DEF 14A of Mcdonalds Corp
Filed Apr 8, 2021 · FY20200001206774-21-001039
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| ● | Pay-for-performance; | | ● | Drive business results with a focus on creating long-term shareholder value; and | | ● | Pay competitively. |
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| | What We Do | | What We Do Not Do | | ✓Strong pay-for-performance alignment ✓Robust performance targets, and payouts under our incentive plans can vary significantly based on Company performance ✓Performance metrics support our growth strategy and align interests of management with interests of shareholders ✓Majority of total direct compensation paid over the long-term ✓Significant stock ownership and retention requirements ✓Clawback provisions in equity agreements and STIP ✓Independent compensation consultant ✓Double-trigger change in control equity provisions | | ✕Change in control agreements ✕Tax gross-up on perquisites ✕Repricing of stock options ✕Backdating of stock options ✕Encourage unreasonable risk taking ✕Employment agreements ✕Hedging or pledging | |
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| | Key compensation elements and % of CEO pay opportunity | | Primary metrics | Key terms | | | Base Salary | | N/A | ●Decided based on competitive considerations, scope of responsibilities, individual performance, tenure in position, internal pay equity and the effect on our general and administrative expenses | | | Short-Term Incentive Plan (STIP) | | ●Operating income growth (weighted 50%) ●Systemwide sales growth (weighted 25%) ●Comparable guest count growth (weighted 25%) | ●Operating income growth requires the Company to balance increases in revenue with financial discipline to produce strong margins and a high level of cash flow ●Systemwide sales is important in a franchise business and is a measure of our franchisees’ financial health ●Comparable guest count growth is a measure of our business’s long-term health ●Payouts are limited to 200% of the target award | | | Long-Term Incentives | | | | | | | Performance-Based Restricted Stock Units (PRSUs) | ●Earnings per share (EPS) growth ●Return on incremental invested capital (ROIIC) ●Relative total shareholder return (TSR) | ●Provide the right to receive a share of McDonald’s stock at the end of a three-year service period, subject to the Company’s achievement of two key financial metrics, EPS and ROIIC ●Also subject to a modifier based on relative TSR over the performance period compared to the S&P 500 Index ●Payouts are limited to 200% of the target award ●See page 48 for more information on PRSU metrics | | | | Stock Options | ●Share price | ●Provide value only if our share price increased (with an exercise price equaling the stock price on the grant date), which closely aligned executive pay with shareholder interests ●Vest ratably 25% per year with a 10-year term |
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As a result of the COVID-19 pandemic on our business, the Company did not achieve the minimum required thresholds on the financial performance metrics for a payout under the STIP. Guided by the Company’s pay-for-performance philosophy, the Compensation Committee did not adjust original performance targets or results to account for the impact of the COVID-19 pandemic. Therefore, executive payouts under the 2020 STIP were $0. Further, our 2018-2020 performance-based restricted stock units awarded to our executive officers vested at 0%. In addition, our NEOs other than Ms. Capozzi (whose employment with McDonald’s commenced after this decision was made) agreed to temporary base salary reductions in light of the effects of the COVID-19 pandemic across our System. Mr. Kempczinski took a 50% reduction in salary and Messrs. Ozan, Borden, Erlinger and Krulewitch each took a 25% reduction for nearly six months. While COVID-19 significantly impacted our executives’ overall compensation, employees below the executive level received a portion of their 2020 annual bonus based upon individual contributions. Further, the Company did not implement any broad-based furloughs, lay-offs or pay reductions.
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| 2021 Proxy Statement | | 15 |
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| Considering our Say on Pay Results |
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The Compensation Committee considers feedback received through direct dialogue with investors, as well as our prior year “Say on Pay” results. While our “Say on Pay” proposal received meaningful support in 2020, it was below our strong historical support levels from each of the prior five years. Accordingly, the Company engaged with shareholders to better understand what drove their votes. Although certain investors were not supportive of the benefits the Company provided to our former CEO upon his termination, overall we found shareholders were generally supportive of our executive compensation program and practices and continue to support our pay-for-performance framework.
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| Key Changes for 2021 | NEW |
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As a result of the COVID-19 pandemic, the macroeconomic operating environment and consumer expectations changed dramatically in 2020, which informed the development of our Accelerating the Arches growth plan. Consistent with this strategy and current consumer behavior, the Committee revised the STIP metrics for 2021 to increase executives’ focus on driving key top and bottom line measures, systemwide sales growth and operating income growth. The Committee also introduced new metrics focused on human capital management to reinforce the importance of the Company’s values and to hold executives accountable for making progress in diversity, equity and inclusion. Therefore, for 2021, STIP metrics will be operating income growth (weighted 42.5%), Systemwide sales growth (weighted 42.5%) and human capital metrics (weighted 15%). Voting Matters and Recommendations We are asking shareholders to vote on the following matters at our 2021 Annual Shareholders’ Meeting:
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| Item to be Voted on | | Board’s Recommendation | | Page | | Management Proposals | | | | | | Proposal 1 | Election of 12 Directors named in this Proxy Statement, each for a one-year term expiring in 2022 | | FOR EACH NOMINEE | 17 | | Proposal 2 | Advisory vote to approve executive compensation | | FOR | 41 | | Proposal 3 | Advisory vote to approve the appointment of Ernst & Young LLP (EY) as our independent auditor for 2021 | | FOR | 62 | | Shareholder Proposals | | | | | | Proposals 4 - 6 | Advisory vote on 3 shareholder proposals, each only if properly presented | | AGAINST ALL SHAREHOLDER PROPOSALS | 65-73 |
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| Forward-Looking Statements and Website Links |
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This Proxy Statement includes forward-looking statements about future events and circumstances. Generally speaking, any statement not based upon historical fact is a forward-looking statement. Forward-looking statements can also be identified by the use of words such as “could,” “should,” “continue,” “estimate,” “forecast,” “intend,” “look,” “may,” “will,” “expect,” “believe,” “anticipate,” “plan,” “remain” and “confident” or similar expressions. In particular, statements regarding our plans, strategies, prospects and expectations regarding our business and industry are forward-looking statements. They reflect our expectations, are not guarantees of performance and speak only as of the date of this Proxy Statement. Except as required by law, we do not undertake to update such forward-looking statements. Our business results are subject to a variety of risks, including those considerations or risks that are reflected “Risk Factors” in our 2020 Annual Report on Form 10-K, as well as elsewhere in our filings with the SEC. If any of these considerations or risks materialize, our expectations (or underlying assumptions) may change or not be realized and our performance may be adversely affected. Therefore, you should not rely unduly on any forward-looking statements. Website links included in this Proxy Statement are for convenience only. The content in any website links included in this Proxy Statement is not incorporated herein and does not constitute a part of this Proxy Statement.
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| 16 | | McDonald’s Corporation |
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| PROPOSAL 1 | Election of Directors |
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Our Board of Directors recommends the following 12 nominees for election to our Board of Directors for a one-year term beginning in May and continuing until the 2022 Annual Shareholders’ Meeting and until their successors have been elected and qualified:
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| 1. Lloyd Dean | 4. Margaret Georgiadis | 7. Richard Lenny | 10. John Rogers, Jr. | | 2. Robert Eckert | 5. Enrique Hernandez, Jr. | 8. John Mulligan | 11. Paul Walsh | | 3. Catherine Engelbert | 6. Christopher Kempczinski | 9. Sheila Penrose | 12. Miles White |
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| | Our Board recommends a vote FOR each of the 12 Director nominees. |
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With the exception of our CEO, all Director nominees are independent. Our Board expects all nominees to be available for election. If any of them becomes unable to serve at any time prior to the Annual Shareholders’ Meeting, our Board may substitute another person as a nominee or may reduce the number of Directors to eliminate the vacancy. If you have voted for the unavailable nominee, your shares will be voted for any substitute nominee. Nominees who receive a majority of the votes cast will be elected. If any Director does not receive a majority of the votes cast, he or she has tendered an irrevocable resignation that, subject to our Governance Committee’s recommendation and our Board’s acceptance, will be effective following the Annual Shareholders’ Meeting. Director Qualifications Our Board is a diverse, highly-engaged group of individuals that provides strong, effective oversight of the Company. Both individually and collectively, our Directors have the qualifications, skills and experience needed to inform and oversee the Company’s long-term priorities, including our Accelerating the Arches growth strategy. Importantly, each Director has senior executive experience, in many cases having served in leadership roles as CEOs or high-level executives of large, complex, global organizations. Specifically, several Directors have leadership experience in the consumer products or food sectors, which is particularly relevant to our business as a leading global foodservice retailer. Consistent with Accelerating the Arches, our Board values expertise in information technology/ cybersecurity, human capital management, diversity and inclusion, and sustainability matters, which continue to be important areas of focus for the Company and our investors. This experience, along with the other skills and attributes discussed below and described more fully in the Company’s Director Selection Process guidelines, are key considerations in evaluating the composition of our Board.
