20172019 PROXY STATEMENT
And Notice of Annual Meeting of Shareholders
To be held on Wednesday, May 3, 20171, 2019
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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Philip Morris International Inc.
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20172019 PROXY STATEMENT
And Notice of Annual Meeting of Shareholders
To be held on Wednesday, May 3, 20171, 2019
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March 23, 201721, 2019
Dear Fellow Shareholder,
You are cordially invited to join us at the 20172019 Annual Meeting of Shareholders of Philip Morris International Inc. (“PMI” or the “Company”) to be held on Wednesday, May 3, 2017,1, 2019, at 9:00 a.m., in the Empire State Ballroom at the Grand Hyatt New York, 109 East 42nd Street, New York, New York.
At this year’s meeting, we will vote on the election of thirteentwelve directors, an advisorysay-on-pay vote approving executive compensation, an advisory resolution regarding the frequency of future say-on-pay votes, the approval of the 2017 Performance Incentive Plan, the approval of the 2017 Stock Compensation Plan for Non-Employee Directors,and the ratification of the selection of PricewaterhouseCoopers SA as the Company’s independent auditors, and, if properly presented, two proposals from shareholders.auditors. There will also be a report on the Company’s business, and shareholders will have an opportunity to ask questions.
We anticipate that a large number of shareholders will attend the meeting. Because seating is limited, you may bring only one immediate family member as a guest.All attendees must present an admission ticket and government-issued photographic identification. To request an admission ticket, please follow the instructions set forth on page 7560 in response to Question 4.
The meeting facilities will open at 7:30 a.m. on May 3, 2017.1, 2019. We suggest you arrive early to facilitate your registration and security clearance. Those needing special assistance at the meeting are requested to write to the Company’s Corporate Secretary at 120 Park Avenue, New York, New York 10017-5579. For your comfort and security, you will not be permitted to bring any packages, briefcases, large pocketbooks or bags into the meeting. Also, cellular and digital phones, audio tape recorders, laptops and other portable electronic devices, video and still cameras, pagers and pets will not be permitted into the meeting. We thank you in advance for your patience and cooperation with these rules, which assist us in conducting a safe and orderly meeting.
Attached youSadly, Sergio Marchionne, who served on our Board since ourspin-off in 2008, passed away last year. Sergio was an invaluable member of our Board, with boundless energy, sage advice and deep perception, always holding us by his example to the highest of standards. In short, he was an ideal director. We will find a notice of meeting and proxy statement that contains additional information aboutmiss him dearly.
Dr. Harold Brown retired from the meeting, including the methods that you can use to vote your proxy, such as the telephone or Internet. As we didBoard last year we are mailing to certain of our shareholders a Notice of Internet Availability of Proxy Materials. This Notice contains instructions on how to access our proxy statement and, 2016 Annual Report to Shareholders and vote online. Those shareholders who do not receive the Notice will receive a paper copysadly, passed away earlier this year. During his distinguished career, Harold served his country as Secretary of the proxy materials by mail. By furnishing this Notice, weU.S. Air Force, Secretary of Defense, President of the California Institute of Technology, and in other capacities too numerous to mention. Our Company was fortunate to have Harold as a member of the Board of Directors. His intellect, drive, breadth of experience, integrity, sense of humor, and sheer generosity of spirit are lowering costs and reducing the environmental impact of our Annual Meeting.irreplaceable.
Your vote is important. We encourage you to sign and return your proxy card, or use telephone or Internet voting prior to the meeting, so that your shares of common stock will be represented and voted at the meeting even if you cannot attend.
Sincerely, | Sincerely, | |
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LOUIS C. CAMILLERI CHAIRMAN OF THE BOARD | ANDRÉ CALANTZOPOULOS CHIEF EXECUTIVE OFFICER | |
For further information about the Annual Meeting, please call toll-free1-866-713-8075.
1 • PMI 20172019 Proxy Statement • 1
| PHILIP MORRIS INTERNATIONAL INC. |  |
NOTICE OF 20172019 ANNUAL MEETING OF SHAREHOLDERS
| Date and Time | 9:00 a.m. on Wednesday, May | |
| Place | Empire State Ballroom Grand Hyatt New York 109 East 42nd Street New York, New York | |
| Items of Business | (1) To elect | |
(2) To vote on an advisory resolution approving executive compensation. | ||
(3) To | ||
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| Who Can Vote | Only shareholders of record of shares of common stock at the close of business on March | |
Voting of Proxies and Deadline for Receipt | All properly executed written proxies, and all properly completed proxies submitted by telephone or Internet, that are delivered pursuant to this solicitation will be voted at the meeting in accordance with the directions given in the proxy, unless the proxy is revoked before the meeting. Proxies submitted by telephone or Internet must be received by 11:59 p.m., EDT, on | |
A copy of our | ||
| Date of Mailing | This notice and the proxy statement are first being mailed to shareholders on or about March | |
Jerry Whitson
Deputy General Counsel and Corporate Secretary
March 23, 201721, 2019
WE URGE EACH SHAREHOLDER TO PROMPTLY SIGN AND RETURN THE ENCLOSED PROXY CARD OR TO USE TELEPHONE OR INTERNET VOTING. SEE THE QUESTION AND ANSWER SECTION FOR INFORMATION ABOUT VOTING BY TELEPHONE OR INTERNET, HOW TO REVOKE A PROXY, AND HOW TO VOTE YOUR SHARES OF COMMON STOCK IN PERSON. PLEASE NOTE THAT YOU MUST OBTAIN AN ADMISSION TICKET IN ORDER TO ATTEND THE MEETING. TO OBTAIN AN ADMISSION TICKET, PLEASE FOLLOW THE INSTRUCTIONS SET FORTH ON PAGE 7560 IN RESPONSE TO QUESTION 4.
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to be held
on May 3, 2017:1, 2019: The Company’s Proxy Statement and 20162018 Annual Report are available at
www.pmi.com/investors.
2 • PMI 20172019 Proxy Statement
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Dear Fellow Shareholder,
Last year, with the full support of the Board of Directors, your Company announced that its key strategic priority is to develop and commercialize smoke-free products that are a much better choice than cigarette smoking, and to lead a full-scale effort to ensure that smoke-free products replace cigarettes to the benefit of adult smokers, society, our Company and its shareholders. As your Company engages in the tremendous external and internal transformation necessary to achieving that goal, the Board wishes to take this opportunity to discuss how it perceives and performs its corporate governance role and oversees management’s efforts to enhance shareholder value responsibly and sustainably over the long term.
Over the last decade, the Board has spent an increasing portion of its time overseeing the Company’s RRP progress. We engage actively in several aspects of this effort. We discuss with the Company’s scientists and engineers their progress in designing multiple Reduced-Risk Product platforms, and in conducting rigorous scientific assessments of these platforms. We monitor the Company’s progress in preparing regulatory submissions for these products. Since the spin-off in 2008, we have considered and approved more than $3 billion in expenditures to research and develop these products and to manufacture them. We closely follow the Company’s steps to commercialize theIQOS product, as well as other RRP platforms. Recognizing that these products are not risk free, we monitor management’s engagement with regulators as it seeks to ensure that RRPs are responsibly developed, scientifically assessed and marketed. The Board oversees management’s efforts to assure that the Company’s employees are prepared and equipped to meet the new and substantial challenges of the Company’s transformation from cigarettes to RRPs. The Board is also overseeing management’s development of key performance indicators, or KPIs, so that the Company can track and publicly report its transformation progress. To learn more about the Company’s RRP program, please visit www.pmiscience.com.
As exemplified by the significant investments of money, time and organizational effort in RRPs, the core of the Board’s oversight framework is a focus on long-term versus short-term results. The Board devotes two meeting days each year to reviewing, understanding, discussing and challenging management’s long-range strategic plan. It also approves the original budget each year, and its Compensation and Leadership Development Committee sets performance goals based on that budget that determine incentive compensation levels for the Company’s management team. We receive updates on the Company’s progress against the budget and the long-range plan throughout the year.
The Board believes that operating with integrity and in full compliance with law and regulation are central to the Company’s business strategy. Company leaders must unequivocally evince this principle with an unmistakable and unwavering tone-at-the-top. In the words of our Chairman, “the essence of effective compliance is candor, transparency and honesty.” To reinforce this message throughout the organization, each year the Board meets in one of our key markets, most recently in Russia, Japan, Italy, Germany, Mexico and Turkey, and the Audit Committee meets with the local finance department in another key market.
Another critical role of the Board is to oversee that the Company effectively identifies, owns, manages and mitigates enterprise risks. In the past two years, management has structured a more formal process to deal with enterprise risks, as discussed on page 14 of this proxy statement. Management reports to the Board and its Committees with respect to these risks throughout the year.
The Board understands the Company’s special responsibility as a tobacco company. In addition to RRPs, the Board oversees the Company’s progress to improve continuously the sustainability of the Company’s business and its value chain and to contribute to the global sustainability agenda. In 2015, with the Board’s encouragement, the Company became the only international tobacco company to date to join the United Nations Global Compact, an initiative to encourage businesses worldwide to adopt sustainable and socially responsible policies, and to report on their implementation. The Company filed its first Communication on Progress last year, detailing our progressvis-à-vis the Compact’s Ten Principles in the areas of human rights, labor, environment and anti-corruption. The cornerstone of the report to the U.N. is the Company’s determination to address the health impact of combustible tobacco products through RRPs. Space prevents our summarizing this important report here, but it can be found at www.pmi.com/sustainability, and we commend it to you.
In 2016, the Company also published its third report on its Agricultural Labor Practices program; the report describes the scope of the program and the Company’s commitment to and progress in implementing good agricultural practices that
PMI 2017 Proxy Statement • 3
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support farmers in improving the quality and productivity of their crops, improving food security and diversification, respecting the environment, and achieving safe and fair labor practices. The program, which is independently monitored and audited and reported transparently, has earned praise from several sources, including the United States Department of Labor and Human Rights Watch. Our 2014-2015 Progress Report can be found at www.pmi.com/sustainability.
We encourage the Company’s efforts regarding the environment, which resulted in its being awarded “Climate A List” status in the CDP Global Climate Leaders Report for the third year in a row and placing the Company in the top 5% of more than 2,200 of the world’s largest companies that were assessed on their carbon footprint.
We commend the Company’s efforts to advance the socio-economic well-being of the communities in which it has a presence. Last year the Company partnered with more than 200 not-for-profit organizations to support 236 projects in 55 countries, focused on improving access to education, empowering women, and promoting economic opportunities to benefit the most vulnerable populations, while also providing emergency relief to communities suffering natural disasters in the Dominican Republic, Ecuador, Ethiopia, Indonesia, Italy, Japan, Malawi, Mozambique, the Philippines, and Portugal.
The Board also encourages management to continue to educate, train, develop and manage the Company’s talented workforce. As a testament to management’s commitment to offering an enriching work environment and exceptional development opportunities, and initiatives such as adopting flexible work arrangements to help employees balance their working and private lives, the Top Employer Institute recently certified the Company as a Global Top Employer in 34 countries. The Board reviews the Company’s progress in improving diversity and inclusion against key performance indicators, including its goals of achieving a new hire ratio of 50% female by the end of this year and increasing the proportion of females in management positions to 40% by 2022. We also monitor the Company’s pay scales and promotion rates for females and are pleased that it has earned equal salary certifications in Japan and Switzerland and was recognized in theProfiles in Diversity Journal as one of ten companies for innovation excellence in diversity and inclusion.
Through the Company’s Compensation and Leadership Development Committee, the Board strives to link pay to performance, not just for financial results, but also with respect to the Company’s strategic objectives to develop and commercialize RRPs, to improve sustainability, to manage talent, to increase diversity and inclusion, and to maintain robust central compliance and integrity programs. The Company’s progress in achieving each of those strategic objectives is built into the equation that determines the level of incentive awards earned by the Company’s executives. The Committee and the full Board also review and assist in the development of executive succession plans.
Page 10 of the proxy statement discusses the Board’s leadership structure, while page 17 outlines the attributes the Board seeks in its members, the Board’s diversity and global perspective, its healthy pace of director refreshment, and its relatively short average tenure.
Page 8 of this proxy statement discusses the Company’s extensive investor outreach program, the results of which are reported to the Board and the appropriate committees, and the Board’s recent actions taken to reflect investor input in the areas of compensation structure and governance practices. A summary of the governance practices established by the Board can be found on page 16.
The Board believes the various corporate governance practices are tools, not outcomes for achievement in and of themselves. Ultimately, the question is not whether a particular governance box is checked, but whether a company acts responsibly in a manner aligned with the expectations of its consumers, its shareholders and society. The Board is confident that your Company meets, and will continue to meet, that critical standard.
The Board’s relationship with management is excellent. Management’s communications are thorough and transparent. Management forthrightly informs the Board of all relevant matters, whether good or bad. It responds readily to all of the Board’s requests for information, and actively solicits and responds appropriately to the Board’s opinions, direction and advice. The Board expects nothing less.
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4 • PMI 2017 Proxy Statement
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3 • PMI 20172019 Proxy Statement • 5
| GLOSSARY OF TERMS | |
Financial Terms:
Net revenues exclude excise taxes. |
Operating Income, or OI, is defined as gross profit minus operating expenses. |
| ◾ | Adjusted OI is defined as reported OI adjusted for asset impairment and exit costs and other special items. |
| ◾ | Operating Companies Income, or OCI, is defined as operating income, excluding general corporate expenses and the amortization of intangibles, plus equity (income) or loss in unconsolidated subsidiaries, net. |
Adjusted OCI is defined as reported OCI adjusted for asset impairment and exit costs and other |
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EPS stands for Earnings Per Share. |
Adjusted Diluted EPS is defined as reported diluted EPS adjusted for asset impairment and exit costs, |
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Other Terms:
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NEOs are Named Executive Officers and include our Chief Executive Officer, or CEO, our Chief Financial Officer, or CFO, and the three other most highly compensated officers serving in |
PSUs are Performance Share Units. |
RSUs are Restricted Share Units, and may be issued in the form of deferred share awards. |
TSR stands for Total Shareholder Return. |
In this proxy statement, “PMI,” the “Company,” “we,” “us,” and “our” refer to Philip Morris International Inc. and its subsidiaries. |
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6 • PMI 20172019 Proxy Statement • 4
| PROXY STATEMENT SUMMARY | |
This proxy statement contains proposals to be voted on at our Annual Meeting and other information about our Company and our corporate governance practices. We provide below a brief summary of certain information contained in this proxy statement. The summary does not contain all of the information you should consider. Please read the entire proxy statement carefully before voting.
20162018 Business Performance Highlights
In 2016,
We achieved robust results from our combustible tobacco portfolio and nearly doubled ourin-market sales ofIQOS heated tobacco units driven by growth in allIQOS markets. However, we delivered strong results onperformed well below our key performance metrics, whileambitious growth targets for net revenues and adjusted operating income. This shortfall was primarily due to the unexpected slowdown in the rate of smokers switching toIQOS in Japan and related distributor inventory adjustments and, to a lesser extent, the move to highly inflationary accounting in Argentina. Our share of Top 30 OI markets was also achieving notable progress againstbelow target. However, our strategic initiatives.adjusted diluted EPS growth exceeded our target, aided by a lower effective tax rate and lower net interest expense as a result of U.S. tax reform. Our operating cash flow growth also exceeded the target.
We are naturally disappointed in the underperformance of certain of our ambitious financial results were achieved despite significant volume declines in several markets, notably in Pakistan and the Philippines, where volume decreases were concentrated in low unit margin brands that had a limited impact on our bottom line. We more than offset lower shipment volumes through favorable pricing and better-than-anticipated RRP performance.
Asgrowth targets. However, as further discussed on page 37,31, we also made significantvery good progress in 2018 on our strategic initiatives with the standout achievement being the successful national roll-out of ourIQOS Reduced-Risk Product platformand transformation, and we have established a solid foundation from which to deliver better performance in Japan, whereIQOS heated tobacco sticks achieved a share of approximately 4.9% in the fourth quarter of 2016. An estimated 1.4 million adult smokers have already converted toIQOS, despite our restrictingIQOS device sales due to temporary manufacturing capacity limitations onIQOS heated tobacco sticks. At year-end 2016, we were commercializing RRPs in key cities or nationally in 20 markets. Importantly, we made substantial progress on other fronts of RRP development, including scientific substantiation, underpinned by our Modified Risk Tobacco Product application to the U.S. Food2019 and Drug Administration, product development, engagement with the public health communities, and the RRP regulatory and fiscal environment.beyond.
20162018 Performance Targets and Results
Measure(a) Target Achieved Result Weight Performance Rating Share of Top 30 OI Markets(b) 18 16 15% 90 Net Revenues(c) 9.1% 3.4% 15% 0 Adjusted OI(d) 7 .6% 0.1% 15% 0 Adjusted Diluted EPS(e) 8.5% 10.4% 20% 133 Operating Cash Flow(f) 6 .9% 8.9% 20% 119 Strategic Initiatives Rating 15% 115 (a) For a reconciliation of non-GAAP to GAAP financial measures see Exhibit B to this proxy statement. (b) Number of top 30 Ol markets in which share was growing or stable. (c) Excluding excise taxes, currency and acquisitions. (d) Excluding currency and acquisitions. (e) Excluding currency. (f) Net cash provided by operating activities, excluding currency. PMI 20172018 Annual incentive Compensation Performance Rating(1) 50 80 100 150 See pages XX-XX for details.
Measure(a) Target Achieved Result Weight Performance Rating Share of Top 30 OI Markets(b) 18 16 15% 90 Net Revenues(c) 9.1% 3.4% 15% 0 Adjusted OI(d) 7 .6% 0.1% 15% 0 Adjusted Diluted EPS(e) 8.5% 10.4% 20% 133 Operating Cash Flow(f) 6 .9% 8.9% 20% 119 Strategic Initiatives Rating 15% 115 (a) For a reconciliation of non-GAAP to GAAP financial measures see Exhibit B to this proxy statement. (b) Number of top 30 Ol markets in which share was growing or stable. (c) Excluding excise taxes, currency and acquisitions. (d) Excluding currency and acquisitions. (e) Excluding currency. (f) Net cash provided by operating activities, excluding currency. PMI 2018 Annual incentive Compensation Performance Rating(1) 50 80 100 150 See pages XX-XX for details.
5 • PMI 2019 Proxy Statement • 7
| PROXY STATEMENT SUMMARY | |
Investor Outreach
Throughout the year, the Company engages in an extensive shareholder outreach program during which it seeks input on a range of matters, including executive compensation and corporate governance. In 2015, the Compensation and Leadership Development Committee substantially revamped our executive compensation program in response to specific concerns raised by certain institutional shareholders and to the 2015 shareholder vote of 63.3% in support of the advisory say-on-pay proposal, a level that the Committee believed was inadequate. Our shareholders overwhelmingly supported the new compensation program, with the approval of 95.0% of the shares voted at the 2016 Annual Meeting. Based on this support and its own satisfaction with the new compensation program, the Compensation and Leadership Development Committee has determined not to make any substantial further modifications to the program at this time.
In 2016,2018, we met with 6553 of our top 100 institutional investors, representing 72%69% of our available global shareholder base (which excludes index and most pension funds)funds that do not meet with management), to discuss our business and environmental, social and governance issues. In addition to these regular Investor Relations engagements, we invited 82 of our 50 largest shareholders, holding approximately 52%60% of our outstanding shares, to participate in individual conference calls to discuss executive compensation and corporate governance. These engagements provided us a better understanding of our shareholders’ priorities, perspectives and positions. We reported the substance of these engagements to our Compensation and Leadership Development Committee, our Nominating and Corporate Governance Committee, and our entire Board of Directors.
The shareholders with whom we spoke overwhelmingly supported the new compensation program. They also commended the governance changes made in 2015, namely the new proxy access by-law, the adoption of share ownership guidelines for non-employee directors, the enhancements to the Company’s anti-hedging and anti-pledging policies, and the formalization of the Nominating and Corporate Governance Committee’s oversight of the Company’s lobbying and trade association activities and expenditures.
In September 2016,2018, we held our biennial Investor Day, which was attended in person by sell-side analysts and by representatives of the holders of approximately 27%39% of our available global shareholder base. All shareholders were able to view the presentations by webcast. During this two-day conference, shareholders received detailed presentations about our business and had the opportunity to meet with and ask questions of our senior management team. Before the conference, we commissioned an independent third-partythird party to survey sell-side analysts and institutional shareholders on a number of topics, including those they most wished to see addressed at the conference and any additional messages they wished to convey to management. The survey results were reported to us anonymously and addressed in the presentations. We reported the results of this conference to our Finance Committee and to our entire Board of Directors.
2017 Performance Incentive Plan
The Company is asking shareholders to approve the 2017 Performance Incentive Plan to replace its 2012 Performance Incentive Plan. The terms of the 2017 Plan are summarized beginningOur Focus on page 60.
2017 Stock Compensation Plan for Non-Employee Directors
The Company is also asking shareholders to approve the 2017 Stock Compensation Plan for Non-Employee Directors to replace its 2008 Plan. The terms of the 2017 Plan are summarized beginning on page 64.
8 • PMI 2017 Proxy Statement
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Shareholder Agenda ItemsSustainability
2017As part of our continued focus on sustainability, the Board in 2018 added oversight of our sustainability strategies and performance to the charter of the Board’s Nominating and Corporate Governance Committee. Our 2018 Annual Report reviews how we have refined our sustainability strategy to align with societal expectations. In 2018, we made the CDP Climate A list for the fifth year in a row and also earned a place on CDP’s Supplier Engagement leader board for the second consecutive year. The Company also improved its ranking in the 2018 SAM Corporate Sustainability Assessment, an annual evaluation of companies’ sustainability practices.
EQUAL-SALARY Certification
Earlier this year, we became the first multinational company to receive a global EQUAL-SALARY certification from the EQUAL-SALARY Foundation. This achievement is an important building block on the road to creating a more inclusive gender-balanced workplace.
Shareholder Proposal
Trinity Health, together with otherco-proponents, submitted a shareholder proposal for inclusion in this proxy statement requesting the Board of Directors to review the Company’s adherence to its policies aimed at discouraging smoking among young people and to report the results of that review to shareholders by November 2019. The Company agreed to the request and the proponents withdrew the proposal.
2019 Shareholder Vote Recommendations
The Board of Directors makes the following recommendations to shareholders:
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PMI 20172019 Proxy Statement • 96
| BOARD OPERATIONS AND GOVERNANCE | |
Board Responsibility and Meetings
The primary responsibility of the Board of Directors is to foster the long-term success of the Company, consistent with its statutory duty to shareholders. The Board has responsibility for establishing broad corporate policies, setting strategic direction, and overseeing management, which is responsible for theday-to-day operations of the Company. In fulfilling this role, each director must exercise his or her good faith business judgment of the best interests of the Company.
The Board holds regular meetings, typically during the months of February, March, May, June, September and December, and additional meetings when necessary. The organizational meeting follows immediately after the Annual Meeting of Shareholders. The Board held six regular meetings in 2016.2018. The Board meets in executive session regularly with no members of management being present. Directors are expected to attend Board meetings, the Annual Meeting of Shareholders and meetings of the Committees on which they serve, with the understanding that on occasion a director may be unable to attend.
During 2016,2018, all nominees for director then in office attended at least 75% of the aggregate number of meetings of the Board and all Committees on which they served, and eachall but one of the nominee directors then in office attended the 20162018 Annual Meeting of Shareholders. Mr. Ferragamo joined the Board in December 2016.
The Board approves the Company’s annual budget each year and receives updates of the Company’s performance against the budget throughout the year. The Board also reviews and approves the Company’s three-year plan each year, typically in atwo-day session. The Board also regularly receives presentations on the Company’slonger-term objectives and plans.
Governance Guidelines, Policies and Codes
The Board has adopted Corporate Governance Guidelines. In 2014, the Audit Committee approvedGuidelines and a substantial revision to the Company’s Codecode of Conduct. The revised document,conduct known as theGuidebook for Success, is an interactive, plain language tool that describes the fundamental beliefs and attributes that unite and guide us in pursuing PMI’s goals, illustrates how to meet our commitments to these beliefs and attributes, and explains why it is critical to do so. TheGuidebook applies to all employees, including the Company’s principal executive officer, chief operating officer, principal financial officer, and principal accounting officer or controller. The
Board has also adopted a Code of Business Conduct and Ethics that applies to directors. ItThe Board has also adopted a
policy with regard to reviewing certain transactions in which the Company is a participant and an officer, director or nominee for director has, had or may have a direct or indirect material interest. All of these documents are available free of charge on the Company’s website,www.pmi.com/governance,our-business/about-us, and will be provided free of charge to any shareholder requesting a copy by writing to the Corporate Secretary, Philip Morris International Inc., 120 Park Avenue, New York, New York 10017-5579.
The information on the Company’s websitewebsites is not, and shall not be deemed to be, a part of this proxy statement or incorporated into any other filings the Company makes with the U.S. Securities and Exchange Commission.
The Board believes that no particular leadership structure is inherently superior to all others under all circumstances. It determines from time to time the structure that best serves the interests of the Company and its shareholders under the then-prevailing circumstances. Currently, Louis C. Camilleri serves as ournon-executive Chairman, and André Calantzopoulos serves as our Chief Executive Officer.
As Chairman, Mr. Camilleri facilitates communication between the Board and management and assists the CEO inwith long-term strategy. He presides at all meetings of shareholders and of the Board and assists in the preparation of agendas and materials for Board meetings, working together with the Presiding Director, who approves the agendas before they are disseminated to the Board. Input is sought from all directors as to topics they wish to review. Because he was an employee of the Company until December 31, 2014, Mr. Camilleri is not yet an independent Chairman. The Board also has a Presiding Director as described immediately below.
Thenon-management directors elect at the annual organizational meeting one independent director as the Presiding Director. The Presiding Director’s responsibilities are to:
preside over executive sessions of thenon-management directors and at all meetings at which the Chairman is not present; |
call meetings of thenon-management directors as he or she deems necessary; |
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serve as liaison between the Chief Executive Officer and thenon-management directors; |
7 • PMI 2019 Proxy Statement
| BOARD OPERATIONS AND GOVERNANCE | |
approve agendas and schedules for Board meetings; |
advise the Chairman and the Chief Executive Officer of the Board’s informational needs and approve information sent to the Board; |
together with the Chairman of the Compensation and Leadership Development Committee, communicate goals and objectives to the Chief Executive Officer and the results of the evaluation of his performance; and |
be available for consultation and communication if requested by major shareholders. |
The Presiding Director is invited to attend all meetings of Committees of the Board. Lucio A. Noto currently serves as the Presiding Director.
The Board has established various standing Committees to assist with the performance of its responsibilities. These Committees and their current members are listed below. The Board designates the members of these Committees and the Committee Chairs at its organizational meeting following the Annual Meeting of Shareholders, based on the recommendations of the
Nominating and Corporate
Governance Committee. The Board has adopted written charters for each of these Committees and these charters are available on the Company’s website atwww.pmi.com/governance.our-business/about-us. The Chair of each Committee develops the agenda for that Committee and determines the frequency and length of Committee meetings. Each Committee meets as often as it deems appropriate and each has sole authority to retain its own legal counsel, experts and consultants.
The Audit Committee, the Compensation and Leadership Development Committee, and the Nominating and Corporate Governance Committee each consists entirely ofnon-management directors, all of whom the Board has determined are independent within the meaning of the listing standards of the New York Stock Exchange and Rule 10A-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Board has determined that all members of the Audit Committee are financially literate and that Lucio A. Noto is an “audit committee financial expert” within the meaning set forth in the regulations of the Securities and Exchange Commission. No member of the Audit Committee, the Compensation and Leadership Development Committee or the Nominating and Corporate Governance Committee received any payments in 20162018 from Philip Morris International Inc. or its subsidiaries, other than compensation received as a director.
PMI 20172019 Proxy Statement • 118
| BOARD OPERATIONS AND GOVERNANCE | |
Committees and | Current Members | Purpose, Authority and Responsibilities | ||||||
AUDIT
Meetings: | - Jennifer Li (Chair) - Massimo Ferragamo - Werner Geissler - Jun Makihara - Lucio A. Noto - Stephen M. Wolf | Purpose:to assist the Board in its oversight of: | ||||||
| the integrity of the financial statements and financial reporting processes and systems of internal control; | |||||||
| the qualifications, independence and performance of the independent auditors; | |||||||
| the internal audit function; and | |||||||
| the Company’s compliance with legal and regulatory requirements. | |||||||
Authority and Responsibilities: | ||||||||
| sole authority for appointing, compensating, retaining and overseeing the work of the independent auditors; | |||||||
| evaluate the internal audit function; | |||||||
| evaluate the compliance function; | |||||||
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| review financial risk assessment and management; | |||||||
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◾oversee the risk management of excessive or discriminatory taxation; | ||||||||
| oversee the risk management of illicit trade; | |||||||
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◾ oversee the risk management of climate change, pandemics and natural disasters; | ||||||||
◾ oversee the management of the risk that credibility and reputational issues may stand in the way of promoting the benefits of RRPs as a necessary pillar of tobacco control and impair their commercial success; | ||||||||
◾oversee the risk management of judicial and regulatory disregard for the rule of law; and | ||||||||
| ◾establish “whistleblower” procedures and review claims of improper conduct.
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COMPENSATION AND LEADERSHIP DEVELOPMENT
Meetings: 5 | - Werner Geissler (Chair) - - Lucio A. Noto - Robert B. Polet - Stephen M. Wolf | Purpose: | ||||||
◾discharge the Board’s responsibilities relating to executive compensation; | ||||||||
◾produce a report for inclusion in the proxy statement; and | ||||||||
◾review succession plans for the CEO and other senior executives. | ||||||||
Authority and Responsibilities: | ||||||||
◾review and approve the Company’s overall compensation philosophy and design; | ||||||||
◾review and approve corporate goals and objectives relevant to the compensation of the CEO, evaluate his performance and determine and approve his compensation; | ||||||||
◾review and approve the compensation of all executive officers; | ||||||||
◾recommend to the Board compensation plans and administer and make awards under such plans and review the cumulative effect of its actions; | ||||||||
◾monitor compliance by executives with our share ownership requirements; | ||||||||
◾review and assist with the development of executive succession plans, evaluate and make recommendations to the Board regarding potential CEO candidates and evaluate and approve candidates to fill other senior executive positions; | ||||||||
◾oversee the management of risks related to compensation design and payout; | ||||||||
◾oversee the management of the risk that the Company is unable to attract and retain the necessary talent | ||||||||
◾review and discuss with management proposed disclosures regarding executive compensation matters; and | ||||||||
| | ◾recommend to the Board whether the Compensation Discussion and Analysis should be accepted for inclusion in the proxy statement and annual report. | |||||||
9 • PMI 2019 Proxy Statement
| BOARD OPERATIONS AND GOVERNANCE | |
Committees and 2018 Meetings | Current Members | Purpose, Authority and Responsibilities | ||||
FINANCE
Meetings: 4 | - Jun Makihara (Chair) -
- Werner Geissler - - - Kalpana Morparia - Lucio A. Noto - Frederik Paulsen - Robert B. Polet - Stephen M. Wolf | Purpose, Authority and Responsibilities: | ||||
◾monitor the Company’s financial performance and condition; | ||||||
◾oversee sources and uses of cash flow and capital structure; | ||||||
◾advise the Board on dividends, share repurchases and other financial matters; | ||||||
◾advise the Board on the Company’s long-term financing plans, short-term financing plans and credit facilities; | ||||||
◾oversee the management of the Company’s cash management function; | ||||||
◾oversee the management of the Company’s pension plans, including funded status and performance; | ||||||
◾oversee the management of the Company’s investor relations and stock market performance; | ||||||
◾oversee the management of the | ||||||
◾oversee the management of the risks to the Company’s pricing strategies; | ||||||
◾ oversee the risk that failure to effectively implement or integrate business development initiatives could impair the achievement of our strategic objectives; | ||||||
◾oversee the management of the risks of | ||||||
◾ oversee the management of the risks of global macro-economic uncertainty.
