johnson

 

Governance Features of Our Executive Compensation Programs

 

We believe that PepsiCo’s compensation programs should ensure that our executives remain accountable for business results and take responsibility for the assets of the business and its employees. Consistent with this objective, our Board of Directors has incorporated the following governance features into our executive compensation programs:

 

Risk Mitigation

 

PepsiCo’s executive compensation programs include features intended to discourage employees from taking unnecessary and excessive risks that could threaten the financial health and viability of the Company, including:

 

•

Balanced Performance Metrics: The annual cash incentive program utilizes balanced financial metrics consisting of top-line metrics, such as organic revenue, bottom-line metrics, such as NOPBT, market-based metrics, such as share of retail sales, and metrics designed to enhance capital management such as cash flow.

 

•

Accountability for Prior Business Unit Results: Half of the annual incentive award for any executive officer who assumes a new leadership position in a different business unit is determined based on the prior business unit’s results. This encourages the executive officer to remain accountable for the results of the long-term strategies he or she established in the prior business unit.

 

•

Emphasis on Long-Term Shareholder Value Creation: LTI awards are the most significant element of executive officer pay and focus executives on creating long-term shareholder value, measured in terms of absolute stock price growth, stock price changes relative to the broader equity market, and delivering exceptional long-term operating results.

 

•

Clawback Provisions: Under PepsiCo’s annual incentive, LTI and executive deferral programs, the Company has the right to cancel and recoup awards and gains from an executive if he or she: (i) violates PepsiCo’s Global Code of Conduct; (ii) engages in gross misconduct; (iii) violates applicable non-compete, non-solicitation or confidentiality provisions; or (iv) causes or contributes to the need for an accounting adjustment to the Company’s financial results through gross negligence or misconduct.

PEPSICO 2016 PROXY STATEMENT

51

EXECUTIVE COMPENSATION   •  COMPENSATION DISCUSSION AND ANALYSIS

 

Stock Ownership Requirements

 

Under PepsiCo’s stock ownership guidelines, executive officers are required to own shares of PepsiCo Common Stock equal in value to a specified multiple of their annual base salary, as set forth below:

 

Stock Ownership Requirements
	33 times annual salary The value of shares and share equivalents of PepsiCo’s Common Stock held by PepsiCo’s Chairman and CEO as of March 4, 2016

 

Shares of PepsiCo Common Stock or equivalents held by the executive officer (or immediate family members) in the 401(k) plan, in a deferred compensation account, or in a trust for the benefit of immediate family members count towards satisfying the requirement. Unexercised stock options and unvested PSUs, RSUs and PEPunits do not count towards satisfying the applicable stock ownership requirement.

 

Executive officers have five years from the date they first become subject to a particular level of stock ownership to meet the stock ownership requirement. All of our executive officers have met or are on track to meet their ownership requirements within the five-year period.

 

Executive officers who terminate or retire from PepsiCo are required to continue to hold 100% of the shares needed to meet the applicable level of stock ownership until at least six months after termination or retirement and to continue to hold at least 50% of the shares needed to meet the applicable level of stock ownership until at least twelve months after termination or retirement.

 

Share Retention Policy

 

To ensure that our executive officers exhibit a strong commitment to PepsiCo stock ownership, the Board adopted a Share Retention Policy in 2002. The policy limits the proceeds that an executive officer may receive in cash upon exercise of stock options during each calendar year to 20% of the aggregate value of all of the executive officer’s in-the-money vested stock options. Any proceeds in excess of this 20% limit must be held in shares of PepsiCo Common Stock for at least one year after the date of exercise. In addition, executive officers are required to hold at least 50% of the shares, net of applicable tax withholding, received upon the vesting and payout of PEPunits and PSUs in furtherance of PepsiCo’s stock ownership guidelines.

 

Executive officers who maintain the required level of stock ownership are exempt from the Share Retention Policy.

 

No Employment Contracts

 

None of our NEOs has an employment contract or separation agreement. Consistent with our approach of rewarding performance, employment is not guaranteed, and either the Company or the NEO may terminate the employment relationship at any time. In some cases, the Compensation Committee or the Board may agree to provide separation payments to departing executives upon their termination to obtain extended non-compete, non-solicitation and non-disclosure agreements and a release of claims.

 

52	PEPSICO 2016 PROXY STATEMENT

COMPENSATION DISCUSSION AND ANALYSIS  •  EXECUTIVE COMPENSATION

 

Prohibition on Hedging and Pledging

 

Our insider trading policy prohibits employees, including executive officers, from using any strategies or products (such as derivative securities or short-selling techniques) to hedge against the potential changes in the value of PepsiCo Common Stock. In addition, employees, including executive officers, may not hold PepsiCo securities in a margin account or pledge PepsiCo stock or PepsiCo stock options as collateral for a loan.

 

Limited Trading Windows

 

Executive officers can only transact in PepsiCo securities during approved trading windows after satisfying mandatory clearance requirements.

 

Responsible Equity Grant Practices

 

PepsiCo’s equity grant practices ensure all grants are made on fixed grant dates and at exercise prices or grant prices equal to the “fair market value” of PepsiCo Common Stock on such dates.

 

•	Stock option, PSU and RSU grants are awarded under our shareholder-approved LTI plan at “fair market value,” defined as the average of the high and low stock prices rounded up to the nearest quarter on the date of grant. Further, PEPunit payouts are determined based on the average share price for the 90 days prior to the grant and vesting date. These formulas mitigate the impact of our stock price’s intra-day volatility when setting the grant price of equity awards.
•	PepsiCo does not backdate, reprice or grant stock options retroactively. Our shareholder-approved LTI plan prohibits repricing of awards or exchanges of underwater options for cash or other securities without shareholder approval.
•	Under our shareholder-approved LTI plan, stock options, RSUs, PSUs, PEPunits and LTC Awards generally require a three-year minimum vesting period.
•	PepsiCo is responsible in the use of shares under our LTI program with share utilization below our peer group median.

 

Tax Considerations

 

In establishing total compensation for the executive officers, the Compensation Committee considers the effect of Section 162(m) of the Internal Revenue Code. Section 162(m) generally disallows a tax deduction for compensation over $1 million paid for any fiscal year to the CEO and the three other highest paid executive officers other than the CFO, unless the compensation qualifies as performance-based. While the Compensation Committee generally seeks to preserve the deductibility of most compensation paid to executive officers, the primary objective of the compensation program is to support the Company’s business strategy. Thus, the Compensation Committee believes it should have flexibility in awarding compensation, even though some compensation awards may result in non-deductible compensation expenses.

 

PEPSICO 2016 PROXY STATEMENT

53

EXECUTIVE COMPENSATION  •  2015 SUMMARY COMPENSATION TABLE

 

2015 Summary Compensation Table

 

The following table summarizes the compensation of the NEOs for the fiscal year ended December 26, 2015 in accordance with SEC rules. We encourage you to also review page 39 for a description of how Chairman and CEO compensation is viewed by PepsiCo’s Board.