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| Our Director nominees’ individual skills and experiences are included on the following pages. In addition, all Director nominees demonstrate the following qualities: |
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| | Key Attributes and Skills of All Director Nominees |
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| ● | High integrity and business ethics | | ● | Strength of character and judgment | | ● | Ability to devote significant time to Board duties | | ● | Desire and ability to continually build expertise in emerging areas of strategic focus for the Company | | ● | Demonstrated focus on promoting equality | | ● | Business and professional achievements |
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| ● | Ability to represent the interests of all shareholders | | ● | Knowledge of corporate governance matters | | ● | Understanding of the advisory and proactive oversight responsibility of the Board | | ● | Comprehension of their role as a public company director and the fiduciary duties owed to shareholders | | ● | Intellectual and analytical skills |
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| 2021 Proxy Statement | | 17 |
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In addition, our Director nominees contribute to our Board the individual experiences, qualifications, attributes, skills and self-identified diversity traits as shown in the following matrix. The skills identified in the matrix are intended as a high-level summary and not an exhaustive list:
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| | | | | | | | | | | | | | | | | BRAND MANAGEMENT: Contributes to an understanding of how the Company’s business, standards and performance are essential to protecting and increasing the value of the McDonald’s brand | | | | | | | | | | | | | | | CUSTOMER-CENTRIC: Provides an understanding of the Company’s business, operations and customer-centric Accelerating the Arches growth strategy, focusing on the purpose, values and growth pillars of the Company | | | | | | | | | | | | | | | DIGITAL: Provides an understanding of how the 3 D’s (digital, delivery and drive thru) leverage competitive strengths | | | | | | | | | | | | | | | FINANCE/CAPITAL MARKETS: Supports the oversight of the Company’s financial statements and strategy and financial reporting to investors and other stakeholders | | | | | | | | | | | | | | | GLOBAL EXPERIENCE: Contributes to an understanding of how the Company’s business is structured to enable the right level of support for our international markets, as well as the sharing of solutions across international markets | | | | | | | | | | | | | | | HUMAN CAPITAL MANAGEMENT: Provides an understanding of how the Company manages and develops its workforce and focuses on promoting equality throughout the organization | | | | | | | | | | | | | | | INFORMATION TECHNOLOGY/CYBERSECURITY: Contributes to an understanding of information technology capabilities, cloud computing, scalable data analytics and risks associated with cybersecurity matters | | | | | | | | | | | | | | | MARKETING: Provides awareness of culturally relevant approaches that effectively communicate the story of our brand, food and purpose | | | | | | | | | | | | | | | OTHER PUBLIC COMPANY BOARD: Demonstrates a practical understanding of organizations, processes, governance and oversight of strategy, risk management and growth | | | | | | | | | | | | | | | REAL ESTATE: Provides an understanding of how owning or leasing real estate, combined with co-investment by franchisees, enables the Company to achieve high restaurant performance levels | | | | | | | | | | | | | | | SUSTAINABILITY/CORPORATE RESPONSIBILITY: Contributes to an understanding of sustainability issues and corporate responsibility, and their relationship to the Company’s business and strategy | | | | | | | | | | | | | | RACE/ETHNICITY | | | | | | | | | | | | | | | African American or Black | | | | | | | | | | | | | | | Hispanic or Latinx | | | | | | | | | | | | | | | White or Caucasian | | | | | | | | | | | | | | | GENDER | | | | | | | | | | | | | | | Female | | | | | | | | | | | | | | | Male | | | | | | | | | | | | | |
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For more information on our Board diversity, see page 26.
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| 18 | | McDonald’s Corporation |
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Further biographical information about each Director, including his or her professional experience, Committee memberships, qualifications and other directorships is set forth on the following pages. Biographical Information
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| Skills and Qualifications | Lloyd Dean | 70 | | Independent | | | Chief Executive Officer CommonSpirit Health | Director Since 2015 | Board Committees Audit & Finance, Compensation | | | Professional Experience: CommonSpirit Health, a non-profit, Catholic health system ●Chief Executive Officer (2019 - Present) Dignity Health, one of the nation’s largest healthcare systems ●President and Chief Executive Officer (2000 - 2019) Advocate Health Care, a healthcare organization ●Chief Operating Officer (1997 - 2000) Director Qualifications: In his career in executive management at leading healthcare organizations, Mr. Dean has led significant strategic, operational and financial transformations. He brings over 25 years of leadership, management and strategy experience to our Board, which contributes an important perspective to our Board’s discussion of opportunities and challenges in a constantly changing business environment. Mr. Dean’s healthcare experience and knowledge of health and safety risks has enhanced his ability to oversee human capital management, particularly in light of the COVID-19 pandemic. We also benefit from Mr. Dean’s finance, systems operations, service quality and human resources, customer-centric operations, community affairs, healthcare and regulatory experience. In addition, Mr. Dean’s qualification as an “audit committee financial expert” is an important attribute as a member of our Audit & Finance Committee. Other Directorships: Mr. Dean also serves on the board of Golden Arrow Merger Corp. Mr. Dean previously served on the boards of Navigant Consulting, Inc. and Wells Fargo & Company. | | |
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| Skills and Qualifications | Robert Eckert | 66 | | Independent | | | Operating Partner Friedman Fleischer & Lowe | Director Since 2003 | Board Committees Public Policy & Strategy (Chair since 2016), Governance, Executive | | | Professional Experience: Friedman Fleischer & Lowe, a private equity firm ●Operating Partner (2014 - Present) Mattel, Inc., a leading global toy company and entertainment franchise ●Chairman Emeritus (2013 - Present) ●Chairman of the Board (2000 - 2012) ●Chief Executive Officer (2000 - 2011) Kraft Foods Inc., a packaged food company ●President and Chief Executive Officer (1997 - 2000) Director Qualifications: Mr. Eckert’s service as a chief executive officer of large, global consumer branded and food products companies contributes to our Board’s understanding of business and product development, marketing, supply chain management and distribution, and consumer behavior. He brings experience as a senior executive of global consumer brand companies with high performance expectations. In addition, through his role on other companies’ boards, Mr. Eckert has extensive experience in corporate governance, leadership development and succession planning and finance. Other Directorships: Mr. Eckert also serves as the lead independent director of Amgen Inc., as Chair of the Board of Levi Strauss & Co. and as director of Uber Technologies, Inc. | | |
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| 2021 Proxy Statement | | 19 |
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| Skills and Qualifications | Catherine Engelbert | 56 | | Independent | | | Commissioner Women’s National Basketball Association | Director Since 2019 | Board Committees Audit & Finance, Public Policy & Strategy | | | Professional Experience: Women’s National Basketball Association, a professional basketball league ●Commissioner (2019 - Present) Deloitte LLP, an industry-leading audit, consulting, tax and advisory services firm ●Chief Executive Officer (2015 - 2019) Deloitte & Touche LLP, audit subsidiary of Deloitte LLP ●Chairman and Chief Executive Officer (2014 - 2015) ●Partner (1998 - 2019) Director Qualifications: Ms. Engelbert’s experience as Commissioner of a professional sports league and as former chief executive officer of Deloitte LLP provides knowledge of global business operations, finance, leadership, brand, customer, strategy and risk management matters. Having led a firm of 100,000 professionals at Deloitte, she also brings significant experience in talent management. Ms. Engelbert previously served on the private company board of Deloitte LLP and as Chairman of Deloitte & Touche LLP, providing leadership and governance experience. She also served on the Strategic Investment, Risk, Regulatory & Government Relations, and Finance & Audit Committees of the board of Deloitte LLP, providing valuable regulatory experience. She is a Certified Public Accountant. Ms. Engelbert’s qualification as an “audit committee financial expert” is an important attribute as a member of our Audit &Finance Committee. Other Directorships: Ms. Engelbert also serves on the board of Royalty Pharma plc. | | |