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12 • PMI 2017 Proxy Statement
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CORPORATE GOVERNANCE Meetings: 4 | |||||||||||
| - Kalpana Morparia (Chair) - Massimo Ferragamo - Jennifer Li - Lucio A. Noto - Robert B. Polet - Stephen M. Wolf | Purpose: | |||||||||
| identify qualified candidates for Board membership; | ||||||||||
| recommend nominees for election at the | ||||||||||
| advise the Board on corporate governance and sustainability matters; and | ||||||||||
| oversee self-evaluation of the Board and each Committee. | ||||||||||
Authority and Responsibilities: | |||||||||||
| review qualifications of prospective candidates for director; | ||||||||||
| consider performance of incumbent directors; | ||||||||||
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◾make recommendations to the Board regarding director independence and the function, composition and structure of the Board and its Committees; | |||||||||||
| oversee the Company’s lobbying and trade association activities and expenditures; | ||||||||||
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◾recommend corporate governance guidelines; and | |||||||||||
| ◾review director compensation.
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PRODUCT INNOVATION AND REGULATORY AFFAIRS
Meetings: 3 | - - Massimo Ferragamo - Werner Geissler - Lisa A. Hook - Jun Makihara -
- Robert B. Polet - Stephen M. Wolf | Purpose: | |||||||||
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| monitor and review key legislative, regulatory and public policy | ||||||||||
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◾ monitor the Company’s management of its intellectual property; | |||||||||||
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PMI 20172019 Proxy Statement • 1310
| BOARD OPERATIONS AND GOVERNANCE | |
Risk oversight is conducted both by the Committees of the Board with respect to their areas of responsibility as well as by the full Board. During 2015, management conducted a reassessment of strategic enterprise risk. As part of this reassessment, the senior management teamManagement has identified and prioritized key businessenterprise risks based on four risk dimensions: theimpact a risk could have on the organization if it occurs, thelikelihood a risk will occur, thevelocity with which a risk would affect the organization if it occurs, and theinterconnectivity of a risk with other risks. As part of the risk management process, the Company has established a Corporate Risk Governance Committee (CRGC)(“CRGC”) comprising the CFO,Chief Operating Officer, the Chief Financial Officer, the Vice President and Controller, the Vice President, Corporate Audit, the Vice President and Chief Compliance Officer and the Vice President, Treasury and Corporate Finance.Chief Ethics & Compliance Officer. Ownership of each of the prioritized risks wasis assigned to a member of senior management, and oversight of the management of each risk wasis assigned to a particular Board Committee or to the full Board. Management reports on these risks to the appropriate Committee and to the full Board throughout the year. The risk management oversight by each Committee is indicated in the chart on pages 129 and 13.10. The full Board oversees the management of risks relating to the Company’s business plan and litigation, and it receives reports on risk management by each Committee. The roles of the various components of risk assessment, management and oversight are shown below.
In 2018, the Company conducted a full-scale reassessment of the strategic enterprise risk management program that had been adopted in 2015. As part of the reassessment, management rationalized the list of strategic enterprise risks to eliminate overlap and to converge the focus. It revised the descriptions of various risks and identified new ones. It requalified the new list based on the four risk dimensions described above. Management updated the Board on the progress of the reassessment throughout 2018.
PMI Risk Assessment, Management and Oversight
Board of Directors Audit Committee Other Board Committees Senior Management Team (SMT) Corporate Risk Governance Committee (CRGC) Market Leadership Teams and Global Functions Responsible for oversight of risk management processes Allocates oversight of management of specific risks to the appropriate Board Committee Provides oversight by reviewing CRGC process and results Assesses risk appetite Provide oversight of management of specific risks falling within each Committee's sphere of expertise Aligns on key strategic enterprise risk annually Assigns ownership of strategic enterprise risks to individual SMT members Integrates risk assessment and management into long-range plan and budget review process Drives desired risk management culture through standard measurement and terminology Coordinates SMT strategic enterprise risk assessment Coordinates Integrated risk assessment for Internal Controls, Compliance, Corporate Audit and other functions Integrates key risks Into Internal Controls Chart of Controls process Own risk assessment and management for affiliate or function Drive sustainability through integration of risk management into existing business processes
Board of Directors Audit Committee Other Board Committees Senior Management Team (SMT) Corporate Risk Governance Committee (CRGC) Market Leadership Teams and Global Functions Responsible for oversight of risk management processes Allocates oversight of management of specific risks to the appropriate Board Committee Provides oversight by reviewing CRGC process and results Assesses risk appetite Provide oversight of management of specific risks falling within each Committee's sphere of expertise Aligns on key strategic enterprise risk annually Assigns ownership of strategic enterprise risks to individual SMT members Integrates risk assessment and management into long-range plan and budget review process Drives desired risk management culture through standard measurement and terminology Coordinates SMT strategic enterprise risk assessment Coordinates Integrated risk assessment for Internal Controls, Compliance, Corporate Audit and other functions Integrates key risks Into Internal Controls Chart of Controls process Own risk assessment and management for affiliate or function Drive sustainability through integration of risk management into existing business processes
1411 • PMI 20172019 Proxy Statement
| BOARD OPERATIONS AND GOVERNANCE | |
Shareholders and other interested parties who wish to communicate with the Board may do so by writing to the Presiding Director, Board of Directors of Philip Morris International Inc., 120 Park Avenue, New York, New York 10017-5579. Thenon-management directors have established procedures for the handling of communications from shareholders and other interested parties and directed the Corporate Secretary to act as their agent in processing any communications received. All communications that relate to matters that are within the scope of the responsibilities of the Board and its Committees are to be
forwarded to the Presiding
Director. Communications that relate to matters that are within the responsibility of one of the Board Committees are also to be forwarded to the Chair of the appropriate Committee. Communications that relate to ordinary business matters that are not within the scope of the Board’s responsibilities, such as customer complaints, are to be sent to the appropriate subsidiary. Solicitations, junk mail and obviously frivolous or inappropriate communications are not to be forwarded, but will be made available to anynon-management director who wishes to review them.
PMI 2017 Proxy Statement • 15
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Summary of CorporateStrong Governance Practices
The Nominating and Corporate Governance Committee of the Board reviews our corporate governance practices regularly and proposes modifications to our principles and other key governance practices as warranted for adoption by the Board. The following summarizes our key principles and practices and refers you to the pages of this proxy statement where you will find a more detailed discussion of various items:
✓ Majority voting standard for uncontested |
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✓ Proxy accessby-laws (page 13) |
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✓ Non-management directors elect
Presiding Director annually (pages 7-8)
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✓ Directors may be removed with or |
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✓ Non-management directors meet regularly
without management being present
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✓ No “poison pill” rights plan | ✓ Board committee oversight of sustainability strategies and | |
✓ Board-adopted “clawback” policy (page 38) | ||
16 • PMI 20172019 Proxy Statement • 12
| ELECTION OF DIRECTORS | |
Process for Nominating Directors
The Nominating and Corporate Governance Committee is responsible for identifying and evaluating candidates for director and for recommending to the Board a slate of nominees for election at the Annual Meeting of Shareholders.
In evaluating the suitability of individuals for Board membership, the Committee takes into account many factors. These include whether the individual meets requirements for independence; the individual’s general understanding of the various disciplines relevant to the success of a large publicly-traded company in today’s global business environment; the individual’s understanding of the Company’s global business and markets; the individual’s professional expertise and educational background; and other factors, including nationality and gender, that promote diversity of views and experience. The Committee evaluates each individual in the context of the Board as a whole, with the objective of recommending a group of directors that can best perpetuate the success of the business and represent long-term shareholder interests through the exercise of sound judgment, using its breadth of knowledge and experience. In determining whether to recommend a director forre-election, the Committee also considers the director’s attendance at meetings and participation in and contributions to the activities of the Board. The Committee has not established any specific minimum qualification standards for nominees to the Board, although from time to time the Committee may identify certain skills or attributes, such as financial experience, global business experience,consumer-centricity, digital transformation and scientific expertise, as being particularly desirable to help meet specific Board needs.
In identifying candidates for Board membership, the Committee relies on suggestions and recommendations from the Board, shareholders, management and others. The Committee does not distinguish between nominees recommended by shareholders and other nominees. From time to time, the Committee also retains search firms to assist in identifying candidates for director, gathering information about their background and experience, and acting as an intermediary with such candidates. In 2016, the Committee recommended Massimo Ferragamo to the Board after he was initially recommended by our Presiding Director and met with each of our directors.
Shareholders wishing to suggest candidates to the Committee for consideration as directors must submit a
written notice to the Corporate Secretary, who will provide it to the Committee. Ourby-laws set forth the procedures a shareholder must follow to nominate directors. These
procedures are summarized in this proxy statement under the caption “2018“2020 Annual Meeting.”
In addition, ourby-laws permit an eligible shareholder or group of shareholders who have owned 3% or more of PMI’s shares for at least three years to nominate and include in our proxy statement director candidates to occupy up to 20% of the authorized Board seats.
Recommendations of the Board; Director Attributes, Diversity, Refreshment and Tenure
It is proposed that thirteentwelve directors be elected to hold office until the next Annual Meeting of Shareholders and until their successors have been elected. The Nominating and Corporate Governance Committee has recommended to the Board, and the Board has approved, the persons named and, unless otherwise marked, a proxy will be voted for such persons. Each of the nominees currently serves as a director and each was elected by the shareholders at the 20162018 Annual Meeting, except for Mr. Ferragamo, who joined the Board in December 2016.Meeting. The Board believes that the experience, qualifications, attributes and skills of each of the nominees presented qualify them to deal with the complex global, regulatory, business, and financial issues thatfacing the Company, faces, and that the Board as a whole provides a breadth of knowledge, international experience, intellectual rigor and willingness to face tough issues. More than three-quarters
Our Board comprises a diverse group of individuals. Nine of the nominees, twothree of whom are women, arenon-U.S. nationals. Ten different nationalities are represented, underscoring the global perspective of the Board taken as a whole.
The Board has experienced a healthy level of director refreshment since ourspin-off in 2008. FiveThree of the original directors continue to serve on the Board. Of the remaining members of the Board, one joined in 2010, two in 2011, one in 2013, two in 2014, one in 2015, one in 2016 and one in 2016.2018. The average tenure of the Company’s directorsnominees is 5.56.8 years.
In recommending and nominating Mr. Marchionne, the Nominating and Corporate Governance Committee and As new Board members gain experience, the Board respectively, took note of Mr. Marchionne’s membership onrotates its various boards of directors. The Board unanimously recommends Mr. Marchionne for his significant and valuable contributions to its deliberations.committee chairmanships.
PMI 2017 Proxy Statement • 17
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Although it is not anticipated that any of the persons named below will be unable or unwilling to stand for election, a proxy, in the event of such an occurrence, may be voted for a substitute designated by the Board. However, in lieu of designating a substitute, the Board may amend the Company’sby-laws to reduce the number of directors.
13 • PMI 2019 Proxy Statement
| ELECTION OF DIRECTORS | |
After receiving the recommendation of the Nominating and Corporate Governance Committee, the Board has determined that each of the following nominees for director is independent of and has no material relationship with the Company: Harold Brown, Massimo Ferragamo, Werner Geissler, Lisa A. Hook, Jennifer Li, Jun Makihara, Kalpana Morparia, Lucio A. Noto, Frederik Paulsen, Robert B. Polet and Stephen M. Wolf. To assist it in making these determinations, the Board has adopted categorical standards of director independence that are set forth in the Corporate Governance Guidelines, which are available on the Company’s website atwww.pmi.com/governance.our-business/about-us. Each of theabove-named nominees qualifies as independent under these standards.
In making the determination that Mr. MarchionneCamilleri is not independent, the Board considered the Company’s sponsorship agreementrelationship with Ferrari, which began in 1984,1973, well before Mr. MarchionneCamilleri became CEO of Fiat (which then owned Ferrari)Ferrari in 2004.September 2018. The Company’s Formula 1 sponsorship agreement and its renewals have been negotiated on an arms-length basis with executives of Ferrari andprior to Mr. Marchionne has not been involved in any aspectCamilleri’s becoming CEO of the negotiations or the agreement.Ferrari. The Nominating and Corporate Governance Committee has reviewed the sponsorship as a Related Person Transaction (see page 73)58) and determined that it is in the best interests of the Company.
In making the affirmative determination that Ms. Morparia is independent, the Board considered the fact that the
Company has routine commercial relationships with J.P. Morgan Chase, Ms. Morparia’s employer. Payments by the Company to J.P. Morgan Chase are immaterial and Ms. Morparia has no direct or indirect material interest in these routine commercial relationships. Ms. Morparia has never represented J.P. Morgan Chase in connection with its provision of services to the Company, and her compensation is not affected by any banking relationship between the Company and J.P. Morgan Chase.
Majority Vote Standard in Uncontested Elections
All directors are elected annually. The Company’sby-laws provide that, where the number of nominees for director does not exceed the number of directors to be elected, directors shall be elected by a majority rather than by a plurality vote. Under applicable law, a director’s term extends until his or her successor is duly elected and qualified. Thus, an incumbent director who fails to receive a majority vote would continue to serve as a holdover director. To address that possibility, our Corporate Governance Guidelines require a director who receives less than a majority of the votes cast to offer to resign. The Nominating and Corporate Governance Committee would then consider, and recommend to the Board, whether to accept or reject the offer.
The Board recommends a vote FOR each of
the nominees identified below.
PMI 2019 Proxy Statement18 • 14PMI 2017 Proxy Statement
| ELECTION OF DIRECTORS | |
| Current Committee Membership | ||||||||||||||||||||||
| Nominee | Director
| Nationality |
| Independent | Audit | Compensation and Leadership Development | Finance | Nominating and Corporate Governance |
Product | |||||||||||||
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| 2013 | Greece/Switzerland | |||||||||||||||||||
Louis C. Camilleri (Chairman) | 2008 | UK | ||||||||||||||||||||
Massimo Ferragamo | 2016 | Italy | ✓ | ✓ | ✓ | ✓ | ✓ | |||||||||||||||
Werner Geissler | 2015 | Germany | ✓ | ✓ | Chair | ✓ | ✓ | |||||||||||||||
Lisa A. Hook | 2018 | USA | ✓ | ✓ | ✓ | ✓ | ||||||||||||||||
Jennifer Li | 2010 | China | ✓ | Chair | ✓ | ✓ | ||||||||||||||||
Jun Makihara | 2014 | Japan | ✓ | ✓ | Chair | ✓ | ||||||||||||||||
Kalpana Morparia | 2011 | India | ✓ | ✓ | Chair | ✓ | ||||||||||||||||
Lucio A. Noto (Presiding Director) | 2008 |
| ✓ | ✓ | ✓ | ✓ | ✓ | |||||||||||||||
Frederik Paulsen | 2014 | Sweden | ✓ | ✓ | Chair | |||||||||||||||||
Robert B. Polet | 2011 | Netherlands | �� | ✓ | ✓ | ✓ | ✓ | ✓ | ||||||||||||||
Stephen M. Wolf | 2008 | USA | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ||||||||||||||
15 • PMI 2019 Proxy Statement
| ELECTION OF DIRECTORS | |
Director Qualifications
Our Board is a diverse, highly engaged group that provides strong, effective oversight of our Company. Both individually and collectively, our directors have the qualifications, skills and experience needed to inform and oversee the Company’s long-term strategic growth. Each director has senior executive experience, in many cases with large, complex organizations with significant global operations. Several directors have leadership experience in the global consumer products sector, and others bring expertise regarding information technology, cybersecurity, digital transformation, sustainability, and environmental, social and governance matters. These and the other skills and attributes discussed below are key considerations in evaluating the composition of our Board and inform our Board succession planning and director selection process.
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| ✓ Strength of Character and Judgment | ✓ Intellectual/Analytical Skills | ||||||||||||||||
✓ Proven Record of Success | ✓ Corporate Governance Experience | ✓ Strategic Planning | ||||||||||||||||||
✓ Leadership | ✓ Talent Management/Succession Planning | ✓ Risk Assessment and Oversight | ||||||||||||||||||
✓ Understanding our Global Business and Markets | ✓ Diversity of Perspectives | |||||||||||||||||||
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PMI 2017 Proxy Statement • 19
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Our director nominees’ individual experiences, qualifications, attributes and skills are highlighted in the following matrix. The matrix is intended as a high-level summary and not an exhaustive list of each nominee’s skills or contributions to the Board. Further biographical information about each director standing forDirector Nomineesre-election
is set forth on the following pages.
EXPERIENCE |
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Senior Executive | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ||||||||||||||||||||||||||||||||||
Tobacco Industry | ✓ | ✓ | ||||||||||||||||||||||||||||||||||||||||||||
Global Consumer-Centric Engagement | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ||||||||||||||||||||||||||||||||||||||
Operations | ✓ | ✓ | ✓ | ✓ | ✓ | |||||||||||||||||||||||||||||||||||||||||
Information Technology and Privacy | ✓ | ✓ | ||||||||||||||||||||||||||||||||||||||||||||
Sustainability/Corporate Responsibility | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | |||||||||||||||||||||||||||||||||||||||
Risk Assessment and Oversight | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ||||||||||||||||||||||||||||||||||
CFO or Banking | ✓ | ✓ | ✓ | ✓ | ✓ | |||||||||||||||||||||||||||||||||||||||||
Civic Leadership | ✓ | ✓ | ✓ | |||||||||||||||||||||||||||||||||||||||||||
Global Pharmaceutical | ✓ | |||||||||||||||||||||||||||||||||||||||||||||
Marketing and Retail | ✓ | ✓ | ||||||||||||||||||||||||||||||||||||||||||||
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PMI 2019 Proxy Statement20 • 16PMI 2017 Proxy Statement
| ELECTION OF DIRECTORS | |
Director Nominees
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ANDRÉ CALANTZOPOULOS
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Primary Occupation: Chief Executive Officer
Director since: 2013
Age: 61 |
Professional Experience: Mr. Calantzopoulos became our Chief Executive Officer
Director Qualifications: Mr. Calantzopoulos’s intellect andall-encompassing knowledge of the Company serve him well as CEO and as a member of the Board. He has played an instrumental role in numerous key initiatives,
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PMI 2017 Proxy Statement • 21
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LOUIS C. CAMILLERI
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Primary Occupation:
Ferrari N.V.
Director since: 2008
Age: 64 |
Professional Experience: Mr. Camilleri is ournon-executive Chairman, having served as our Chairman and Chief Executive Officer from ourspin-off in 2008 until
Other Directorships and Associations: Mr. Camilleri is a director of América Móvil, S.A.B. de C.V. and Ferrari N.V. He previously served on the Board of Telmex International SAB from
Director Qualifications: Mr. Camilleri’s extensive and detailed knowledge of the Company and the tobacco industry and an incisive strategic view, combined with his transparency and open-mindedness, serve him well in his ongoing role as Chairman of the Board.
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17 • PMI 2019 Proxy Statement
| ELECTION OF DIRECTORS | |
MASSIMO FERRAGAMO
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Primary Occupation: Chairman, Ferragamo USA Inc.
Director since: 2016
Age: 61 |
Professional Experience: Mr. Ferragamo has served as Chairman of Ferragamo USA Inc. since 2000, having previously served as President of that company since 1985. Mr. Ferragamo is also Vice President of the Lungarno Hotel Group and Executive Vice President of the Ferragamo Foundation.
Other Directorships and Associations: Mr. Ferragamo is a director of Ferragamo Finanziaria S.p.A. Mr. Ferragamo served on the board of directors of Yum! Brands, Inc. from 1997 until 2016.
PMI Board Committees: Mr. Ferragamo is a member of the Audit, Finance, Nominating and Corporate Governance, and Product Innovation and Regulatory Affairs Committees.
Director Qualifications: Mr. Ferragamo’s entrepreneurial spirit and deep experience in the global luxury consumer products retail business
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22 • PMI 2017 Proxy Statement
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WERNER GEISSLER
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Primary Occupation: Operating Partner, Advent International
Director since: 2015
Age: 65 |
Professional Experience: Mr. Geissler became an Operating Partner of Advent International in 2015. He previously served as Vice Chairman and Special Advisor to the Chairman and CEO of Procter and Gamble until his retirement in January 2015. He joined that company in 1979 and served in various capacities, including President, Northeast Asia, from 2001 to 2004, Group President, Central and Eastern Europe, Middle East and Africa, from 2004 to 2007, and Vice Chairman, Global Operations, from 2007 to 2014.
Other Directorships and Associations: Mr. Geissler is a director of
PMI Board Committees: Mr. Geissler is Chair of the Compensation and Leadership Development Committee and a member of the Audit, Finance, and Product Innovation and Regulatory Affairs Committees.
Director Qualifications: Mr. Geissler has a keen knowledge of the global consumer products business, having served as a senior consumer products executive in many of the Company’s most important markets and regions. His deep senior executive experience serves him well as Chair of the Compensation and Leadership Development Committee.
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PMI 2019 Proxy Statement • 18
| ELECTION OF DIRECTORS | |
LISA A. HOOK | ||
Primary Occupation: Businesswoman Director since: 2018 Age: 60 | Professional Experience: Ms. Hook served as Chief Executive Officer of Neustar, Inc. from October 2010, as a member of its Board from November 2010, and as President from January 2008. She retired from Neustar in July 2018. Ms. Hook served as President and Chief Executive Officer of Sunrocket, Inc. from 2006 to 2007, and held several executive-level posts at America Online, Inc. from 2001 to 2004. Previously, she was a partner at Brera Capital Partners, a global private equity investment firm, managing director of Alpine Capital Group, LLC., an investment banking firm, an executive at Time Warner, Inc., a legal advisor to the Chairman of the Federal Communications Commission, and a senior attorney at Viacom International, Inc. Other Directorships and Associations: Ms. Hook serves on the board of Worldpay, Inc., a payment processing firm. Ms. Hook served as Senior Independent Director of RELX PLC and RELX NV, providers of information solutions, from 2006 to 2016. Previously, she served as a director of Covad Communications, Time Warner Telecom, Inc., and National Geographic Ventures. In 2012, she was appointed by President Obama to serve on the National Security Telecommunications Advisory Committee. PMI Board Committees: Ms. Hook is a member of the Compensation and Leadership Development, Finance, and Product Innovation and Regulatory Affairs Committees. Director Qualifications: With her experience as CEO of a company whose holistic understanding of identity is key to deploying actionable insights that grow and guard many of the world’s largest corporations, Ms. Hook brings to the Board valuable experience as the Company is transitioning to aconsumer-centric, highly digitalized business model. | |
JENNIFER LI
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Primary Occupation: Chief Officer Investment Partners
Director since: 2010
Age: 51 |
Professional Experience: Ms. Li currently serves as Chief Executive Officer and Managing Partner, Changcheng Investment Partners, the newly initiated growth fund of Baidu, Inc. Previously, she served as Chief Executive Officer and General Managing Director of Baidu Capital. Ms. Li joined Baidu, Inc., the largest Internet search engine in China and the third-largest independent search engine in the world, in Other Directorships and Associations: Ms. Li is a director of Flex Ltd., ABB Ltd. and HSBC, Asia.
PMI Board Committees: Ms. Li is the Chair of the Audit Committee and a member of the Finance and Nominating and Corporate Governance Committees.
Director Qualifications: Ms. Li draws upon her strong financial and accounting expertise as Chair of the Audit Committee, and her experience in a fast-growing, high-tech business and Asian background strengthen the Board’s depth and global perspective.
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19 • PMI 20172019 Proxy Statement • 23
| ELECTION OF DIRECTORS | |
JUN MAKIHARA
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Primary Occupation: Retired Businessman
Director since: 2014
Age: |
Professional Experience: Mr. Makihara was employed at Goldman, Sachs & Co. from 1981 to 2000, during which time he was a General Partner for six years, working in New York, Los Angeles, and Tokyo. During his tenure in Tokyo, he wasco-head of the Investment Banking Group and the Japanese Equities Group and also served asco-branch manager. Subsequently, he was Chairman of Neoteny Co., Ltd., a Japanese venture incubator, until 2015.
Other Directorships and Associations: Mr. Makihara is a director of Monex Group, Inc. and Shinsei Bank, Ltd. He is a trustee of the Protestant Episcopal Cathedral Foundation in Washington, D.C. and a board member of the Japan Society in New York. He also served on the board of RHJ International S.A. from 2005 to 2014.
PMI Board Committees: Mr. Makihara is Chair of the Finance Committee and a member of the Audit and Product Innovation and Regulatory Affairs Committees.
Director Qualifications: Mr. Makihara brings his deep experience in finance to his position as Chair of the Finance Committee, and the Board benefits from his entrepreneurial spirit and a thorough knowledge of business in Asia,
| |
| ||
|
| |
24 • PMI 2017 Proxy Statement
| |
KALPANA MORPARIA
| ||
Primary Occupation: Chief Executive Officer, South and South East Asia, J.P. Morgan Chase
Director since: 2011
Age: |
Professional Experience: Ms. Morparia assumed her current position in April 2016, having previously served as CEO of J.P. Morgan India since 2008. She is a member of J.P. Morgan’s Asia Pacific Management Committee. Prior to joining J.P. Morgan India, Ms. Morparia served as Joint Managing Director of ICICI Bank, India’s second-largest bank, from 2001 to 2007 and the Vice Chair of ICICI’s insurance and asset management business from 2007 to 2008.
Other Directorships and Associations: Ms. Morparia is a director of Dr. Reddy’s Laboratories Ltd. and Hindustan Unilever Limited.
PMI Board Committees: Ms. Morparia is Chair of the Nominating and Corporate Governance Committee and
Director Qualifications: With her strong executive leadership experience in finance, and her deep knowledge of international business, Ms. Morparia provides a keen perspective on economies in Asia, while her legal background and deep experience in highly regulated industries serve her well as Chair of the Nominating and Corporate Governance Committee.
| |
PMI 2019 Proxy Statement • 20
| ELECTION OF DIRECTORS | |
LUCIO A. NOTO
| ||
Primary Occupation: Managing Partner, Midstream Partners, LLC
Director since: 2008
Age: |
Professional Experience: Mr. Noto assumed his current position with Midstream Partners, LLC in March 2001. He retired as Vice Chairman of ExxonMobil Corporation in January 2001, a position he had held since the merger of the Exxon and Mobil companies in November 1999. Before the merger, Mr. Noto was Chairman and Chief Executive Officer of Mobil Corporation. Mr. Noto had been employed by Mobil continuously since 1962.
Other Directorships and Associations: Mr. Noto is a director of Penske Automotive Group, Inc. He also served on the boards of IBM from 1995 to 2008, Altria Group, Inc. from 1998 to 2008, Shinsei Bank from 2005 to 2008, Commercial International Bank from 2006 to 2009 and RHJ International S.A. from 2011 to 2015.
PMI Board Committees: Mr. Noto is the Presiding Director and a member of the Audit, Compensation and Leadership Development, Finance, and Nominating and Corporate Governance Committees.
Director Qualifications: As the former chief financial officer and chief executive officer of a large, multi-national oil company, together with his past governance experience serving on the boards and audit committees of a number of major international companies, Mr. Noto brings an extensive knowledge of internal controls and risk assessment to his role as a member of the Audit Committee
| |
PMI 2017 Proxy Statement • 25
| |
FREDERIK PAULSEN
| ||
Primary Occupation: Chairman, Ferring Group
Director since: 2014
Age: |
Professional Experience: Dr. Paulsen has been Chairman of the Ferring Group, a research-driven, specialty biopharmaceutical group, since 1988, having joined that company in 1976.
Other Directorships and Associations: Dr. Paulsen is a member of the boards of MGIMO University in Moscow, Russia, and the Pro Universitate of the Christian Albrechts University in Kiel, Germany, and a trustee of the Salk Institute of Biological Research in La Jolla, California, USA.
PMI Board Committees: Dr. Paulsen is Chair of the Product Innovation and Regulatory Affairs Committee and a member of the Finance
Director Qualifications: Dr. Paulsen’s substantial experience as head of a successful multinational biopharmaceutical group, together with his scientific background, bring a unique perspective to the Company’s critical efforts to develop
| |
21 • PMI 2019 Proxy Statement
| ELECTION OF DIRECTORS | |
ROBERT B. POLET
| ||
Primary Occupation: Chairman,
Director since: 2011
Age: |
Professional Experience: Mr. Polet is currently serving as Chairman of Rituals Cosmetics Enterprise B.V. He was Chairman of Safilo Group S.p.A.
Other Directorships and Associations: Mr. Polet is a director of Safilo Group S.p.A., William Grant & Sons Limited and Arica Holding
PMI Board Committees: Mr. Polet serves on the Compensation and Leadership Development, Finance, Nominating and Corporate Governance, and Product Innovation and Regulatory Affairs Committees.
Director Qualifications: In his previous position, Mr. Polet was responsible for managing such global luxury brands as Gucci, Bottega Veneta, Yves Saint Laurent, Boucheron, Balenciaga, Sergio Rossi, Alexander McQueen and Stella McCartney. He brings to the Board his considerable entrepreneurial business experience in the global luxury business and his deep executive background running major consumer packaged goods businesses, as well as his extensive knowledge of global markets.
| |
26 • PMI 2017 Proxy Statement
| |
STEPHEN M. WOLF
| ||
Primary Occupation: Managing Partner, Alpilles, LLC
Director since: 2008
Age: |
Professional Experience: Mr. Wolf has been Managing Partner of Alpilles, LLC since
Other Directorships and Associations: Mr. Wolf is Chairman of the Advisory Board of Trilantic Capital Partners and
PMI Board Committees: Mr. Wolf is a member of the Audit, Compensation and Leadership Development, Finance, Nominating and Corporate Governance, and Product Innovation and Regulatory Affairs Committees.
Director Qualifications: As a former chief executive officer of four New York Stock Exchange listed companies, and with experience on the boards of a number of companies, Mr. Wolf provides strong counsel on a wide array of matters.
| |
PMI 20172019 Proxy Statement • 2722
| COMPENSATION OF DIRECTORS | |
Compensation Philosophy
Directors who are full-time employees of the Company receive no additional compensation for services as a director. The Company’s philosophy is to provide competitive compensation necessary to attract and retain high-qualitynon-employee directors. The Board believes that a substantial portion of director compensation should consist of equity-based compensation to assist in aligning directors’ interests with the interests of shareholders.