 

								Non-Equity Incentive Plan						Change in
								Compensation ($)						Pension Value
														and Non-
								Subtotal		Subtotal		Total for		Qualified
								for		for Long-		Annual and		Deferred
						Stock		Annual		Term		Long-Term		Compensation		All Other
Name and Principal				Salary		Awards		Payouts		Payouts		Payouts		Earnings		Compensation		Total
Position(1)		Year		($)(2)		($)(3)		($)(4)		($)(5)		($)(6)		($)(7)		($)(8)		($)(5)
Indra K. Nooyi
Chairman of the Board and CEO		2015		1,642,308		6,251,479		5,250,000		8,675,000		13,925,000		4,255,683		370,520		26,444,990
		2014		1,600,000		5,497,767		5,000,000		6,835,000		11,835,000		3,397,742		155,065		22,485,574
		2013		1,600,000		7,458,225		4,000,000		—		4,000,000		1,089,072		133,580		14,280,877
Hugh F. Johnston
Vice Chairman, EVP and CFO		2015		900,000		2,222,763		1,653,800		2,429,000		4,082,800		1,329,932		25,350		8,560,845
		2014		845,000		1,612,303		1,483,300		1,667,740		3,151,040		1,567,834		25,350		7,201,527
		2013		800,000		7,088,257		1,422,400		—		1,422,400		461,272		25,350		9,797,279
Albert P. Carey
CEO, NAB		2015		860,000		2,236,620		1,896,300		2,255,500		4,151,800		414,680		81,288		7,744,388
		2014		860,000		3,580,567		1,790,500		1,421,680		3,212,180		—		59,402		7,712,149
Thomas Greco
CEO, FLNA		2015		792,308		1,447,120		1,374,000		1,124,280		2,498,280		1,422,295		79,059		6,239,062
Ramon Laguarta
CEO, ESSA		2015		748,846		1,111,382		1,119,400		867,500		1,986,900		487,407		1,320,504		5,655,039

 

(1)

Messrs. Greco and Laguarta were not NEOs for 2013 or 2014, and as a result, only their 2015 compensation information is included. Similarly, Mr. Carey was not an NEO for 2013, and as a result, only his 2014 and 2015 compensation information is included.

 

(2)

The salary amounts reflect the actual base salary payments made to the NEOs.

 

(3)

The amounts reported for stock awards represent the aggregate grant date fair value of stock awards calculated in accordance with the accounting guidance on share-based payments.

 

The amounts reported in this column reflect the application of a Monte-Carlo simulation to determine the fair value of annual PEPunit awards. If PepsiCo were to exceed its performance targets, grant recipients may earn up to 175% of the target number of PEPunits granted. The following tables reflect the grant date fair value of the PEPunit awards at below-threshold, target and maximum performance earn-out levels.

 

			Value of 2015 PEPunit Awards
			Below		At Target		At Maximum
	Name		Threshold		Level ($)		175% Level ($)
	Indra K. Nooyi		0		6,251,479		10,940,089
	Hugh F. Johnston		0		2,222,763		3,889,871
	Albert P. Carey		0		2,236,620		3,914,069
	Thomas Greco		0		1,447,120		2,532,442
	Ramon Laguarta		0		1,111,382		1,944,935

 

For a discussion of the assumptions and methodologies used in calculating the grant date fair value of the PEPunit awards, please see Note 6 to the Company’s consolidated financial statements in the Company’s Annual Report on Form 10-K for the applicable fiscal year.

 

(4)

As described in the “2015 Annual Incentive Award” section of the Compensation Discussion and Analysis on pages 46-48 of this Proxy Statement, the amounts reported reflect compensation earned for performance under the annual incentive compensation program for that year, paid in March of the subsequent year.

 

(5)

As described in the “2013 Long-Term Incentive Award Design” section of the Compensation Discussion and Analysis on pages 44-45 of this Proxy Statement, the Long-Term Payout amounts reported reflect compensation earned for performance over a three-year (2013- 2015) period under the LTC Award granted in 2013 and paid in March 2016.

 

(6)

Represents the total of the Annual Payouts and Long-Term Payouts of Non-Equity Incentive Plan compensation.

 

54	PEPSICO 2016 PROXY STATEMENT

2015 SUMMARY COMPENSATION TABLE  •  EXECUTIVE COMPENSATION

 

(7)

The amounts reported reflect the aggregate change in the actuarial present value of each NEO’s accumulated benefit under the defined benefit pension plans in which they participate. The change in pension value reflects changes in age, service and earnings during 2015. During 2015, 2014 and 2013, PepsiCo did not pay above-market or preferential rates on any non-qualified deferred compensation.

 

(8)

The following table provides the details for the amounts reported for 2015 for each NEO:

 

									Company
			Personal						Contributions
			Use of		Personal Use				to Defined
			Company		of Ground		Car		Contribution		Global		Tax		Total All Other
			Aircraft(A)		Transportation(A)		Allowance		Plans		Mobility		Reimbursement		Compensation
	Name		($)		($)		($)		($)		($)		($)		($)
	Indra K. Nooyi		333,303	(B)	37,217		—		—		—		—		370,520
	Hugh F. Johnston		—		—		25,350		—		—		—		25,350
	Albert P. Carey		55,938		—		25,350		—		—		—		81,288
	Thomas Greco		53,709		—		25,350		—		—		—		79,059
	Ramon Laguarta		—		—		39,796		—		368,756	(C)	911,952	(D)	1,320,504

 

Mr. Laguarta’s car allowance, Global Mobility Program benefits and tax reimbursements were paid in Swiss Francs and converted into U.S. dollars based on an average daily exchange rate of 1.00 CHF = 1.040 USD for 2015.

 

(A)

Personal use of Company aircraft and ground transportation is valued based on the aggregate incremental cost to the Company. The aggregate incremental cost is calculated based on the variable operating costs that were incurred as a result of personal use of the aircraft (such as fuel, maintenance, landing fees, crew expenses, catering and en-route charges) or ground transportation (such as fuel and the driver’s compensation). Infrequently, an executive’s spouse or other family member may fly on the Company aircraft or share ground transportation as an additional passenger. There is no incremental cost associated with such usage. The NEOs are fully responsible for all personal income taxes associated with any personal use of Company aircraft and ground transportation.

 

(B)

The Compensation Committee requires Ms. Nooyi to use Company aircraft and ground transportation for all travel. This requirement serves to enhance her security and personal safety, and to increase her time available for business purposes. The Compensation Committee reaffirmed this security requirement following an exhaustive independent security study completed in 2013. The Committee will continue its ongoing assessment of Ms. Nooyi’s use of Company-provided transportation to ensure that it remains appropriate.

 

(C)

The amount reported reflects the expense for benefits provided pursuant to PepsiCo’s standard Global Mobility Program as a result of Mr. Laguarta’s international assignment in Geneva, Switzerland. These benefits include housing, cost-of-living and home-leave allowances, tax preparation services and household goods storage. The Global Mobility Program facilitates the assignment of employees to positions outside their home country by minimizing any financial detriment or gain to the employee from the international assignment.