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| Skills and Qualifications | Margaret Georgiadis | 57 | | Independent | | | Endurance Partner-in-Residence General Catalyst | Director Since 2015 | Board Committees Audit & Finance, Sustainability & Corporate Responsibility | | | Professional Experience: General Catalyst, a venture capital firm ●Endurance Partner-in-Residence (2021 - Present) Synetro Group, a private investment and strategic advisory firm ●Managing Partner (2021 - Present) Ancestry, a global family history and consumer genomics company ●President and Chief Executive Officer (2018 - 2020) Mattel, Inc., a leading global toy company and entertainment franchise ●Chief Executive Officer (2017 - 2018) Google Inc., a global technology company ●President, Americas (2011 - 2017) ●Vice President, Global Sales Operations (2009 - 2011) Director Qualifications: Ms. Georgiadis’ experience at a venture capital firm and a private investment and strategic advisory firm brings valuable strategy and development, finance, and leadership experience to our Board. Her prior experience as a senior executive at large global businesses affords her a broad knowledge of global consumer businesses and marketing, as well as technology, digital consumer insights, e-commerce, finance, leadership, and strategy and development. She has led teams that successfully launched new products. Her knowledge in these and other areas provides critical insights to our business, particularly as our Board considers the impact of technology, digital and cybersecurity risks. Ms. Georgiadis also has over 15 years of analytical and strategic experience at McKinsey & Company, a global management and consulting firm. In addition, Ms. Georgiadis’ qualification as an “audit committee financial expert” is an important attribute as a member of our Audit & Finance Committee. Other Directorships: Ms. Georgiadis previously served on the boards of Amyris, Inc. and Mattel, Inc. | | |
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| 20 | | McDonald’s Corporation |
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| Skills and Qualifications | Enrique Hernandez, Jr. | 65 | | Independent Chairman (since 2016) | | | Executive Chairman Inter-Con Security Systems, Inc. | Director Since 1996 | Board Committees Governance, Public Policy & Strategy, Executive | | | Professional Experience: Inter-Con Security Systems, Inc., a provider of security services to corporations, governments, diplomatic missions and non-profit organizations ●Executive Chairman (2021 - Present) ●Chairman and Chief Executive Officer (1986 - 2021) Nordstrom, Inc., a leading fashion retailer ●Non-executive Chairman and Presiding Director (2006 - 2016) Director Qualifications: Mr. Hernandez is executive chairman and former chief executive officer of a global security company, providing knowledge of physical and electronic security. He also has been a director of several large public companies in various industries. In particular, Mr. Hernandez served for five years as lead director and ten years as non-executive chairman and presiding director at Nordstrom, Inc., a large publicly-traded fashion retailer known for its customer service and brand management, providing him with significant experience in corporate governance, leadership development, succession planning and finance. Through his extensive experience managing complex, people-oriented organizations, Mr. Hernandez is well-suited to address the important human capital management element of McDonald’s business. Mr. Hernandez’s experience also facilitates our Board’s oversight and counsel regarding strategy and business development, as well as legal and regulatory experience. Other Directorships: Mr. Hernandez also serves on the board of Chevron Corporation. Mr. Hernandez previously served on the boards of Nordstrom, Inc. and Wells Fargo & Company. | | |
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| Skills and Qualifications | Christopher Kempczinski | 52 | | | | | President and Chief Executive Officer McDonald’s Corporation | Director Since 2019 | Board Committees Executive (Chair since 2019) | | | Professional Experience: McDonald’s Corporation ●President and Chief Executive Officer (2019 - Present) ●President, McDonald’s USA (2017 - 2019) ●Executive Vice President - Strategy, Business Development and Innovation (2015 - 2016) The Kraft-Heinz Company, a packaged food company ●Executive Vice President of Growth Initiatives and President of Kraft International (2014 - 2015) ●President of Kraft Canada (2012 - 2014) ●Senior Vice President – U.S. Grocery (2008 - 2012) Director Qualifications: Mr. Kempczinski is President and CEO of our Company, having previously served as President of McDonald’s USA, where he was responsible for approximately 14,000 McDonald’s restaurants. He first joined the Company in 2015, overseeing global strategy, business development and innovation. In these roles, he has been instrumental in identifying new ideas and best practices to accelerate growth to increase the overall value of the System. His experience leading our U.S. business and overseeing global strategy contributes an important Company perspective to our Board, and he was the architect of Accelerating the Arches. This experience strengthens our Board’s knowledge and understanding as it oversees our operations and strategy. Other Directorships: None. | | |
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| 2021 Proxy Statement | | 21 |
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| Skills and Qualifications | Richard Lenny | 69 | | Independent | | | Non-executive Chairman Conagra Brands, Inc. | Director Since 2005 | Board Committees Compensation (Chair since 2019), Sustainability & Corporate Responsibility | | | Professional Experience: Conagra Brands, Inc., a leading branded food company ●Non-executive Chairman (2018 - Present) Information Resources, Inc., a market research firm ●Non-executive Chairman (2013 - 2018) Friedman Fleischer & Lowe, LLC, a private equity firm ●Senior Advisor (2014 - 2016) ●Operating Partner (2011 - 2014) The Hershey Company, an industry-leading snacks company ●Chairman, President and Chief Executive Officer (2001 - 2007) Director Qualifications: Mr. Lenny’s experience as a chief executive officer of a global retail food company with a major consumer brand is an asset to our Board given his knowledge of strategy and business development, finance, marketing and consumer insights, supply chain management and distribution, sustainability and social responsibility matters. He previously served in executive-level positions with Kraft Foods, Nabisco Biscuit and Snacks and the Pillsbury Company, providing him extensive experience with major consumer brands in the food industry. He also serves as Non-executive Chairman of one of North America’s leading food companies. In addition, his prior service as non-executive chairman of Information Resources, Inc. provides additional board and governance experience. Other Directorships: Mr. Lenny also serves as Non-executive Chairman of Conagra Brands, Inc. and is the lead independent director of Illinois Tool Works Inc. Mr. Lenny previously served on the board of Discover Financial Services. | | |
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| Skills and Qualifications | John Mulligan | 55 | | Independent | | | Executive Vice President and Chief Operating Officer Target Corporation | Director Since 2015 | Board Committees Audit & Finance (Chair since 2016), Public Policy & Strategy, Executive | | | Professional Experience: Target Corporation, a general merchandise retailer ●Executive Vice President and Chief Operating Officer (2015 - Present) ●Executive Vice President and Chief Financial Officer (2012 - 2015) ●Senior Vice President, Treasury, Accounting and Operations (2010 - 2012) Director Qualifications: Mr. Mulligan’s experience as a senior executive of a major general merchandise retailer has provided him with extensive experience in finance, global supply chain, operations, e-commerce, real estate and human resources. His service at a retailer known for its focus on creating an exceptional guest experience brings customer-centric experience to our Board. In addition, his experience in digital and technology issues, including cybersecurity risk, is an important asset as our Board considers these topics and their potential impact on the Company. In addition, Mr. Mulligan’s qualification as an “audit committee financial expert” is an important attribute as our Audit & Finance Committee Chair. Other Directorships: None. | | |
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| 22 | | McDonald’s Corporation |
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| Skills and Qualifications | Sheila Penrose | 75 | | Independent | | | Former Non-executive Chairman Jones Lang LaSalle Incorporated | Director Since 2006 | Board Committees Sustainability & Corporate Responsibility (Chair since 2016), Governance, Executive | | | Professional Experience: Jones Lang LaSalle Incorporated, a leading professional services firm that specializes in real estate and investment management ●Non-executive Chairman (2005 - 2020) Boston Consulting Group, a global management consulting firm ●Executive Advisor (2001 - 2008) Northern Trust Corporation, a financial services firm ●President, Corporate and Institutional Services (1994 - 2000) Director Qualifications: Ms. Penrose brings to our Board extensive experience in and knowledge of investment services, banking, and real estate, all areas of significance to the Company. She is well-versed in strategy and business development, finance, and leadership development and succession planning. Ms. Penrose also has significant experience in corporate governance from her service on other public company boards, including as former non-executive chairman at Jones Lang LaSalle Incorporated. In addition, Ms. Penrose co-founded the Corporate Leadership Center, a non-profit organization that partners with leading institutions to offer programs in executive leadership development. Other Directorships: Ms. Penrose currently serves on the board of Jones Lang LaSalle Incorporated. | | |