Compensation At his request, Dr. Paulsen serves as a director without compensation. |
|
| ||||||||
Annual cash retainer: | ||||||||||
| $
| 125,000
|
| |||||||
Annual equity award:
| $
| 175,000
|
| |||||||
Chairman’s incremental cash retainer:
| $
| 400,000
|
| |||||||
Presiding Director cash retainer: | $
| 25,000
|
| |||||||
Committee Chair cash retainer: | $
| 35,000
|
| |||||||
Committee member cash retainer: |
| None
|
| |||||||
Committee meeting fees: |
| None
|
| |||||||
Stock |
| None
|
| |||||||
| ||||||||||
Pursuant to the 2008 PMI Stock Compensation Plan for Non-Employee Directors, each non-employee director then in office (except for Dr. Paulsen) received an annual equity award on May 4, 2016, of shares of common stock having a value of $175,000 on the date of grant (1,782 shares of common stock with a value of $98.225 per share). As a non-employee Chairman, Mr. Camilleri received an annual equity award having a value of $1.25 million.Share Retention Requirement
Anon-employee director may not sell or otherwise dispose of PMI shares received pursuant to the annual equityshare award (other than shares withheld from the grant to pay taxes) unless he or she continues after the disposition to own PMI shares having an aggregate value of at least five times the then-current annual cash retainer. The Company’s anti-hedging and anti-pledging policies also apply tonon-employee directors (See(see page 44)38).
2823 • PMI 20172019 Proxy Statement
| COMPENSATION OF DIRECTORS | |
The following table presents the compensation received by thenon-employee directors for fiscal year 2016.2018.
| Name | Fees Earned or Paid in Cash ($) | Equity ($) | Personal Use of Company Aircraft ($) (a) | Car Expenses ($) (b) | All Other ($) | Total ($) | ||||||||||||
Harold Brown
|
|
175,000
|
|
|
175,000
|
|
-
|
-
|
-
|
|
350,000
|
| ||||||
Louis C. Camilleri
|
|
1,250,000
|
|
|
1,250,000
|
|
185,470
|
23,710
|
-
|
|
2,709,180
|
| ||||||
Massimo Ferragamo (c)
|
|
9,750
|
|
|
87,500
|
|
-
|
-
|
-
|
|
97,250
|
| ||||||
Werner Geissler
|
|
171,250
|
|
|
175,000
|
|
-
|
-
|
-
|
|
346,250
|
| ||||||
Jennifer Li
|
|
175,000
|
|
|
175,000
|
|
-
|
-
|
-
|
|
350,000
|
| ||||||
Jun Makihara
|
|
166,250
|
|
|
175,000
|
|
-
|
-
|
-
|
|
341,250
|
| ||||||
Sergio Marchionne
|
|
135,000
|
|
|
175,000
|
|
-
|
-
|
-
|
|
310,000
|
| ||||||
Kalpana Morparia
|
|
175,000
|
|
|
175,000
|
|
-
|
-
|
-
|
|
350,000
|
| ||||||
Lucio A. Noto
|
|
178,750
|
|
|
175,000
|
|
-
|
-
|
-
|
|
353,750
|
| ||||||
Frederik Paulsen (d)
|
|
-
|
|
|
-
|
|
-
|
-
|
-
|
|
-
|
| ||||||
Robert B. Polet
|
|
145,000
|
|
|
175,000
|
|
-
|
-
|
-
|
|
320,000
|
| ||||||
Stephen M. Wolf
|
|
158,750
|
|
|
175,000
|
|
-
|
-
|
-
|
|
333,750
|
| ||||||
Name
| Fees Earned or Paid in Cash ($)
| Stock ($)
| All Other ($)
| Total ($)
| ||||||||||
Harold Brown
|
|
121,333
|
|
|
175,000
|
|
-
|
|
296,333
|
| ||||
Louis C. Camilleri(a)
|
|
525,000
|
|
|
175,000
|
|
-
|
|
700,000
|
| ||||
Massimo Ferragamo
|
|
125,000
|
|
|
175,000
|
|
-
|
|
300,000
|
| ||||
Werner Geissler
|
|
160,000
|
|
|
175,000
|
|
-
|
|
335,000
|
| ||||
Lisa A. Hook
|
|
80,903
|
|
|
175,000
|
|
-
|
|
255,903
|
| ||||
Jennifer Li
|
|
160,000
|
|
|
175,000
|
|
-
|
|
335,000
|
| ||||
Jun Makihara
|
|
160,000
|
|
|
175,000
|
|
-
|
|
335,000
|
| ||||
Sergio Marchionne
|
|
71,181
|
|
|
175,000
|
|
-
|
|
246,181
|
| ||||
Kalpana Morparia
|
|
160,000
|
|
|
175,000
|
|
-
|
|
335,000
|
| ||||
Lucio A. Noto
|
|
150,000
|
|
|
175,000
|
|
-
|
|
325,000
|
| ||||
Frederik Paulsen(b)
|
|
-
|
|
|
-
|
|
-
|
|
-
|
| ||||
Robert B. Polet
|
|
125,000
|
|
|
175,000
|
|
-
|
|
300,000
|
| ||||
Stephen M. Wolf
|
|
125,000
|
|
|
175,000
|
|
-
|
|
300,000
|
| ||||
| (a) | For reasons of security and personal safety, prior to his becoming CEO of Ferrari N.V. in September 2018, PMI |
| (b) |
|
|
At his request, Dr. Paulsen serves as a director without compensation. |
Non-employee directors may also elect to defer the award of shares of common stock and all or part of the annual and Committee retainers. Deferred fee amounts are “credited” to an unfunded account and may be “invested” in eight “investment choices,” including a PMI common stock equivalent account. These “investment choices” parallel the investment options offered to employees under the PMI Deferred Profit-Sharing Plan and determine the “earnings” that are credited for bookkeeping purposes to anon-employee director’s account.
The Company reimbursesnon-employee directors (other than Dr. Paulsen) for their reasonable expenses incurred in attending Board of Directors, Committee and shareholder meetings and other corporate functions, including travel, meals and lodging.Non-employee directors (other than Dr. Paulsen) also are covered by business travel and accident insurance, which the Company maintains for their benefit when they travel on Company business, as well as group life insurance.
PMI 20172019 Proxy Statement • 2924
| STOCK OWNERSHIP INFORMATION | |
Ownership of Equity Securities
The following table shows the number of shares of common stock beneficially owned as of March 10, 2017,8, 2019, by each director, nominee for director and named executive officer, and the directors and executive officers of the Company as a group. Unless otherwise indicated, each of the named individuals has sole voting and investment power with respect to the shares shown. The beneficial ownership of each director, nominee for director and executive officer, and of the directors, nominees for director and executive officers as a group, is less than 1% of the outstanding shares.
| Name | Amount and Nature of Beneficial Ownership(1) | |||
|
| |||
André Calantzopoulos
|
|
| 794,901
| |
Louis C. Camilleri
|
|
| 502,687
| |
Massimo Ferragamo
|
|
| 5,059
| |
Marc S. Firestone
|
|
| 205,295
| |
Werner Geissler
|
60,222 | |||
Lisa A. Hook
|
|
2,274
| ||
Martin G. King
|
|
| 155,985
| |
Jennifer Li
|
|
| 63,323
| |
Jun Makihara
|
|
| ||
|
| 13,527
| ||
Kalpana Morparia
|
|
| 14,426
| |
Lucio A. Noto
|
|
| 104,863
| |
Jacek Olczak
|
|
| 252,504
| |
Frederik Paulsen
|
|
| —
| |
Robert B. Polet
|
|
| 15,955
| |
Stephen M. Wolf
|
|
| 90,127
| |
Miroslaw Zielinski
|
|
| 237,013
| |
Group
|
|
| 3,247,147
|
| (1) | Includes shares of deferred stock as follows: |
In addition to the shares shown in the table above, as of March 10, 2017,8, 2019, those directors who participate in the Company’s director deferred fee program had the following PMI share equivalents allocated to their accounts: Mr. Ferragamo, 106;2,989; Mr. Makihara, 4,161;8,260; Mr. Noto, 86,755;98,625; and Mr. Wolf, 29,261.32,076. See “Compensation of Directors” on page 2924 for a description of the deferred fee program for directors.
3025 • PMI 20172019 Proxy Statement
| STOCK OWNERSHIP INFORMATION | |
The following table sets forth information regarding persons or groups known to the Company to be beneficial owners of more than 5% of the outstanding common stock.
| ||||||||||
| ||||||||||
|
|
|
|
| ||||||
| Name and Address of Beneficial Owner | Number of Shares Beneficially Owned | Percent of Common March 8, 2019 | ||||||||
BlackRock, Inc. 55 East 52nd Street New York, NY 10055
|
|
95,049,723 |
(1) |
|
6.11 |
% | ||||
The Vanguard Group 100 Vanguard Blvd. Malvern, PA 19355
|
|
122,461,429 |
(2) |
|
7.87 |
% | ||||
| (1) | According to a Schedule 13G/A, dated |
| (2) | According to a Schedule 13G/A, dated February |
Section 16(a) Beneficial Ownership Reporting Compliance
The Company believes that during 20162018 all reports for the Company’s executive officers and directors that were required to be filed under Section 16 of the Securities Exchange Act of 1934 were filed on a timely basis, except that the purchase of 1,000 shares on November 17, 2016, by Mr. Patrick Brunel was inadvertently reported late.basis.
PMI 20172019 Proxy Statement • 3126
| COMPENSATION DISCUSSION AND ANALYSIS | |
Our Compensation Discussion and Analysis outlines the design of our executive compensation program components, the objectives and principles upon which they are based, our 20162018 performance and the resulting decisions of the Compensation and Leadership Development Committee to reflect that performance in setting compensation for our CEO, the other named executive officers, and the other members of our senior management team.
Compensation and Leadership Development Committee
The Compensation and Leadership Development Committee consists entirely ofnon-management directors, all of whom our Board has determined are independent within the meaning of the listing standards of the New York Stock Exchange. Its responsibilities are described below and set forth in the Compensation and Leadership Development Committee Charter, which is available on the Company’s website atwww.pmi.com/governance.our-business/about-us. The members of the Committee are: Werner Geissler (Chair), Harold Brown,Lisa A. Hook, Lucio A. Noto, Robert B. Polet and Stephen M. Wolf. The Committee met five times in 2016.2018. The Chair of the Committee, in consultation with the other members, sets meeting agendas. The Committee reports its actions and recommendations to the Board.
Program Design, Philosophy and Objectives
Our compensation and benefits program supports our business and financial objectives. The program’s components are set and periodically reviewed by the Committee. In 2015, the Committee adopted substantial changes to the program, as set forth in this Compensation Discussion and Analysis. Each component of our new program is designed to achieve one or more of the following objectives:
to support our ability to attract, develop and retainworld-class leaders in a controversial industry; |
to align the interests of executives and shareholders; |
to reward performance againstpre-defined objectives; |
to support long-term business growth, superior financial results, sustainability efforts, societal alignment and integrity of conduct; |
to promote internal fairness and a disciplined assessment of performance; and |
to align executive incentives with our risk management objectives. |
These objectives provide the framework for the various components of compensation and benefits and take into account the specific nature of our business. Together, these elements form an aggregate package that is
intended to be appropriately competitive. The design of the overall package encompasses the following features:
a mix of fixed and |
a mix of annual and long-term compensation and benefits to appropriately reward the achievement of both annual and long-term goals and objectives; |
a mix of cash and deferred equity compensation that seeks to discourage actions that are solely driven by the Company’s share price at any given time to the detriment of PMI’s long-term strategic goals; and |
an optimal balance of equity compensationcomprising both performance-based and time-based awards, without using stock options, and with significant share ownership requirements, to align the interests of executives and shareholders while remaining mindful of the potentially dilutive nature of equity compensation on shareholder value. |
UnderIn 2015, the Committee substantially revamped our executive compensation program. Our shareholders have overwhelmingly supported the new compensation program, approving our 2018say-on-pay proposal by a vote of 97.14% and our 2017 Performance Incentive Plan by a vote of 96.18%. Based on this support and its own satisfaction with the current compensation program, the Committee determined not to make any substantial modifications to the program in 2019.
The Committee reviews local market and Peer Group (see page 37) data, but no longer targetsdoes not target total direct compensation at a specific percentile of the market. Instead, the Committee sets total direct compensation at levels that it believes necessary to attract and retain talented executives in a controversial industry and remain competitive with other consumer product companies.
3227 • PMI 20172019 Proxy Statement
| COMPENSATION DISCUSSION AND ANALYSIS | |
Components of Our Total Direct Compensation Program
The three components of total direct compensation are base salary, annual performance-based variable cash awards and variable equity awards. We also provide our executives retirement benefits and limited perquisites.
Our total direct compensation program emphasizespay-for-performance, and the one component that is fixed for
for a given year, base salary, constitutes the smallest portion of executive compensation for salary grades 26 and above. See page 3529 for the target compensation mix of our NEOs in 2016.2018. The key characteristics and key objectives of each component of our compensation program as restructured in 2015,it applies to our NEOs are as follows:
| Component | Key Characteristics | Key Objective | ||||||||||
| Base Salary |
| Fixed component of compensation reflecting the scope of the executive’s role, performance and market pay practices. | | Intended to provide sufficient competitive base pay to attract, develop and retain world-class leaders. | ||||||||
| Incentive Compensation (IC) Awards |
| Annual performance-based variable cash award for meeting or exceeding performance goalspre-established by the Committee. | | Intended to motivate executives to meet or exceed our performance goals and strategic objectives in a given fiscal year. | ||||||||
|
The Company’s incentive compensation business rating is determined by a fixed formula that measures the Company’s results against performance targetspre-established andpre-weighted by the Committee (see | |||||||||||
| Equity Awards |
| Long-term variable equity awards contribute to all six of the Committee’s program design objectives while minimizing share dilution and protecting against excessive risk taking. | | Intended to motivate our executives to produce results that enhance sustainable shareholder value and strengthen the Company over the | ||||||||
◾ | Amount of each award is determined by multiplying the executive’s base salary by the target percentage for that salary grade, and then by the executive’s individual performance rating for the most recently completed year, plus or minus ten percentage
– for the February
– 40% of the February | |||||||||||
PMI 20172019 Proxy Statement • 3328
| COMPENSATION DISCUSSION AND ANALYSIS | |
Changes in Compensation Structure
2015 Say-on-Pay Vote: Following the 2015 vote in which only 63.3% of our shareholders supported our advisory say-on-pay proposal, the Committee substantially changed the Company’s compensation program. It adopted a fixed formula approach that substantially limits the Committee’s discretion in determining the Company’s performance rating for annual cash incentive awards and in determining the size of equity awards. It added a new long-term equity award, the PSU, that vests at the end of a three-year cycle only to the extent pre-established and pre-weighted performance goals are achieved. Dividend equivalents will be paid on PSUs only at the end of the three-year cycle and only on earned shares.
The new PSUs reflect performance in several ways. First, an executive’s award opportunity over the three-year cycle is based on his or her prior-year performance rating. Second,
the number of shares that vest at the end of the cycle is determined by the Company’s performance during that cycle against pre-established objective quantified metrics. These metrics are: relative and absolute Total Shareholder Return, currency-neutral compound annual adjusted OCI growth, and the Company’s performance against specific product innovation targets. Finally, the value of the shares that vest depends on the price of the Company’s shares at the vesting date, which follows completion of the three-year performance cycle.
2016 Say-on-Pay Vote: The new compensation program was overwhelmingly supported by our shareholders and received 95% approval at the 2016 Annual Meeting of Shareholders.
34 • PMI 2017 Proxy Statement
| |
Target Compensation Mix
All
Other than the CEO, all of our NEOs are in salary grades 28 to 25.25 and 26. Our CEO is the only employee in salary grade 28, and no employee is in salary grade 27. The target compensation mix for 20162018 and for 20172019 is shown in the following chart:
In February 2017,2019, the Committee granted PSUs for the 2017-20192019-2021 performance cycle and RSUs. It also established performance targets for the 20172019 annual incentive compensation awards that are payable in February 2018.2020. Award targets as a percentage of base salary for our CEO and our named executive officers are unchanged from 2016:as follows:
2017 Cash Incentive Target as % of Base Salary (1) | 2017-19 Performance Share as % of Base Salary (60% of total Equity Award) (2) | 2017 Restricted Share Units as % of Base Salary (40% of total Equity Award) (3) | ||||
André Calantzopoulos (CEO)
|
200%
|
360%
|
240%
| |||
Marc Firestone
|
125%
|
165%
|
110%
| |||
Martin King
|
100%
|
105%
|
70%
| |||
Jacek Olczak
|
125%
|
165%
|
110%
| |||
Miroslaw Zielinski
|
100%
|
105%
|
70%
|
2019 Cash Incentive Target as % of Base Salary (1)
| 2019-21 PSUs Target as % of Base Salary (60% of total Equity Award) (2)
| 2019 RSUs Target as % of Base Salary (40% of total Equity Award) (3)
| ||||
André Calantzopoulos (CEO)
| 200%
| 360%
| 240%
| |||
Marc S. Firestone
| 125%
| 165%
| 110%
| |||
Martin G. King
| 100%
| 105%
| 70%
| |||
Jacek Olczak
| 125%
| 165%
| 110%
| |||
Miroslaw Zielinski
| 125%
| 165%
| 110%
| |||
| (1) | Possible award range is between |
| (2) | Possible award grant range is between |
| (3) | Possible award grant range is between |
29 • PMI 20172019 Proxy Statement • 35
| COMPENSATION DISCUSSION AND ANALYSIS | |
Use of Equity Awards Versus Stock Options: Equity awards are made in the form of RSUs and PSUs, rather than stock options, because these forms of awards:
establish a relationship between our cost and the value ultimately delivered to our executives that is more direct and more visible than is the case with stock options; and |
require the use of substantially fewer shares than stock options to deliver equivalent value, resulting in |
an annual Company run rate (the sum of all director stock awards |
and RSUs granted during the period, plus the number of all PSUs vested during the period, divided by the weighted average number of shares outstanding during the period) in |
Our run rate and overhang each compares favorably to those of our Peer Group.
PMI 2019 Proxy Statement36 • 30PMI 2017 Proxy Statement
| COMPENSATION DISCUSSION AND ANALYSIS | |
20162018 Company Performance and Targets
The Committee determined the 20162018 cash incentive award businessperformance rating based on 20162018 results versus performance metricspre-established by the Committee.Committee and defined on page 32. Each of the performancefinancial targets set by the Committee was based on achieving or exceeding the Company’s original 2016 operating budget approved by the Board. The budget and the targets reflected appropriately ambitious but realistic performance goals.
20162018 Results: In 2016, we delivered strongWe achieved robust results on our key performance metrics, while also achieving notable progress against our strategic initiatives. Our financial results were achieved despite significant cigarette shipment volume declines in several markets, notably in Pakistan and the Philippines, where volume decreases were concentrated in low unit margin brands that had a limited impact on our bottom line. Cigarette shipment volume was also reduced by in-switching from our cigarette brands tocombustible tobacco portfolio and nearly doubled ourin-market sales ofIQOS heated tobacco sticks. As of the first quarter of 2017, we will report shipment volume on a combined basis including both cigarettes andunits driven by growth in allIQOS heated tobacco sticks. We more than offsetmarkets. However, we performed well below our ambitious growth targets for net revenues and adjusted operating income. This shortfall was primarily due to the unexpected slowdown in the rate of smokers switching toIQOS in Japan and related distributor inventory adjustments and, to a lesser extent, the move to highly inflationary accounting in Argentina. Our share of Top 30 OI markets was also below target. However, our adjusted diluted EPS growth exceeded our target, aided by a lower shipment volumes through favorable pricingeffective tax rate and better-than-anticipated RRP performance.lower net interest expense as a result of U.S. tax reform. Our operating cash flow growth also exceeded the target.
Share of Top 30 OCIOI Markets: We registered a growing or stable cigarette market share in 1716 of our topTop 30 OCIOI markets, below our target of 18 markets. Our total cigaretteglobal market share, excluding China and the U.S., grew by 0.5 percentage points.Marlboro maintained its share of the cigarette market of 9.7%, excluding China and China, declined by 0.6 pointsthe U.S., despite the disproportionate impact of consumers switching fromMarlboro cigarettes toIQOSheated tobacco units and the impact of sizable volume contraction in 2016, with low price and low unit margin brandsSaudi Arabia in the Philippines accountingfirst half of the year.Marlboro remains the number one global brand. Heated tobacco units for 0.5 pointsthe full year reached 1.6% of the total decline. Cigarette share forinternational tobacco market, excluding China and the balanceU.S., an increase of our portfolio was essentially stable.0.8 percentage points from 2017.
Net Revenues (excluding excise taxes, currency and acquisitions):Revenues: Net revenues (excluding excise taxes) of $26.7$29.6 billion reflected constant currency growth of 3.4%, below our ambitious target of 9.1%. This result was primarily due to lower-than-anticipatedIQOSconsumer acquisition in Japan and related distributor inventory adjustments.
Adjusted OI: Adjusted OI of $11.4 billion reflected a constant currency increase of 0.1%, well below our target of 7.6% growth, reflecting the same factors that impacted net revenues.
Adjusted Diluted EPS: Our 10.4% adjusted diluted EPS growth, excluding acquisitions,currency, surpassed our target of 4.4%8.5%.
Operating Cash Flow: Operating cash flow, excluding currency, increased 8.9%, above our target of 3.8% growth. This strong result was driven in part by a favorable pricing variance equivalent to 6.0% of prior year net revenues (excluding excise taxes), and the strong performance of RRPs.
Adjusted OCI (excluding currency and acquisitions): Constant currency adjusted OCI, excluding acquisitions, of $11.1 billion, was up 10.3%, well above our target of 8.3% growth, driven by growth in net revenues and our judicious cost management initiatives, notwithstanding higher investment in RRPs.
Adjusted Diluted EPS (excluding currency): Our 11.8% constant currency growth comfortably exceeded our target of 10.9%6.9%.
Free Cash Flow: Constant currency free cash flow increased 4.9% above last year, outpacing our target of 3.0%. This result was primarily driven by higher net earnings that more than offset higher working capital requirements due to manufacturing capacity expansion for RRPs.
The Committee also rated our performance on the following key strategic initiatives that the Committeepre-set in February 2016,2018, based on a ratings range of0-70 if key initiatives were missed,80-120 if they were mostly or all accomplished, and130-150 if they were mostly or all exceeded.exceeded:
|
|
| ◾ | Develop our brand portfolio, includingMarlboro, with selective innovation and |
Deploy our new operating model while reinforcing the |
|
| ◾ | Progress significantly in obtaining regulatory and fiscal measures that accelerate consumer conversion from combustible cigarettes |
|
|
|
|
|
|
|
As a result of this evaluation, the Committee concluded that the Company had accomplished almost all of its strategic objectives and it assigned us a strategic initiatives rating of 110.115.
31 • PMI 20172019 Proxy Statement • 37
| COMPENSATION DISCUSSION AND ANALYSIS | |
IC Business Performance Rating: The Committee employed the followingpre-established matrix that assigned a rating of 100 correlating to attaining the targeted performance. Ratings for each factor can range from 0 to 150. The percentages indicated for net revenues, adjusted OCI,OI, adjusted diluted EPS, and freeoperating cash flow represent growth versus 20152017 results. Actual results are shown in the blue boxes.
2016 Performance Versus Target
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Target | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Rating: | 0 | 40 ... 80 | 90 | 95 | 100 | 108 | 110 | 115 | 117 | 120 | 130 | 140 | 150 | |||||||||||||||||||||||||||||||||||||||||||
Measure (a)
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Market Share (Top 30 OCI (b)
| <8 | 8 | 14 | 16 | 17 | 18 | 20 | 22 | 24 | 27 | 30 | |||||||||||||||||||||||||||||||||||||||||||||
Net Revenues (c) | <1.4% | 1.4% | 3.0% | 3.8% | 4.2% | 4.4% | 4.7% | 5.1% | 5.5% | 5.9% | ||||||||||||||||||||||||||||||||||||||||||||||
Adjusted OCI (d) | <4.2% | 4.2% | 7.0% | 8.3% | 9.4% | 10.3% | 10.6% | 11.5% | 12.3% | 13.2% | ||||||||||||||||||||||||||||||||||||||||||||||
Adjusted Diluted EPS (e) | <6.1% | 6.1% | 9.3% | 10.9% | 11.8% | 12.0% | 13.3% | 14.3% | 15.2% | 16.1% | ||||||||||||||||||||||||||||||||||||||||||||||
Free Cash Flow (f) | <(2.3)% | (2.3)% | 1.2% | 3.0% | 4.2% | 4.9% | 5.7% | 6.7% | 7.7% | 8.7% | ||||||||||||||||||||||||||||||||||||||||||||||
Strategic Initiatives | 110 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
2018 IC Performance Versus Target
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Target | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Rating:
| 0 ...
| 40 ... 60
| 70
|
80
| 90
| 100
| 110
| 119
| 120
| 130
| 133
| 140
| 150
| |||||||||||||||||||||||||||||||||||||||||
Measure(a)
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Market Share (Top 30 OI(b) Markets)
|
|
<8
|
|
|
8
|
|
|
10
|
|
|
12
|
|
|
14
|
|
|
16
|
|
|
18
|
|
|
20
|
|
|
22
|
|
|
24
|
|
|
27
|
|
|
30
|
| ||||||||||||||||||
Net Revenues(c)
|
|
<6.2%
|
|
|
6.2%
|
|
|
7.0%
|
|
|
7.3%
|
|
|
7.7%
|
|
|
8.0%
|
|
|
9.1%
|
|
|
9.6%
|
|
|
9.9%
|
|
|
10.3%
|
|
|
10.6%
|
|
|
12.0%
|
| ||||||||||||||||||
Adjusted OI(d)
|
|
<3.8%
|
|
|
3.8%
|
|
|
4.7%
|
|
|
5.2%
|
|
|
5.7%
|
|
|
6.2%
|
|
|
7.6%
|
|
|
8.3%
|
|
|
8.7%
|
|
|
9.2%
|
|
|
9.7%
|
|
|
11.6%
|
| ||||||||||||||||||
Adjusted Diluted EPS(e)
|
|
<4.2%
|
|
|
4.2%
|
|
|
5.3%
|
|
|
5.8%
|
|
|
6.4%
|
|
|
6.9%
|
|
|
8.5%
|
|
|
9.2%
|
|
|
9.7%
|
|
|
10.2%
|
|
10.4%
|
|
10.8%
|
|
|
12.9%
|
| |||||||||||||||||
Operating Cash Flow(f)
|
|
<0.9%
|
|
|
0.9%
|
|
|
3.3%
|
|
|
4.1%
|
|
|
4.9%
|
|
|
5.7%
|
|
|
6.9%
|
|
|
8.1%
|
|
|
8.9%
|
|
|
9.0%
|
|
|
9.9%
|
|
|
11.1%
|
|
|
12.3%
|
| |||||||||||||||
Strategic Initiatives |
|
< Key initiatives missed > 0 - 70
|
|
|
< Mostly all accomplished > 80 - 120
|
|
|
< Majority / all exceeded >
|
| |||||||||||||||||||||||||||||||||||||||||||||
| (a) | For a reconciliation ofnon-GAAP to the most directly comparable GAAP financial measures see Exhibit |
| (b) | Number of top 30 |
| (c) | Excluding excise taxes, currency and acquisitions. |
| (d) | Excluding currency and acquisitions. |
| (e) | Excluding currency. |
| (f) | Net cash provided by operating activities, |
Our performance rating for each factor was weighted in accordance with thepre-established formula shown below to produce an overall IC business rating.performance rating of 81.15, which the Committee rounded to 80.
2016 IC Business Rating
| ||||||||||||
2018 IC Performance Rating
| 2018 IC Performance Rating
| |||||||||||
| Measure | Performance Rating | Weight | Weighted Performance Rating | Performance Rating
| Weight
| Weighted Performance Rating
| ||||||
Market Share (Top 30 OCI Markets)
| 95
| 15%
| 14.25
| |||||||||
Market Share (Top 30 OI Markets)
|
90
|
15%
|
13.50
| |||||||||
Net Revenues
| 115
| 15%
| 17.25
|
0
|
15%
|
0.00
| ||||||
Adjusted OCI
| 117
| 15%
| 17.55
| |||||||||
Adjusted OI
|
0
|
15%
|
0.00
| |||||||||
Adjusted Diluted EPS
| 108
| 20%
| 21.60
|
133
|
20%
|
26.60
| ||||||
Free Cash Flow
| 115
| 20%
| 23.00
| |||||||||
Operating Cash Flow
|
119
|
20%
|
23.80
| |||||||||
Strategic Initiatives
| 110
| 15%
| 16.50
|
115
|
15%
|
17.25
| ||||||
Based on its performance against the pre-established targets, the Company earned an IC performance rating for 2018 of: 2018 80 vs. 2017 100 2016 110 vs.
PMI 2019 Proxy Statement38 • 32PMI 2017 Proxy Statement
| COMPENSATION DISCUSSION AND ANALYSIS | |
In addition to certifying the IC business performance rating, the Committee rated each executive officer’s personal performance during 2016.2018. Individual ratings can range from 0% to 150%. To assure a disciplined, fair and equitable assessment, individual performance ratings were calibrated to reflect each executive’s contribution to the overall results of the Company. Application of the following formula then determined the cash incentive award for each named executive officer in 2016.2018.
Incentive Compensation Award Formula
IC Award | = | Base Salary | X | Individual Target % (varies by grade) | X | IC
Rating (0%-150%) | X | Individual Rating (0%-150%) |
20172019 Incentive Compensation (IC) Awards:For 2017,2019, the Committee retained the six performance metrics used in 2016 — except it changed free cash flow to operating cash flow, which is a U.S. GAAP measure —2018 and it set performance targets for those metrics. Each of the 20172019 financial performance targets reflects the Company’s 20172019 budget approved by the Board, with a performance factor of 100 equating to achieving budgeted results. The Committee also established key strategic initiatives to measure our performance. The full range of potential results is reflected in apre-established matrix that will generate an overall IC business performance rating for 2017.2019. In addition topre-establishing a formula for grading our results against the performance factors, the Committeepre-established the weights for each factor.
Long-Term Equity Awards:The Committee establishes the equity award target opportunity for our CEO and each other NEO based on Company targets by salary grade, which are unchanged from the levels established in 2014, and the individual’s performance rating for this award. The Committee grants the individual 40%60% of the award opportunity in the form of time-based RSUsperformance-based PSUs and 60%40% in the form of performance-based PSUs.time-based RSUs.
Equity Award Grant Formula
Equity Award Target Opportunity (
| = | Base Salary | X | Individual Target % (varies by | X | Individual Rating (0%-150%) |
PSU Performance Metrics: The In February 2016, the Committee established three metrics for determining the number of PSUs that willwould vest at the end of the 2017-20192016-2018 performance cycle. The first measure, which is weighted at 50%, iswas the Company’s Total Shareholder Return during the three-year cycle relative to the Peer Group and on an absolute basis. The second measure, which is weighted at 30%, iswas the Company’s currency-neutral compound annual adjusted OCIoperating companies income growth rate over the cycle, excluding acquisitions. The final measure, which is weighted 20%, iswas the Company’s performance against a specific RRP volume measureand market share measures of PMI’s innovation for PMI’s transformation to Reduced-Risk Productsboth RRPs and cigarettes during the performance cycle. The Committee believes that these performance measures are the most appropriate factors in terms of incentivizing senior management to produce results that enhance sustainable shareholder value and strengthen the Company over the long term.