 

(D)

The amount reported reflects the total net amount of tax equalization designed to cover taxes on Mr. Laguarta’s compensation in excess of the taxes he would have incurred in the U.S. under the Company’s standard expatriate program.

 

PEPSICO 2016 PROXY STATEMENT

55

EXECUTIVE COMPENSATION  •  2015 GRANTS OF PLAN-BASED AWARDS

 

2015 Grants of Plan-Based Awards

The following table summarizes grants of PEPunits, LTC Awards and annual cash awards provided to NEOs in 2015. PEPunit and LTC Awards granted in 2015 recognized 2014 performance. The material terms of PepsiCo’s annual and LTI programs are described in the Compensation Discussion and Analysis beginning on page 37 of this Proxy Statement.

 

						Estimated Future						Estimated Future Payouts						Grant Date
						Payouts Under Non-Equity						Under Equity Incentive Plan						Fair Value
						Incentive Plan Awards						Awards						of Stock
																		and Option
						Threshold		Target		Maximum		Threshold		Target		Maximum		Awards(5)
Name		Grant Date(1)		Grant Type		($)		($)		($)		(#)		(#)		(#)		($)
Indra K. Nooyi		—		Annual Bonus(2)		0		3,547,500		7,095,000		—		—		—		—
		3/1/2015		Long-Term Cash(3)		0		5,400,000		9,450,000		—		—		—		—
		3/1/2015		PEPunits(4)		—		—		—		0		90,680		158,690		6,251,479
Hugh F. Johnston		—		Annual Bonus(2)		0		1,350,000		2,592,000		—		—		—		—
		3/1/2015		Long-Term Cash(3)		0		1,920,000		3,360,000		—		—		—		—
		3/1/2015		PEPunits(4)								0		32,242		56,424		2,222,763
Albert P. Carey		—		Annual Bonus(2)		0		1,290,000		2,476,800		—		—		—		—
		3/1/2015		Long-Term Cash(3)		0		1,932,000		3,381,000		—		—		—		—
		3/1/2015		PEPunits(4)		—		—		—		0		32,443		56,775		2,236,620
Thomas Greco		—		Annual Bonus(2)		0		1,200,000		2,304,000		—		—		—		—
		3/1/2015		Long-Term Cash(3)		0		1,250,000		2,187,500		—		—		—		—
		3/1/2015		PEPunits(4)		—		—		—		0		20,991		36,734		1,447,120
Ramon Laguarta		—		Annual Bonus(2)		0		1,125,000		2,160,000		—		—		—		—
		3/1/2015		Long-Term Cash(3)		0		960,000		1,680,000		—		—		—		—
		3/1/2015		PEPunits(4)		—		—		—		0		16,121		28,212		1,111,382

 

(1)

Consistent with prior years, 2015 PEPunit and LTC Awards were approved by the Compensation Committee at its regularly scheduled meeting in February. The approval date for the awards was February 5, 2015 and the grant date was March 1, 2015.

 

(2)

The amounts reported reflect the potential range of 2015 annual cash incentive awards under the shareholder-approved EICP, as described under “2015 Annual Incentive Award” section in the Compensation Discussion and Analysis beginning on page 46 of this Proxy Statement.

 

(3)

The amounts reported reflect the potential range of 2015 LTC Award payouts under the shareholder-approved PepsiCo, Inc. 2007 Long-Term Incentive Plan, consistent with the design described under the “2013 Long-Term Incentive Award Design” section of the Compensation Discussion and Analysis on page 44 of this Proxy Statement. The actual cash award earned is determined based on the level of achievement attained with respect to the pre-established performance targets over the three-year performance period and will be paid out on the third anniversary of the grant date.

 

(4)

The actual number of shares of PepsiCo Common Stock that are earned for the 2015 PEPunits is determined based on the level of achievement attained with respect to absolute stock price performance and relative TSR consistent with the pre-established payout scale determined for the three-year performance period consistent with the design described under the “2013 Long-Term Incentive Award Design” section of the Compensation Discussion and Analysis on page 44 of this Proxy Statement. If PepsiCo performs below the pre-established performance targets, the number of PEPunits earned will be reduced below the target number. The amounts reported in the “target” column reflect the number of PEPunits that may be paid out if the performance targets are achieved at 100%, and the amounts reported in the “maximum” column reflect the maximum number of PEPunits that will be paid out if the performance targets are exceeded.

 

The PEPunits earned by NEOs will vest and be paid out in shares of PepsiCo Common Stock on the third anniversary of the grant date subject to pro-rata vesting upon retirement between ages 55 and 61, inclusive, with at least 10 years of service, and full vesting upon retirement at age 62 and older with at least 10 years of service, in each case subject to achievement of the applicable performance targets over the full three-year performance period. As of 2015 fiscal year-end, Ms. Nooyi and Mr. Greco are eligible for pro-rata vesting and Mr. Carey is eligible for full vesting. Notwithstanding the level of performance achieved, the Compensation Committee retains the discretion to reduce the number of shares issued in settlement of the 2015 PEPunit awards.

 

For additional information regarding these awards, please see “How Our PEPunits Work” in the Compensation Discussion and Analysis on page 44 of this Proxy Statement.

 

(5)

The amounts reported represent the aggregate grant date fair value of all PEPunits granted to NEOs in 2015 calculated in accordance with the accounting guidance on share-based payments. For a discussion of the assumptions and methodologies used in calculating the grant date fair value of the PEPunits reported, please see Note 6 to the Company’s consolidated financial statements in the Company’s 2015 Annual Report on Form 10-K for the fiscal year ended December 26, 2015.

 

56	PEPSICO 2016 PROXY STATEMENT

2015 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END  •  EXECUTIVE COMPENSATION

 

2015 Outstanding Equity Awards at Fiscal Year-End

The following table lists all outstanding stock options, PEPunit, PSU and RSU awards as of December 26, 2015 for the NEOs. The material terms and conditions of the equity awards reported in this table are described in the “2013 Long-Term Incentive Award Design” section of the Compensation Discussion and Analysis beginning on page 44 of this Proxy Statement. No stock options, PEPunits, PSUs or RSUs granted to an NEO have been transferred to any other person, trust or entity.