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| Skills and Qualifications | John Rogers, Jr. | 63 | | Independent | | | Founder, Chairman, Co-Chief Executive Officer and Chief Investment Officer Ariel Investments, LLC | Director Since 2003 | Board Committees Compensation, Governance | | | Professional Experience: Ariel Investments, LLC, a privately-held institutional money management firm ●Founder, Chairman, Co-Chief Executive Officer and Chief Investment Officer (1983 - Present) ●Chief Executive Officer (1983 - 2019), Co-Chief Executive Officer (2019 - Present) Ariel Investment Trust, an investment company consisting of mutual funds managed by Ariel Investments, LLC ●Trustee (2000 - Present; 1986 - 1993) Director Qualifications: Mr. Rogers’ experience as a long-serving chief executive officer of an institutional money management firm has given him broad knowledge of finance, leadership development and succession planning, as well as strategy and business development. Mr. Rogers’ investment management knowledge also provides a unique perspective on shareholder relations. Mr. Rogers is passionate about diversity, equity and inclusion and brings perspective to the Company’s corporate responsibility and community affairs initiatives. His service on other boards such as Nike, Inc. and The New York Times Company adds global, customer-centric and brand management experience. Other Directorships: Mr. Rogers also serves on the boards of Nike, Inc. and The New York Times Company. Mr. Rogers previously served on the board of Exelon Corporation. | | |
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| 2021 Proxy Statement | | 23 |
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| Skills and Qualifications | Paul Walsh | 66 | | Independent | | | Executive Chairman McLaren Group Limited | Director Since 2019 | Board Committees Compensation, Sustainability & Corporate Responsibility | | | Professional Experience: McLaren Group Limited, a privately-owned luxury automotive and technology group ●Executive Chairman (2020 - Present) Bespoke Capital Partners LLC, an investment company ●Operating Partner (2019 - Present) Compass Group PLC, a leading foodservice and support services company ●Chairman (2014 - 2020) Avanti Communications Group plc, a leading satellite operator providing internet and data services ●Chairman (2013 - 2019) Diageo plc, a multinational beverage company ●Chief Executive Officer (2000 - 2013) ●Chief Operating Officer (2000) Director Qualifications: Mr. Walsh’s experience as former chief executive officer of a large multinational corporation provides substantial corporate leadership experience and knowledge of consumer-centric companies. His experience at Diageo brings broader food and beverage industry perspective. He also has held executive-level finance positions, including as chief financial officer of Grand Metropolitan Foods and Intercontinental Hotels. Throughout his career, Mr. Walsh has built success and growth at his companies through the deployment of effective brand marketing strategies, which brings valuable perspective to our Board. His background as a UK national based in London provides international diversity on our Board. Other Directorships: Mr. Walsh also serves on the board of FedEx Corporation and is Executive Chairman of Bespoke Capital Acquisition Corp. Mr. Walsh previously served on the boards of Avanti Communications Group plc, Compass Group PLC, HSBC Holdings plc and RM2 International, S.A. | | |
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| Skills and Qualifications | Miles White | 66 | | Independent | | | Executive Chairman Abbott Laboratories | Director Since 2009 | Board Committees Governance (Chair since 2014), Public Policy & Strategy, Executive | | | Professional Experience: Abbott Laboratories, a global healthcare company ●Executive Chairman (2020 - Present) ●Chairman and Chief Executive Officer (1999 - 2020) Director Qualifications: Mr. White’s service as chairman and former chief executive officer of a global healthcare company provides our Board with extensive knowledge of strategy and business development, global operations, finance, leadership development and succession planning, public policy matters, corporate governance, and regulatory experience. Mr. White’s healthcare experience and knowledge of healthcare technology advances has enhanced his ability to oversee human capital management, particularly in light of the COVID-19 pandemic. In addition, Abbott’s focus on developing consumer products and technologies brings customer-centric, marketing, digital and healthcare knowledge to our Board. We also benefit from Mr. White’s strong experience in addressing the needs of a global public company, as well as insights into our Board’s responsibility to oversee management and operations matters. As Governance Committee Chair, Mr. White leads our Board’s succession planning and Director candidate selection process, and he is periodically involved in shareholder engagement. Other Directorships: Mr. White also serves as Executive Chairman of Abbott Laboratories and on the board of Caterpillar, Inc. | | |
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| 24 | | McDonald’s Corporation |
Safety Reaffirmation Visits
Board Leadership Our Company has separate Chairman and CEO roles. Our independent Chairman oversees corporate governance matters, and our CEO leads the Company’s business. In addition, independent Directors chair our Board Committees, other than the Executive Committee. This structure promotes effective oversight, strengthens our Board’s independent leadership, and supports our commitment to enhancing shareholder value and strong governance. We believe that this structure is important due to the Company’s position as a leading global brand, with more than 39,000 locations in over 100 countries. Our Chairman oversees our Board and facilitates the flow of information between management and our Board. This fosters open dialogue and constructive feedback among the independent Directors and management. Further, our Chairman leads a critical evaluation of Company management, business practices and culture, as well as oversight of Company strategy. Our Board assesses this leadership structure annually to confirm it continues to meet the evolving needs of the Company and best serve the interests of shareholders. Enrique Hernandez, Jr. has served as our Board’s independent Chairman since 2016. Mr. Hernandez has been re-elected as our Chairman of the Board each year since 2016 due to his accomplishments in this role, his extensive knowledge of the Company’s operations and governance and his ability to successfully mentor our CEOs. Mr. Hernandez has significant experience with Company strategy, business practices and human capital, and he has facilitated strong independent Board oversight during his tenure. Board Composition and Succession Planning Our Board is comprised of a diverse, highly-engaged group of Directors with a wide range of skills and experience who each contribute to overall Board and Committee effectiveness. Each of our Directors is a dynamic leader whose experiences and perspectives are continually evolving as he or she navigates today’s fast-paced, ever-changing business environment, both as a Director of McDonald’s and in his or her other professional roles. Under our Corporate Governance Principles, our Governance Committee is primarily responsible for maintaining a strong and diverse Board through robust evaluation and succession planning processes, which include recommending Directors for re-election and identifying new candidates who will bring complementary skills and varied perspectives to our Board. Our Governance Committee evaluates and determines the most impactful and desirable mix of characteristics, skills, experience and diversity for our Board as a whole, as well as the qualifications and attributes of individual Directors and Director candidates. When selecting new Director candidates and recommending them to the full Board, our Governance Committee considers the qualifications discussed on page 17. Our Governance Committee also reviews each current Director’s contributions, considering the results of the most recent Board, Committee and peer evaluations, as further described on page 34. Our Governance Committee strives to achieve an appropriate balance of continuity and refreshment through a mix of newer and longer-tenured Directors. Our Governance Committee and Board believe that there should be a balance of institutional knowledge and fresh perspectives among our Directors, and that long tenure does not itself impair a Director’s independence and often enhances a Director’s ability to apply independent judgment. While our Governance Committee and Board consider tenure in evaluating the overall effectiveness of our Board, it is not a dispositive factor. Our Governance Committee and Board also consider each Director’s availability and willingness to serve on our Board, recognizing that it is a significant time commitment. As the Company’s strategic priorities continue to evolve and in consideration of potential retirements and departures, our Governance Committee continues to proactively evaluate our Board’s composition and succession planning to facilitate a smooth transition and continuity of skills, experience and diversity in the boardroom.