The aggregate of the weighted performance factors for the three metrics will determinedetermined the percentage of PSUs that vestvested at the end of the three-year performance cycle. Each vested PSU entitles the participant to one share of common stock. An aggregate weighted PSU performance factor of 100 willwould result in the targeted number of PSUs being vested. The minimum percentage of PSUs that canwould vest iswas zero, while the maximum iswas twice the targeted number.
PMI 2017 Proxy Statement • 39
| |
TSR Performance Factor. The TSR performance factor, which determinesdetermined 50% of the PSU payout, will bewas calculated based on the Company’s three-year rolling TSR versus the Company’s Peer Group (see page 43)37). To adjust for market volatility, the TSR calculations will beare based on the average of the 20 trading days immediately before the start of the performance cycle and the last 20 trading days of the performance cycle. To reflect that several members of the Peer Group are primarily listed on foreign stock exchanges and report their financial results in different currencies, the Company will measuremeasures the TSRs for those companies by using the price performance of their publicly traded American Depository Receipts (“U.S. ADRs”). The use of U.S. ADRs will avoidavoids the need to adjust the TSRs ofnon-U.S. Peers to reflect currency changes, and will increaseincreases transparency by enabling shareholders to directly observe such TSRs. The TSR performance factor for the 2017-2019 performance cycle will be calculated relative to the Peer Group in accordance with the following schedule, with linear interpolation for results between the 25th and 85th percentiles:
|
| |||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
|
In addition to evaluating our relative TSR, if the Company’s absolute TSR for thea performance cycle is zero or less, the Committee will cap the TSR performance factor at
33 • PMI 2019 Proxy Statement
| COMPENSATION DISCUSSION AND ANALYSIS | |
target or less. This approach would limit rewards for a performance cycle in which we performed in line with, or better than, the Peer Group, but shareholders did not realize a positive return. The TSR performance factor for the 2016-2018 performance cycle was calculated relative to the Peer Group in accordance with the following schedule:
PMI TSR as a Percentile of Peer Group | Performance Factor | Actual | Rating | |||||||||
Below Threshold
|
Below 25th percentile
|
0%
| ||||||||||
Threshold
|
25th percentile
|
50%
| 35th percentile | 70% | ||||||||
Target
|
50th percentile
|
100%
| ||||||||||
Maximum
|
85th percentile and above
|
200%
|
Adjusted Currency-Neutral OCIOperating Companies Income Growth Performance Factor. The adjusted OCIoperating companies income growth performance factor for the 2017-20192016-2018 performance cycle, which determinesdetermined 30% of the PSU performance factor, will bewas the compound annual growth rate of the Company’s adjusted OCIoperating companies income (excluding currency and acquisitions) as shown below, with linear interpolation for results between the percentages shown:below:
Three-Year Adjusted OCI CAGR (excluding currency and acquisitions)
| ||||
Result
| Performance Factor
| |||
Below Threshold
|
<4%
|
0%
| ||
Threshold
|
4%
|
50%
| ||
Target
|
8%
|
100%
| ||
Maximum
|
11%
|
200%
| ||
The 8% growth that equates to a performance factor of 100% is the upper-end of our mid-term adjusted currency-neutral OCI growth target of 6% to 8%.
Three-Year Adjusted OCI CAGR (excluding currency and acquisitions) | ||||||||||||
| Result | Performance Factor | Actual | Rating | |||||||||
Below Threshold
|
<4%
|
0%
| ||||||||||
Threshold
|
4%
|
50%
| 5.8% | 80% | ||||||||
Target
|
7%
|
100%
| ||||||||||
Maximum
|
³11%
|
200%
| ||||||||||
TransformationInnovation Performance Factor.The Board,innovation performance factor for the Committee and management consider the success2016-2018 performance cycle had two components, each of the Company’s RRPs to be vital to the Company’s long-term success. Accordingly, the Committee has established specific RRP volume targets that will account for 20%which determined 10% of the PSU performance factor overfactor: RRP unit volume growth; and share growth within the 2017-2019 cycle.menthol, low tar, and slims combustible segments, calculated in accordance with the following schedules:
RRP Volume (billions of units) | Result | Performance Factor | Actual | Rating | ||||||||
Below Threshold
|
<21.0
|
0%
| ||||||||||
Threshold
|
21.0
|
50%
| ||||||||||
41.5 | 197% | |||||||||||
Target
| 26.0
| 100%
| ||||||||||
Maximum
|
³42.0
|
200%
| ||||||||||
Combustible Segment Share Growth | Result | Performance Factor | Actual | Rating | ||||||||
| ||||||||||||
Below Threshold
|
<0.00%
|
0%
|
(1.5)%
|
0%
| ||||||||
Threshold
|
0.00%
|
50%
| ||||||||||
Target
|
1.00%
|
100%
| ||||||||||
Maximum
|
³2.5%
|
200%
| ||||||||||
Performance Rating for 2016-2018 PSU Cycle. The overall performance rating for the 2016-2018 PSU award cycle was 79, which the Committee rounded to 80.
PMI 2019 Proxy Statement • 34
| COMPENSATION DISCUSSION AND ANALYSIS | |
2019-2021 PSU Performance Cycle. For the 2019-2021 PSU Performance Cycle, the Committee retained the Company’s performance factors employed for the 2016-2018 cycle except that it changed adjusted OCI to adjusted OI, consistent with our financial reporting. The Committee retained the TSR performance factors at the same levels shown on the previous page for the2016-2018 PSU Performance Cycle. It set three-year Adjusted OI compound annual growth rate performance factors at 0% for growth below 4%, 50% for growth at the threshold level of 4%, 100% for growth at the target level of 7.5%, and 200% for growth at or above 10%. The Committee also established theRRP unit shipment volume targets at what it believes are appropriately ambitious levels that reflect the Board-approved three-year plan.
The Committee weighted the 2019-2021 performance factors as follows: TSR, 50%; Adjusted OI Growth, 30%; and RRP unit shipment volume, 20%.
PSU Vesting Mechanics. At the end of the three-year performance cycle, the Company’s performance factor for each of the three metrics will be calculated and then weighted, resulting in an overall PSU performance factor from0-200%. This percentage will be applied to the executive’s target PSU award to determine the number of shares of common stock to be issued to the executive.
The Committee may adjust the PSU performance metrics if appropriate to reflect significant unplanned acquisitions or dispositions.
4035 • PMI 20172019 Proxy Statement
| COMPENSATION DISCUSSION AND ANALYSIS | |
20162018 Individual Performance and Compensation Decisions
The 2018 performance ratings of each named executive officer reflect the fact that the Company performed below certain of our ambitious financial growth targets, but also the fact that this shortfall was primarily due to an unexpected slowdown in the rate of smokers switching toIQOS in a single market.
AndréAndré Calantzopoulos, Chief Executive Officer: The Committee assigned Mr. Calantzopoulos an individual performance rating for 20162018 of 110%95% for the incentive compensation award and a rating of 115%105% for the equity award. As a result, Mr. Calantzopoulos received an annual incentive compensation award of CHF 3,572,280,2,299,850, or $3,607,646$2,295,549 based on the conversion rate on the date of the award. Mr. Calantzopoulos’s equity award was split into 41,870 RSUs and 62,800 PSUs. The Committee also increaseddid not increase Mr. Calantzopoulos’s base salary for 2017 by CHF 36,907 to CHF 1,513,057, or $1,528,036 based on such conversion rate. This was the first increase in Mr. Calantzopoulos’s base salary since 2012.2019.
Mr. Calantzopoulos’s performance rating for the incentive compensation award reflects the Committee’s view that under his capable leadership the Company delivered a strongachieved robust results in its cigarette business and nearly doubled its heated tobacco unitin-market sales volume, but fell short of certain financial performance in 2016.targets. The Company also made excellent progress on its strategic initiatives notably in the areas of continuing to develop the Company’s brand portfolio, optimizing the global manufacturing footprint, completing key business development initiatives, continuing to improve sustainability across the business, effectively nurturing and developing the Company’s talent pool, and maintaining its robust control, compliance and integrity programs. The Committee set Mr. Calantzopoulos’s individual performance rating for the annual incentive award at the same level as the Company’s formula-driven annual performance rating.described on page 31.
Mr. Calantzopoulos’s individual performance rating for the equity award reflects that the Company achieved important milestones in the development of RRPs on allmany fronts: product development, commercialization, scientific substantiation, third-party engagement and the regulatory and fiscal environment. Mr. Calantzopoulos’s equity rating also reflects his decisive leadership in the Company’s external and internal transformation to an organization that is consumer-centric and digitally driven and well on the way to a future built on smoke-free products.
Other Named Executive Officers:
Marc S. Firestone: Mr. Firestone servesserved as our Senior Vice President, External Affairs and General Counsel.Counsel in 2018. His incentive compensation and equity awards were each based on an individual performance rating of 105% and recognize his widespread contributions to the Company’s results and inspiring leadership of our Law and Corporate Affairs Departments. His incentive compensation award and his
equity award were each based on an individual performance rating of 115%.Departments. These ratings reflect his critical role in numerous regulatory, litigation and compliance strategic initiatives, notably his contribution to our continued progress in the regulatory and fiscal framework for RRPs and his insightful guidance of our Corporate Affairsexternal affairs initiatives and our strong compliance culture. The Committee also approved Mr. Firestone’s base salary increase for 2017 by CHF 19,994 to CHF 1,020,006, or $1,030,104 based on the conversion rate on the date of the Committee’s decision.
Martin G. King:Mr. King servesserved as President of our Asia Region.Chief Financial Officer in 2018. His incentive compensation award and his equity award were eachwas based on an individual performance rating of 115%. Cigarette shipment volume in Asia declined by 7.6%, mainly due to total market declines in Pakistan, the Philippines, Thailand and Indonesia, the latter accentuated by temporary PMI market share weakness, and in-switching from our cigarette brands toIQOS heated tobacco sticks, partly offset by Korea. Excluding acquisitions, net revenues (excluding excise taxes) and adjusted OCI increased significantly by 5.9% and 8.9%, respectively, on a constant currency basis. Mr. King’s ratings also reflect the resounding success ofIQOS in Japan, and his strong leadership of our Asia business in a difficult operating environment. The Committee also approved Mr. King’s base salary increase for 2017 by CHF 19,998 to CHF 845,004, or $853,370 based on the conversion rate on the date of the Committee’s decision.
Jacek Olczak: Mr. Olczak serves as our Chief Financial Officer. His incentive compensation award85% and his equity award were each based on an individual performance rating of 120%90%. These ratings recognize Mr. Olczak’s exceptionalKing’s leadership and contributions to our financial results, notably our free cash flow performance, the management of our balance sheet, the attractive terms of multiple bond issuances in the capital markets, and the continued focus on process change optimization in the context of our RRP business transformation, as well as effective productivity and cost savings initiatives. Finally, heHe assured timely and transparent communication of our strategies and results to the investment community and played a critical role in the implementation of numerous cross-functional strategic initiatives. The
Jacek Olczak: Mr. Olczak served as our Chief Operating Officer in 2018. His incentive compensation award was based on an individual performance rating of 100% and his equity award on an individual performance rating of 110%. These ratings reflect the Committee’s view that Mr. Olczak performed capably during his first year as the Company’s COO, playing a leading role in the Company’s transformation and its strong performance in the cigarette business.
Effective April 1, 2019, the Committee also approvedincreased Mr. Olczak’s base salary increase for 2017 by CHF 20,007179,994, to CHF 974,012, or $983,6551,200,000 ($1,197,756 based on the conversion rate on the date of the Committee’s decision.decision).
PMI 2017 Proxy Statement • 41
| |
Miroslaw Zielinski:Mr. Zielinski servesserved as President, Reduced-Risk Products.Science and Innovation in 2018. His incentive compensation and equity awards were each based on an individual performance rating of 130%85%. These ratings reflect his invaluable strategic contributions to the development and commercialization of RRPs, his critical role in the successful roll-out ofIQOS, the significant progress made in the development and commercialization of our other RRP platforms, the significant progress in scientific
substantiation of our RRP platforms, the implementation of highly innovativeroute-to-market models, the development of novel adult consumer engagement platforms, and his critical contributions to the Company’s long-term strategies. The Committee also approved Mr. Zielinski’s base salary increase for 2017 by CHF 20,007 to CHF 945,009, or $954,365 based on the conversion rate on the date of the Committee’s decision.
PMI 2019 Proxy Statement42 • 36PMI 2017 Proxy Statement
| COMPENSATION DISCUSSION AND ANALYSIS | |
Additional Compensation Policies and Processes
Peer Group: The Committee uses a single customized peer group both to benchmark its compensation programs and to compare its TSR when calculating the Company’s PSU performance factor. The following 2019 companies, selected in 2015 on the basis of their global presence, focus on consumer products, and similarity to the Company in terms of net revenues and market capitalization, constitute our Peer Group:Group*:
◾ Altria Group, Inc. | ◾ Kimberly-Clark Corporation | |||
◾ Anheuser-Busch InBev SA/NV | ◾ The Kraft Heinz Company | |||
◾ British American Tobacco p.l.c. | ◾ McDonald’s Corp. | |||
◾ The Coca-Cola Company | ◾ Mondelēz International, Inc. | |||
◾ Colgate-Palmolive Co. | ◾ Nestlé S.A. | |||
◾ Diageo plc | ◾ PepsiCo, Inc. | |||
◾ Heineken N.V. | ◾ The Procter & Gamble Company | |||
◾ Imperial Brands PLC | ◾ Roche Holding AG | |||
◾ Japan Tobacco Inc. | ◾ Unilever NV and PLC | |||
◾ Johnson & Johnson |
*Reynolds American Inc. was removed from the Peer Group following its acquisition by British American Tobacco p.l.c. on July 25, 2017.
37 • PMI 20172019 Proxy Statement • 43
| COMPENSATION DISCUSSION AND ANALYSIS | |
Factors Mitigating Against Possible Adverse Consequences of Our Compensation Program:Several elements of our compensation program protect against the possibility that compensation incentives might cause employees to take risks that could materially adversely affect the Company. First, we do not have different incentive compensation award programs for particular business units or functions. Our annual incentive compensation and equity awards apply to management employees worldwide, and the award pools for each of those programs are based on company-wide performance measures that cannot be unduly influenced by a particular business unit or group. Second, all employees are rated on the same scale within general guidelines set by the Committee. These ratings are based on pre-established individual performance criteria so that no particular group of employees will all receive the same rating. Third, both the company-wide and the individual performance measures are subject to maximum levels that limit the amount of awards.
Furthermore, with respect to the long-term equity component of our compensation program, RSUs generally vest only after three years from the date of grant, and PSUs onlygenerally vest to the extentpre-established targets are achieved over a three-year performance cycle. In addition, our executives are subject to share ownership requirements and comprehensive anti-hedging,anti-pledging and clawback policies described in the following four sections.
Share Ownership RequirementsRequirements:: The Company has for several years set share ownership requirements for executives at levels that are among the highest for publicly owned companies. Unvested units of the Company’s PSU equity award do not count towards the ownership requirement. The required share ownership level is shown below:
| NEOs | Multiple of base salary | |
Salary grade 28
|
15 times
| |
Salary grade 27
|
9 times
| |
Salary grade 26
|
6 times
| |
Salary grade 25
|
5 times
|
Executives are required to meet their ownership levels within five years of joining PMI or within three years of a promotion. The Committee reviews each executive officer’s compliance with the requirements on an annual basis. As of December 31, 2016,2018, all of our named executive officers met or exceeded the applicable requirements.
The Company also imposes share ownershipretention requirements onnon-employee directors (see directors. (See page 28)23).
Post-Termination Share Holding Period:In addition to these longstanding and rigorous share ownership requirements, the Committee has determined that if any equity award held by an executive officer under the 2017 Performance Incentive Plan that vests on an accelerated basis upon such officer’s termination of employment for any reason other than death or disability, the shares acquired must be held for at least one year following such termination.
Anti-Hedging and Anti-Pledging Policies: The Company’s anti-hedging policy prohibits directors, executive officers and other designated employees from purchasing any financial instrument or otherwise engaging in any transaction that is designed to hedge or offset any decrease in the market value of the Company’s shares held by them directly or indirectly, including prepaid variable forward contracts, equity swaps, collars and exchange funds, and other transactions with comparable economic consequences. The foregoing does not prohibit trading in broad-based index funds.
Directors, executive officers and designated employees are also prohibited from engaging in short sales related to the Company’s shares.
The Company’s anti-pledging policy prohibits directors and executive officers from pledging the Company’s shares, including holding shares in a margin account.
Clawback Policy Regarding the Adjustment or Recovery of Compensation: Under our Board-approved policy and as set forth in the applicableeach named executive officer’s equity award agreement, if the Board or an appropriate Committee of the Board determines that, as a result of fraud, misconduct, a restatement of our financial statements, or a significantwrite-off not in the ordinary course affecting our financial statements, an executive has received more compensation than would have otherwise been paid, the Board or Committee shall take action as it deems necessary or appropriate to address the events that gave rise to the fraud, misconduct,write-off or restatement and to prevent its recurrence. Such action may include, to the extent permitted by applicable law, requiring partial or full reimbursement of any incentive compensation paid to the executive, causing the partial or full cancellation of equity awards, adjusting the future compensation of such executive, and dismissing or taking legal action against the executive, in
PMI 2019 Proxy Statement • 38
| COMPENSATION DISCUSSION AND ANALYSIS | |
each case as the Board or Committee determines to be in the best interests of the Company.
44 • PMI 2017 Proxy Statement
| |
Role of the Committee in Executive Compensation: The role of the Committee is to discharge the Board’s responsibilities relating to executive compensation matters. In this regard, the Committee is responsible for the development and administration of our executive compensation and benefits program, in furtherance of which the Committee has the authority and responsibility to:
review and approve corporate goals and objectives relevant to the compensation of the CEO, to evaluate the performance of the CEO in light of these goals and objectives, and determine and approve the compensation of the CEO based on this evaluation; |
set senior executive compensation and make recommendations to the Board with respect to incentive compensation plans and equity-based plans, administer and make awards under such plans and review the cumulative effect of its actions; |
review and approve compensation of all executive officers; |
oversee the management of risks related to compensation design and payout; |
monitor compliance by executives with the Company’s share ownership requirements; and |
review and assist the Board with the development of executive succession plans. |
In fulfilling these duties, the Committee is supported by our Senior Vice President, Human ResourcesPeople & Culture and his department, the Committee’s executive compensation consultant and other outside legal, financial and compensation counsel, where appropriate.
Role of the CEO in Executive Compensation: Our CEO makes recommendations to the Committee with respect to the compensation of executive officers other than himself. The Committee reviews and discusses the compensation of these officers with the CEO, and the Committee makes the final compensation decisions with respect to these executive officers. The CEO makes no recommendation and has no role in setting any aspect of his own compensation; he does not attend any Committee meetings when any element of his compensation is discussed.
Role of Compensation Consultants: During 2016,2018, the Committee retained the services of Mr. Michael Halloran of Mercer LLC, a wholly-owned subsidiary of Marsh & McLennan Companies, Inc. (“MMC”) and Mr. Daniel J. Ryterband of Frederic W. Cook & Co. Mr. Halloran and Mr. Ryterband advised, an independent compensation consulting firm, to advise the Committee with respect to the compensation of the Chairman, the CEO and other executives. In addition, Mr. Halloran and Mr. RyterbandCook provided the Committee with input into the design of our compensation and benefit programs and evolving regulatory and executive compensation market trends.
Mercer was paid $30,340 for Mr. Halloran’s services.
PMI and its affiliates have engaged other offices of Mercer to provide services unrelated to executive compensation, primarily benefits consulting and benchmarking of salaries for different position levels around the world. Mercer’s fees for these services totaled $944,544 in 2016. Mercer is retained directly by the relevant PMI business function, region or market when Mercer provides these other services, and these services and fees are not subject to the approval of the Committee. In addition, MMC and its affiliates other than Mercer provided certain non-compensation related services, primarily insurance brokerage, to PMI and its affiliates in 2016 for fees totaling $1,311,072. Neither these additional services nor the fees are subject to the Committee’s approval.
Frederic Cook & Co. was paid $44,092 for Mr. Ryterband’s services.
Consistent with the requirements of its Charter,charter, the Committee has reviewed and considered:
the services |
|
|
|
PMI 2017 Proxy Statement • 45
| |
the conflicts of interest policies and procedures of |
the relationships among PMI, its executive officers and the Committee members, and |
the quality and objectivity of the services |
Based on its review, the Committee has concluded that the advice it received from Mr. Halloran is objective and not influenced by Mercer’s or MMC’s relationships with PMI or its affiliates.
Other than obtaining advice on executive and director compensation, the Company has no relationship with Mr. Ryterbandthe senior advisor or his firm, and the Committee regards them as independent.
Compensation and Leadership Development Committee Interlocks and Insider Participation: No member of the Committee at any time during 20162018 had any relationship with the Company that would be required to be disclosed as a related person transaction or as a compensation committee interlock.
Policy with Respect to Qualifying Compensation for Deductibility: Our ability to deduct compensation paid to individual officers who are covered by Section 162(m) of the U.S. Internal Revenue Code is generally limited to $1.0 million annually. However, this limitation doeswe do not apply to performance-based compensation, provided certain conditions are satisfied. The annual incentive compensation awards for 2016 and the equity awards that were awarded toexpect any impact from Section 162(m) because none of our covered named executive officers in February 2017 were subjectis or is currently expected to and made in accordance with, performance-based compensation arrangements.
We have taken appropriate actions, to the extent feasible, to preserve the deductibility of annual incentive compensation and equity awards. However, notwithstanding this general policy, the Committee has authorized, and continues to retain the discretion to authorize, other payments that may not be deductible, if it believes that they are in the best interests of both the Company and its shareholders.on our U.S. payroll.
4639 • PMI 20172019 Proxy Statement
| COMPENSATION DISCUSSION AND ANALYSIS | |
Compensation and Leadership Development Committee Report
The Compensation and Leadership Development Committee has reviewed and discussed the Compensation Discussion and Analysis contained on pages 27 through 53 of this proxy statement with management. Based on its review and discussions with management, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.
Compensation and Leadership Development Committee:
Werner Geissler, Chair
Lisa A. Hook
Lucio A. Noto
Robert B. Polet
Stephen M. Wolf
The information contained in the report above shall not be deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission or subject to Regulation 14A or 14C or the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent specifically incorporated by reference therein.
PMI 2019 Proxy Statement • 40
| COMPENSATION DISCUSSION AND ANALYSIS | |
The following table sets forth information concerning the cash andnon-cash compensation awarded by PMI to our named executive officers: the Chief Executive Officer, Chief Financial Officer and the three most highly compensated officers serving as executive officers on December 31, 2016.2018. These amounts are based on the compensation earned by these officers while employed by PMI for each year.
| Name and Principal Position | Year | Salary (1) ($) | Stock Awards (2) ($) | Non-Equity Incentive Plan Compensation (3) ($) | Change in Pension Value(4) ($) | All Other Compensation (5) ($) | Total Compensation ($) | ||||||||||||||||||||||||||||
André Calantzopoulos, Chief Executive Officer | 2016 | 1,501,552 | 11,092,956 | 3,507,393 | 1,839,863 | 182,561 | 18,124,325 | ||||||||||||||||||||||||||||
| 2015 | 1,538,848 | 8,140,289 | 4,640,861 | 1,828,411 | 180,570 | 16,328,979 | |||||||||||||||||||||||||||||
| 2014 | 1,615,871 | 7,373,771 | 2,961,504 | 1,941,518 | 232,205 | 14,124,869 | |||||||||||||||||||||||||||||
Marc Firestone, Senior Vice President and General Counsel | 2016 | 1,015,680 | 3,157,371 | 1,552,548 | 662,383 | 19,238 | 6,407,220 | ||||||||||||||||||||||||||||
| 2015 | 1,039,253 | 3,033,480 | 1,801,209 | 539,493 | 18,168 | 6,431,603 | |||||||||||||||||||||||||||||
| 2014 | 1,092,660 | 3,381,815 | 1,313,626 | 621,372 | 14,473 | 6,423,946 | |||||||||||||||||||||||||||||
Martin King, President, Asia Region | 2016 | 842,239 | 1,507,449 | 1,024,674 | 1,676,224 | 1,043,628 | 6,094,214 | ||||||||||||||||||||||||||||
| 2015 | 860,274 | 1,395,384 | 1,080,723 | 978,367 | 1,451,476 | 5,766,224 | |||||||||||||||||||||||||||||
| 2014 | 904,627 | 1,663,315 | 866,985 | 1,679,182 | 512,818 | 5,626,927 | |||||||||||||||||||||||||||||
Jacek Olczak, Chief Financial Officer | 2016 | 971,563 | 3,286,679 | 1,545,518 | 1,295,084 | 20,746 | 7,119,590 | ||||||||||||||||||||||||||||
| 2015 | 994,271 | 2,652,546 | 1,796,453 | 1,113,850 | 15,972 | 6,573,092 | |||||||||||||||||||||||||||||
| 2014 | 1,045,532 | 2,971,427 | 1,196,229 | 1,808,118 | 13,779 | 7,035,085 | |||||||||||||||||||||||||||||
Miroslaw Zielinski, President, Reduced-Risk Products | 2016 | 943,738 | 2,112,721 | 1,298,724 | 1,156,579 | 14,960 | 5,526,722 | ||||||||||||||||||||||||||||
| 2015 | 964,144 | 1,785,368 | 1,514,641 | 1,057,675 | 44,805 | 5,366,633 | |||||||||||||||||||||||||||||
| 2014 | 1,013,852 | 1,885,609 | 1,060,438 | 1,469,430 | 45,881 | 5,475,210 | |||||||||||||||||||||||||||||
| Name and Principal Position | Year | Salary(1) ($) | Stock Awards(2) ($) | Non-Equity Incentive Plan Compensation(3) ($) | Change in Pension Value(4) ($) | All Other Compensation(5) ($) | Total Compensation ($) | |||||||||||||||||||||
André Calantzopoulos, |
|
2018 |
|
|
1,549,551 |
|
|
11,704,916 |
|
|
2,336,771 |
|
|
285,598 |
|
|
57,399 |
|
|
15,934,235 |
| |||||||
|
2017 |
|
|
1,530,834 |
|
|
11,243,223 |
|
|
3,258,558 |
|
|
2,759,467 |
|
|
185,419 |
|
|
18,977,501 |
| ||||||||
|
2016
|
|
|
1,501,552
|
|
|
11,092,956
|
|
|
3,507,393
|
|
|
1,839,863
|
|
|
182,561
|
|
|
18,124,325
|
| ||||||||
Marc S. Firestone, |
|
2018 |
|
|
1,043,393 |
|
|
3,617,432 |
|
|
1,088,204 |
|
|
454,061 |
|
|
29,412 |
|
|
6,232,502 |
| |||||||
|
2017 |
|
|
1,031,766 |
|
|
3,491,027 |
|
|
1,503,702 |
|
|
798,471 |
|
|
23,391 |
|
|
6,848,357 |
| ||||||||
|
2016
|
|
|
1,015,680
|
|
|
3,157,371
|
|
|
1,552,548
|
|
|
662,383
|
|
|
19,238
|
|
|
6,407,220
|
| ||||||||
Martin G. King, |
|
2018 |
|
|
866,819 |
|
|
1,907,983 |
|
|
583,824 |
|
|
301,386 |
|
|
196,074 |
|
|
3,856,086 |
| |||||||
|
2017 |
|
|
856,111 |
|
|
1,833,565 |
|
|
996,575 |
|
|
2,087,765 |
|
|
511,613 |
|
|
6,285,629 |
| ||||||||
|
2016
|
|
|
842,239
|
|
|
1,507,449
|
|
|
1,024,674
|
|
|
1,676,224
|
|
|
1,043,628
|
|
|
6,094,214
|
| ||||||||
Jacek Olczak, |
|
2018 |
|
|
1,047,291 |
|
|
3,453,956 |
|
|
1,036,385 |
|
|
515,035 |
|
|
17,643 |
|
|
6,070,310 |
| |||||||
|
2017 |
|
|
987,485 |
|
|
3,474,914 |
|
|
1,435,894 |
|
|
1,415,464 |
|
|
17,620 |
|
|
7,331,377 |
| ||||||||
|
2016
|
|
|
971,563
|
|
|
3,286,679
|
|
|
1,545,518
|
|
|
1,295,084
|
|
|
20,746
|
|
|
7,119,590
|
| ||||||||
Miroslaw Zielinski, |
|
2018 |
|
|
969,022 |
|
|
3,351,990 |
|
|
816,155 |
|
|
194,717 |
|
|
5,879 |
|
|
5,337,763 |
| |||||||
|
2017 |
|
|
958,037 |
|
|
2,323,443 |
|
|
1,393,139 |
|
|
1,487,607 |
|
|
5,185 |
|
|
6,167,411 |
| ||||||||
|
2016
|
|
|
943,738
|
|
|
2,112,721
|
|
|
1,298,724
|
|
|
1,156,579
|
|
|
14,960
|
|
|
5,526,722
|
| ||||||||
| (1) | The |
| (2) | The amounts shown in this column represent stock awards granted in February of each year based on the prior year’s performance, with the aggregate grant date fair value of stock awards computed in accordance with FASB ASC Topic 718. The number of shares awarded in |
The assumptions used in the calculation of the grant date fair value of PSUs awarded in 20162018 under the 2017 Performance Incentive Plan are described in Item 8, Note 99.Stock Plans to the consolidated financial statements contained in our 20162018 Form10-K. The table below provides the grant date fair value of PSUs awarded in 20162018 for each of our NEOs, assuming the maximum level performance is achieved.