 

		Option Awards(1)										Stock Awards(1)(2)
																				Equity		Equity
																				Incentive		Incentive
																				Plan		Plan
																				Awards:		Awards:
																				Number		Market
																Number				of		or Payout
																of				Unearned		Value of
																shares		Market		Shares,		Unearned
																or		value of		Units or		Shares,
		Number of														units of		shares or		Other		Units or
		Securities														stock		units of		Rights		Other
		Underlying														that		stock		That Have		Rights
		Unexercised		Option		Option		Option		Option						have		that		Not		That Have
		Options (#)		Exercise		Grant		Vesting		Expiration		Grant		Vesting		not		have not		Vested(3)		Not Vested
Name		Exercisable		Price($)		Date		Date		Date		Date		Date		vested		vested		(#)		($)
Indra K. Nooyi
		392,157		63.75		3/1/2011		3/1/2014		2/28/2021		3/1/2015		3/1/2018		—		—		90,680		9,116,967
		360,902		66.50		4/12/2010		4/12/2013		4/11/2020		3/1/2014		3/1/2017		—		—		108,673		10,925,983
		452,830		53.00		2/6/2009		2/1/2012		1/31/2019		3/1/2013		3/1/2016		—		—		108,911		10,949,912
		374,899		68.75		2/1/2008		2/1/2011		1/31/2018		—		—		—		—		—		—
		304,220		65.00		2/2/2007		2/1/2010		1/31/2017		—		—		—		—		—		—
Hugh F. Johnston
		70,275		63.75		3/1/2011		3/1/2014		2/28/2021		3/1/2015		3/1/2018		—		—		32,242		3,241,611
		43,856		66.50		4/12/2010		4/12/2013		4/11/2020		3/1/2014		3/1/2017		—		—		31,870		3,204,210
		46,561		53.00		2/6/2009		2/1/2012		1/31/2019		7/19/2013		7/19/2018		—		—		57,803	(4)	5,811,514
		49,052		68.75		2/1/2008		2/1/2011		1/31/2018		3/1/2013		3/1/2016		—		—		30,495		3,065,967
		22,512		65.00		2/2/2007		2/1/2010		1/31/2017		—		—		—		—		—		—
Albert P. Carey
		44,863		63.75		3/1/2011		3/1/2014		2/28/2021		3/1/2015		3/1/2018		—		—		32,443		3,261,819
		50,827		66.50		4/12/2010		4/12/2013		4/11/2020		11/21/2014		3/1/2017		—		—		20,253	(5)	2,036,237
		68,679		53.00		2/6/2009		2/1/2012		1/31/2019		3/1/2014		3/1/2017		—		—		31,243		3,141,171
		49,241		68.75		2/1/2008		2/1/2011		1/31/2018		3/1/2013		3/1/2016		—		—		28,317		2,846,991
		52,083		65.00		2/2/2007		2/1/2010		1/31/2017		—		—		—		—		—		—
Thomas Greco
		49,448		53.00		2/6/2009		2/1/2012		1/31/2019		3/1/2015		3/1/2018		—		—		20,991		2,110,435
		37,969		68.75		2/1/2008		2/1/2011		1/31/2018		11/21/2014		3/1/2017		—		—		20,253	(6)	2,036,237
		20,318		65.00		2/2/2007		2/1/2010		1/31/2017		3/1/2014		3/1/2017		—		—		18,056		1,815,350
		—		—		—		—		—		3/1/2013		3/1/2016		—		—		14,115		1,419,122
Ramon Laguarta
		16,941		63.75		3/1/2011		3/1/2014		2/28/2021		3/1/2015		3/1/2018		—		—		16,121		1,620,805
		19,066		66.50		4/12/2010		4/12/2013		4/11/2020		3/1/2014		3/1/2017		—		—		11,494		1,155,607
		743		53.00		2/6/2009		2/1/2012		1/31/2019		3/1/2013		3/1/2016		—		—		10,891		1,094,981
		2,830		53.00		2/6/2009		2/1/2011		1/31/2018		9/20/2012		9/20/2017		42,105		4,233,237	(7)	—		—
		10,755		68.75		2/1/2008		2/1/2011		1/31/2018		—		—		—		—		—		—
		17,221		65.00		2/2/2007		2/1/2010		1/31/2017		—		—		—		—		—		—

 

PEPSICO 2016 PROXY STATEMENT

57

EXECUTIVE COMPENSATION  •  2015 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

 

(1)

With the exception of the awards discussed in footnotes (4), (5), (6) and (7) below, each of the RSU, PEPunit and PSU awards listed in the table vests three years after the grant date, subject to continued service with PepsiCo through the vesting date and, in the case of PEPunits and PSUs, achievement of applicable performance targets. Each of the awards that are not special awards will vest on a pro-rata basis upon retirement between ages 55 and 61, inclusive, with at least 10 years of service, and will vest in full upon retirement at age 62 or older with at least 10 years of service, subject to achievement of applicable performance targets.

 

(2)

The market value of unvested PEPunits, PSUs and RSUs reflected in the table has been calculated by multiplying the number of unvested PEPunits, PSUs and RSUs by $100.54, PepsiCo’s closing stock price on December 24, 2015, the last trading day of the 2015 fiscal year.

 

(3)

With the exception of the awards noted in footnotes (4), (5) and (6) below, the reported awards reflect grants of PEPunits and PSUs that will vest and be earned based on the achievement of financial performance targets during a three-year performance period for the 2015, 2014 and 2013 PEPunit and PSU awards, and require the NEO to continue to provide service to PepsiCo through the end of a three-year vesting period. Each of the awards that are not special awards will vest on a pro-rata basis upon retirement between ages 55 and 61, inclusive, with at least 10 years of service, and vest in full upon retirement at age 62 or older with at least 10 years of service, subject, in each case, to achievement of applicable performance targets. As of 2015 fiscal year-end, Ms. Nooyi and Mr. Greco are eligible for pro-rata vesting and Mr. Carey is eligible for full vesting. For the 2015, 2014 and 2013 awards, the number displayed in this column reflects the target number of PEPunits and PSUs awarded. Notwithstanding the level of performance achieved, the Compensation Committee retains the discretion to reduce the number of shares issued in settlement of these awards.

 

(4)

The reported award reflects a special PSU award granted to Mr. Johnston. This award is scheduled to vest on July 19, 2018, subject to the achievement of pre-established performance targets over a three-year performance period, and subject to continued employment through the vesting date. Mr. Johnston may receive 0% to 125% of the PSUs granted depending on the performance level achieved.

 

(5)

The reported award reflects a special PSU award granted to Mr. Carey. This award is scheduled to vest on March 1, 2017, subject to continued employment through the vesting date, and subject to the achievement of pre-established performance targets and talent development objectives over a three-year performance period. Mr. Carey may receive 0% to 125% of the PSUs granted depending on the performance level achieved.

 

(6)

The reported award reflects a special PSU award granted to Mr. Greco. This award is scheduled to vest on March 1, 2017, subject to continued employment through the vesting date, and subject to the achievement of pre-established performance targets and talent development objectives over a three-year performance period. Mr. Greco may receive 0% to 125% of the PSUs granted depending on the performance level achieved.

 

(7)

The reported award reflects a special RSU award granted to Mr. Laguarta. This award is scheduled to vest on September 20, 2017, subject to continued employment through the vesting date.