Safety Reaffirmation Visits
| 2021 Proxy Statement | | 25 |
Safety Reaffirmation Visits
Board Diversity Our Governance Committee proactively seeks diverse Director candidates to provide representation of varied backgrounds, perspectives and experience in the boardroom to support the global demands of our business. When seeking new Director candidates, our Governance Committee actively endeavors to include women, racial and/or ethnic minorities, and geographically-diverse persons in the candidate pool. As shown below, our Board currently consists of 50% women, racially and/or ethnically diverse Directors:
Safety Reaffirmation Visits
| INDEPENDENT | BALANCED EXPERIENCE | DIVERSITY | | | | 11 of 12 All independent, except the CEO | | | 3 | Directors are Female | | | | | 2 | Directors are African American or Black | | | | | 1 | Director is Hispanic or Latinx |
Safety Reaffirmation Visits
Our Governance Committee and our Board consider diversity in a broad sense. In addition to gender, race and ethnicity, our Directors bring, among other attributes, diverse experiences, skills, perspectives and geography. We believe this provides the skills and backgrounds that are important to drive Company strategy and support our values. More specifically, the following chart lists the self-identified diverse attributes of our Directors:
Board Diversity Matrix
| Succession Planning | Our Governance Committee considers current and long-term needs of our evolving business and seeks potential Director candidates consistent with our Director Selection Process guidelines, as well as current Board structure, tenure, skills, diversity and experience. | | | | | Identification of Candidates | Our Governance Committee engages in a search process to identify qualified Director candidates, which includes the use of an independent search firm to assess whether candidates’ skills, experience and background align with the Company’s business strategy and values. Our Governance Committee considers that all Directors and Director candidates should possess the certain qualifications and skills as described under the heading “Director Qualifications” on page 17. | | | | | Meeting with Candidates | Potential Director candidates are interviewed by our Chairman, CEO and Governance Committee Chair. | | | | | Decision and Nomination | Our Governance Committee recommends, and our full Board nominates, the Director candidates best qualified to serve the interests of the Company and our shareholders. | | | | | Election | Shareholders consider the nominees and elect Directors at our Annual Shareholders’ Meeting to serve one-year terms. Our Board may also elect Directors on the recommendation of our Governance Committee throughout the year when determined to be in the best interests of the Company and our shareholders. |
Board Diversity Matrix
| Name | Fees earned or paid in cash ($)(1) | Stock awards ($)(2) | All other compensation ($)(3) | Total ($) | | Lloyd Dean | 101,731 | 185,000 | 10,600 | 297,331 | | Robert Eckert | 126,731 | 185,000 | 10,600 | 322,331 | | Catherine Engelbert | 101,731 | 185,000 | 4,500 | 291,231 | | Margaret Georgiadis | 101,731 | 185,000 | 10,600 | 297,331 | | Enrique Hernandez, Jr. | 351,731 | 435,067 | 10,600 | 797,398 | | Richard Lenny | 126,731 | 185,000 | 10,600 | 322,331 | | John Mulligan | 131,731 | 185,000 | 10,600 | 327,331 | | Sheila Penrose | 126,731 | 185,000 | 10,600 | 322,331 | | John Rogers, Jr. | 101,731 | 185,000 | 10,600 | 297,331 | | Paul Walsh | 101,731 | 185,000 | 10,600 | 297,331 | | Miles White | 126,731 | 185,000 | 10,600 | 322,331 |
Board Diversity Matrix
| (1) As described above, Directors may defer all or a portion of their retainer earned in the form of additional common stock equivalent units under the Directors’ Plan. The above amounts reflect the temporary reductions between April 15 and September 30, 2020. | | (2) Amounts in this column represent the aggregate grant date fair value of common stock equivalent units computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (ASC 718) and granted to each non-management Director who served on the Board during 2020. As discussed above, this column also includes 1,325 RSUs granted to Mr. Hernandez in connection with his service as Chairman, with an aggregate grant date fair value of $250,067 computed in accordance with ASC 718. These RSUs shall be payable in either shares of the Company’s stock or cash, at the Company’s discretion, and shall vest on the later of his retirement from the Board or the first anniversary of the grant date. | | (3) Represents the Company’s matching gifts of charitable contributions to tax-exempt organizations for participating Directors that were received in 2020 and a McDonald’s gift card provided to Directors as prepayment for their food and beverage expenses at McDonald’s restaurants. |
Cumulative Outstanding Stock Awards as of December 31, 2020
We are asking shareholders to approve, on an advisory basis, the compensation of our named executive officers for 2020, as disclosed under U.S. Securities and Exchange Commission (SEC) rules, including the Compensation Discussion and Analysis (CD&A), compensation tables, and related material disclosed in this Proxy Statement. As fully described in the CD&A, the Company’s executive compensation program is guided by the following longstanding principles: (i) pay for performance; (ii) drive business results with a focus on creating long-term shareholder value and (iii) pay competitively. Our executives’ compensation opportunities are predominantly performance-based. Our Compensation Committee has established challenging financial performance targets, and payouts under our incentive plans can vary significantly based on Company performance. The Company faced significant challenges last year, impacting every market in which it operates. Despite the resilience shown by the Company and the System throughout 2020, the Company did not achieve the minimum required thresholds on the financial performance metrics for a payout under STIP as a result of the COVID-19 pandemic on our business. Guided by the Company’s pay for performance philosophy, the Compensation Committee did not adjust original performance targets or results to account for the impact of the COVID-19 pandemic. Therefore, executive payouts under the 2020 STIP were $0. Further, our 2018-2020 performance-based restricted stock units awarded to our executive officers vested at 0%. In addition, our NEOs other than Ms. Capozzi (whose employment with McDonald’s commenced after this decision was made) agreed to temporary base salary reductions in light of the effects of the COVID-19 pandemic across our System. Mr. Kempczinski took a 50% reduction in salary and Messrs. Ozan, Borden, Erlinger and Krulewitch took a 25% reduction for nearly six months. While COVID-19 significantly impacted our executives’ overall compensation, employees below the executive level received a portion of their 2020 annual bonus based upon individual contributions. Further, the Company did not implement any broad-based furloughs, lay-offs or pay reductions. Finally, the Company continued to deliver strong results for shareholders over both the one- and three-year periods. Our Compensation Committee believes our executive compensation program effectively motivates strong performance while balancing risk, thereby aligning the interests of executives with the interests of shareholders. Consistent with our past practice, we are asking shareholders to approve an advisory vote on executive compensation. Although this vote is advisory and non-binding, our Board values the opinion of shareholders, and our Compensation Committee will review the voting results as well as our ongoing dialogue with shareholders when considering future executive compensation decisions. We currently hold our advisory vote on executive compensation annually, and the next advisory vote on executive compensation is expected to occur at our 2022 Annual Shareholders’ Meeting.
The Compensation Committee
The Company faced significant challenges last year, impacting every market in which it operates. As the Company navigated one of the most difficult years in Company history, we drew on our inherent strengths as our teams worked to feed and foster communities, making safety and service a priority, putting customers and people first, and running great restaurants. The investments and choices the Company has made have driven broad-based strength, and the Company remains committed to staying true to its values, investing for the future and leveraging our competitive strengths within its Accelerating the Arches strategy. Despite the resilience shown by the Company and the System throughout 2020, the Company did not achieve the threshold performance levels approved by the Committee for the Company’s incentive plans ending December 31, 2020. Guided by the Company’s pay for performance philosophy, the Committee did not adjust original performance targets or results to account for the impact of the COVID-19 pandemic. As a result, our named executive officers did not receive STIP payouts for 2020. Further, despite strong performance in 2018 and 2019, performance-based restricted stock units (PRSUs) awarded to our executives in 2018 had a performance factor of 0%. Finally, shortly after the pandemic began, the named executive officers listed in last year’s summary compensation table volunteered to take salary reductions in light of the significant negative effects that COVID-19 had across the System. Mr. Kempczinski took a 50% reduction in salary and the others took 25% reductions for nearly six months. While COVID-19 significantly impacted our executives’ overall compensation, eligible employees below the executive level received a portion of their 2020 STIP award based upon individual contributions. Further, the Company did not implement any furloughs, lay-offs or broad-based pay reductions. Importantly, the Company continued to deliver strong results for shareholders over both the one-and three-year periods.