| Name |
($) | |||||
André Calantzopoulos
|
| 14,528,974
|
| |||
Marc S. Firestone
|
| 4,490,055
|
| |||
Martin G. King
|
| 2,368,043
|
| |||
Jacek Olczak
|
| 4,287,958
|
| |||
Miroslaw Zielinski
|
|
|
| |||
| (3) | The 2018, 2017 and 2016 annual incentive compensation awards are converted to U.S. dollars using |
| (4) | The amounts shown reflect the change in the present value of benefits under the pension plans listed in the Pension Benefits table. The lower increases |
| (5) | Details of All Other Compensation for each of the named executive officers appear on the following page. |
41 • PMI 20172019 Proxy Statement • 47
| COMPENSATION DISCUSSION AND ANALYSIS | |
| Name and Principal Position | Year | International Assignments (a) ($) | Personal Use of Company Aircraft (b) ($) | Car Expenses (c) ($) | Tax Preparation Services (d) ($) | Totals ($) | ||||||||||||||||||||||||
André Calantzopoulos, Chief Executive Officer | 2016 | - | 149,114 | 31,924 | 1,523 | 182,561 | ||||||||||||||||||||||||
| 2015 | - | 142,174 | 36,838 | 1,558 | 180,570 | |||||||||||||||||||||||||
| 2014 | - | 197,002 | 33,565 | 1,638 | 232,205 | |||||||||||||||||||||||||
Marc Firestone, Senior Vice President and General Counsel | 2016 | - | - | 8,722 | 10,516 | 19,238 | ||||||||||||||||||||||||
| 2015 | - | - | 268 | 17,900 | 18,168 | |||||||||||||||||||||||||
| 2014 | - | - | - | 14,473 | 14,473 | |||||||||||||||||||||||||
Martin King, President, Asia Region | 2016 | 1,013,498 | - | 30,130 | - | 1,043,628 | ||||||||||||||||||||||||
| 2015 | 1,438,395 | - | 13,081 | - | 1,451,476 | |||||||||||||||||||||||||
| 2014 | 495,060 | - | 6,289 | 11,469 | 512,818 | |||||||||||||||||||||||||
Jacek Olczak, Chief Financial Officer | 2016 | - | - | 20,746 | - | 20,746 | ||||||||||||||||||||||||
| 2015 | - | - | 15,972 | - | 15,972 | |||||||||||||||||||||||||
| 2014 | - | - | 13,114 | 665 | 13,779 | |||||||||||||||||||||||||
Miroslaw Zielinski, President, Reduced-Risk Products | 2016 | - | - | 11,407 | 3,553 | 14,960 | ||||||||||||||||||||||||
| 2015 | - | - | 33,935 | 10,870 | 44,805 | |||||||||||||||||||||||||
| 2014 | - | - | 28,637 | 17,244 | 45,881 | |||||||||||||||||||||||||
| Name and Principal Position | Year | International Assignments(a) ($) | Personal Use of Company Aircraft (b) ($) | Car Expenses(c) ($) | Tax Preparation Services(d) ($) | Totals ($) | ||||||||||||||||||
André Calantzopoulos, Chief Executive Officer |
|
2018 |
|
| -
|
|
|
36,026 |
|
|
19,840 |
|
|
1,533 |
|
|
57,399 |
| ||||||
|
2017 |
|
| -
|
|
|
149,936 |
|
|
33,960 |
|
|
1,523 |
|
|
185,419 |
| |||||||
|
2016 |
| - |
|
149,114 |
|
|
31,924 |
|
|
1,523 |
|
|
182,561 |
| |||||||||
Marc S. Firestone, President, External Affairs & General Counsel |
|
2018 |
|
|
- |
|
|
- |
|
|
17,830 |
|
|
11,582 |
|
|
29,412 |
| ||||||
|
2017 |
|
| -
|
|
|
- |
|
|
13,492 |
|
|
9,899 |
|
|
23,391 |
| |||||||
|
2016 |
|
|
- |
|
|
- |
|
|
8,722 |
|
|
10,516 |
|
|
19,238 |
| |||||||
Martin G. King, Chief Financial Officer |
|
2018 |
|
|
169,667 |
|
|
- |
|
|
26,407 |
|
|
- |
|
|
196,074 |
| ||||||
|
2017 |
|
|
480,576 |
|
|
- |
|
|
31,037 |
|
|
- |
|
|
511,613 |
| |||||||
|
2016 |
|
|
1,013,498 |
|
|
- |
|
|
30,130 |
|
|
- |
|
|
1,043,628 |
| |||||||
Jacek Olczak, Chief Operating Officer |
|
2018 |
|
|
- |
|
|
- |
|
|
17,643 |
|
|
- |
|
|
17,643 |
| ||||||
|
2017 |
|
|
- |
|
|
- |
|
|
17,620 |
|
|
- |
|
|
17,620 |
| |||||||
|
2016 |
|
|
- |
|
|
- |
|
|
20,746 |
|
|
- |
|
|
20,746 |
| |||||||
Miroslaw Zielinski, President, Science & Innovation |
|
2018 |
|
|
- |
|
|
- |
|
|
1,967 |
|
|
3,912 |
|
|
5,879 |
| ||||||
|
2017 |
|
|
- |
|
|
- |
|
|
1,268 |
|
|
3,917 |
|
|
5,185 |
| |||||||
|
2016 |
|
|
- |
|
|
- |
|
|
11,407 |
|
|
3,553 |
|
|
14,960 |
| |||||||
| (a) | The amounts shown include payments or reimbursements made pursuant to PMI’s Long-Term Assignment Guidelines, which are designed to facilitate the relocation of employees to positions in other countries by covering expenses over and above those that the employees would have incurred had they remained in their home countries. International assignments and relocations provide a key means for the Company to meet its global employee development and resource needs, and the Long-Term Assignment Guidelines ensure that employees have the necessary financial support to help meet cost differences associated with these assignments. The Long-Term Assignment Guidelines cover housing, home leave, relocation, education expenses and tax equalization, as well as other program allowances. Currently, there are approximately |
| (b) | For reasons of security and personal safety, PMI requires Mr. Calantzopoulos to use Company aircraft for all travel. The amounts shown are the incremental cost of personal use of Company aircraft to PMI and include the cost of trip-related crew hotels and meals,in-flight food and beverages, landing and ground handling fees, hourly maintenance contract costs, hangar or aircraft parking costs, fuel costs based on the average annual cost of fuel per hour flown, and other smaller variable costs. Fixed costs that would be incurred in any event to operate Company aircraft (e.g., aircraft purchase costs, depreciation, maintenance not related to personal trips, and flight crew salaries) are not included. Mr. Calantzopoulos has agreed to reimburse the Company for his personal usage of Company aircraft to the extent that the aggregate incremental cost of such usage exceeds $200,000 per fiscal year; he is responsible for his own taxes on any imputed taxable income resulting from personal use of Company aircraft. |
| (c) | Amounts shown for Mr. Calantzopoulos include the incremental cost of personal use of driver services that PMI provided for reasons of security and personal safety. With respect to Messrs. Calantzopoulos, Firestone, King, Olczak, and Zielinski, amounts include the cost, amortized over a five-year period, of a vehicle, including insurance, maintenance, repairs and taxes. Executives are responsible for their own taxes on any imputed taxable income resulting from car expenses. |
| (d) | The tax preparation services are pursuant to PMI policies that apply to all Swiss payroll-based management employees. |
The following are the specific amounts paid by the Company under the Long-Term Assignment Guidelines:
| Name and Principal Position | Year | Housing ($) | Home Leave ($) | Relocation ($) | Tax Equalization (a) ($) | Other Program Allowances (b) ($) | Totals ($) | Year | Housing ($) | Home Leave ($) | Relocation ($) | Tax Equalization(a) ($) | Other Program Allowances(b) ($) | Totals ($) | |||||||||||||||||||||||||||||||||||||||||||||
Martin King, President, Asia Region | 2016 | 415,335 | 20,781 | - | 506,000 | 71,382 | 1,013,498 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2015 | 259,236 | 27,174 | 136,878 | 943,606 | 71,501 | 1,438,395 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2014 | 130,463 | 34,328 | 127,616 | 158,210 | 44,443 | 495,060 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Martin G. King, Chief Financial Officer |
|
2018 |
|
|
- |
|
|
- |
|
154,449 |
- |
|
15,218 |
|
|
169,667 |
| ||||||||||||||||||||||||||||||||||||||||||
|
2017 |
|
|
364,796 |
|
|
18,300 |
|
26,806 |
- |
|
70,674 |
|
|
480,576 |
| |||||||||||||||||||||||||||||||||||||||||||
|
2016 |
|
|
415,335 |
|
|
20,781 |
|
- |
506,000 |
|
71,382 |
|
|
1,013,498 |
| |||||||||||||||||||||||||||||||||||||||||||
Amounts that were paid or incurred in currency other than U.S. dollars are converted to U.S. dollars using average conversion rates for |
| (a) | The tax equalization payments made pursuant to PMI’s Long-Term Assignment Guidelines are to ensure that an assignee’s income tax liability is approximately the same as if he or she had not accepted a long-term international assignment. Payments for tax equalization often occur in years following the actual tax year. The Company has covered the excess taxes on behalf of Mr. King pursuant to our assignment tax principle. |
| (b) | Other Program Allowances include tax preparation services paid by the Company under the Long-Term Assignment Guidelines. |
PMI 2019 Proxy Statement48 • 42PMI 2017 Proxy Statement
| COMPENSATION DISCUSSION AND ANALYSIS | |
Grants of Plan-Based Awards During 20162018
| Estimated Possible Payouts UnderNon-Equity Annual Incentive Plan (1) | Estimated Future Payouts Under Equity Incentive Plan (2) | |||||||||||||||||||||||||||||||
| Name and Principal Position | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | All Other Stock Awards: Number of Shares of Stock or Units (3) (#) | Grant Date Fair Value of Stock Awards ($) | |||||||||||||||||||||||
André Calantzopoulos, Chief Executive Officer |
|
2016 |
|
0 |
|
2,898,675 |
|
|
6,522,019 |
| ||||||||||||||||||||||
|
2/4/2016
|
|
|
35,520 |
|
|
71,040 |
|
|
142,080 |
|
|
6,877,205 |
| ||||||||||||||||||
|
2/4/2016
|
|
47,360
|
|
4,215,751
|
| ||||||||||||||||||||||||||
Marc Firestone, Senior Vice President and General Counsel |
|
2016 |
|
0 | 1,227,310 | 2,761,448 | ||||||||||||||||||||||||||
|
2/4/2016 |
|
|
10,110 |
|
|
20,220 |
|
|
40,440 |
|
|
1,957,448 |
| ||||||||||||||||||
|
2/4/2016
|
|
13,480
|
|
1,199,923
|
| ||||||||||||||||||||||||||
Martin King, President, Asia Region |
|
2016 |
|
0 |
|
810,021 |
|
|
1,822,547 |
| ||||||||||||||||||||||
|
2/4/2016 |
|
|
4,825 |
|
|
9,650 |
|
|
19,300 |
|
|
934,192 |
| ||||||||||||||||||
|
2/4/2016
|
|
6,440
|
|
573,257
|
| ||||||||||||||||||||||||||
Jacek Olczak, Chief Financial Officer |
|
2016 |
| 0 | 1,170,846 | 2,634,404 | ||||||||||||||||||||||||||
|
2/4/2016 |
|
|
10,525 |
|
|
21,050 |
|
|
42,100 |
|
|
2,037,798 |
| ||||||||||||||||||
|
2/4/2016
|
|
14,030
|
|
1,248,881
|
| ||||||||||||||||||||||||||
Miroslaw Zielinski, President, Reduced-Risk Products |
|
2016 |
| 0 | 908,200 | 2,043,450 | ||||||||||||||||||||||||||
|
2/4/2016 |
|
|
6,765 |
|
|
13,530 |
|
|
27,060 |
|
|
1,309,805 |
| ||||||||||||||||||
|
2/4/2016
|
|
9,020
|
|
802,916
|
| ||||||||||||||||||||||||||
Estimated Possible Payouts Annual Incentive Plan(1) | Estimated Future Payouts Under Equity Incentive Plan(2) | ||||||||||||||||||||||||||||||||||||||||||||
| Name and Principal Position | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | All Other Stock Awards: Number of of Stock or (#) | Grant Date ($) | ||||||||||||||||||||||||||||||||||||
André Calantzopoulos, Chief Executive Officer |
|
2018 |
|
|
0 |
|
|
3,074,694 |
|
|
6,918,062 |
| |||||||||||||||||||||||||||||||||
| 2/8/2018 | 33,070 | 66,140 | 132,280 | 7,264,487 | |||||||||||||||||||||||||||||||||||||||||
| 2/8/2018 | 44,100 | 4,440,429 | |||||||||||||||||||||||||||||||||||||||||||
Marc S. Firestone, President, External Affairs |
|
2018 |
|
|
0 |
|
|
1,295,476 |
|
|
2,914,821 |
| |||||||||||||||||||||||||||||||||
| 2/8/2018 | 10,220 | 20,440 | 40,880 | 2,245,027 | |||||||||||||||||||||||||||||||||||||||||
| 2/8/2018 | 13,630 | 1,372,405 | |||||||||||||||||||||||||||||||||||||||||||
Martin G. King, Chief Financial Officer |
|
2018 |
|
|
0 |
|
|
858,569 |
|
|
1,931,780 |
| |||||||||||||||||||||||||||||||||
| 2/8/2018 | 5,390 | 10,780 | 21,560 | 1,184,021 | |||||||||||||||||||||||||||||||||||||||||
| 2/8/2018 | 7,190 | 723,962 | |||||||||||||||||||||||||||||||||||||||||||
Jacek Olczak, Chief Operating Officer |
|
2018 |
|
|
0 |
|
|
1,295,476 |
|
|
2,914,821 |
| |||||||||||||||||||||||||||||||||
| 2/8/2018 | 9,760 | 19,520 | 39,040 | 2,143,979 | |||||||||||||||||||||||||||||||||||||||||
| 2/8/2018 | 13,010 | 1,309,977 | |||||||||||||||||||||||||||||||||||||||||||
Miroslaw Zielinski, President, Science & Innovation |
|
2018 |
|
|
0 |
|
|
1,200,225 |
|
|
2,700,506 |
| |||||||||||||||||||||||||||||||||
| 2/8/2018 | 9,470 | 18,940 | 37,880 | 2,080,275 | |||||||||||||||||||||||||||||||||||||||||
| 2/8/2018 | 12,630 | 1,271,715 | |||||||||||||||||||||||||||||||||||||||||||
| (1) | The estimated possible payouts are converted to U.S. dollars using the conversion rate on December |
| (2) | On February |
The numbers in these columns represent the potential number of PSUs that can vest at three different levels of performance. Threshold assumes achievement of a threshold performance level for each of the threepre-established performance goals resulting in the vesting of 50% of the target number of PSUs. The vesting percentage can be |
| (3) | On February |
On February |
43 • PMI 20172019 Proxy Statement • 49
| COMPENSATION DISCUSSION AND ANALYSIS | |
Outstanding Equity Awards as of December 31, 20162018
| Stock Awards | |||||||||||||||||||||||||
| RSUs | PSUs | ||||||||||||||||||||||||
| Name and Principal Position | Stock Award Grant Date (1) | Number of Units that Have not (#) | Market Value Have not Vested(3) ($) | Number of Units that Have not (#) | Market or Have not Vested(3) ($) | ||||||||||||||||||||
André Calantzopoulos, Chief Executive Officer | 2/4/2016 | 71,040 | 6,499,450 | ||||||||||||||||||||||
| 2/4/2016 | 47,360 | 4,332,966 | |||||||||||||||||||||||
| 2/5/2015 | 98,940 | 9,052,021 | |||||||||||||||||||||||
|
| 2/6/2014
|
|
| 94,870
|
|
| 8,679,656
|
| |||||||||||||||||
Marc Firestone, Senior Vice President and General Counsel | 2/4/2016 | 20,220 | 1,849,928 | ||||||||||||||||||||||
| 2/4/2016 | 13,480 | 1,233,285 | |||||||||||||||||||||||
| 2/5/2015 | 36,870 | 3,373,236 | |||||||||||||||||||||||
|
| 2/6/2014
|
|
| 43,510
|
|
| 3,980,730
|
| |||||||||||||||||
Martin King, President, Asia Region | 2/4/2016 | 9,650 | 882,879 | ||||||||||||||||||||||
| 2/4/2016 | 6,440 | 589,196 | |||||||||||||||||||||||
| 2/5/2015 | 16,960 | 1,551,670 | |||||||||||||||||||||||
|
| 2/6/2014
|
|
| 21,400
|
|
| 1,957,886
|
| |||||||||||||||||
Jacek Olczak, Chief Financial Officer | 2/4/2016 | 21,050 | 1,925,865 | ||||||||||||||||||||||
| 2/4/2016 | 14,030 | 1,283,605 | |||||||||||||||||||||||
| 2/5/2015 | 32,240 | 2,949,638 | |||||||||||||||||||||||
|
| 2/6/2014
|
|
| 38,230
|
|
| 3,497,663
|
| |||||||||||||||||
Miroslaw Zielinski, President, Reduced-Risk Products | 2/4/2016 | 13,530 | 1,237,860 | ||||||||||||||||||||||
| 2/4/2016 | 9,020 | 825,240 | |||||||||||||||||||||||
| 2/5/2015 | 21,700 | 1,985,333 | |||||||||||||||||||||||
|
| 2/6/2014
|
|
| 24,260
|
|
| 2,219,547
|
| |||||||||||||||||
| Stock Awards | ||||||||||||||||||
RSUs | PSUs | |||||||||||||||||
| Name and Principal Position | Stock Award Grant Date(1) | Number of Units that Have not (#) | Market Value Have not Vested(3) ($) | Number of Unearned Units (#) | Market or Payout ($) | |||||||||||||
André Calantzopoulos, Chief Executive Officer |
2/8/2018
|
|
66,140
|
|
|
4,415,506
|
| |||||||||||
2/8/2018
|
|
44,100
|
|
|
2,944,116
|
| ||||||||||||
2/2/2017
|
|
62,800
|
|
|
4,192,528
|
| ||||||||||||
2/2/2017
|
|
41,870
|
|
|
2,795,241
|
| ||||||||||||
2/4/2016
|
|
71,040
|
|
|
4,742,630
|
| ||||||||||||
2/4/2016
|
|
47,360
|
|
|
3,161,754
|
| ||||||||||||
Marc S. Firestone, President, External Affairs & General Counsel |
2/8/2018
|
|
20,440
|
|
|
1,364,574
|
| |||||||||||
2/8/2018
|
|
13,630
|
|
|
909,939
|
| ||||||||||||
2/2/2017
|
|
19,500
|
|
|
1,301,820
|
| ||||||||||||
2/2/2017
|
|
13,000
|
|
|
867,880
|
| ||||||||||||
2/4/2016
|
|
20,220
|
|
|
1,349,887
|
| ||||||||||||
2/4/2016
|
|
13,480
|
|
|
899,925
|
| ||||||||||||
Martin G. King, Chief Financial Officer |
2/8/2018
|
|
10,780
|
|
|
719,673
|
| |||||||||||
2/8/2018
|
|
7,190
|
|
|
480,004
|
| ||||||||||||
2/2/2017
|
|
10,240
|
|
|
683,622
|
| ||||||||||||
2/2/2017
|
|
6,830
|
|
|
455,971
|
| ||||||||||||
2/4/2016
|
|
9,650
|
|
|
644,234
|
| ||||||||||||
2/4/2016
|
|
6,440
|
|
|
429,934
|
| ||||||||||||
Jacek Olczak, Chief Operating Officer |
2/8/2018
|
|
19,520
|
|
|
1,303,155
|
| |||||||||||
2/8/2018
|
|
13,010
|
|
|
868,548
|
| ||||||||||||
2/2/2017
|
|
19,410
|
|
|
1,295,812
|
| ||||||||||||
2/2/2017
|
|
12,940
|
|
|
863,874
|
| ||||||||||||
2/4/2016
|
|
21,050
|
|
|
1,405,298
|
| ||||||||||||
2/4/2016
|
|
14,030
|
|
|
936,643
|
| ||||||||||||
Miroslaw Zielinski, President, Science & Innovation |
2/8/2018
|
|
18,940
|
|
|
1,264,434
|
| |||||||||||
2/8/2018
|
|
12,630
|
|
|
843,179
|
| ||||||||||||
2/2/2017
|
|
12,980
|
|
|
866,545
|
| ||||||||||||
2/2/2017
|
|
8,650
|
|
|
577,474
|
| ||||||||||||
2/4/2016
|
|
13,530
|
|
|
903,263
|
| ||||||||||||
2/4/2016
|
|
9,020
|
|
|
602,175
|
| ||||||||||||
| (1) | These awards vest according to the following schedule: |
Grant Date | Grant Type | Vesting Schedule | ||||
2/8/2018 | PSU | Award vests between0-200% on 2/17/2021 upon certification of the achievement of performance goalspre-established by the Committee. | ||||
| 2/8/2018 | RSU | 100% of award vests on 2/17/2021. | ||||
| 2/2/2017 | PSU | Award vests between0-200% on 2/19/2020 upon certification of the achievement of performance goalspre-established by the Committee. | ||||
| 2/2/2017 | RSU | 100% of award vests on 2/19/2020. | ||||
| 2/4/2016 | PSU | Award of performance goalspre-established by the Committee. | ||||
| 2/4/2016 | RSU | 100% of award | ||||
|
|
| ||||
|
|
| ||||
Upon normal retirement or upon separation from employment by mutual agreement after reaching age 58, outstanding RSUs will vest immediately, while outstanding PSUs will vest at the end of the relevant three-year performance cycle to the extent performance goals are met. Upon death or disability, all outstanding RSUs will vest and all outstanding PSUs will vest at 100% of target. In all other cases, the extent of vesting or forfeiture will be subject to the Committee’s discretion. |
(Notes continued on next page)
PMI 2019 Proxy Statement • 44
| COMPENSATION DISCUSSION AND ANALYSIS | |
(Notes continued...)
| (2) | Dividend equivalents paid in |
| (3) | Based on the closing market price of PMI common stock on December |
| (4) | Amount assumes target performance goals are achieved. The actual number of units that vest will range between 0% and 200% depending on actual performance during the performance cycle. |
50 • PMI 2017 Proxy Statement
| |
Stock Option Exercises (1) and Stock Vested During 20162018
Stock Awards
| ||||||
| Name and Principal Position | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | ||||
André Calantzopoulos, Chief Executive Officer
| 74,260 | 6,755,804 | ||||
Marc Firestone, Senior Vice President and General Counsel
| 48,270 | 4,391,363 | ||||
Martin King, President, Asia Region
| 24,270 | 2,207,963 | ||||
Jacek Olczak, Chief Financial Officer
| 42,080 | 3,828,228 | ||||
Miroslaw Zielinski, President, Reduced-Risk Products
| 31,530 | 2,868,442 | ||||
Stock Awards
| ||||||||||
Name and Principal Position
|
Number of Shares Acquired on Vesting (#)
| Value Realized on Vesting ($)
| ||||||||
André Calantzopoulos, Chief Executive Officer
|
|
98,940
|
|
|
10,291,244
|
| ||||
Marc S. Firestone, President, External Affairs & General Counsel
|
|
36,870
|
|
|
3,835,033
|
| ||||
Martin G. King, Chief Financial Officer
|
|
16,960
|
|
|
1,764,094
|
| ||||
Jacek Olczak, Chief Operating Officer
|
|
32,240
|
|
|
3,353,444
|
| ||||
Miroslaw Zielinski, President, Science & Innovation
|
|
21,700
|
|
|
2,257,126
|
| ||||
| (1) | The Company does not issue stock options. |
On February 15, 2017,20, 2019, vesting restrictions lapsed for the following RSUs granted in 2014:2016: Mr. Calantzopoulos, 94,87047,360 shares; Mr. Firestone, 43,51013,480 shares; Mr. King, 21,4006,440 shares; Mr. Olczak, 38,23014,030 shares; and Mr. Zielinski, 24,2609,020 shares.
On February 20, 2019, the PSUs granted in 2016 to each of the named executive officers vested at an overall performance factor of 80% (as certified by the Committee) as follows: Mr. Calantzopoulos, 56,832 shares; Mr. Firestone, 16,176 shares; Mr. King, 7,720 shares; Mr. Olczak, 16,840 shares; and Mr. Zielinski, 10,824 shares.
Dividend equivalents paid in 2019 on vested PSUs for each of our named executive officers were as follows: Mr. Calantzopoulos, $729,155; Mr. Firestone, $207,539; Mr. King, $99,048; Mr. Olczak, $216,058; and Mr. Zielinski, $138,872.
45 • PMI 20172019 Proxy Statement • 51
| COMPENSATION DISCUSSION AND ANALYSIS | |
The Pension Benefits table and theNon-Qualified Deferred Compensation table below generally reflect amounts accumulated as a result of the named executive officers’NEOs’ service over their full careers with us, our prior parent company and affiliates. The increments related to 20162018 are reflected in the Change in Pension Value column of the Summary Compensation Table on page 47.41. Our plans providing pension benefits are described below in the Pension Benefits table, and our defined contribution plans are described in theNon-Qualified Deferred Compensation table on page 56.50.
| Name and Principal Position | Plan Name | Number of (#) | Present Value ($) | Payments During Last Fiscal Year ($) | ||||
André Calantzopoulos, Chief Executive Officer |
Pension Fund of Philip Morris in Switzerland | 35.00 | 16,330,826 | - | ||||
| IC Pension Plan of Philip Morris in Switzerland | 11.92 | 2,434,361 | - | |||||
Supplemental Plan of Philip Morris in Switzerland
| 11.00
| 6,568,028
| -
| |||||
Marc Firestone, Senior Vice President and General Counsel
| Pension Fund of Philip Morris in Switzerland | 4.75 | 1,749,139 | - | ||||
| IC Pension Plan of Philip Morris in Switzerland | 3.92 | 149,863 | - | |||||
Supplemental Plan of Philip Morris in Switzerland
| 4.75
| 708,985
| -
| |||||
Martin King, President, Asia Region | Pension Fund of Philip Morris in Switzerland | 11.58 | 3,532,845 | - | ||||
| IC Pension Plan of Philip Morris in Switzerland | 10.92 | 588,846 | - | |||||
| Supplemental Plan of Philip Morris in Switzerland | 8.00 | 942,792 | - | |||||
| Retirement Plan for Salaried Employees | 14.00 | 788,453 | - | |||||
Benefit Equalization Plan (BEP)
| 14.00
| 3,942,898
| -
| |||||
Jacek Olczak, Chief Financial Officer | Pension Fund of Philip Morris in Switzerland | 27.00 | 9,210,078 | - | ||||
| IC Pension Plan of Philip Morris in Switzerland | 10.92 | 587,751 | - | |||||
Supplemental Plan of Philip Morris in Switzerland
| 8.00
| 1,908,360
| -
| |||||
Miroslaw Zielinski, President, Reduced- Risk Products
| Pension Fund of Philip Morris in Switzerland | 31.00 | 10,148,615 | - | ||||
| IC Pension Plan of Philip Morris in Switzerland | 11.92 | 1,050,376 | - | |||||
Supplemental Plan of Philip Morris in Switzerland
| 11.00
| 1,818,887
| -
|
| Name and Principal Position | Plan Name | Number of (#) | Present Value ($) | Payments During Last Fiscal Year ($) | |||||||||||||
André Calantzopoulos, |
Pension Fund of Philip Morris in Switzerland |
|
37.00 |
|
|
17,732,375 |
|
- | |||||||||
Chief Executive Officer | IC Pension Plan of Philip Morris in Switzerland | 13.92 | 2,679,058 | - | |||||||||||||
Supplemental Plan of Philip Morris in Switzerland
|
| 13.00
|
|
| 7,966,848
|
| -
| ||||||||||
Marc S. Firestone, |
Pension Fund of Philip Morris in Switzerland |
|
6.75 |
|
|
2,572,032 |
|
- | |||||||||
President, External Affairs & General Counsel
| IC Pension Plan of Philip Morris in Switzerland | 5.92 | 230,543 | - | |||||||||||||
Supplemental Plan of Philip Morris in Switzerland
|
| 6.75
|
|
| 1,057,944
|
| -
| ||||||||||
Martin G. King, |
Pension Fund of Philip Morris in Switzerland |
|
13.58 |
|
|
4,361,075 |
|
- | |||||||||
Chief Financial Officer | IC Pension Plan of Philip Morris in Switzerland | 12.92 | 696,476 | - | |||||||||||||
| Supplemental Plan of Philip Morris in Switzerland | 10.00 | 1,157,637 | - | ||||||||||||||
| Retirement Plan for Salaried Employees | 14.00 | 847,747 | - | ||||||||||||||
Benefit Equalization Plan (BEP)
|
| 14.00
|
|
| 5,122,050
|
| -
| ||||||||||
Jacek Olczak, |
Pension Fund of Philip Morris in Switzerland |
|
29.00 |
|
|
10,118,596 |
|
- | |||||||||
Chief Operating Officer | IC Pension Plan of Philip Morris in Switzerland | 12.92 | 699,005 | - | |||||||||||||
Supplemental Plan of Philip Morris in Switzerland
|
| 10.00
|
|
| 2,819,087
|
| -
| ||||||||||
Miroslaw Zielinski, |
Pension Fund of Philip Morris in Switzerland |
|
33.00 |
|
|
11,170,419 |
|
- | |||||||||
President, Science & Innovation
| IC Pension Plan of Philip Morris in Switzerland | 13.92 | 1,189,266 | - | |||||||||||||
Supplemental Plan of Philip Morris in Switzerland
|
| 13.00
|
|
| 2,340,517
|
| -
| ||||||||||
| (1) | As of December 31, |
| (2) | The amounts shown in this column for pension plans in Switzerland are based on a 60% joint and survivor annuity commencing at age 62 (the earliest date on which, assuming continued employment, the individual would be eligible for benefits that are not reduced for early commencement) and the following actuarial assumptions: discount rate |
The amounts shown in this column for Mr. King’s U.S. pension benefits are based on a single life annuity (or, for the BEP, a lump sum payment) using the same assumptions applied foryear-end |
|
(Notes continued on next page)
52 •
PMI 20172019 Proxy Statement • 46
| COMPENSATION DISCUSSION AND ANALYSIS | |
(Notes continued...)
| (3) | In addition to the benefits reflected in this column, we generally provide a survivor income benefit allowance, or SIB allowance, to the surviving spouse and children of U.S. payroll-based employees who die while covered by our Retirement Plan for Salaried Employees. Following the death of a retiree who |
The surviving spouse of a participant who dies prior to retirement and prior to age 61 becomes entitled to receive 25% of the base salary of the deceased employee commencing four years after the participant’s death, provided the spouse has not remarried, and continuing until the deceased employee would have reached age 65. At that time, the surviving spouse receives the same survivor benefit he or she would have received if the deceased employee continued to work until age 65 earning the same base salary as in effect at the time of death. These benefits are reduced by any death benefits payable from the Retirement Plan. If there is no surviving spouse, SIB allowances for each child equal 10% of the base salary of the deceased employee (to a maximum of 30% of base salary), become payable monthly beginning four years after the employee’s death, and continue until the child reaches age 25 if a full-time student (age 19 if not). |
47 • PMI 20172019 Proxy Statement • 53
| COMPENSATION DISCUSSION AND ANALYSIS | |
Retirement Plans for U.S. Payroll-Based Employees
Pensions for our U.S. payroll-based employees are payable from thetax-qualified Retirement Plan andnon-qualified supplemental plans. These plans recognize the employees’ prior service with companies with which we were previously affiliated.
Mr. King, who is a former U.S. payroll-based employee, has accrued benefits under thetax-qualified Retirement Plan and thenon-qualified supplemental Benefit Equalization Plan (BEP). The provisions of these two plans are described below.
The BEP provides both supplemental pension benefits and supplemental deferred profit-sharing benefits. The provisions of the BEP relating to deferred profit-sharing benefits are described following theNon-Qualified Deferred Compensation table.