 

58	PEPSICO 2016 PROXY STATEMENT

2015 OPTION EXERCISES AND STOCK VESTED  •  EXECUTIVE COMPENSATION 

 

2015 Option Exercises and Stock Vested

 

	Option Awards(1)				Stock Awards(2)
			Value				Value
	Number of Shares		Realized		Number of Shares		Realized
	Acquired on		on		Acquired on		on
	Exercise		Exercise		Vesting		Vesting
Name	(#)		($)(3)		(#)		($)(3)
Indra K. Nooyi	477,705		22,767,134		144,720		13,799,414
Hugh F. Johnston	22,873		727,800		35,312		3,367,087
Albert P. Carey	44,757		1,754,703		30,102		2,870,301
Thomas Greco	45,577		1,786,584		47,670		4,452,348
Ramon Laguarta	11,701		449,435		41,466		3,860,781

(1)	All stock option exercises during 2015 were executed within the final two years of the option’s term and in a manner consistent with PepsiCo’s Exercise and Hold Policy, which is described in the “Governance Features of Our Executive Compensation Programs” section of the Compensation Discussion and Analysis beginning on page 51 of this Proxy Statement.
(2)	The following table lists PEPunit, RSU and PSU awards that vested in 2015 for the NEOs. The PEPunits vested on April 2, 2015 based upon the level of achievement attained with respect to the pre-established absolute and relative stock price performance for the three-year performance period. The PSUs granted on April 2, 2012 vested on April 2, 2015 based upon the level of achievement attained with respect to the pre-established Company performance for the three-year performance period.

					Number of
					Shares	Value
				Number of	Acquired	Realized	Dividend
				Shares	on	on	Equivalents
		Grant	Payout	Granted	Vesting	Vesting	Paid
Name	Type	Date	Date	(#)	(#)	($)	($)
Indra K. Nooyi	PEPunit	4/2/2012	4/2/2015	116,691	144,720	13,799,414	0
Hugh F. Johnston	PEPunit	4/2/2012	4/2/2015	28,473	35,312	3,367,087	0
Albert P. Carey	PEPunit	4/2/2012	4/2/2015	24,272	30,102	2,870,301	0
Thomas Greco	RSU	9/23/2010	9/24/2015	30,303	30,303	2,796,361	347,424
Thomas Greco	PEPunit	4/2/2012	4/2/2015	14,003	17,367	1,655,987	0
Ramon Laguarta	RSU	4/2/2012	4/2/2015	7,669	7,669	731,258	53,990
Ramon Laguarta	RSU	9/23/2010	9/24/2015	30,303	30,303	2,796,361	347,424
Ramon Laguarta	PSU	4/2/2012	4/2/2015	2,556	3,494	333,162	24,598

(3)

The value realized on exercise of stock options is equal to the amount per share at which the NEO sold shares acquired on exercise (all of which occurred on the date of exercise), minus the exercise price of the stock options, times the number of shares acquired on exercise of the options. The value realized on vesting of stock awards is equal to the average of the high and low market prices of PepsiCo Common Stock on the date of vesting, times the number of shares acquired upon vesting. The number of shares and value realized on vesting includes shares that were withheld at the time of vesting to satisfy tax withholding requirements.

 

PEPSICO 2016 PROXY STATEMENT

59

EXECUTIVE COMPENSATION • 2015 PENSION BENEFITS

 

2015 Pension Benefits

 

A summary of the pension benefit plans sponsored by PepsiCo that our NEOs currently participate in are described in the table below. Benefits for the NEOs who participate in these plans are determined using the same formula as for other eligible employees. NEOs receive no additional years of credited service or other enhancements in determining their benefits that are not available to other eligible employees in each plan.

 

	PepsiCo Salaried Employees		PepsiCo International Retirement
	Retirement Plan	Pension Equalization Plan	Plan - Defined Benefit Program
	(“Salaried Plan”)	(“PEP”)	(“PIRP-DB”)
	•  Indra K. Nooyi (early retirement eligible)
NEO Participants	•  Hugh F. Johnston		Ramon Laguarta
	•  Albert P. Carey (early retirement eligible)
	•  Thomas Greco (early retirement eligible)
Type of Plan	Qualified defined benefit pension plan	Non-qualified defined benefit pension plan	Non-qualified defined benefit pension plan
Eligibility	U.S. Salaried employees hired prior to January 1, 2011	Employees eligible to participate in the Salaried Plan whose benefits under the Salaried Plan are affected by limitations imposed by the Internal Revenue Code on qualified plan compensation or benefits	Generally covers non-U.S. citizens who are hired prior to January 1, 2011 and who are on their second assignment outside of their home country and are designated for participation by PepsiCo
Form of Payment Upon Retirement	Benefits payable as a single life annuity, a single lump sum distribution, a joint and survivor annuity, a 10-year certain annuity or a combination of a partial lump sum and an annuity	•  Benefits accrued and vested prior to December 31, 2004 are generally paid in the same form and at the same time the Salaried Plan benefits are commenced	Benefits payable as a single life annuity, a single lump sum distribution,  a joint and survivor annuity, a 10-year certain annuity or a combination of a partial lump sum and an annuity
		•  Benefits accrued or vested after December 31, 2004 are paid at termination (subject to a six-month delay under Section 409A of the Internal Revenue Code), in the form of a lump sum

Benefit Timing	•  Normal retirement benefits payable at age 65 with 5 years of service
	•  Unreduced early retirement benefits payable as early as age 62 with 10 years of service
	•  Reduced early retirement benefit payable at age 55 with 10 years of service, determined by reducing the normal retirement benefit by 4% for each year benefits begin prior to age 62

Retirement Benefit Formula

A single life annuity beginning at normal retirement age determined as follows: •  3% for each year of service up to 10 years, plus 1% for each year of service in excess of 10, multiplied by the executive’s highest consecutive five-year average monthly earnings (base salary and annual incentive compensation) •  Reduced by 0.43% of the executive’s highest consecutive five-year average monthly earnings up to his or her monthly Social Security covered compensation, multiplied by the executive’s years of service up to 35

•  Same terms and conditions as the Salaried Plan as determined without regard to the Internal Revenue Code limitations on compensation and benefits   •  Offset by the actual benefit payable under the Salaried Plan

•  Substantially the same as the formula under the Salaried Plan and the PEP, without the Social Security offset   •  Offset by retirement benefits paid under any Company plan or government mandated retirement program

 

60	PEPSICO 2016 PROXY STATEMENT

2015 PENSION BENEFITS  •  EXECUTIVE COMPENSATION 

 

		PepsiCo Salaried Employees		PepsiCo International Retirement
		Retirement Plan	Pension Equalization Plan	Plan - Defined Benefit Program
		(“Salaried Plan”)	(“PEP”)	(“PIRP-DB”)
Deferred Vested Benefits		•  For a participant with five or more years of service who terminates employment prior to attaining either age 55 with 10 years of service or age 65 with 5 years of service   •  Benefit is equal to the retirement benefit formula amount calculated using the potential years of credited service had the participant remained employed to age 65 pro-rated by a fraction, the numerator of which is the participant’s credited years of service at termination and the denominator of which is the participant’s potential years of credited service had the participant remained employed to age 65   •  Deferred vested benefits under the Salaried Plan and PIRP-DB are payable in an annuity 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. A participant who terminates from the PIRP-DB is also eligible for a one-time lump sum benefit within 365 days of termination. Deferred vested benefits under PEP are payable in an annuity at the later of age 55 or termination (subject to a six month delay under Section 409A of the Internal Revenue Code)
Disability/Death Benefits		•  All participants who become disabled after 10 years of service and remain disabled until retirement receive continued service for the length of their disability   •  If the participant becomes deceased, the spouse of an employee who is retirement eligible is entitled to a pension equal to the survivor benefit under the 50% joint and survivor option. The surviving spouse or estate of an active participant is also entitled to a one-time payment equal to the lump sum benefit accrued at death, offset by the lump sum value of any surviving spouse’s benefit that might be payable. This special death benefit is paid by the Company and not from the plan			If the participant becomes deceased, the spouse of an employee is entitled to a pension equal to the survivor benefit under the 50% joint and survivor option

The Present Value of Accumulated Benefit reported in the 2015 Pension Benefits Table represents the accumulated benefit obligation for benefits earned to date, based on age, service and earnings through the plan’s measurement date of December 26, 2015.