Key 2020 Financial Metrics
| STIP | PRSUs | | • Operating income growth | • Earnings per Share (EPS) growth | | • Systemwide sales growth | • Return on Incremental Invested Capital (ROIIC) | | • Comparable guest count growth | • Total Shareholder Return (TSR) |
Key 2020 Financial Metrics
| Second Principle: Drive Business Results and Long-Term Value Creation |
Key 2020 Financial Metrics
| * Payout percentage interpolated for results that fall between each of the performance levels specifically identified. |
Key 2020 Financial Metrics
| | | 2020 Target STIP award | | Named Executive Officer | Applicable team factor(s) | (% of salary) | | Christopher Kempczinski | Corporate | 170% | | Kevin Ozan | Corporate | 110% | | Heidi Capozzi | Corporate | 80% | | Ian Borden | IOM (50%) | | | | IDL (25%) | 90% | | | Corporate (25%) | | | Joseph Erlinger | U.S. (75%) | 100% | | | Corporate (25%) | | | Jerome Krulewitch | Corporate | 85% |
Long-Term Incentive Compensation
Long-Term Incentive Compensation
Long-Term Incentive Compensation
| Components of 2020 Long-Term Incentive Compensation | | | | Each component generally weighted equally |
Long-Term Incentive Compensation
Performance-Based Restricted Stock Units PRSUs provide the right to receive a share of McDonald’s stock, subject to certain vesting requirements, and accrue dividend equivalent rights that are reinvested in additional PRSUs and earned in proportion to and only to the extent of the percentage of PRSUs earned. These awards also align the interests of our NEOs with those of our shareholders by delivering payouts in the form of Company stock. PRSUs granted in 2020 will vest on the third anniversary of the grant date, subject to the Company’s achievement of two key financial metrics, EPS growth and ROIIC. In addition, the PRSUs are subject to a modifier based on relative TSR measured over the three-year performance period compared to the S&P 500. This balanced set of metrics encourages an increase in profitability and an efficient and effective use of capital, which will enhance shareholder value. Consistent with the Company’s cash return to shareholders philosophy at the time of the 2020 PRSU grant, EPS targets incorporated the planned level of share repurchase during the performance period. While the Company’s share purchase activity has had a minimal impact on PRSU payouts historically, the Company’s decision to suspend share repurchase activity in 2020 due to COVID-19 may negatively impact 2020 PRSU payouts. The PRSUs are also subject to a cap of 100% of target if the Company’s absolute TSR for the three-year performance period is negative, which supports our commitment to ensuring that the interests of executives are aligned with those of our shareholders.
Long-Term Incentive Compensation
| 48 | | McDonald’s Corporation |
Long-Term Incentive Compensation
Payout of the PRSUs is limited to 200% of the target award (calculated as a cap of 175% of target based on EPS and ROIIC, subject to a modifier of up to an additional 25% based on the Company’s cumulative TSR versus the S&P 500 Index over the performance period), plus any dividend equivalents earned on the PRSUs. The chart below provides the compound annual EPS growth and ROIIC necessary to achieve threshold, target and maximum payouts for the 2020-2022 PRSUs.
Long-Term Incentive Compensation
| 2020-2022 | Threshold | Target | Maximum | | Compound annual EPS growth | 3% | 8% | 12% | | 3-year ROIIC | 15% | 25% | 25% |
Long-Term Incentive Compensation
| Cumulative TSR v. S&P 500 Index Modifier | | | 0 - 19% | -25% | | 20 - 39% | -12.5% | | 40 - 59% | 0% | | 60 - 79% | +12.5% | | 80 - 100% | +25% |
Long-Term Incentive Compensation
In 2018, the Committee granted PRSUs to our executives, which were subject to EPS, ROIIC and relative TSR performance metrics for the 2018-20 performance period. Although performance in each of 2018 and 2019 was very strong, the COVID-19 pandemic dramatically impacted 2020 performance, resulting in collective performance over the full period below the minimum threshold level. As discussed above, there were no adjustments related to the COVID-19 pandemic and performance payout factor for our executives was 0%. In addition to the PRSUs awarded as part of the annual grant cycle, from time to time, an executive may receive a time-based restricted stock unit (“RSU”) award as part of a new hire package or as a retention or promotional incentive. In 2020, Ms. Capozzi received such a grant of RSUs in connection with her hiring, as more fully described below in the Executive Transitions section.
Stock Options
Stock Options Options granted to our NEOs have an exercise price equal to the closing price of our common stock on the grant date, a term of ten years and vest ratably over four years, subject to continued service. Options provide value only if our share price increases, thereby closely aligning executive pay with shareholder interests. The Company’s policies and practices regarding option grants, including the timing of grants and the determination of the exercise price, are described on page 52.
Stock Options
| 8 | Other Compensation Elements |
Stock Options
Retirement Savings Arrangements We believe a competitive retirement program contributes to the recruitment and retention of top executive talent. We do not have any supplemental executive retirement plans. Our NEOs participate in the same tax-qualified defined contribution retirement savings plan and non-tax qualified deferred compensation retirement plan that is applicable to U.S.-based employees, except Mr. Borden who participates in the Company’s Canadian retirement program. Perquisites and Other Benefits The Company provides certain limited perquisites to NEOs, including a car allowance, financial planning, physical examination (which are also available for the NEOs’ spouses), life insurance and matching charitable donations. Mr. Kempczinski is permitted to use the Company’s aircraft for personal travel. Beginning in 2020, the Company required full reimbursement of costs associated with personal use of the corporate aircraft once the Company’s cost reaches a predetermined threshold. In certain circumstances, Mr. Kempczinski may permit other executives to use the aircraft for personal travel or to be joined by their spouses on the aircraft for business travel. The safety and security of our employees is a priority for the Company; accordingly, we provide risk-based executive security for select NEOs. The Company does not provide any tax gross-ups on the perquisites described above.
Stock Options
| 2021 Proxy Statement | | 49 |
Stock Options
NEOs also participate in the broad-based benefit and welfare plans available to Company staff in general. The Company maintains a Global Assignee Policy covering all employees and eligible family members who are on international assignments. The policy provides certain relocation and expatriate benefits, which are intended to equalize cost of living differences between the home and assignment country, as well as to facilitate the transition associated with an international assignment. During 2020, Messrs. Borden and Erlinger received benefits under this policy. As a result of their respective promotions, Messrs. Borden and Erlinger each received incremental benefits in order to facilitate their families’ transition to their new work locations (London and Chicago, respectively). Please refer to footnote 4 to the Summary Compensation Table beginning on page 53 for additional details on the costs of the benefits provided to the NEOs. Severance and Change in Control Arrangements The Company has a U.S. severance plan that covers all U.S.-based officers, including our NEOs except Mr. Borden. Benefits under the U.S. severance plan are described under “Potential Payments Upon Termination of Employment or Change in Control” beginning on page 59. In the event of Mr. Borden’s departure, he may be entitled to receive payments and benefits, as required by local law. The Company does not have any change in control agreements. Further, we do not provide for any single-trigger change of control benefits or Section 280G tax gross-up payments.
Stock Options
| 9 | Executive Transitions |
Stock Options
In April 2020, the Company hired Ms. Capozzi as Executive Vice President and Global Chief People Officer. In connection with her hiring, the Committee granted Ms. Capozzi PRSUs and options that have terms consistent with the annual grants that had been made to our other executives in February 2020. In addition, as an inducement to join the Company and to replace compensation she forfeited with her former employer, Ms. Capozzi received time-based RSUs that are scheduled to vest between 2021 and 2024 (subject to continued employment). In October 2020, Mr. Krulewitch, announced his retirement from his role as Corporate Executive Vice President, General Counsel and Secretary, effective immediately. Mr. Krulewitch was advised by doctors to step down from his role for health reasons at that time. While he did not receive an STIP payout under the terms of the plan due to Company performance, he received favorable termination treatment with respect to his outstanding stock options and PRSUs in accordance with the terms of these awards (please refer to the discussion beginning on page 59, for more information on treatment of equity awards upon termination). Mr. Krulewitch also received other benefits consistent with the Company’s regular compensation programs, in particular short-term disability compensation and payment for his unused sabbatical. He did not receive any additional benefits outside of the Company’s regular programs. Mr. Krulewitch entered into a Separation Agreement and General Release with the Company that details these benefits along with his restrictive covenants owed to the Company.