Retirement Plan for Salaried Employees
Thetax-qualified Retirement Plan is anon-contributory plan maintained for the benefit of our U.S. payroll-based salaried employees hired before January 1, 2009. Subject to tax law limits, the pension formula generally applicable under the Retirement Plan provides for lifetime benefits following termination of employment equal to (a) 1.75% of the employee’s average compensation (the sum of annual salary and annual incentive compensation award in the 60 consecutive months during the employee’s last 120 months of service that, when divided by five, produces the highest average), minus (b) 0.30% of such compensation up to the applicable Social Security-covered compensation amount, times (c) years of credited service (up to a maximum of 35). Social Security-covered compensation is generally an amount equal to the average of the Social Security taxable wage bases for the35-year period that ends in the year the participant reaches age 65. The resulting benefit is expressed as a single life annuity payable commencing at normal retirement age.
Employees who terminate employment before age 55 with vested benefits may commence receiving payment of their accrued pensions after attaining age 55, with reductions for early commencement of 6% for each year by which commencement precedes age 65. For an employee who terminates employment after age 55, the reduction for early commencement is generally 6% for each year by which commencement precedes age 60. If an employee has 30 years of service and is age 55 or older, or is 60 or older with 5 years of service, the annuity
immediately payable on early retirement is 100% of that payable at normal retirement age.
Benefit Equalization Plan (BEP)
The tax law applicable to the fundedtax-qualified Retirement Plan limits the annual compensation that can be taken into account in determining the five-year average compensation under the plan. As a result of this and certain other tax limits, only a portion of the benefits calculated under the Retirement Plan formula can be paid to affected employees from the Retirement Plan. To compensate for the loss of these benefits under the fundedtax-qualified plan, eligible employees accrue supplemental benefits undernon-qualified plans. Generally, the supplemental pension benefits accrued under the BEP equal the difference between (a) the pension benefits determined under the Retirement Plan provisions described above, disregarding the tax law limits, and (b) the benefits that can be provided from the Retirement Plan after taking the tax law limits into account.
Retirement Plans for Swiss Payroll-Based Employees
Pensions for our Swiss payroll-based employees are payable from a funded defined benefit pension plan and incentive compensation (IC) pension plan qualifying for favorable treatment under Swiss law. To the extent that Swiss tax or other limitations do not allow paying the full pension under the qualified plans, the balance is expected to be payable under a supplemental pension plan.
Pension Fund of Philip Morris in Switzerland
With limited exceptions, all Swiss payroll-based employees over 25 years of age become immediately covered by the Pension Fund of Philip Morris in Switzerland, a broad-based contributory-funded plan providing defined retirement, disability and death benefits up to limits prescribed under Swiss law. Retirement benefits are expressed as an annuity at normal retirement age equal to 1.8% of the participant’sfive-year average pensionable salary (base salary minustwo-thirds of the maximum social security benefits of CHF 28,200 in 2016)2018) multiplied by years of credited service (to a maximum of 40 to 41 years, depending on the employee’s date of birth). Effective April 1, 2015, employees between the ages of 25 and 34 contribute 6% of their pensionable salary to the Fund, and the contribution increases to 7% for employees between the ages of 35 and 54 and 8% for employees between the ages of 55 and 65. Subject to certain conditions, participants may elect to receive
54 • PMI 2017 Proxy Statement
| |
pension benefits entirely or partially in a lump sum. For determining lump sum values, a discount rate of 4% and the LPP 2015 mortality table isare used. The LPP mortality table is a commonly used mortality table in Switzerland. For an employee who completes 30 years of service and retires at age 62, this translates into payments equivalent to a pension of 54% of five years’ annual
PMI 2019 Proxy Statement • 48
| COMPENSATION DISCUSSION AND ANALYSIS | |
average pensionable salary. For an employee with 40 years of credited service at age 65, this “replacement ratio” is approximately 72% of average salary. Participants may retire and commence benefits as early as age 58; however, for each year that retirement precedes age 62, the 1.8% multiplier used to calculate the amount of the retirement pension is reduced by 0.06% (at age 58 the multiplier is 1.56%). Swiss law permits participants in a pension plan to make additional voluntary contributions to the pension plan to compensate for missing years of credited service.
If an employee terminates employment with us before age 58, the lump sum value of the pension calculated using the termination lump sum factors is transferred either to a new pension fund or to a blocked bank account until early retirement age is reached. An employee who is age 50 or over upon termination of employment can elect under certain conditions to remain in the plan as an external member. In this case, neither the employee nor the employer can contribute any further funds. At the age of 58, the former employee must then elect to take retirement in the form of an annuity, a lump sum or a mix of both.
IC Pension Plan of Philip Morris in Switzerland
Swiss payroll-based employees in salary grades 14 and above who are eligible to participate in the annual incentive compensation award program described above are also eligible to participate in the IC Pension Plan of Philip Morris in Switzerland, a funded plan which, for the named executive officers, provides for participant contributions of up to 1.5% of pensionable salary (as defined above), subject to maximum Swiss pension law limits, and an equal matching contribution from the employer. As with the pension plan, participants may make additional voluntary contributions subject to certain terms and conditions.
Benefits ultimately received depend on interest rates set by the Pension Board of the plan (which consists of members appointed by the employer and an equal number selected by participants in the plan) and are
payable in a lump sum or as an annuity. The plan guarantees that there is no loss of principal on either the employee contributions or the Company match. In 2016, 2018,
the assets of the funds had a positivenegative performance of 4.3%7.2%, and 3.0%no interest was credited on plan balances.
If an employee terminates employment with the Company before age 58, the employee’s account value is transferred to either a new pension fund or to a blocked bank account until early retirement age is reached. An employee who is age 50 or over upon termination of employment can elect under certain conditions to remain in the plan as an external member. In this case, neither the employee nor the employer can contribute any further funds to the plan although interest does accrue on the account balance. At the age of 58, the former employee must then elect to take retirement in the form of an annuity, a lump sum payment or a mix of both.
Supplemental Plan of Philip Morris in Switzerland
For some Swiss payroll-based employees, including our NEOs, the laws and regulations applicable to the Pension Fund of Philip Morris in Switzerland and the IC Pension Plan of Philip Morris in Switzerland limit the benefits that can be provided under those plans. For these employees, we maintain a Supplemental Plan under which an amount is calculated and deposited annually in a Swiss foundation to make up for the difference between the full pension an employee would have received had these plans not been subject to such limitations (assuming the employee becomes entitled to benefits from the Supplemental Plan). However, the annual deposits do not serve to increase the amount that an individual would have received absent such limits. In determining the amount of the annual deposit, the actuarial assumptions used are the same as those described above for the Pension Fund of Philip Morris in Switzerland.
In the event of a Supplemental Plan participant’s termination of employment from the Company, if the Foundation Board determines in its sole discretion that he or she is entitled to a benefit, the Supplemental Plan benefit is paid in a lump sum at the time that benefits first become payable to the participant under the Pension Fund of Philip Morris in Switzerland and the IC Pension Plan of Philip Morris in Switzerland. As the Supplemental Plan is not atax-qualified plan, the benefits from this plan, when paid, are adjusted for the loss of favorabletax-qualified plan treatment.
49 • PMI 20172019 Proxy Statement • 55
| COMPENSATION DISCUSSION AND ANALYSIS | |
Non-Qualified Deferred Compensation
| Name and Principal Position | Plan Name | Executive ($) | Registrant ($) | Aggregate ($) | Aggregate ($) | Aggregate ($) | |||||||||||||||||||||
Martin King, President, Asia Region
|
Benefit Equalization Plan (BEP), Deferred Profit-Sharing
| 0 | 0 | 306 | 0 | 19,900 | |||||||||||||||||||||
| Name and Principal Position | Plan Name | Executive ($) | Registrant in 2018 ($) | Aggregate ($) | Aggregate ($) | Aggregate ($) | ||||||
Martin G. King,
|
Benefit Equalization Plan (BEP), Deferred Profit-Sharing
|
0
|
0
|
396
|
0
|
20,618
|
| (1) | The amount in this column consists of amounts credited as earnings for |
Deferred Profit-Sharing and Benefit Equalization Plan
For U.S. payroll-based employees, we providenon-qualified defined contribution benefits supplementing the benefits provided under ourtax-qualified Deferred Profit-Sharing Plan for Salaried Employees, or DPS. Under the DPS, contributions are made on behalf of each participant for each year. Currently, none of our named executive officers is eligible for DPS contributions.
As is the case for the Retirement Plan, the applicable U.S. tax law limits the amount of compensation ($265,000275,000 for 2016)2018) that can be taken into account under thetax-qualified DPS for any year and imposes other limits on the amounts that can be allocated to individuals under the DPS. A DPS participant whose salary was more than the compensation limit or who was otherwise affected by tax law limits is entitled to a supplemental profit-sharing benefit in an amount generally equal to the
additional benefits the participant would have received under the DPS but for the application of the tax law limits.
The funds accumulated in the DPS portion of BEP for Mr. King reflect the contributions while he was a U.S. payroll-based employee.
The DPS fund used as an earnings measure under this portion of the BEP is invested in a variety of high-quality fixed-income instruments with strong credit ratings and, for 2016,2018, produced earnings at a rate of approximately 1.6%2.0%. Participants typically receive their supplemental profit-sharing benefits upon termination of employment in a lump sum or, if elected in advance, as a deferred lump sum payment or in installments over a number of years not to exceed their life expectancy.
PMI 2019 Proxy Statement56 • 50PMI 2017 Proxy Statement
| COMPENSATION DISCUSSION AND ANALYSIS | |
Employment Contracts, Termination of Employment and Change in Control Arrangements
As a general matter, PMI has not utilized special employment contracts for its named executive officers. However, as required by local law, our Swisspayroll-based executive officers are covered by contracts; these contracts, which do not include change in control provisions.
PMI’s 2012Our 2018 equity compensation awards were granted under the 2017 Performance Incentive PlanPlan. That plan includes a double-trigger feature. Under the plan, outstanding equity awards will not accelerate or vest if the entity acquiring PMI agrees to replace the award with a time-based equity award of equivalent value. For this purpose, the value of outstanding PSUs would be determined based on actual performance through the date of the change in control if more thanone-half of the performance cycle has elapsed and such performance is determinable. Otherwise, the value of the outstanding PSUs will be based on the assumption that target performance had been achieved. If outstanding equity awards are not replaced, the outstanding RSUs would fully vest, and the value of outstanding PSUs would be determined as set forth above and both be payable immediately in cash. Fully earned but unpaid annual incentive compensation awards would become payable.
If outstanding equity awards are replaced as described above but, within two years after the change in control, the employee’s employment is terminated involuntarily and other than for cause or the employee terminates employment for good reason, the replacement awards would fully vest.
Under PMI’s 2017 Performance Incentive Plan, a change in control occurs: (i) upon an acquisition of 20% or more of either PMI’s common stock or the voting power of PMI’s voting securities, excluding certain acquisitions involving PMI or its affiliates or where PMI’s beneficial owners continue to meet certain ownership thresholds; (ii) when members of the PMI Board as of the effective date of PMI’s 2017 Performance Incentive Plan, or thereafter nominated or elected by such members, cease to constitute a majority of the PMI Board; (iii) upon certain reorganizations, mergers, share exchanges and consolidations involving PMI; or (iv) upon the liquidation or dissolution, or sale of substantially all of the assets of PMI, with limited exceptions.
Our 2016 and 2017 equity compensation awards were granted under PMI’s 2012 Performance Incentive Plan, which also includes a double-trigger feature. Under that plan, the changes to vest or pay applicable awards occur immediately upon a change in control only if the entity acquiring PMI does not agree to assume or replace the awards. In addition, if the acquiring entity agrees to assume or replace the awards, but an employee’s employment is terminated involuntarily and other than for cause or the employee terminates employment for good reason within two years after the change in control, the applicable awards will become vested or be payable upon the employee’s termination of employment as follows:
the restrictions on outstanding RSUs would lapse; |
outstanding PSUs would vest on apro-rata basis at target and be payable in cash; |
unless otherwise determined by the Compensation and Leadership Development Committee, equity awards would be cashed out at the change in control price; and |
fully earned but unpaid annual incentive compensation awards would become payable. |
Under PMI’s 2012 Performance Incentive Plan, aThe definition of change in control occurs: (i) upon an acquisition of 20% or more of either PMI’s common stock orin the voting power of PMI’s voting securities, excluding certain acquisitions involving PMI or its affiliates or where PMI’s beneficial owners continue2012 Plan is similar to meet certain ownership thresholds; (ii) when members ofthat in the PMI Board as of the effective date of PMI’s 2012 Performance Incentive Plan, or thereafter nominated or elected by such members, cease to constitute a majority of the PMI Board; (iii) upon certain reorganizations, mergers, share exchanges and consolidations involving PMI; or (iv) upon the liquidation or dissolution, or sale of substantially all of the assets of PMI, with limited exceptions.2017 Plan.
The amounts in the accompanying table are estimates of the amounts that would have become payable on a
change in control of PMI, calculated as if a change in control occurred on December 31, 2016,2018, applying certain assumptions. For outstanding equity awards granted under PMI’sthe 2012 Performance Incentive Plan, we have assumed that the awards become vested and payable as of December 31, 2016,2018, either because the acquirer doesdid not assume or replace the awards or because the employee’s employment iswas involuntarily terminated. For outstanding equity awards granted under the 2017 Performance Incentive Plan and annual cash incentive awards, we have assumed that the outstanding awards became vested and payable as of December 31, 2018, because they were not replaced by the acquirer or employment was involuntarily terminated.
51 • PMI 2019 Proxy Statement
| COMPENSATION DISCUSSION AND ANALYSIS | |
| Name | Unvested ($) | Unvested ($) | Completed ($) | Total ($) | ||||||||||
André Calantzopoulos
|
|
2,166,483
|
|
|
22,064,643
|
|
2,898,675
|
|
27,129,801
|
| ||||
Marc Firestone
|
| 616,643
|
|
| 8,587,251
|
| 1,227,310
|
| 10,431,204
|
| ||||
Martin King
|
| 294,293
|
|
| 4,098,752
|
| 810,021
|
| 5,203,066
|
| ||||
Jacek Olczak
|
| 641,955
|
|
| 7,730,906
|
| 1,170,846
|
| 9,543,707
|
| ||||
Miroslaw Zielinski
|
| 412,620
|
|
| 5,030,120
|
| 908,200
|
| 6,350,940
|
| ||||
Name | Unvested ($) | Unvested ($) | Completed ($) | Total ($) | ||||||||||||||||
André Calantzopoulos
|
|
11,953,155
|
|
|
8,901,111
|
|
3,074,694
|
|
23,928,960
|
| ||||||||||
Marc S. Firestone
|
|
3,582,341
|
|
|
2,677,744
|
|
1,295,476
|
|
7,555,561
|
| ||||||||||
Martin G. King
|
|
1,819,655
|
|
|
1,365,909
|
|
858,569
|
|
4,044,133
|
| ||||||||||
Jacek Olczak
|
|
3,572,328
|
|
|
2,669,065
|
|
1,295,476
|
|
7,536,869
|
| ||||||||||
Miroslaw Zielinski
|
|
2,745,394
|
|
|
2,022,828
|
|
1,200,225
|
|
5,968,447
|
| ||||||||||
| (1) | Assumes the change in control price is equal to the closing market price of PMI on December |
| (2) | Assumes target award payable under our annual incentive compensation award program for a full year. Amounts are converted to U.S. dollars using the conversion rate on December |
Benefits payable under PMI’s qualified pension andprofit-sharing plans and supplemental plans are discussed above. None of those plans provideprovides PMI’s executive officers with an additional enhancement, early vesting or other benefit in the event of a change in control or
termination of employment, except for certain plan provisions applicable to all plan participants that ensure vesting and continuation of profit-sharing contributions for the year of a change in control and the following two years. Mr. King is already fully vested under these plans. Similarly, no enhanced provisions apply to theabove-named executive officers with respect to continued medical, life insurance or other insurance coverage following termination of employment, whether or not in connection with a change in control.
Involuntary Separation Without Cause
In the event of involuntary separation without cause, a severance payment is typically determined as a multiple of monthly base salary. The amount of severance paid varies based on a number of factors, including the circumstances of the termination and the executive’s years of service.
Voluntary Early Retirement or Retirement
In the event of voluntary early retirement or retirement, a retirement allowance is typically determined based on the annual base salary midpoint for the executive’s grade. The amount varies based on a number of factors, including the circumstances of retirement and the executive’s years of service.
PMI 20172019 Proxy Statement • 5752
| COMPENSATION DISCUSSION AND ANALYSIS | |
About Our Workforce
At December 31, 2018, we employed approximately 77,400 people worldwide. As our manufacturing and sales activities are outside of the U.S., 99.8% of our employees (or approximately 77,240) are located outside of the U.S. Approximately 67% of our employees are located innon-OECD countries, which tend to be lesser developed countries with lower wages than OECD countries. Approximately 35% of our workforce is in Indonesia. The national average annual net salary is approximately $2,400 in that country.(1) Approximately 65% of our overall workforce is covered by collective labor agreements, and approximately 78% of our workforce innon-OECD countries is covered by collective labor agreements.
Our Pay Ratio
Given our global footprint, and in accordance with the regulatory guidance, we have determined that thecost-of-living adjusted ratio based on the purchasing power parity index (or PPP) reflects the differences in the living and economic conditions of approximately 90 countries where our employees reside.(2) The PPP conversion factor represents the number of units of local currency that can buy a basket of goods that 1 CHF would buy in Switzerland, where our CEO resides. The totalPPP-adjusted compensation for our median employee residing in Indonesia is approximately CHF 49,875.(3)Comparing this employee’s totalPPP-adjusted compensation to the total compensation of our CEO in 2018, our adjusted pay ratio is 308:1.(4)
Had we not used the PPP adjustment, our median employee’s total 2018 compensation would have been approximately $18,890. Comparing this employee’s total compensation to the total compensation of our CEO set forth in the Summary Compensation Table on page 41,
the ratio would be 843:1. For reference, the ratio of the CEO’s total compensation to that of our median employee in Switzerland is 83:1.At December 31, 2018, we employed approximately 3,235 people in Switzerland, including approximately 310 in our factory and 750 in our R&D facility in Neuchâtel.
PMI as an Employer
We are the first multinational company to receive a global EQUAL-SALARY certification from the EQUAL-SALARY Foundation.
This year, the Top Employer Institute recognized us as a Global Top Employer for the third consecutive year. Additionally, we have been awarded Top Employer Middle East 2019, Top Employer Africa 2019, Top Employer Europe 2019, Top Employer North America 2019, and Top Employer Latin America 2019. The Top Employer Institute also granted us a Top Employer certification in 49 countries worldwide, including Indonesia.
| (1) | http://www.bi.go.id/sdds/default.asp#RealSector. |
| (2) | The PPP conversion factor is described at http://data.worldbank.org. The PPP indices are publicly available in the jurisdictions where our employees reside, with limited exceptions. |
| (3) | This represents the median of the total compensation of all employees. As there was no significant change in our employee population, or compensation arrangements, this median employee (selected in October 2017) is the same as the one described in our 2018 proxy statement, filed with the U.S. Securities and Exchange Commission on March 29, 2018. |
| (4) | To identify a median employee in the above calculations, we analyzed base salary information because that is the only pay element applied consistently throughout our global workforce. |
53 • PMI 2019 Proxy Statement
| ADVISORY VOTE APPROVING EXECUTIVE COMPENSATION | |
The Compensation Discussion and Analysis section discusses in detail how our compensation programs support our business and financial objectives, how they work and are administered under the direction of our independent Compensation and Leadership Development Committee, and how the Committee’s decisions concerning the 20162018 compensation of our executive officers were directly tied to our performance.
Pursuant to Section 14A of the Exchange Act, we are asking our shareholders to indicate their support for our named executive officer compensation as described in this proxy statement. This annualsay-on-pay vote gives our shareholders the opportunity to express their views on our NEOs’ compensation at each Annual Meeting of Shareholders. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and the philosophy, policies and practices described in this proxy statement.
Accordingly, we will ask our shareholders to vote “FOR”
“FOR” the following resolution at the Annual Meeting:
RESOLVED, that the Company’s shareholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in the Company’s Proxy Statement for the 2019 Annual Meeting of Shareholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the Summary Compensation Table and the other related tables and disclosures.
|
Thissay-on-pay vote is advisory and, therefore, not binding on the Company, the Compensation and Leadership Development Committee or the Board of Directors. The Board and the Committee value the opinions of our shareholders and will review the voting results when making future decisions regarding executive compensation.
The Board recommends a vote FOR the resolution approving the compensation of
our named executive officers.
PMI 2019 Proxy Statement58 • 54PMI 2017 Proxy Statement
| |
Pursuant to Section 14A of the Exchange Act, we are seeking your input with regard to the frequency of future shareholder advisory votes on our executive compensation programs. We are asking whether the advisory vote should occur every year, every two years or every three years.
After careful consideration, the Board of Directors has determined that an advisory vote on executive compensation that occurs every year continues to be the most appropriate alternative for our Company and, therefore, the Board recommends that you vote for a one-year interval for the say-on-pay advisory vote.
In formulating its recommendation, the Board considered that an annual advisory vote on executive compensation will allow our shareholders to provide us with their direct input on our compensation philosophy, policies and practices every year. Additionally, an annual advisory vote on executive compensation is consistent with our policy of seeking input from, and engaging in discussions with, our shareholders on corporate governance matters and our executive compensation philosophy, policies and practices.
You may cast your vote on your preferred voting frequency by choosing the option of every one year, two years or three years or you may abstain from voting on the resolution set forth below:
|
We will regard the option that receives the highest number of votes cast by shareholders to be the frequency that has been selected by shareholders. Although this vote is advisory and not binding on the Board or PMI, the Board will carefully consider the outcome.
The Board recommends a vote of once EVERY YEAR as the frequency with which shareholders are provided an advisory vote on executive compensation.
PMI 2017 Proxy Statement • 59
| |
The Board of Directors has adopted the 2017 Performance Incentive Plan (the “2017 Plan”) to replace the 2012 Performance Incentive Plan, which was approved by our shareholders in 2012 (the “2012 Plan”). The 2017 Plan, like the 2012 Plan, permits the Company to compensate management with equity and cash incentive awards. New awards will not be made under the 2017 Plan until shareholder approval is obtained for the Plan. The Company has no plans to grant additional awards under the 2012 Plan after the date of this proxy statement.
The 2017 Plan provides the Compensation and Leadership Development Committee with the flexibility to compensate executives through various awards. These awards may be tied to the financial or operational performance of the Company as well as to the performance of the Company’s stock. Because of the key role the 2017 Plan will play in the compensation of executives, the Board urges you to vote for its approval.
The terms of the 2017 Plan are summarized below. In addition, the full text of the 2017 Plan is set forth in Exhibit B to this Proxy Statement. The following summary is qualified in its entirety by reference to the text of the 2017 Plan. Shareholder approval of the 2017 Plan is one of the requirements for allowing us to continue to make certain awards to executive officers that will be tax-deductible by us as performance-based compensation for U.S. tax purposes.
Comparison of the 2017 Plan and the 2012 Plan
The following compares the key provisions of the two plans:
|
|
|
|
|
|
|
|
60 • PMI 2017 Proxy Statement
| |
Run Rates and Dilution. The following table sets forth information regarding equity awards granted, the run rate for each of the last three fiscal years and the average run rate over the last three years. The Company’s regular annual long-term equity awards are granted in February of each year. The last column reflects awards issued through March 10, 2017.
| RUN RATE (shares in millions) | FY 2014 | FY 2015 | FY 2016 | 3-Year Average | YTD 2017 | |||||||||||||||
RSUs granted
|
|
2.43
|
|
|
1.54
|
|
|
1.21
|
|
|
1.73
|
|
|
1.20
|
| |||||
Director Stock Awards granted
|
|
0.02
|
|
|
0.03
|
|
|
0.03
|
|
|
0.03
|
|
|
-
|
| |||||
PSUs vested
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
| |||||
Weighted average number of shares outstanding
|
|
1,566.37
|
|
|
1,548.90
|
|
|
1,551.06
|
|
|
1,555.44
|
|
|
1,552.00
|
| |||||
Run rate (1)
|
|
0.16
|
%
|
|
0.10
|
%
|
|
0.08
|
%
|
|
0.11
|
%
|
|
0.08
|
%
| |||||
|
The Company’s run rates as shown above and its 2016 year-end overhang (number of unvested RSUs plus unvested PSUs (at target) as a percentage of all shares outstanding at year-end) of 0.32% each compares favorably to those of its Peer Group.
Eligibility.Employees of the Company, its subsidiaries and its affiliates, who are responsible for or contribute to the management, growth and profitability of the Company, its subsidiaries and affiliates, are eligible to receive awards under the 2017 Plan. Such eligible employees include executive officers, senior officers, and other key executive and management employees (currently, approximately 8,750). Awards that are paid to our named executive officers (other than the Chief Financial Officer) are potentially subject to the tax deduction limitations of Section 162(m) of the Internal Revenue Code (the “Code”). The limitations of Section 162(m) do not apply, however, to “performance-based” compensation that meets certain requirements, including shareholder approval of the plan.
Business Criteria for Performance Goals.The performance goals for awards that are intended to constitute performance-based compensation for purposes of Section 162(m) will be based on one or more of the following criteria: earnings per share; total shareholder return; net revenues; operating income; operating companies income; net income; earnings before interest, taxes, depreciation and amortization expenses; free cash flow; operating cash flow; return on equity; return on capital; economic value added; product volume or market share; product innovation; changes in the overall cost base; operating margin; attainment of product commercialization targets; achievement of research and development milestones and other strategic initiatives; achievement of regulatory milestones; portfolio transformation; or achievement of diversity and inclusion goals. The measures of these criteria may be adjusted in a manner consistent with the practices of the Company in communicating results.
Negative Discretion.Notwithstanding the achievement of any performance goal established under the 2017 Plan, the Committee has the discretion to reduce some or all of a performance-based award that would otherwise be paid to a participant.
Incentive Awards.Incentive awards expressed in cash, common stock, or both may be granted under the 2017 Plan. These awards will be earned only if corporate, business unit or individual performance objectives over performance cycles established by or under the direction of the Committee, are met.
Restricted Shares and Restricted Share Units.Restricted shares and RSUs may also be awarded. Restricted shares are shares of common stock issued to a recipient while RSUs represent the right to receive shares, in each case that vest and become transferable upon the satisfaction of conditions described in the applicable award agreement. Restricted shares and RSUs may be forfeited if, for example, the recipient’s employment terminates before the award vests. Except as specified in the applicable award agreement, the holder of a restricted share award will have all the rights of a holder of common stock on his or her restricted shares, including the right to receive dividends. The holder of RSUs will have none of the rights of a holder of common stock unless and until shares of common stock are actually delivered in satisfaction of such units. The Committee may provide for the payment of dividend equivalents with respect to any shares of common stock subject to unvested RSUs.
Performance Share Units.PSUs are performance-based awards denominated in shares of common stock and based on the achievement of pre-established performance goals during a performance cycle, with the vesting percentage determined
PMI 2017 Proxy Statement • 61
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by formula. The recipient of PSUs will have none of the rights of a holder of common stock until shares are earned and delivered in satisfaction of such units. The Committee may provide for the payment of dividend equivalents with respect to shares that are actually earned at the end of a performance cycle.
U.S. Federal Income Tax Consequences.
Restricted Shares. The recognition of income from an award of restricted shares for federal income tax purposes depends on the restrictions imposed on the shares. Generally, taxation will be deferred until the first taxable year the shares are no longer subject to substantial risk of forfeiture. At the time the restrictions lapse, the employee will recognize ordinary income equal to the then fair market value of the shares. The employee may, however, make an election to include the value of the shares in gross income in the year of award despite such restrictions. Generally, PMI will be entitled to deduct the fair market value of the shares transferred to the employee as a business expense in the year the employee includes the compensation in income.
RSUs and PSUs.Generally, an employee will not recognize ordinary income until the shares become payable, even if the award vests in an earlier year. PMI will generally be entitled to deduct the amount the employee includes in income as a business expense in the year of payment.
Cash Incentive Awards.Any cash payment an employee receives under an incentive award will generally be included in the employee’s income, as ordinary income, in the year paid. PMI will generally be entitled to deduct the amount the employee includes in income as a business expense in the year of payment.
Deductibility of Awards.Section 162(m) places a $1.0 million annual limit on the compensation deductible by PMI paid to certain of its executives. The limit, however, does not apply to “qualified performance-based compensation.” PMI believes that cash incentive awards and PSUs under the 2017 Plan will qualify for the performance-based compensation exception to the deductibility limit. The Committee retains the discretion to issue awards that are not so qualified.
Other Tax Consequences.State tax consequences may in some cases differ from those described above. Awards under the 2017 Plan will in many instances be made to employees who are subject to tax in jurisdictions other than the United States and may result in tax consequences differing from those described above.
Award Limits.The 2017 Plan places limits on the maximum amount of each type of award that may be granted to any employee in any plan year. The maximum number of shares of common stock that may be the subject of all awards that are intended to comply with the performance-based exception under Section 162(m) awarded to any employee during any single calendar year shall not exceed 500,000. For awards that are settled in cash but denominated in shares of common stock, the maximum aggregate amount of cash that may be paid to a participant in a single calendar year is equal to 500,000 multiplied by the fair market value of a share of common stock on the payment date. The maximum amount of all awards denominated in cash that are intended to comply with the performance-based exception under Section 162(m) that can be paid to any employee during any single calendar year shall not exceed $10 million for awards with a performance cycle of one year or less and shall not exceed such annual maximum multiplied by the number of years in any performance cycle having a term of more than one year.
Award limits that are expressed as a number of shares will be adjusted appropriately in the event of any transaction or event that affects our common stock, including but not limited to a merger, share exchange, reorganization, consolidation, recapitalization, reclassification, distribution, stock dividend, stock split, reverse stock split, split-up, spin-off or issuance of rights or warrants.
Change in Control.The 2017 Plan includes a double-trigger feature under which outstanding equity awards will not accelerate or vest if the entity acquiring PMI agrees to replace the award with a time-based equity award of equivalent value. For this purpose, the value of outstanding PSUs would be determined based on actual performance through the date of the change in control if more than one-half of the performance cycle has elapsed and such performance is determinable. Otherwise, the value of outstanding PSUs would be based on the assumption that target performance had been achieved.
If outstanding equity awards are not replaced, outstanding RSUs would fully vest and the value of outstanding PSUs would be determined as set forth above and be payable immediately in cash.
If outstanding equity awards are replaced as described above but, within two years after the change in control, the employee’s employment is terminated involuntarily and other than for cause or the employee terminates employment for
62 • PMI 2017 Proxy Statement
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good reason, the replacement award would fully vest. The definition of change in control in the 2017 Plan is similar to that in the 2012 Plan (summarized on page 57), except that no change in control is deemed to occur in certain business combination transactions if beneficial owners prior to such transaction beneficially own more than 50% in an entity resulting from such transaction (as opposed to 60% in the 2012 Plan).