 

		Number of	Present	Payments
		Years	Value of	During Last
		Credited	Accumulated	Fiscal Year
Name	Plan Name	Service (#)	Benefit ($)(1)	($)
Indra K. Nooyi	PepsiCo Salaried Employees Retirement Plan	21.8	1,058,648	0
	PepsiCo Pension Equalization Plan		22,256,482	0
Hugh F. Johnston	PepsiCo Salaried Employees Retirement Plan	25.8	825,017	0
	PepsiCo Pension Equalization Plan		6,395,138	0
Albert P. Carey	PepsiCo Salaried Employees Retirement Plan	34.6	1,488,322	0
	PepsiCo Pension Equalization Plan		11,853,640	0
Thomas Greco	PepsiCo Salaried Employees Retirement Plan	26.0	994,409	0
	PepsiCo Pension Equalization Plan		5,141,501	0
Ramon Laguarta	PepsiCo International Retirement Plan	10.0	1,849,618	0

(1)	These amounts have been calculated using actuarial methods and assumptions shown below in the fiscal year-end valuation under the guidance on employers’ accounting for pensions with the assumption, required by SEC disclosure rules, that each NEO remains in service until retirement at the earliest date when unreduced retirement benefits would be available (i.e., age 62 or older):

 

•

Discount rate of 4.55% for the PepsiCo Salaried Employees Retirement Plan, 4.45% for the PepsiCo Pension Equalization Plan, and 4.60% for the PepsiCo International Retirement Plan; and

 

•

Benefits were converted to lump sums based on a 5.75% lump sum conversion rate at retirement.

 

PEPSICO 2016 PROXY STATEMENT

61

EXECUTIVE COMPENSATION • 2015 NON-QUALIFIED DEFERRED COMPENSATION

 

2015 Non-Qualified Deferred Compensation

 

Executive Income Deferral Plan (“EIDP”)

 

NEO Participants	•  Indra K. Nooyi •  Hugh F. Johnston •  Albert P. Carey •  Thomas Greco
Description	Non-qualified and unfunded program that allows certain U.S. based eligible employees to defer a portion of their annual compensation to a later date
Deferral Limits	All PepsiCo Executives may defer up to 75% of base salary and 100% of annual incentive cash compensation. The Company does not provide a matching contribution on any deferrals
Return on Plan Balance	Executives earn a return based on investments in the phantom funds selected by the executives (listed in footnote (3) below) from a list of phantom funds made available by the Company. The EIDP does not guarantee a rate of return and none of the funds provide market earnings
Distributions	•  At the time of election to defer, executives are required to choose to receive future payments on either a specific date or upon separation from service •  Notwithstanding a participant’s payment election, deferrals made after 2000 are paid in a lump sum at the time of separation from service in cases in which separation (other than retirement) occurs prior to the elected payment date •  Payments of deferrals made after 2004 to executives who are specified employees under Section 409A of the Internal Revenue Code that are triggered by a separation from service are delayed six months following separation
Form of Payment	Made in cash and received as a lump sum or in installments (quarterly, semi-annually or annually) over a period of 20 years

 

For additional detail on PepsiCo’s EIDP, refer to the “Executive Deferral” section of the Compensation Discussion and Analysis on page 49 of this Proxy Statement.

 

	Executive				Aggregate
	Contributions	Registrant	Aggregate	Aggregate	Balance at
	in Last	Contributions in Last	Earnings in Last	Withdrawals/	Last Fiscal
	Fiscal Year	Fiscal Year	Fiscal Year	Distributions	Year End
Name	($)	($)	($)(1)	($)(2)	($)(3)
Indra K. Nooyi	0	0	508,623	494,100	11,556,791
Hugh F. Johnston	0	0	142,735	295,556	2,411,160
Albert P. Carey	0	0	0	0	0
Thomas Greco	0	0	0	0	0

 

(1)	PepsiCo does not provide above-market or preferential rates and, as a result, the earnings on non-qualified deferred compensation are not included in the 2015 Summary Compensation Table.

 

(2)	The amount reported for Ms. Nooyi represents the distribution of a portion of her previously deferred 1998 annual incentive compensation. The amount reported for Mr. Johnston represents the distribution of a portion of his previously deferred 2002 and 2003 annual incentive compensation.

 

(3)

None of the amounts reported in this column are reflected in the 2015 Summary Compensation Table. Deferral balances of NEOs under the Executive Income Deferral Program were invested in the following phantom funds and earned the following rates of return in 2015: (i) PepsiCo Common Stock: 8.64% and (ii) Defined AFR Fund: 3.01%.

 

62	PEPSICO 2016 PROXY STATEMENT

POTENTIAL PAYMENTS ON TERMINATION OR CHANGE IN CONTROL • EXECUTIVE COMPENSATION

 

Potential Payments on Termination or Change in Control

 

Termination of Employment/Retirement

 

None of our NEOs have any arrangement that provides for severance payments or severance benefits.

 

In the event an NEO retires, terminates or resigns from PepsiCo for any reason as of fiscal year end, he or she would be entitled to:

 

•  The pension value disclosed in the 2015 Pension Benefits table on page 60 of this Proxy Statement; and

 

•  The outstanding balance disclosed in the 2015 Non-Qualified Deferred Compensation table on page 62 of this Proxy Statement.

 

Our NEOs’ unvested annual LTI awards vest on a pro-rata basis upon retirement between ages 55 and 61, inclusive, and fully vest upon death, disability or retirement on or after age 62. In order to be retirement eligible, an executive must be at least age 55 with 10 or more years of service. For special awards, no accelerated vesting occurs upon retirement. In the event of death or long-term disability, pre-2012 special awards vest on a pro-rata basis and any special awards granted in 2012 and later fully vest. Even after vesting, PEPunit, PSU and LTC Awards remain subject to achievement of pre-established performance targets.