Stock Options
| 10 | Compensation Policies and Practices |
Stock Options
Policy Regarding Management’s Stock Ownership The Company maintains stock ownership requirements because it believes executives will more effectively pursue the long-term interests of shareholders if they are shareholders themselves. The Committee reviews compliance with these stock ownership requirements annually. Based on the most recent annual evaluation, all NEOs are in compliance. Executives have five years to achieve their required ownership level. This five-year period restarts when an executive is promoted to a position with a higher ownership requirement. An executive who is not on track to meet his or her ownership requirements following the third year (of the five-year period) is required to retain the lesser of 50% of the net after-tax shares received upon the vesting of an RSU or PRSU award or such percentage of net after-tax shares necessary to satisfy the applicable requirement. If an executive has not achieved the requisite stock ownership within five years, they must retain 100% of the net after-tax shares received upon the vesting of an RSU or PRSU award and/or a stock option exercise until the required ownership level is attained.
Stock Options
| 50 | | McDonald’s Corporation |
Stock Options
The following table illustrates our stock ownership requirements.
Stock Options
| Stock ownership requirements | Multiple of salary | | President & CEO | | | Other NEOs | |
Stock Options
Policy Regarding Prohibition on Pledging and Hedging The Company has adopted restrictions that prohibit executives and directors from engaging in pledging and/ or derivative transactions to hedge the economic risk associated with their Company stock ownership. Further, executives and directors may not enter into an agreement that has the effect of transferring or exchanging economic interest in any award. Independent Compensation Consultant The Committee has the sole authority to retain and dismiss an independent compensation consultant and has engaged FW Cook as its consultant. FW Cook also assists the Board of Directors in compiling and summarizing the results of Board and director evaluations and advising on non-employee director compensation. Consistent with its Charter, the Committee regularly considers FW Cook’s independence. In 2020, the Committee concluded that FW Cook is independent and that its work for the Committee did not raise any conflicts of interest. Management may not engage the Committee’s consultant for any purpose. Peer Companies Consistent with our goal of providing competitive compensation to incentivize and retain executive talent, we review total direct compensation compared to levels at peer companies that we believe are reflective of our business. When we set executive compensation targets, we use the market median for each compensation element as a reference point; however, we do not specifically target any element of compensation at a particular percentile. Annually, based on input from FW Cook, the Committee selects a peer group comprised of companies with which we compete for talent, including our direct competitors, major retailers, producers of consumer branded goods and companies with a significant global presence. In identifying the Company’s peer group, the Committee considered the Company’s industry classification (under the S&P’s Global Industry Classification Standard), and the revenues and market capitalization of potential peer companies as well as peers of peers, among other criteria. While we occasionally make changes to the peer group when appropriate, we also believe it is important to have year-over-year consistency. For 2020, we determined to retain the same peer group to that used in 2019, in particular given the unique and uncertain macroeconomic environment:
Stock Options
| 3M Company | Kellogg Company | The Procter & Gamble Company | | Best Buy Co., Inc. | Kimberly Clark | Starbucks Corporation | | Carnival Corporation | The Kraft Heinz Company | Target Corporation | | The Coca-Cola Company | Lowe’s Companies, Inc. | Walgreens-Boots Alliance, Inc. | | Colgate-Palmolive | Marriott International | Wal-Mart Inc. | | FedEx Corporation | Mondeléz International, Inc. | Yum! Brands Inc. | | General Mills, Inc. | NIKE, Inc. | | | Johnson & Johnson | PepsiCo | |
Stock Options
| 2021 Proxy Statement | | 51 |
Stock Options
The following table compares McDonald’s size and performance to that of our peer group.
Stock Options
| | | McDonald’s vs. Comparator Group | | | | Financial Comparisons | McDonald’s | Percentile | Rank | Sample Size | | Revenues (most recent fiscal year) | $18,865 | 27% | 17 | out of 23 | | Market Capitalization (12/31/20)* | 159,885.92 | 73% | 7 | out of 23 | | Systemwide Sales (most recent fiscal year) | $93,317 | 86% | 4 | out of 23 | | 1-Year TSR (12/31/20)* | 11.32% | 45% | 13 | out of 23 | | 3-Year TSR (12/31/20)* | 34.21% | 55% | 11 | out of 23 | | 5-Year TSR (12/31/20)* | 106.71% | 68% | 8 | out of 23 |
Stock Options
| * Data retrieved from Bloomberg Terminal and verified using CapitalIQ. TSR is non-annualized. |
Stock Options
Compensation Recoupment and Forfeiture Provisions The Company’s STIP awards and equity grant agreements for executives provide that the Company may terminate awards and/or recapture previously paid awards if a participant engages in willful fraud that: (i) causes harm to the Company or (ii) is intended to manipulate performance goals either during employment, or after employment has terminated. Furthermore, executives are required to have executed restrictive covenants as a condition to receiving equity awards. An executive who violates the restrictive covenants to which they are subject will forfeit outstanding equity awards, whether or not vested, and may be required to repay awards that have previously been paid. The Company’s equity grant agreements also contain a repayment/forfeiture provision that triggers repayment of any benefits received in connection with such grants as may be required to comply with (i) New York Stock Exchange listing standards adopted in accordance with Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (regarding recovery of erroneously awarded compensation) and any implementing rules and regulations of the Securities and Exchange Commission adopted thereunder, and (ii) similar rules under the laws of any other jurisdiction, as well as pursuant to any policies adopted by the Company to implement such requirements, in all cases to the extent determined by the Company to be applicable to the award recipient. Risk and Compensation Programs Our compensation program is designed to mitigate the potential for rewarding excessive risk-taking that may produce short-term results that appear in isolation to be favorable, but which, in fact, may undermine the successful execution of our long-term business strategy and erode shareholder value. In particular, our executive compensation program has the following design features that help mitigate risk, as described throughout this Proxy Statement:
Stock Options
| ● | balance of short- and long-term incentives; | | ● | mix of both cash- and stock-based awards; | | ● | objective performance metrics related to various measures of operational performance; | | ● | performance targets closely aligned with the Company’s business plans; | | ● | diverse time horizons for incentive awards; | | ● | caps on all incentive payouts; | | ● | recoupment and forfeiture provisions; and | | ● | significant stock ownership requirements to align with shareholder interests. |
Stock Options
Each year, FW Cook reviews the Company’s global incentive compensation programs, including both broad-based programs and its executive compensation programs, taking into consideration the factors described above. Based on this review, the Committee agreed with FW Cook’s assessment that the risks arising from its compensation program are not reasonably likely to have a material adverse effect on the Company. Policies and Practices Regarding Equity Awards The Company does not grant equity awards when in possession of material non-public information. The Company generally makes broad-based equity grants at approximately the same time each year following our release of full-year financial results; however, the Company may choose to make equity grants outside of the annual broad-based grant (e.g., as part of a new hire package or as a retention or promotional incentive). Stock options may be granted only with an exercise price at or above the closing market price of the Company’s stock on the date of grant.
Stock Options
| 52 | | McDonald’s Corporation |
Stock Options
Compensation Tables
Stock Options
| Summary Compensation Table |
Stock Options
The table below summarizes the compensation earned by our NEOs in 2020, and, to the extent required, 2019 and 2018.