Future Awards.Future awards under the 2017 Plan cannot be determined at this time because grants are at the discretion of the Committee. However, we believe that incentive and equity awards granted under the 2012 Plan in 2016 would not have been any different had they been awarded under the 2017 Plan.
Shares Remaining Under the Company’s Equity Compensation Plans.The number of shares to be issued upon exercise or vesting and the number of shares remaining available for future issuance under the 2012 Plan and the Philip Morris International Inc. 2008 Stock Compensation Plan for Non-Employee Directors at March 10, 2017, were as follows:
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Administration of the Plan.The 2017 Plan will be administered by the Committee, which has the power to interpret the 2017 Plan and to adopt such rules and guidelines for carrying out the 2017 Plan as it may deem appropriate. Subject to the terms of the 2017 Plan, the Committee has the authority to determine those employees eligible to receive awards and the amount, type and terms of each award and to establish and administer any performance goals applicable to such awards. The Committee may delegate its authority and power under the 2017 Plan to one or more officers of the Company, subject to guidelines prescribed by the Committee, but only with respect to participants who are not subject to either Section 16 of the Exchange Act or Section 162(m) of the Code. The Committee may, in its discretion, accelerate the vesting of any equity award granted under the 2017 Plan, or otherwise amend or modify any award granted under the 2017 Plan in any manner that either is not materially adverse to the recipient holding the award or is consented to by the recipient.
Other Information.The 2017 Plan provides that an award may not be transferred except in the event of the employee’s death or unless otherwise required by law or provided in an award agreement. Other terms and conditions of each award will be set forth in award agreements, which can be amended by the Committee.
It is presently intended that the 2017 Plan constitute an “unfunded” plan for incentive and deferred compensation. The 2017 Plan authorizes the creation of trusts and other arrangements to facilitate or ensure payment of our obligations.
The 2017 Plan was adopted by the Board on March 9, 2017, subject to shareholder approval, and no awards will be made under the 2017 Plan after May 3, 2022. However, any awards granted before May 3, 2022, may extend beyond such date. The Company has no plans to grant awards under the 2012 Plan after the date of this proxy statement. The Board may amend the 2017 Plan at any time, provided that no such amendment will be made without shareholder approval if such approval is required under applicable law, regulation, or stock exchange rule, or if such amendment would increase the number of shares of common stock that may be distributed under the 2017 Plan.
On March 10, 2017, the closing price of PMI common stock reported on the New York Stock Exchange was $110.54.
The Board recommends a vote FOR the approval of the
2017 Performance Incentive Plan.
PMI 2017 Proxy Statement • 63
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Introduction
The annual equity awards granted to our directors (see page 28) are made pursuant to the 2008 Stock Compensation Plan for Non-Employee Directors (the “Current Plan”), which was approved by Altria as our sole shareholder prior to the spin-off of PMI from Altria Group, Inc. on March 28, 2008. Under the terms of the Current Plan, no awards can be made after the awards made immediately following the 2017 Annual Meeting. Consequently, on March 9, 2017, the Board adopted the 2017 Stock Compensation Plan for Non-Employee Directors (the “New Plan”), subject to approval of the Company’s shareholders. The full text of the 2017 Non-Employee Director Plan is attached to this Proxy Statement as Exhibit C.
The New Plan is intended to be the successor to the Current Plan. No awards can be made under the New Plan unless it is approved by shareholders.
The purposes of the New Plan are (i) to assist the Company in promoting the alignment of interest between the Company’s Non-Employee Directors and the Company’s shareholders and (ii) to assist the Company in attracting and retaining Non-Employee Directors by affording them an opportunity to share in the future success of the Company.
Summary of the New Plan
The following general description of material features of the New Plan is qualified in its entirety by reference to the provisions of the New Plan set forth in Exhibit C.
Who may receive awards under the New Plan?
Only members of the Board who are not full-time employees of the Company or its subsidiaries will be granted awards under the New Plan. At his request, Dr. Paulsen does not participate in the Current Plan and will not participate in the New Plan. At present, eleven Non-Employee Directors will be granted awards under the New Plan if it is approved by shareholders.
How many shares will be reserved for awards?
One million shares of common stock (approximately 0.06% of the shares outstanding as of March 10, 2017) will be reserved and available for awards under the New Plan. No shares will remain available for new awards under the Current Plan after the awards made immediately following the 2017 Annual Meeting.
What will Non-Employee Directors receive?
Under the New Plan, on the first day of each Plan Year each eligible Non-Employee Director serving as such immediately after each Annual Meeting of Shareholders will receive an award of shares of common stock of the Company having a fair market value as follows:
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or such other amount as determined by the Nominating and Corporate Governance Committee (the “Committee”). A Plan Year is the period commencing at the opening of business on the day on which the Company’s Annual Meeting of Shareholders is held and ending on the day immediately preceding the day on which the next Annual Meeting is held.
Non-Employee Directors who join the Board on a day other than the first day of a Plan Year are eligible for an award that is typically prorated to reflect the number of Board meetings remaining to be held during that Plan Year.
Does the New Plan authorize stock options and other stock-based awards?
No. Unlike the Current Plan, the New Plan does not authorize stock options or other stock-based awards, reflecting the fact that no such awards were utilized under the Current Plan.
Will Non-Employee Directors be permitted to defer shares?
A participant may defer the receipt of shares of common stock under the New Plan, as is the case under the Current Plan. Non-Employee Directors may elect to defer the receipt of the shares of common stock awarded by timely filing an election to establish a notional deferred stock account in compliance with applicable tax rules and procedures established by the Committee. Each share of deferred common stock credited to such an account represents an unfunded obligation of the Company to issue a share of common stock on a future payment date. The shares of deferred stock will earn dividend equivalents in the same amounts as cash dividends paid on shares of common stock, and these amounts will be invested in additional shares of deferred stock.
64 • PMI 2017 Proxy Statement
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Who administers the New Plan?
The Nominating and Corporate Governance Committee (or a subcommittee thereof) will administer the New Plan. The New Plan authorizes the Committee to delegate such administrative functions as it deems appropriate.
U.S. Federal Income Tax Consequences
Awards of common stock are taxable to the Non-Employee Director in the year awarded unless he or she has timely filed an election to defer receipt of the shares, in which case taxation occurs in the year received. The Company will generally be entitled to deduct a corresponding amount as a business expense in the year the Non-Employee Director recognizes this income.
State tax consequences may in some cases differ from those described above. Awards under the New Plan may in some instances be made to Directors who are subject to tax in jurisdictions other than the United States and may result in tax consequences differing from those described above.
Other Information
If approved by shareholders, the New Plan will be effective on the day following the 2017 Annual Meeting and will expire after the awards made immediately following the 2027 Annual Meeting of Shareholders.
The Board may amend or terminate the New Plan, provided that no amendment will be made without shareholder approval if required under applicable law, regulation or stock exchange rule. Amendments may not increase the number of shares of Company common stock available under the New Plan.
The following table sets forth benefits to be received by Non-Employee Directors on an annual basis starting in 2018:
New Plan Benefits
Value ($) | Number of Shares of Common Stock (2) | |||||||||
Each Eligible Non-Employee Director, other than the Chairman
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175,000
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1,584
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Chairman
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1,250,000
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11,309
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Eligible Non-Employee Directors as a group (11 in total)(1)
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3,000,000
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27,149
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The table above reflects benefits expected to be received by Non-Employee Directors in 2018; however, for 2018 and future years, the fair market value of Non-Employee Directors’ awards may exceed these amounts, as determined by the Nominating and Corporate Governance Committee or the Board.
The Board recommends a vote FOR the approval of the
2017 Stock Compensation Plan for Non-Employee Directors.
PMI 2017 Proxy Statement • 65
| AUDIT COMMITTEE MATTERS | |
Audit Committee Report for the Year Ended
December 31, 20162018
To Our Shareholders:
Management has the primary responsibility for the financial statements and the reporting process, including the systems of internal accounting control. The Audit Committee monitors the Company’s financial reporting processes and systems of internal accounting control, the independence and the performance of the independent auditors, and the performance of the internal auditors. The Audit Committee has the sole authority for appointing, compensating and overseeing the work of the independent auditors.
The Audit Committee has received representations from management that the Company’s consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America, and the Audit Committee has reviewed and discussed the consolidated financial statements with management and the independent auditors. The Audit Committee has discussed with the independent auditors, including in executive sessions without the presence of management, the independent auditors’ evaluation of the accounting principles, practices and judgments applied by management, the adequacy of the Company’s financial reporting processes, controls and procedures, and the Audit Committee has discussed any items required to be communicated to it by the independent auditors in accordance with regulations promulgated by the U.S. Securities and Exchange Commission, the Public Company Accounting Oversight Board and the Independence Standards Board.
The Audit Committee has received from the independent auditors written disclosures and a letter required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning their independence and has discussed with the independent auditors the auditors’ independence from the Company and its management. The Audit Committee haspre-approved all fiscal year 2016 audit and permissiblenon-audit services provided by the
independent auditors and the fees for those services. As part of this process,
the Audit Committee has reviewed the audit fees of the independent auditors. It has also reviewednon-audit services and fees to assure compliance with regulations prohibiting the independent auditors from performing specified services that might impair their independence, as well as compliance with the Company’s and the Audit Committee’s policies.
The Audit Committee discussed with the Company’s internal auditors and independent auditors the overall scope of and plans for their respective audits. The Audit Committee has met with the internal auditors and the independent auditors, separately and together, with and without management present, to discuss the Company’s financial reporting processes and internal control over financial reporting and overall control environment. The Audit Committee has reviewed significant audit findings prepared by the independent auditors and those prepared by the internal auditors, together with management’s responses.
In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors the inclusion of the audited consolidated financial statements in the Company’s Annual Report on Form10-K for the year ended December 31, 2016.2018.
Audit Committee:
Jennifer Li, Chair
Massimo Ferragamo
Werner Geissler
Jun Makihara
Lucio A. Noto
Stephen M. Wolf
The information contained in the report above shall not be deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission or subject to Regulation 14A or 14C or the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent specifically incorporated by reference therein.
6655 • PMI 20172019 Proxy Statement
| AUDIT COMMITTEE MATTERS | |
Independent Auditors’ Fees
Aggregate fees, includingout-of-pocket expenses, paid to our independent auditors, PricewaterhouseCoopers SA, consisted of the following (in millions):
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Audit Fees(1)
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$
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20.02
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$
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21.31
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Audit-Related Fees(2)
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0.70
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0.80
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Tax Fees(3)
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4.76
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4.74
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All Other Fees(4)
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0.94
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1.46
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TOTAL
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$
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26.42
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$
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28.31
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Audit Fees(1) | $ | 19.33 | $ | 19.64 | ||||
Audit-Related Fees(2) | 1.01 | 0.88 | ||||||
Tax Fees(3) | 3.51 | 4.15 | ||||||
All Other Fees(4) | 1.60 | 1.18 | ||||||
TOTAL | $ | 25.45 | $ | 25.85 | ||||
| (1) | Fees and expenses associated with professional services in connection with (i) the audit of the Company’s consolidated financial statements and internal control over financial reporting, including statutory audits of the financial statements of the Company’s affiliates; (ii) reviews of the Company’s unaudited condensed consolidated interim financial statements; and (iii) reviews of documents filed with the Securities and Exchange Commission. |
| (2) | Fees and expenses for professional services for audit-related services, which include due diligence related to acquisitions and divestitures, employee benefit plan audits, accounting consultations and procedures relating to various other audit and special reports. |
| (3) | Fees and expenses for professional services in connection with U.S. and foreign tax compliance assistance, consultation and advice on various foreign tax matters, transfer pricing documentation for compliance purposes and advice relating to customs and duties compliance matters. |
| (4) | Fees and expenses for professional services relating to market analysis and other professional services. |
Pre-Approval Policy
The Audit Committee’s policy is topre-approve all audit and permissiblenon-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services and other services.Pre-approval is detailed as to the particular service or category of service and is subject to a specific budget. The Audit Committee requires the independent auditors and management to report on the actual fees charged for each category of service at Audit Committee meetings throughout the year.
During the year, circumstances may arise when it may become necessary to engage the independent auditors for additional services not contemplated in the originalpre-approval. In those instances, the Audit Committee requires specificpre-approval before engaging the independent auditors. The Audit Committee has delegatedpre-approval authority to the Chair of the Audit Committee for those instances whenpre-approval is needed prior to a scheduled Audit Committee meeting. The Chair of the Audit Committee must report on such approvals at the next scheduled Audit Committee meeting.
PMI 20172019 Proxy Statement • 6756
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The Audit Committee has selected PricewaterhouseCoopers SA (“PwC”) as the Company’s independent auditors for the fiscal year ending December 31, 2017,2019, and has directed that management submit the selection of independent auditors to shareholders for ratification at the Annual Meeting. Representatives of PricewaterhouseCoopers SAPwC are expected to be present at the meeting, will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions.
In determining to reappoint PwC, the Audit Committee considered a number of factors, including the following:
PwC has served as the Company’s independent auditors |
The results of the Audit Committee’s evaluation of PwC’s qualifications, performance, independence and quality control procedures; |
The Audit Committee’s belief that PwC’s deep knowledge of the Company and the Company’s information technology and systems platforms better equips it to focus the audit work where it is most needed, enhances the quality of risk-based reviews, and enables it to design and implement a superior audit plan and to effectively test for control weaknesses; |
The Audit Committee’s belief that PwC has the capability and expertise and professionals in the many countries that are necessary to conduct a quality audit of our worldwide business; |
The Audit Committee reviews and evaluates the lead partner and senior auditors on the account and selects the incoming lead partner when the outgoing lead partner rotates off the account; |
External data relating to audit quality and performance, including the Public Company Accounting Oversight Board’s reports on PwC and its peer firms; and |
The appropriateness of PwC’s fees. |
Shareholder ratification of the selection of PwC as the Company’s independent auditors is not required by the Company’sby-laws or otherwise. However, we are submitting the selection of PwC to the shareholders for ratification as a matter of good corporate practice. If the shareholders fail to ratify the selection, the Audit Committee will reconsider whether or not to retain PwC. Even if the selection is ratified, the Audit Committee in its discretion may direct the appointment of a different independent audit firm at any time during the year if it is determined that such a change would be in the best interests of the Company and its shareholders.
The Board recommends a vote FOR the ratification of the selection of
PricewaterhouseCoopers SA as the Company’s independent auditors.
6857 • PMI 20172019 Proxy Statement
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PROPOSAL 1 — HUMAN RIGHTS POLICY
Reverend Michael H. Crosby, Corporate Responsibility Agent, on behalf of the Province of St. Joseph of the Capuchin Order, claiming beneficial ownership of at least $2,000 worth of shares, submitted the proposal set forth below. The address and shareholdings of the proponent will be furnished upon request made to the Corporate Secretary. The Company is not responsible for the content of the shareholder proposal, which is printed below exactly as it was submitted.
WHEREAS: In 2011 the United Nations released: “Guiding Principles on Business and Human Rights.” Among peoples’ basic rights are the right to life and liberty, education and welfare, including the right to health. In an effort to abide by these Principles, PMI became a member of the UN’s Global Compact on Human Rights on June 19, 2015.
Later,The New York Times featured extended articles outlining how PMI, through its involvement in the United States Chamber of Commerce, has undermined nations’ efforts to protect their citizens from smoking-related harm and deaths (“U.S. Chamber of Commerce Works Globally to Fight Antismoking Measures,” June 30, 2015; “U.S. Chamber Fights Smoking Laws While Hospitals and Insurers Sit on Its Board,” July 1, 2015; “Big Tobacco’s Staunch Friend in Washington: U.S. Chamber of Commerce, “October 9, 2015).
TheTimes noted this effort involves “a three-pronged strategy in the Chamber’s global campaign to advance the interests of the tobacco industry” in face of countries’ efforts to curb the use of tobacco: 1) “the Chamber lobbies alongside its foreign affiliates to beat back antismoking laws;” 2) “in trade forums, the Chamber pits countries against each other and 3) in the widely-reported efforts of the Chamber to “defend the ability of the tobacco industry to sue under future international treaties, notably the Trans-Pacific Partnership” (TPP).
A February 25, 2015Washington Post piece reported that a section of the then-proposed TPP’s “Investor-State Dispute Settlement” (ISDS) was used by Philip Morris “to stop Uruguay from implementing new tobacco regulations intended to cut smoking rates.” However, when this issue was taken to the World Bank’s International Center for Settlement of Investment Dispute, it decided in favor of Uruguay’s right to regulate tobacco packaging for the public health and has ordered PMI to pay $7 million to cover fees and expenses
(https://business-humanrights.org/en/intl-tribunal-rules-uruguay-has-right-to-protect-public-health-through-tobacco-regulation-in-case-brought-by-philip-morris).
Commenting on “Big Tobacco’s controversial, ailing crusade” such as the above,The Economist noted (August 6, 2016) that such “avenues may be closing” due to recent rulings by the World Bank and the European Court of Justice that make it “likely that more governments will in future prioritize public health over IP.”
PMI has a right to protect and ensure its intellectual property rights (IP). However, the proponents of this resolution believe any related rights are secondary to human rights, especially peoples’ right to health and governments’ rights to ensure their citizens’ health, especially when the degree and expanse of this global corporate/industry effort to undermine such governments’ efforts is not publicly known.
RESOLVED: that PMI’s independent directors create a Review Committee to review, adapt, and monitor the Company’s human rights policy to ensure that its global and national lobbying and marketing practices, as well as those of industry bodies to which it belongs, are not undermining efforts of sovereign countries to protect their citizen’s health. This Review Committee shall report its findings annually in conjunction with PMI’s annual meeting.
The Board recommends a vote AGAINST this proposal.
In the past year, we at Philip Morris International took several bold steps reflecting our firm commitment to human rights, including the right to health. Among these steps, we issued our first Communication on Progress to the United Nations Global Compact, in which we reported on PMI’s progress in making the Global Compact’s Ten Principles part of our strategy to assure sustainability throughout our business and to reflect our commitment in our culture and day-to-day operations. Our report acknowledged that cigarettes pose serious health risks and that tobacco companies have a special obligation to develop and market their products responsibly (see www.pmi.com/sustainability).
We established implementation and oversight mechanisms for our sustainability efforts that exceeded the scope of the review committee requested by the shareholder proposal. We followed the guidance of the U.N. Guiding Principles on Business and Human Rights, and established a cross-functional Human Rights Core Team of specialists from our various business functions.
PMI 2017 Proxy Statement • 69
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This team leads our efforts to assess human rights risks across our global operations and supply chain, to develop and monitor comprehensive and effective measures to address those risks, to communicate our human rights commitment both internally and to our business partners, and to report publicly, at least annually, the measures we have taken with respect to human rights.
The Human Rights Core Team is supported by the functional leaders who report to our CEO and is coordinated by a Sustainability Team reporting to our Senior Vice President of Corporate Affairs. The Product Innovation and Regulatory Affairs Committee of PMI’s Board of Directors provides oversight of our activities in this area and both the Committee and the full Board receive frequent updates on these activities. We are developing metrics to quantify and to measure our progress in advancing the Global Compact’s Ten Principles throughout our global operations and supply chain. We will report our progress publicly.
We worked with the Danish Institute on Human Rights, a leading global institution on human rights, to support the development of our plans, including risk assessment and gap analysis of policies and practices. We worked with the proponents of this shareholder resolution to understand and to reflect their perspective on this critical issue. Consistent with our ongoing efforts to assure transparency, we will include details of our implementation plan in this year’s Communication on Progress to the Global Compact.
The Company’s key strategic priority is to develop and commercialize smoke-free products that are a much better choice than cigarette smoking and to lead a full-scale effort to ensure that smoke-free products replace cigarettes to the benefit of adult smokers, society, our Company and its shareholders. Since 2008, we have invested more than $3 billion and substantial effort to achieve this objective, building state-of-the-art R&D facilities in Switzerland and Singapore, hiring more than 400 scientists and engineers, publishing over 160 papers in peer-reviewed scientific journals dedicated to health, obtaining more than 1,500 patents related to RRPs, and building a new facility dedicated to manufacturing RRPs.
Our greatest hope as a company is to revolutionize the industry by introducing smoke-free products that replace cigarette smoking. This goal is aligned with the expectations of smokers, society and our shareholders, and we are fully committed to turning it into reality.
At year-end 2016, we were commercializingIQOS in key cities in twenty markets, and we are targeting launches in
key cities in an additional ten to fifteen markets in 2017, subject to capacity. We estimate that approximately 1.4 million adult consumers, many of whom had smoked our own cigarette brands, have already fully converted from smoking to usingIQOS.
RRPs contain nicotine and are not risk-free. We therefore support science-based regulation and taxation of RRPs. Regulation and taxation should differentiate between cigarettes and products that present, are likely to present, or have the potential to present less risk of harm to adult smokers who switch to these products versus continued smoking. Regulation should provide minimum standards for RRPs and specific rules for, among other things, ingredients, labeling and consumer communication, and should ensure that the public is informed about the health risks of all tobacco and nicotine-containing products. Regulation, as well as tobacco industry activities, should reflect the fact that youth should not consume nicotine in any form.
With respect to regulation of cigarettes, we support many measures, including those that strictly prohibit the sale of tobacco products to minors, limit public smoking, require health warnings on tobacco packaging, and regulate product content to prevent increased adverse health effects of smoking. We do oppose measures such as plain packaging or bans on all forms of communication to adult smokers that are not based on sound evidence of a public health benefit, or are likely to lead to adverse consequences, such as illicit trade. We do not believe that seeking a fair hearing on such measures in limited and appropriate circumstances undermines effective governmental efforts to protect public health. Nevertheless, in a sign of our overarching focus on developing and commercializing scientifically substantiated RRPs, an approach that we believe will ultimately improve public health much more than extreme cigarette regulation, we chose not to participate in the industry’s appeal of the court decision that upheld plain packaging regulation in the United Kingdom.
We will continue our efforts to lead the transformation of our industry. Our CEO has offered to meet with the proponents of this resolution to discuss our key strategic priority, and how our ongoing work fully addresses both the human rights and the public health interests supported by the resolution.
For the reasons discussed above, we believe that this proposal, while well-intentioned, is neither necessary nor in the interest of shareholders.
Therefore, the Board recommends a vote AGAINST the proposal.
70 • PMI 2017 Proxy Statement
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PROPOSAL 2—MEDIATION OF ALLEGED HUMAN RIGHTS VIOLATIONS
Heather Slavkin Corzo, Director, Office of Investment of the American Federation of Labor and Congress of Industrial Organizations, on behalf of the AFL-CIO Reserve Fund, claiming beneficial ownership of at least $2,000 worth of shares, submitted the proposal set forth below. The address and shareholdings of the proponent will be furnished upon request made to the Corporate Secretary. The Company is not responsible for the content of the shareholder proposal, which is printed below exactly as it was submitted.
RESOLVED, shareholders of Philip Morris International, Inc. (the “Company”) urge the Company to participate in mediation of any specific instances of alleged human rights violations involving the Company’s operations if mediation is offered by a governmental National Contact Point for the Organisation for Economic Cooperation and Development (the “OECD”) Guidelines for Multinational Enterprises.
For the purposes of this policy, the human rights subject to mediation shall include, at a minimum, those expressed in the International Labor Organization’s Declaration on Fundamental Principles and Rights at Work:
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Supporting Statement
The United Nation’s Guiding Principles on Business and Human Rights call on business enterprises to have in place the following policies and processes:
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(Guiding Principles on Business and Human Rights, United Nations, 2011, available at http://www.ohchr.org/Documents/Publications/GuidingPrinciplesBusinessHR_EN.pdf). While our Company has taken steps to commit to respect human rights and to conduct due diligence, we believe the Company needs to provide adequate remedies for human rights violations involving the Company’s operations including its tobacco supply chain.
Non-judicial grievance mechanisms to remedy human rights violations are needed the most when formal legal mechanisms are inadequate. For example, in the United States, agricultural workers are excluded from the National Labor Relations Act that protects the rights of workers to organize and collectively bargain. Agricultural child labor is also permitted in the United States under the Fair Labor Standards Act. (Teens of the Tobacco Fields: Child Labor in United States Tobacco Farming, Human Rights Watch, December 9, 2015, available at https://www.hrw.org/report/2015/12/09/teens-tobacco-fields/child-labor-united-states-tobacco-farming).
This proposal urges our Company to participate in mediation of alleged human rights violations if mediation is offered by a governmental National Contact Point pursuant to the OECD Guidelines for Multinational Enterprises. (OECD, 2011, available at http://www.oecd.org/daf/inv/mne/48004323.pdf). In the United States, the State Department’s Office of the U.S. National Contact Point provides mediation of specific instances of human rights violations through the U.S. Federal Mediation and Conciliation Service. (“Specific Instance Process,” Office of the U.S. National Contact Point, U.S. Department of State, available at http://www.state.gov/e/eb/oecd/usncp/specificinstance/index.htm).
Participation in the National Contact Point mediation process is voluntary and does not mean that the Company will be bound by the outcome of mediation. By agreeing to participate in National Contact Point mediation, our Company can affirmatively signal its commitment to remedy human rights violations should they arise in the future.
PMI 2017 Proxy Statement • 71
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The Board recommends a vote AGAINST this proposal.
As the proposal itself acknowledges, PMI is committed to respecting human rights. In our 2016 Communication on Progress to the United Nations Global Compact we have described in detail our labor and human rights policy framework, due diligence and remediation processes (see www.pmi.com/sustainability). Further, we have committed to the systematic, rights-based approach embodied in the U.N. Guiding Principles on Business and Human Rights and have taken several steps to reflect this commitment. We established a cross-functional Human Rights Core Team of specialists from our various business functions. This team leads our efforts to assess human rights risks across our global operations and supply chain, to develop and monitor comprehensive and effective measures to address those risks, to communicate our human rights commitment both internally and to our business partners, and to publicly report, at least annually, the measures we have taken with respect to human rights.
We worked with the Danish Institute on Human Rights, a leading global institution on human rights, to support the development of our plans, including risk assessment and gap analysis of policies and practices. Consistent with our ongoing efforts to assure transparency, we will include details of our implementation plan in this year’s Communication on Progress to the Global Compact.
This proposal focuses on potential violations of the rights of farmworkers who are not employed by the Company or its suppliers. In this regard, it is important to recognize that since 2011 we have implemented a comprehensive Agricultural Labor Practices (ALP) program throughout our tobacco-growing supply chain that includes policy, due diligence and remediation processes consistent with the expectations set by the U.N.’s Guiding Principles. Our policy standards are based on the ILO Declaration on Fundamental Principles and Rights at Work, and the implementation of the ALP program is mandatory for all our suppliers. We have trained more than 3,500 field staff who have reached approximately 450,000 contracted farms in more than 30 countries to support farmer’s adoption of good practices, monitor progress and enforce compliance with our standards on a farm-by-farm basis. We have implemented external assessments conducted by an independent third party, and provide regular detailed updates that report the strong progress we have been making. We believe that the global scale, detailed scope and level of transparency of our ALP program is unprecedented within the agricultural sector. Our efforts have been acknowledged by a wide range of stakeholders, ranging from the U.S. Department of Labor, to labor unions, and Human Rights Watch.
Specifically with regards to farm workers’ access to remedies, PMI’s affiliates and suppliers continue to work, either through independent third-parties or multi-stakeholder initiatives, to ensure worker access to a fair, transparent, and anonymous grievance mechanism. Locally tailored mechanisms are being implemented or supported in 14 countries, involving non-governmental organizations, government bodies, labor unions, farmer associations, local authorities, and other community members. In the United States, we took a leadership role in the creation of a multi-stakeholder initiative to address labor and human rights within the tobacco-growing supply chain, which includes workers’ representatives, tobacco farmer associations, manufacturers, leaf-buying companies, nongovernmental organizations and the U.S. Department of Labor. We have worked to establish an industry-wide grievance mechanism, and we continue to engage collaboratively and transparently with all stakeholders, including directly with the Farm Labor Organizing Committee, to verify alleged human rights violations and to implement remedial steps.
We take the concerns raised by labor unions very seriously and have followed up on the concrete cases raised during our 2016 Annual Meeting of Shareholders. Further, we have consistently investigated and taken appropriate action every time that a concrete allegation of a violation of our ALP Code has been brought to our attention by the Farm Labor Organizing Committee.
We recognize the importance of both judicial and non-judicial grievance mechanisms in mediating and resolving human rights disputes, including those offered by the United States National Contact Point for the OECD Guidelines for Multinational Enterprises in its Specific Instance process. The proposal urges the Company to commit in advance to non-binding mediation of any allegations of human rights abuse. We do not share the AFL-CIO’s view that committing to non-binding mediation would meaningfully contribute to our present efforts.
In light of these significant commitments, efforts and results, we believe this proposal is unnecessary and contrary to shareholder interests.
Therefore, the Board recommends a vote AGAINST the proposal.
72 • PMI 2017 Proxy Statement
| RELATED PERSON TRANSACTIONS AND CODE OF CONDUCT | |
The Board has adopted a policy, which is available on the Company’s website, atwww.pmi.com/governance,our-business/about-us, that requires our executive officers, directors and nominees for director to promptly notify the Corporate Secretary in writing of any transaction in which (i) the amount exceeds $120,000; (ii) the Company is, was or is proposed to be a participant; and (iii) such person or such person’s immediate family members (“Related Persons”) has, had or may have a direct or indirect material interest (a “Related Person Transaction”). The Corporate Secretary, in consultation with outside counsel, to the extent appropriate, shall determine whether a potential transaction with a Related Person constitutes a Related Person Transaction requiring review under the policy (including whether the Company or the Related Person has a material interest, based on a review of all facts and circumstances). If the Corporate Secretary determines that the proposed transaction constitutes a Related Person Transaction or it would be beneficial to further review the transaction, then, in either case, the transaction will be referred to the Chief Executive OfficerCEO or the Nominating and Corporate Governance Committee of the Board. In deciding whether to approve or ratify the Related Person Transaction, the reviewer is required to consider all relevant facts and circumstances. Based on the review of such facts and circumstances, the reviewer will approve, ratify or disapprove the Related Person Transaction. The reviewer will approve or ratify a Related Person Transaction only if it is determined that the transaction is not opposed to
the best interests of the Company. All determinations by the CEO and Corporate Secretary must be reported to the Committee at its next meeting.
Immediate family members of Messrs. Antonio Marques, the Company’s Senior Vice President, Operations, and Patrick Brunel, Senior Vice President and Chief Information Officer, are employed by the Company’s subsidiary in Switzerland in non-executive capacities. Their compensation in 2016 amounted to approximately $133,000 and $565,000, respectively, and was consistent with the Company’s compensation programs. These employment relationships were reviewed and approved in accordance with the policy.
In addition to this policy, the Code of Business Conduct and Ethics for Directors (the “Director Code”), which is available on our website, atwww.pmi.com/governance,our-business/about-us, has specific provisions addressing actual and potential conflicts of interest. The Director Code specifies: “Our directors have an obligation to act in the best interest of the Company. All directors should endeavor to avoid situations that present a potential or actual conflict between their interest and the interest of the Company.” The Director Code defines conflict of interest to include any instance in which (i) a person’s private interest interferes in any way, or even appears to interfere, with the interest of the Company, including its subsidiaries and affiliates; (ii) a director or a director’s family member takes an action or has an interest that may make it difficult for that director to perform his or her work objectively and effectively; and (iii) a director (or his or her family member) receives improper personal benefits as a result of the director’s position in the Company.