 

The following table sets forth, for each NEO, the value of the unvested stock option and PEPunit, PSU, RSU and LTC Awards and accrued dividend equivalents on PSUs and RSUs that would vest or be forfeited if the NEO’s employment terminated on December 26, 2015, the last day of the 2015 fiscal year, due to termination without cause, retirement, death or long-term disability:

 

	Termination/Retirement			Death/Long-Term  Disability
	($ in millions)(1)			($ in millions)(1)
Name	Vest	Forfeit		Vest	Forfeit
Indra K. Nooyi	28.8	17.8		17.8	0
Hugh F. Johnston	0	20.2		20.2	0
Albert P. Carey	14.0	2.0		2.0	0
Thomas Greco	4.5	5.7		5.7	0
Ramon Laguarta	0	10.1		10.1	0

(1)

The stock options, PEPunits, PSUs and RSUs were valued at a price of $100.54, PepsiCo’s closing stock price on December 24, 2015, the last trading day of the 2015 fiscal year. Death and Long-Term Disability vesting amounts do not include the value of vested stock options that have already been earned or unvested stock options, PEPunits, PSUs and RSUs that an executive may have earned due to fulfilling the retirement eligibility criteria. As of 2015 fiscal year-end, Ms. Nooyi and Mr. Greco are eligible for pro-rata vesting and Mr. Carey is eligible for full vesting on annual awards. For a list of earned vested stock options, see the 2015 Outstanding Equity Awards at Fiscal Year-End table beginning on page 57 of this Proxy Statement.

 

PEPSICO 2016 PROXY STATEMENT

63

EXECUTIVE COMPENSATION • COMPENSATION COMMITTEE REPORT

 

Change in Control

 

PepsiCo has a long history of maintaining a “double trigger” vesting policy. This means that unvested stock option and PEPunit, PSU, RSU and LTC Awards only vest if the participant is terminated without cause or resigns for good reason within two years following a change in control of PepsiCo or if the acquirer fails to assume or replace the outstanding awards.

 

For each NEO, the following table illustrates:

 

•	the value of stock options, PEPunits, PSUs, RSUs, LTC Awards and accrued dividend equivalents on PSUs and RSUs that would vest upon a change in control of PepsiCo without termination of employment; and
•	the value of the stock options, PEPunits, PSUs, RSUs, LTC Awards and accrued dividend equivalents on PSUs and RSUs that would vest upon an NEO’s termination without cause or resignation for good reason if the acquirer does not assume or replace the outstanding awards at the time of the change in control.

 

	Change in Control ($ in millions)
		Total Benefit:
	Total Benefit:	Qualifying
	Change in	Termination upon
Name	Control Only	Change in Control(1)
Indra K. Nooyi	0	17.8
Hugh F. Johnston	0	20.2
Albert P. Carey	0	2.0
Thomas Greco	0	5.7
Ramon Laguarta	0	10.1

 

(1)

The amounts reported in this column assume that both the change in control and termination occurred on December 26, 2015, the last day of the 2015 fiscal year. The stock options, PEPunits, PSUs and RSUs were valued based on PepsiCo’s $100.54 closing stock price on December 24, 2015. Amounts do not include vested options that have already been earned due to continued service. For a list of earned vested stock options, please see the 2015 Outstanding Equity Awards at Fiscal Year-End table beginning on page 57 of this Proxy Statement.

 

Compensation Committee Report

 

The Compensation Committee has reviewed and discussed the foregoing Compensation Discussion and Analysis with management. Based on this review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference into the Company’s Annual Report on Form 10-K for the fiscal year ended December 26, 2015.

 

The Compensation Committee

 

Lloyd G. Trotter, Chair	David C. Page
Shona L. Brown	Daniel Vasella
Alberto Ibargüen

 

The information contained in the above report will not be deemed to be “soliciting material” or “filed” with the SEC, nor will this information be incorporated into any future filing under the Securities Act or the Exchange Act except to the extent the Company specifically incorporates such report by reference.

 

64	PEPSICO 2016 PROXY STATEMENT

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS • EXECUTIVE COMPENSATION

 

Securities Authorized for Issuance under Equity Compensation Plans

 

The following table provides information as of December 26, 2015 with respect to the shares of PepsiCo Common Stock that may be issued under our equity compensation plans.

 

	Number of securities					Number of securities
	to be issued upon					remaining available
	exercise of			Weighted-average		for future issuance under
	outstanding			exercise price of		equity compensation plans
	options, warrants			outstanding options,		(excluding securities
Plan Category	and rights(a)			warrants and rights(b)		reflected in column(a))(c)
Equity compensation plans approved by security holders(1)	40,278,618	(2)		$68.13	(3)	90,801,372	(4)
Equity compensation plans not approved by security holders(5)	—			—		—
Total(6)	40,278,618			$68.13	(3)	90,801,372

 

(1)	Includes the 2007 Long-Term Incentive Plan (the “2007 Plan”) and the 2003 Long-Term Incentive Plan (the “2003 Plan”).
(2)	This amount includes 821,030 PEPunits and 9,108,088 PSUs and RSUs that, if and when vested, will be settled in shares of PepsiCo Common Stock. This amount also includes 289,218 phantom units under the PepsiCo Director Deferral Program that will be settled in shares of Common Stock pursuant to the 2007 Plan at the end of the applicable deferral period. For PSUs for which the performance period has ended as of December 26, 2015, the amounts reported in the table reflect the actual number of PSUs earned above and below target levels based on actual performance measured at the end of the performance period. The amounts reported in the table assume target level performance for PEPunits and PSUs for which the performance period has not ended as of December 26, 2015. If maximum earn-out levels are assumed for such PEPunits and PSUs, the total number of shares of PepsiCo Common Stock to be issued upon exercise and/or settlement of outstanding awards as of December 26, 2015 is 41,139,478.
(3)	Weighted-average exercise price of outstanding options only.
(4)	The shareholder-approved 2007 Plan is the only equity compensation plan under which PepsiCo currently issues equity awards. As of May 2, 2007, the 2007 Plan superseded the Company’s prior plan, the shareholder-approved 2003 Plan, and no further awards were made under the 2003 Plan. The 2007 Plan permits the award of stock options, stock appreciation rights, restricted and unrestricted shares, restricted stock units and performance shares and units. The 2007 Plan authorizes a number of shares for issuance equal to 195,000,000 plus the number of shares underlying awards under the Company’s prior equity compensation plans that are cancelled or expired after May 2, 2007 without delivery of shares. Under the 2007 Plan, any stock option granted reduces the available number of shares on a one-to-one basis, any RSU or other full value award granted before May 5, 2010 reduces the available number of shares on a one-to-one basis and any RSU or other full value award granted on or after May 5, 2010 reduces the available number of shares on a one-to-three basis.
(5)	The table does not include information for equity compensation plans assumed by PepsiCo in connection with PepsiCo’s merger with The Quaker Oats Company (“Quaker”) in 2001 and acquisition of The Pepsi Bottling Group, Inc. (“PBG”) in 2010.

	•	As of December 26, 2015, 4,117 shares of PepsiCo Common Stock, which are related to awards issued under the Quaker plans prior to the merger, have been deferred and will be issued in the future. No additional options or other awards may be granted under the Quaker plans.
	•	As of December 26, 2015, 1,412,078 shares of PepsiCo Common Stock were issuable upon the exercise of outstanding options granted under the PBG plans prior to the acquisition of PBG at a weighted-average exercise price of $42.50. No additional stock options or other awards may be granted under the PBG plans.