Stock Options
| Name and principal position (a) | Year (b) | Salary ($)(c)(1) | Stock awards ($)(e)(2) | Option awards ($)(f)(3) | Non-equity incentive plan compensation ($)(g) | All other compensation ($)(i)(4) | Total ($)(j) | | Christopher Kempczinski President and Chief Executive Officer | 2020 | 963,506 | 4,750,129 | 4,750,011 | 0 | 383,386 | 10,847,032 | | | 2019 | 867,500 | 1,250,129 | 1,250,022 | 1,707,478 | 154,026 | 5,229,155 | | | 2018 | 725,000 | 2,500,183 | 1,000,005 | 336,869 | 116,283 | 4,678,340 | | Kevin Ozan Corporate Executive Vice President and Chief Financial Officer | 2020 | 774,179 | 1,800,180 | 1,800,015 | 0 | 156,847 | 4,531,221 | | | 2019 | 841,667 | 1,625,078 | 1,625,011 | 1,236,750 | 128,072 | 5,456,578 | | | 2018 | 791,667 | 1,450,043 | 1,450,015 | 808,800 | 149,727 | 4,650,252 | | Heidi B. Capozzi Corporate Executive Vice President – Global Chief People Officer | 2020 | 521,907 | 7,450,306 | 950,021 | 0 | 17,686 | 8,939,920 | | Ian Borden(5) President, International | 2020 | 587,601 | 950,211 | 950,002 | 0 | 2,296,449 | 4,784,263 | | | 2019 | 561,329 | 750,078 | 750,003 | 714,631 | 470,856 | 3,246,897 | | Joseph Erlinger(5) President, McDonald’s USA | 2020 | 686,209 | 1,125,055 | 1,125,020 | 0 | 1,727,232 | 4,663,516 | | | 2019 | 712,500 | 850,088 | 850,022 | 1,132,819 | 1,232,877 | 4,778,306 | | | 2018 | 587,500 | 750,055 | 750,009 | 794,880 | 1,075,292 | 3,957,736 | | Jerome Krulewitch(6) Former Corporate Executive Vice President, General Counsel and Secretary | 2020 | 593,499 | 1,000,100 | 1,000,012 | 0 | 121,820 | 2,715,431 | | | 2019 | 642,500 | 850,088 | 850,022 | 803,888 | 104,923 | 3,251,421 |
Stock Options
| Grants of Plan-Based Awards |
Stock Options
| Outstanding Equity Awards at 2020 Year-End |
Stock Options
| * See the Option Exercises and Stock Vested – Fiscal 2020 Table below for more information on Mr. Krulewitch’s PRSUs. | | ** Number of unvested PRSUs that are scheduled to be paid out include dividend equivalents. |
Stock Options
| Option Exercises and Stock Vested - Fiscal 2020 |
Stock Options
| Non-Qualified Deferred Compensation - Fiscal 2020 |
Stock Options
| (3) Mr. Borden is not eligible to participate in the Company’s non-qualified deferred compensation plan. |
Stock Options
| Potential Payments upon Termination of Employment or Change in Control |
Pay Ratio
Pay Ratio 2021 Pay Ratio McDonald’s is committed to a strong pay-for-performance culture that closely aligns the interests of executives with those of shareholders. We aim to have 90% of our CEO’s total target direct compensation opportunity as performance based. In 2020, our CEO took a temporary 50% salary reduction from April 15 to September 30, given the significant negative effects that the COVID-19 pandemic had across the System. Additionally, the Company did not achieve the minimum required performance thresholds for 2020 STIP and the Committee did not make any incentive plan adjustments to account for the business impact of COVID-19. As a result, executive payouts under the 2020 STIP were $0, and our CEO’s 2020 total compensation of $10,847,032 was significantly lower than in prior years, resulting in a ratio of 1,189:1. The Company believes that this ratio is not indicative of a typical year, given reduced CEO pay resulting from the negative impacts of COVID-19. Median Employee Methodology In 2019, the Company identified its median employee for purposes of the pay ratio disclosure by annualizing one month’s total gross wages for its employees (other than the CEO) located in markets across the globe who were employed on October 1, 2019. The Company considered all full-time, part-time, seasonal and temporary workers employed on such date. Our methodology was straightforward and transparent; we did not exclude employees. Our median employee for 2020 is the same individual identified in 2019 (a part-time restaurant crew employee located in the United Kingdom) and had 2020 total compensation of $9,124.
Pay Ratio
| 2021 Proxy Statement | | 61 |
Pay Ratio
| PROPOSAL 3 | Ratification of the Appointment of Ernst & Young LLP as Independent Auditor for 2021 |
Pay Ratio
| | The Board recommends that you vote FOR this proposal. |
Pay Ratio
Our Audit & Finance Committee is directly responsible for the appointment, compensation, retention, evaluation and termination of our independent external audit firm. The Committee has appointed Ernst & Young LLP (EY) as our Company’s independent external audit firm for 2021. In executing its responsibilities, the Committee engages in a thorough annual evaluation of EY’s qualifications, past performance and continuing independence. Among other things, the Committee is informed by the results of a comprehensive assessment survey undertaken by senior financial personnel from our headquarters and largest global markets, and discusses opportunities for improvement with the lead audit partner. The Committee has sole authority to approve all engagement fees to be paid to EY. In assessing independence, the Committee reviews the fees paid, including those related to both audit and non-audit services, and annually reviews compliance with our Hiring Policy for Employees of External Audit Firm and Its Affiliates. The Committee regularly meets with the lead audit partner without members of management present, and in executive session with only the Committee members present, which provides the opportunity for continuous assessment of EY’s effectiveness and independence and for considering alternative audit firms. EY or its predecessor, Arthur Young & Company, has been retained as our Company’s external audit firm continuously since 1964. In accordance with SEC rules and EY policies, the firm’s lead engagement partner rotates every five years. Our Audit & Finance Committee and its Chair are directly involved in the selection of EY’s lead engagement partner. Our Audit & Finance Committee and our Board of Directors believe that the continued retention of EY as our Company’s independent external audit firm for 2021 is in the best interests of our Company and its shareholders, and are therefore asking shareholders to again approve this annual appointment. A representative of EY is expected to attend our Annual Shareholders’ Meeting, be available to answer shareholders’ questions and have the opportunity to make a statement. If shareholders do not ratify EY’s appointment, our Audit & Finance Committee will reconsider the appointment. After such reconsideration, the Committee may exercise its discretion to select another auditor or retain EY, if it determines such retention to be in the best interests of our Company and shareholders. Even if shareholders approve the appointment of EY, the Committee may select another independent auditor if it determines it to be in the best interests of our Company and shareholders.
Pay Ratio
| | The Board of Directors recommends that shareholders vote FOR the appointment of Ernst & Young LLP as independent auditor for 2021. |
Pay Ratio
| 62 | | McDonald’s Corporation |
Pay Ratio
Audit & Finance Committee Report The role of the Audit & Finance Committee is to assist the Board in fulfilling its responsibility to oversee our Company’s financial reporting process. Management is primarily responsible for our Company’s financial statements, including our Company’s internal control over financial reporting. Ernst & Young LLP (EY), our Company’s independent auditor, is responsible for expressing an opinion on the conformity of our Company’s annual consolidated financial statements with generally accepted accounting principles. EY also expresses an opinion on the effectiveness of our internal control over financial reporting and reviews our Company’s interim financial statements in accordance with applicable auditing standards. The Audit & Finance Committee oversees our Company’s financial reporting process and internal control structure on behalf of the Board. The Audit & Finance Committee met regularly with EY and the head of internal audit, both privately and with management present, during 2020. In fulfilling its oversight responsibilities, the Audit & Finance Committee reviewed and discussed with management and EY the audited and interim financial statements, including Management’s Discussion and Analysis, included in our Company’s Reports on Form 10-K and Form 10-Q. In connection with its review of our Company’s annual consolidated financial statements, the Audit & Finance Committee also discussed with EY other matters required to be discussed with the auditor under applicable standards of the Public Company Accounting Oversight Board (PCAOB), and those addressed by EY’s written disclosures and presentations provided under the applicable requirements of the PCAOB. The Audit & Finance Committee is responsible for the appointment, retention, compensation and evaluation of the independent auditor and appointed EY to serve in that capacity during 2020 and 2021. In that regard, the Audit & Finance Committee reviewed EY’s independence from our Company and management, including EY’s written disclosures described above. Based on the reviews and discussions referred to above, the Audit & Finance Committee recommended to our Board of Directors that the audited financial statements be included in our Company’s Annual Report on Form 10-K for the year ended December 31, 2020, for filing with the SEC. Respectfully submitted,