(6)

Since our fiscal year end, there has been activity in the 2007 Plan, including the grant of our 2016 annual LTI awards and the vesting of our 2013 LTI awards. As of March 4, 2016, there were 9,560,115 full value awards outstanding consisting of 551,324 PEPunits, 8,743,325 PSUs and RSUs, and 265,466 phantom units under the Director Deferral Program, for which all were payable in shares but for which no shares were yet issued. Additionally, there were a total of 30,345,818 shares to be issued upon exercise of outstanding options with a weighted-average exercise price of $68.84 and a weighted-average remaining life of 4.65 years. Following this activity, there were 81,294,611 shares of our Common Stock that remained available for future issuance under the 2007 Plan. As of March 4, 2016, there were 1,446,589,930 shares of our Common Stock and 132,953 shares of our Convertible Preferred Stock outstanding.

 

PEPSICO 2016 PROXY STATEMENT

65

Approval of the Renewal and Amendment of the PepsiCo, Inc. Long-Term Incentive Plan (Proxy Item No. 4)

 

The Board of Directors is asking shareholders to approve an amendment and restatement of PepsiCo’s 2007 Long-Term Incentive Plan, renamed the Long-Term Incentive Plan (the “Plan”). The Board and our shareholders initially approved the Plan in 2007 and subsequently re-approved the Plan from time to time. On March 3, 2016, on the recommendation of the Compensation Committee, the Board of Directors approved the Plan, as amended and restated, subject to shareholder approval. The Plan reflects the following amendments that are subject to approval by our shareholders:

 

Amendment			Rationale
Extend the term of the Plan until May 4, 2026			Renewing the 10-year term of the Plan will allow PepsiCo to continue granting awards necessary to attract, retain and motivate global talent beyond the Plan’s upcoming May 2017 expiration • The request to renew the term of the plan does not include any additional shares
Impose a limit on the awards that may be granted to any non-employee director in a single calendar year: • $500,000 for annual equity awards • $500,000 for annual cash retainers • $250,000 for one-time initial awards to any newly appointed or elected non-employee director			• A shareholder-approved cap on non-employee director pay is consistent with emerging best practices in compensation governance • Within the limits imposed by the cap, the Board will continue to set director pay in line with the market in order to attract and retain well-qualified directors • As shown on page 82 of this Proxy Statement, our current compensation program for non-employee directors is well within the proposed limit

 

We Are Not Requesting Additional Shares

 

We are not asking shareholders to approve any additional shares for issuance under the Plan, which is the only plan under which PepsiCo grants equity awards. This reflects PepsiCo’s responsible use of shares under our long-term incentive program. We have not sought shareholder approval for additional shares under the Plan since 2012. As of March 4, 2016, approximately 81 million shares remain available for future awards. We believe that the existing share pool will be sufficient to fund long-term incentive awards for approximately five years through 2021.

 

Approval of the Plan will allow PepsiCo to continue to attract, retain and motivate talented individuals critical to the long-term success of the Company

 

Long-term incentive awards granted under the Plan are an important part of the Company’s overall compensation program. The ability to grant these awards is essential to the Company’s success in attracting, retaining and motivating talented employees and directors. The long-term incentive awards align the interest of our employees and directors with those of our shareholders and help ensure a pay-for-performance linkage. In the event shareholders do not approve the amended and restated Plan, the Company will not be able to grant long-term incentive awards after the May 2, 2017 expiration date.

 

PepsiCo’s Low Overhang and Run Rate

 

While the use of equity awards is an important part of our compensation program, we are mindful of our responsibility to our shareholders in granting equity awards. The following table illustrates the historic run rate and overhang of our equity compensation program over the past three fiscal years:

 

		2013			2014			2015
Overhang(1)		10.1	%		9.1	%		8.4	%
Run Rate(2)		0.5	%		0.5	%		0.3	%

 

(1)	Overhang represents the number of shares subject to outstanding awards plus shares available for grant under the Plan (the numerator), divided by the total number of common shares outstanding at the end of that fiscal year, plus the number of shares in the numerator.
(2)	Run rate represents all awards granted in a fiscal year, divided by the number of common shares outstanding at the end of that fiscal year.

 

66	PEPSICO 2016 PROXY STATEMENT

APPROVAL OF THE RENEWAL AND AMENDMENT OF THE PEPSICO, INC. LONG-TERM INCENTIVE PLAN

 

The Plan includes a fungible share pool whereby full value awards reduce shares available under the Plan by three shares. As such, a basic overhang calculation may be artificially high because it assumes all shares in the fungible share pool are awarded as stock options. We anticipate that PepsiCo’s annual run rate will continue to be approximately 1.0%, and the overhang will continue to be within market norms. These estimates of future run rate and overhang are based on the continuation of current grant levels and exercise patterns.

 

Key Provisions of the Plan

 

The Plan includes a number of provisions that the Board believes serve the interests of shareholders, facilitate effective corporate governance and demonstrate reasonable use of shares:

 

•	Fungible Share Pool. Shares issued in connection with PSUs, RSUs and other “full-value” stock awards count against the number of shares authorized for issuance under the Plan at a higher rate than shares issued upon exercise of stock options and Stock Appreciation Right (“SAR”).
•	No Annual “Evergreen” Provision. The Plan authorizes a fixed number of shares of PepsiCo Common Stock for grants and requires shareholder approval of any increase to that fixed number.
•	Responsible Share Counting. The Plan prohibits “net share counting”, meaning that any shares of PepsiCo Common Stock tendered or withheld to pay taxes for any award or an option’s exercise price are not available for re-issuance. Likewise, upon exercise of a stock-settled SAR, none of the shares associated with the SAR grant are available for re-issuance.
•	No Discounted Stock Options or SARs. All stock options and SARs must have an exercise price equal to or greater than the fair market value of PepsiCo Common Stock on the date of grant.
•	No Reload Rights. No Stock Option granted under the Plan can entitle a participant to the automatic grant of additional Stock Options in connection with any exercise of the original Stock Option.
•	No Loans. The Plan prohibits loans from the Company to any participant.
•	Double-Trigger Change in Control Requirement. In connection with a change in control of PepsiCo, a participant’s equity awards will have accelerated vesting only if the participant is terminated without cause or resigns for good reason within two years following the change in control or if the acquirer fails to assume the awards.
•	Minimum Three-Year Vesting Period. Restricted shares, PSUs and RSUs typically require a minimum three years of service to vest. However, because we believe that, in limited circumstances, a vesting period less than three years may be warranted to facilitate the recruitment of key leadership talent, up to 5% of the total shares are available for restricted shares, PSUs and RSUs that may be granted with a vesting period of less than three years. In no case will the vesting period for any such awards be less than one year.
•	No Dividend Payouts on Unvested PSUs and RSUs; No Dividend Equivalents on Options or SARs. Participants who hold PSUs or RSUs will have dividends accrued during the restriction period that will be distributed (without interest) only if and when the PSUs or RSUs vest. Accrued dividends are forfeited if the associated PSU or RSU is forfeited. No dividend equivalents may be paid under the plan with respect to options or SARs.
•	Compensation Clawback. If a