Similarly, our policies require all officers and employees of the Company to avoid situations where the officer’s or employee’s personal, financial or political activities have the potential of interfering with his or her loyalty and objectivity to the Company.
PMI 20172019 Proxy Statement • 7358
| AVAILABILITY OF REPORTS, OTHER MATTERS AND | |
AVAILABILITY OF FORM10-K AND ANNUAL REPORT TO SHAREHOLDERS
We are required to provide an Annual Report to shareholders who receive this proxy statement. We will also provide copies of the Annual Report to brokers, dealers, banks, voting trustees and their nominees for the benefit of their beneficial owners of record. Additional copies of the Annual Report, along with copies of our Annual Report on Form10-K for the fiscal year ended December 31, 2016,2018, are available without charge to shareholders upon written request to the Company’s Corporate Secretary at 120 Park Avenue, New York, New York 10017-5579. You may review the Company’s filings with the U.S. Securities and Exchange Commission by visiting our website at www.pmi.com/investors. The information on our websitewebsites is not, and shall not be deemed to be, a part of this report or incorporated into any other filings we make with the SEC.
OTHER MATTERS
Management knows of no other business that will be presented to the meeting for a vote. If other matters properly come before the meeting, the persons named as proxies will vote on them in accordance with their best judgment.
The cost of this solicitation of proxies will be paid by us. In addition to the use of the mail, some of the officers and regular employees of the Company may solicit proxies by telephone and will request brokerage houses, banks and other custodians, nominees and fiduciaries to forward soliciting material to the beneficial owners of common stock held of record by such persons. We will reimburse such persons for expenses incurred in forwarding such soliciting material. It is contemplated that additional solicitation of proxies will be made in the same manner under the engagement and direction of D.F. King & Co., Inc., 48 Wall Street, New York, NY 10005, at an anticipated cost of $24,000, plus reimbursement ofout-of-pocket expenses.
20182020 ANNUAL MEETING
Shareholders wishing to suggest candidates to the Nominating and Corporate Governance Committee for consideration as directors must submit a written notice to the Corporate Secretary of the Company. Ourby-laws set forth the procedures a shareholder must follow to nominate directors or to bring other business before shareholder meetings. For a shareholder to nominate a candidate for director at the 20182020 Annual Meeting, presently anticipated to be held on May 9, 2018,6, 2020, notice of the nomination must be received by the Company between October 2423 and November 23, 2017.22, 2019. The notice must describe various matters regarding the nominee, including name, address, occupation and shares held. The Nominating and Corporate Governance Committee will consider any nominee properly presented by a shareholder and will make a recommendation to the Board. After full consideration by the Board, the shareholder presenting the nomination will be notified of the Board’s conclusion. For a shareholder to bring other matters before the 20182020 Annual Meeting and to include a matter in the Company’s proxy statement and proxy for that meeting, notice must be received by the Company between October 2423 and November 23, 2017.22, 2019. The notice must include a description of the proposed business, the reasons therefor and other specified matters. In each case, the notice must be timely given to the Corporate Secretary of the Company, whose address is 120 Park Avenue, New York, New York 10017-5579. Any shareholder desiring a copy of the Company’sby-laws (which are posted on our website atwww.pmi.com/governance)our-business/about-us) will be furnished one without charge upon written request to the Corporate Secretary.
Jerry Whitson
Deputy General Counsel and Corporate Secretary
March 23, 201721, 2019
7459 • PMI 20172019 Proxy Statement
| EXHIBIT A: QUESTIONS & ANSWERS | |
| 1. | WHAT IS A PROXY? |
It is your legal designation of another person to vote the stock you own. That other person is called a proxy. If you designate someone as your proxy in a written document, that document also is called a proxy or a proxy card. André Calantzopoulos, Louis C. Camilleri and Jerry Whitson have each been designated as proxies for the 20172019 Annual Meeting of Shareholders.
| 2. | WHAT IS THE RECORD DATE AND WHAT DOES IT MEAN? |
The Record Date for the 20172019 Annual Meeting of Shareholders is March 10, 2017.8, 2019. The Record Date is established by the Board of Directors as required by Virginia law. Shareholders of record (registered shareholders and street name holders) at the close of business on the Record Date are entitled to:
| a) | receive notice of the meeting; and |
| b) | vote at the meeting and any adjournments or postponements of the meeting. |
| 3. | WHAT IS THE DIFFERENCE BETWEEN A REGISTERED SHAREHOLDER AND A SHAREHOLDER WHO HOLDS STOCK IN STREET NAME? |
If your shares of stock are registered in your name on the books and records of our transfer agent, you are a registered shareholder.
If your shares of stock are held for you in the name of a broker or bank, then your shares are held in street name. The organization holding your shares of stock is considered the shareholder of record for purposes of voting at the Annual Meeting. The answer to Question 1815 describes brokers’ discretionary voting authority and when your broker or bank is permitted to vote your shares of stock without instruction from you.
| 4. | HOW DO I OBTAIN ADMISSION TO THE MEETING? |
To obtain admission to the meeting, you must have an admission ticket. Because seating is limited, you may bring only one immediate family member as a guest. In addition, all meeting attendees must present government-issued photographic identification at the meeting. Please submit your request for an admission ticket by Friday, April 14, 2017,12, 2019, by sending ane-mail to asmticket@pmi.com or by mailing or faxing a request to the Company’s Corporate Secretary at 120 Park Avenue, New York, New York 10017-5579; facsimile:1-877-744-5412 (from within the United States) or1-212-687-3188 (from outside the United States). Please include the following information with your ticket request:
| a) | your name and mailing address; |
| b) | whether you need special assistance at the meeting; |
| c) | the name of your immediate family member, if one will accompany you; and |
| d) | if your shares are held for you in the name of your broker or bank, evidence of your stock ownership (such as a letter from your broker or bank or a photocopy of a current brokerage or other account statement) as of March |
PMI 2019 Proxy Statement • 60
| EXHIBIT A: QUESTIONS & ANSWERS | |
| 5. | WHAT ARE THE DIFFERENT METHODS THAT I CAN USE TO VOTE MY SHARES OF COMMON STOCK? |
| a) | In Writing: All shareholders of record can vote by mailing their completed and signed proxy card (in the case of registered shareholders) or their completed and signed voting instruction form (in the case of street name holders). |
PMI 2017 Proxy Statement • 75
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| b) | By Telephone and Internet Proxy: All shareholders of record also can vote their shares of common stock bytouch-tone telephone using the telephone number on the proxy card, or by Internet, using the procedures and instructions described on the proxy card and other enclosures. Street name holders of record may vote by telephone or Internet if their brokers or banks make those methods available. If that is the case, each broker or bank will enclose instructions with the proxy statement. The telephone and Internet voting procedures, including the use of control numbers, are designed to authenticate shareholders’ identities, to allow shareholders to vote their shares, and to confirm that their instructions have been properly recorded. Proxies submitted by Internet or telephone must be received by 11:59 p.m., EDT, on |
| c) | In Person: All shareholders may vote in person at the meeting (unless they are street name holders without a legal proxy). |
| 6. | HOW CAN I REVOKE A PROXY? |
You can revoke a proxy prior to the completion of voting at the meeting by:
| a) | giving written notice to the Corporate Secretary of the Company; |
| b) | delivering a later-dated proxy; or |
| c) | voting in person at the meeting. |
| 7. | ARE VOTES CONFIDENTIAL? WHO COUNTS THE VOTES? |
We have established and will maintain a practice of holding the votes of individual shareholders in confidence except: (a) as necessary to meet applicable legal requirements and to assert or defend claims for or against the Company; (b) in case of a contested proxy solicitation; (c) if a shareholder makes a written comment on the proxy card or otherwise communicates his or her vote to management; or (d) to allow the independent inspectors of election to certify the results of the vote. We will retain an independent tabulator to receive and tabulate the proxies and independent inspectors of election to certify the results.
| 8. | WHAT ARE THE CHOICES WHEN VOTING ON DIRECTOR NOMINEES, AND WHAT VOTE IS NEEDED TO ELECT DIRECTORS? |
Shareholders may:
| a) | vote in favor of a nominee; |
| b) | vote against a nominee; or |
| c) | abstain from voting on a nominee. |
Directors will be elected by a majority of the votes cast, which will occur if the number of votes cast “FOR” a director nominee exceeds the number of votes “AGAINST” that nominee. See “Election of Directors —– Majority Vote Standard in Uncontested Elections” on page 18.14.
The Board recommends a vote “FOR” all of the nominees.
7661 • PMI 20172019 Proxy Statement
| EXHIBIT A: QUESTIONS & ANSWERS | |
| 9. | WHAT ARE THE CHOICES WHEN VOTING ON THE ADVISORYSAY-ON-PAY RESOLUTION APPROVING THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS? |
Shareholders may:
| a) | vote in favor of the resolution; |
| b) | vote against the resolution; or |
| c) | abstain from voting on the resolution. |
The resolution will be approved if the votes cast “FOR” exceed the votes cast “AGAINST.”
The Board recommends a vote “FOR” this resolution.
The advisory vote on this matter isnon-binding. However, the Board of Directors and the Compensation and Leadership Development Committee value the opinions of our shareholders and will consider the outcome of the vote when making future executive compensation decisions.
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The Board recommends a vote that future advisory say-on-pay votes be held EVERY YEAR.
The option that receives the highest number of votes cast will be regarded as the one selected by the shareholders. The resolution is non-binding. However, the Board of Directors will consider the outcome of the vote when determining the frequency of future advisory say-on-pay votes.
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A separate vote will be held to approve each Plan. When voting on each Plan, shareholders may:
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Each Plan will be approved by the affirmative vote of a majority of the votes cast. For this purpose, under the rules of the New York Stock Exchange, abstentions will be counted as votes cast against the Plan.
The Board recommends a vote “FOR” each of the Plans.
PMI 2017 Proxy Statement • 77
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WHAT ARE THE CHOICES WHEN VOTING ON THE RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS SA AS THE COMPANY’S INDEPENDENT AUDITORS, AND WHAT VOTE IS NEEDED TO RATIFY THEIR SELECTION? |
Shareholders may:
| a) | vote in favor of the ratification; |
| b) | vote against the ratification; or |
| c) | abstain from voting on the ratification. |
The selection of the independent auditors will be ratified if the votes cast “FOR” exceed the votes cast “AGAINST.”
The Board recommends a vote “FOR” this proposal.
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A separate vote will be held on each shareholder proposal that is properly presented at the meeting. When voting on each of the proposals, shareholders may:
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A shareholder proposal will be approved if the votes cast “FOR” the proposal exceed the votes cast “AGAINST.”
The Board recommends a vote “AGAINST” each of the shareholder proposals.
WHAT IF A SHAREHOLDER DOES NOT SPECIFY A CHOICE FOR A MATTER WHEN RETURNING A PROXY? |
Shareholders should specify their choice for each matter on the enclosed proxy. If no specific instructions are given, proxies that are signed and returned will be voted “FOR” the election of all director nominees, “FOR” the advisorysay-on-pay resolution approving the compensation of our named executive officers, for future advisory say-on-pay votes to be held EVERY YEAR, “FOR” each of the Plans,and “FOR” the proposal to ratify the selection of PricewaterhouseCoopers SA as the Company’s independent auditors, and “AGAINST” each of the shareholder proposals.auditors.
WHO IS ENTITLED TO VOTE? |
You may vote if you owned stock as of the close of business on March 10, 2017.8, 2019. Each share of common stock is entitled to one vote. As of March 10, 2017,8, 2019, the Company had 1,553,138,9291,555,794,746 shares of common stock outstanding.
HOW DO I VOTE IF I PARTICIPATE IN THE DIVIDEND REINVESTMENT PLAN? |
The proxy card you have received includes your dividend reinvestment plan shares. You may vote your shares through the Internet, by telephone or by mail, all as described on the enclosed proxy card.
PMI 2019 Proxy Statement • 62
| EXHIBIT A: QUESTIONS & ANSWERS | |
WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY CARD? |
It means that you have multiple accounts with brokers and/or our transfer agent. Please vote all of these shares. We recommend that you contact your broker and/or our transfer agent to consolidate as many accounts as possible under the same name and address. Our transfer agent is Computershare Trust Company, N.A., P.O. Box 43078, Providence, RI 02940-3078 or you can reach Computershare at1-877-745-9350 (from within the United States or Canada) or1-781-575-4310 (from outside the United States or Canada), or viae-mail at pmi@computershare.com.
78 • PMI 2017 Proxy Statement
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WILL MY SHARES BE VOTED IF I DO NOT PROVIDE MY PROXY? |
If you are a street name holder of shares, you should have received a voting instruction form with the proxy statement sent from your broker or bank. Your shares held in street name may be voted only on certain “routine” matters when you do not provide your broker or bank with voting instructions. For example, the ratification of the selection of PricewaterhouseCoopers SA as independent auditors of the Company is considered a “routine” matter for which brokers or banks may vote uninstructed shares. When a proposal is not a “routine” matter (such as the election of director nominees andsay-on-pay advisory votes, advisory votes on the frequency of future say-on-pay votes, approval of compensation plans, and shareholder proposals)votes) and the broker or bank has not received voting instructions from the street name holder with respect to that proposal, that broker or bank cannot vote the shares on that proposal. This is called a brokernon-vote. Therefore, it is important that you provide instructions to your broker or bank with respect to your vote on these “non-routine”“non-routine” matters.
ARE ABSTENTIONS AND BROKERNON-VOTES COUNTED? |
Abstentions will be counted as votes “AGAINST” the 2017 Performance Incentive Plan and the 2017 Stock Compensation Plan for Non-Employee Directors. Abstentions will not be included in the vote totals for any other matter. Brokernon-votes will not be included in vote totals and will not affect the outcome of the vote.
MAY SHAREHOLDERS ASK QUESTIONS AT THE MEETING? |
Yes. The Chairman will answer shareholders’ questions of general interest during a designated portion of the meeting. In order to provide an opportunity for everyone who wishes to speak, shareholders will be limited to two minutes. Shareholders may speak a second time only after all others who wish to speak have had their turn. When speaking, shareholders must direct questions and comments to the Chairman and confine their remarks to matters that relate directly to the business of the meeting.
HOW MANY VOTES MUST BE PRESENT TO HOLD THE MEETING? |
Your shares are counted as present at the meeting if you attend the meeting and vote in person or if you properly return a proxy by Internet, telephone or mail. In order for us to conduct our meeting, a majority of our outstanding shares of common stock as of March 10, 2017,8, 2019, must be present in person or by proxy at the meeting. This is referred to as a quorum. Abstentions and shares of record held by a broker, bank or other agent (“Broker Shares”) that are voted on any matter are included in determining the number of votes present. Broker Shares that are not voted on any matter will not be included in determining whether a quorum is present.
63 • PMI 20172019 Proxy Statement • 79
| EXHIBIT B: | |
PHILIP MORRIS INTERNATIONAL INC. 2017 PERFORMANCE INCENTIVE PLAN
Section 1. Purpose; Definitions.
The purpose of the Plan is to support the Company’s ongoing efforts to develop and retain world-class leaders and to provide the Company with the ability to provide incentives directly linked to the performance of the Company’s business and increases in shareholder value.
For purposes of the Plan, the following terms are defined as set forth below:
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80 • PMI 2017 Proxy Statement
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A termination for Good Reason must be communicated to the Company by written notice that specifies the event or events claimed to provide a basis for termination for Good Reason; provided that the Participant’s written notice must be tendered within ninety (90) days of the occurrence of such event or events and, provided further, that the Company shall have failed to remedy such act or omission within thirty (30) days following its receipt of such notice.
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PMI 2017 Proxy Statement • 81
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In addition, the terms “Affiliated Group,” “Business Combination,” “Change in Control,” “Incumbent Board,” “Outstanding Company Stock,” “Outstanding Company Voting Securities” and “Person” have the meanings set forth in Section 6.
Section 2. Administration.
The Plan shall be administered by the Committee, which shall have the power to interpret the Plan and to adopt such rules and guidelines for carrying out the Plan as it may deem appropriate. The Committee shall have the authority to adopt such modifications, procedures and subplans as may be necessary or desirable to comply with the laws, regulations, compensation practices and tax and accounting principles of the countries in which the Company, a subsidiary or an affiliate may operate to assure the viability of the benefits of Awards made to individuals employed in such countries and to meet the objectives of the Plan.
Subject to the terms of the Plan, the Committee shall have the authority to determine those employees eligible to receive Awards and the amount, type and terms of each Award and to establish and administer any Performance Goals applicable to such Awards. The Committee may delegate its authority and power under the Plan to one or more officers of the Company, subject to guidelines prescribed by the Committee, but only with respect to Participants who are not subject to either Section 16 of the Exchange Act or Section 162(m) (or any amended or successor provision) of the Code.
Any determination made by the Committee or by one or more officers pursuant to delegated authority in accordance with the provisions of the Plan with respect to any Award shall be made in the sole discretion of the Committee or such delegate, and all decisions made by the Committee or any appropriately designated officer pursuant to the provisions of the Plan shall be final and binding on all persons, including the Company and Plan Participants.
Section 3. Eligibility.
Employees of the Company, its subsidiaries and affiliates, who are responsible for or contribute to the management, growth and profitability of the business of the Company, its subsidiaries or its affiliates, are eligible to be granted Awards under the Plan.
Section 4. Common Stock Subject to the Plan.
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82 • PMI 2017 Proxy Statement
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Section 5. Awards.
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84 • PMI 2017 Proxy Statement
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Section 6. Change in Control Provisions.
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86 • PMI 2017 Proxy Statement
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Section 7. Plan Amendment and Termination.
The Board may amend or terminate the Plan at any time, provided that no such amendment shall be made without shareholder approval if such approval is required under applicable law, regulation, or stock exchange rule, or if such amendment would increase the total number of shares of Common Stock that may be distributed under the Plan (other than under the provisions of Section 4(b)). Except as set forth in any Award agreement or as necessary to comply with applicable law or avoid adverse tax consequences to some or all Participants, no amendment or termination of the Plan may materially and adversely affect any outstanding Award under the Plan without the Award recipient’s consent.
Section 8. Payments and Payment Deferrals.
Payment of Awards may be in the form of cash, Common Stock, other Awards or combinations thereof as the Committee shall determine, and with such restrictions as it may impose. The Committee, either at the time of grant or by subsequent amendment, may require or permit deferral of the payment of Awards, under such rules and procedures as it may establish. The Committee may also provide that deferred settlements include the payment or crediting of interest or other earnings on the deferred amounts, or the payment or crediting of dividend equivalents where the deferred amounts are denominated in Common Stock equivalents. Any deferral and related terms and conditions shall comply with Section 409A of the Code and any regulations and other guidance thereunder to the extent Section 409A is applicable to the Award or the deferral of the Award.
Section 9. Dividends and Dividend Equivalents.
Subject to the provisions of Section 5(a)(iii), the Committee may provide that any Awards under the Plan earn dividends or dividend equivalents. Such dividends or dividend equivalents may be paid currently or may be credited to a Participant’s Plan account. Any crediting of dividends or dividend equivalents may be subject to such restrictions and conditions as the Committee may establish, including reinvestment in additional shares of Common Stock or Common Stock equivalents.
Section 10. Transferability.
Except as provided in the applicable Award agreement or otherwise required by law, Awards shall not be transferable or assignable other than by will or the laws of descent and distribution.
Section 11. Award Agreements.
Each Award under the Plan shall be evidenced by a written or electronic agreement (which need not be signed by the recipient unless otherwise specified by the Committee) that sets forth the terms, conditions and limitations for each Award. Such terms may include, but are not limited to, the term of the Award, vesting and forfeiture provisions, and the provisions applicable in the event the Participant’s employment terminates. The Committee may, in its discretion, amend an Award agreement or accelerate the vesting of any equity Award, provided that, except as set forth in any Award agreement or as necessary to comply with applicable law or avoid adverse tax consequences to some or all Plan Participants, no such amendment may materially and adversely affect an Award without the Participant’s consent.
Section 12. Unfunded Status of Plan.
It is presently intended that the Plan constitute an “unfunded” plan for incentive and deferred compensation. The Committee may authorize the creation of trusts or other arrangements to meet the obligations created under the Plan to deliver Common Stock or make payments; provided, however, that, unless the Committee otherwise determines, the existence of such trusts or other arrangements is consistent with the “unfunded” status of the Plan.
PMI 2017 Proxy Statement • 87
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Section 13. General Provisions.
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All certificates for shares of Common Stock or other securities delivered under the Plan shall be subject to such stock transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Commission, any stock exchange upon which the Common Stock is then listed, and any applicable Federal, state or foreign securities law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.
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88 • PMI 2017 Proxy Statement
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PMI 2017 Proxy Statement • 89
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2017 STOCK COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
Section 1. Purpose; Definitions.
The purposes of the Plan are (i) to assist the Company in promoting a greater identity of interest between the Company’s Non-Employee Directors and the Company’s shareholders; and (ii) to assist the Company in attracting and retainingNon-Employee Directors by affording them an opportunity to share in the future successes of the Company.
For purposes of the Plan, the following terms are defined as set forth below:
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Section 2. Administration.
The Plan shall be administered by the Committee, which shall have the power to interpret the Plan and to adopt such rules and guidelines for carrying out the Plan and appoint such delegates as it may deem appropriate. The Committee shall have
90 • PMI 2017 Proxy Statement
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the authority to adopt such modifications, procedures and subplans as may be necessary or desirable to comply with the laws, regulations, compensation practices and tax and accounting principles of the countries in which Non-Employee Directors reside or are citizens of and to meet the objectives of the Plan.
Any determination made by the Committee in accordance with the provisions of the Plan with respect to any Award shall be made in the sole discretion of the Committee, and all decisions made by the Committee pursuant to the provisions of the Plan shall be final and binding on all persons, including the Company and Plan participants.
Section 3. Eligibility.
Only Non-Employee Directors (except for Dr. Frederik Paulsen) shall be eligible to be granted Awards under the Plan.
Section 4. Common Stock Subject to the Plan.
The total number of shares of Common Stock reserved and available for distribution pursuant to the Plan shall be 1,000,000.
In the event of any merger, share exchange, reorganization, consolidation, recapitalization, reclassification, distribution, stock dividend, stock split, reverse stock split, split-up, spin-off, issuance of rights or warrants or other similar transaction or event affecting the Common Stock, the Committee is authorized to and shall make such adjustments or substitutions with respect to the Plan and to Awards authorized thereunder as it deems appropriate to reflect the occurrence of such event, including, but not limited to, adjustments (A) to the aggregate number and kind of securities reserved for issuance under the Plan, (B) to the Award amounts set forth in Section 5(a), and (C) to the number and kind of securities subject to outstanding Deferred Stock obligations. In connection with any such event, the Committee is also authorized to provide for the payment of any outstanding Deferred Stock obligations in cash, provided that any such payment shall comply with the requirements of Internal Revenue Code Section 409A.
Section 5. Awards.
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(with any fractional share being rounded up to the next whole share) or such other amount as the Committee determines in its discretion. If an eligible Non-Employee Director first becomes a member of the Board on a day other than the first day of a Plan Year, the Committee may, in its discretion, make a pro-rated Award to such eligible Non-Employee Director.
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Section 6. Payments and Payment Deferrals.
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PMI 2017 Proxy Statement • 91
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Section 7. Plan Amendment and Termination.
The Board may amend or terminate the Plan at any time without shareholder approval, including, but not limited to, any amendments necessary to comply with Section 409A of the Internal Revenue Code of 1986, as amended, and any regulations and other guidance thereunder; provided, however, that no amendment shall be made without shareholder approval if such approval is required under applicable law, regulation, or stock exchange rule, or if such amendment would increase the total number of shares of Common Stock that may be distributed under the Plan (subject to adjustment pursuant to Section 4 of the Plan).
Section 8. Transferability.
Unless otherwise required by law, Deferred Stock shall not be transferable or assignable other than by will or the laws of descent and distribution.
92 • PMI 2017 Proxy Statement
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Section 9. Unfunded Status of Plan.
It is presently intended that the Plan constitute an “unfunded” plan for incentive and deferred compensation. The Committee may authorize the creation of trusts or other arrangements to meet the obligations created under the Plan to deliver Common Stock or make payments; provided, however, that, unless the Committee otherwise determines, the existence of such trusts or other arrangements is consistent with the “unfunded” status of the Plan.
Section 10. General Provisions.
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All certificates for shares of Common Stock or other securities delivered under the Plan shall be subject to such stock transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission (or any successor agency), any stock exchange upon which the Common Stock is then listed, and any applicable Federal, state or foreign securities law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.
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PMI 2017 Proxy Statement • 93
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PHILIP MORRIS INTERNATIONAL INC.
and Subsidiaries
Reconciliation ofNon-GAAP Measures
Adjustments to Net Revenues for the Impact of Currency and Acquisitions
For the Years Ended December 31,
($ in millions)
(Unaudited)
| Net Revenues | Less Excise Taxes | Net Revenues excluding Excise Taxes | Less Currency | Less Acquisi- tions | Net Revenues excluding Excise Taxes, Currency & Acquisitions | % Change in Net Revenues excluding Excise Taxes | Net Revenues | Less Currency | Less Acquisitions | Net Revenues excluding Currency & Acquisitions | % Change in Net Revenues | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | Excluding Currency | Excluding Currency & Acquisitions | Total | Excluding | Excluding | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2016 Reconciliation: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2018 Reconciliation: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
European Union | $ | 27,129 | $ | 18,967 | $ | 8,162 | $ | (147 | ) | $ | - | $ | 8,309 | 1.2 | % | 3.0 | % | 3.0 | % | $ | 9,298 | $ | 489 | $ - | $ | 8,809 | 11.8 | % | 5.9 % | 5.9 % | |||||||||||||||||||||||||||||||||||||||
EEMA | 18,286 | 11,286 | 7,000 | (600 | ) | - | 7,600 | (4.9) | % | 3.2 | % | 3.2 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Asia | 20,531 | 11,850 | 8,681 | (8 | ) | - | 8,689 | 5.8 | % | 5.9 | % | 5.9 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Eastern Europe | 2,921 | (118 | ) | - | 3,039 | 7.7 | % | 12.1 % | 12.1 % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Middle East & Africa | 4,114 | (193 | ) | - | 4,307 | 3.2 | % | 8.0 % | 8.0 % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
South & Southeast Asia | 4,656 | (244 | ) | - | 4,900 | 5.4 | % | 10.9 % | 10.9 % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
East Asia & Australia | 5,580 | 62 | - | 5,518 | (12.4 | )% | (13.4)% | (13.4)% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Latin America & Canada | 9,007 | 6,165 | 2,842 | (525 | ) | - | 3,367 | (10.0) | % | 6.6 | % | 6.6 | % | 3,056 | (99 | ) | - | 3,155 | 3.9 | % | 7.3 % | 7.3 % | |||||||||||||||||||||||||||||||||||||||||||||||
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Total | $ | 74,953 | $ | 48,268 | $ | 26,685 | $ | (1,280 | ) | $ | - | $ | 27,965 | (0.4) | % | 4.4 | % | 4.4 | % | $ | 29,625 | $ | (103 | ) | $ - | $ | 29,728 | 3.1 | % | 3.4 % | 3.4 % | ||||||||||||||||||||||||||||||||||||||
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2015 Reconciliation: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2017 Reconciliation: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
European Union | $ | 26,563 | $ | 18,495 | $ | 8,068 | $ | 8,318 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EEMA | 18,328 | 10,964 | 7,364 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Asia | 19,469 | 11,266 | 8,203 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Eastern Europe | 2,711 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Middle East & Africa | 3,988 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
South & Southeast Asia | 4,417 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
East Asia & Australia | 6,373 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Latin America & Canada | 9,548 | 6,389 | 3,159 | 2,941 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total | $ | 73,908 | $ | 47,114 | $ | 26,794 | $ | 28,748 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Adjustments to Operating Companies Income for the Impact of Currency and Acquisitions
For the Years Ended December 31,
($ in millions)
(Unaudited)
| Operating Companies Income | Less Currency | Less Acquisi- tions | Operating Companies Income excluding Currency & Acquisitions | % Change in Operating Companies Income | Operating Income | Less Currency | Less Acquisitions | Operating Income excluding Currency & Acquisitions | % Change in Operating Income | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | Excluding Currency | Excluding Currency & Acquisitions | Total |
| Excluding | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2016 Reconciliation: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2018 Reconciliation: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
European Union | $ | 3,994 | $ | 34 | $ | - | $ | 3,960 | 11.7 | % | 10.7 | % | 10.7 | % | $ | 4,105 | $ | 308 | $ - | $ | 3,797 | 11.2 | % | 2.9 % | 2.9 % | ||||||||||||||||||||||||||||||||||||||||||||
EEMA | 3,016 | (839 | ) | - | 3,855 | (11.9) | % | 12.6 | % | 12.6 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Asia | 3,196 | 52 | - | 3,144 | 10.7 | % | 8.9 | % | 8.9 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Eastern Europe | 902 | (101 | ) | - | 1,003 | 1.7 | % | 13.1 % | 13.1 % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Middle East & Africa | 1,627 | (263 | ) | - | 1,890 | (13.6 | )% | 0.3 % | 0.3 % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
South & Southeast Asia | 1,747 | (124 | ) | - | 1,871 | 15.4 | % | 23.6 % | 23.6 % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
East Asia & Australia | 1,851 | (2 | ) | - | 1,853 | (29.0 | )% | (28.9)% | (28.9)% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Latin America & Canada | 938 | (282 | ) | - | 1,220 | (13.5) | % | 12.4 | % | 12.4 | % | 1,145 | (32 | ) | - | 1,177 | 14.8 | % | 18.1 % | 18.1 % | |||||||||||||||||||||||||||||||||||||||||||||||||
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Total | $ | 11,144 | $ | (1,035 | ) | $ | - | $ | 12,179 | 1.6 | % | 11.0 | % | 11.0 | % | $ | 11,377 | $ (214 | ) | $ - | $ | 11,591 | (1.8 | )% | 0.1 % | 0.1 % | |||||||||||||||||||||||||||||||||||||||||||
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2015 Reconciliation: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2017 Reconciliation: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
European Union | $ | 3,576 | $ | 3,691 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EEMA | 3,425 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Asia | 2,886 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Eastern Europe | 887 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Middle East & Africa | 1,884 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
South & Southeast Asia | 1,514 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
East Asia & Australia | 2,608 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Latin America & Canada | 1,085 | 997 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total | $ | 10,972 | $ | 11,581 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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PMI 2019 Proxy Statement94 • 64PMI 2017 Proxy Statement
| EXHIBIT | |
Reconciliation of Operating Companies Income to Operating Income
For the Years Ended December 31,
($ in millions)
(Unaudited)
| 2016 | 2015 | % Change | |||||||||||||
Operating companies income | $ | 11,144 | $ | 10,972 | 1.6 | % | |||||||||
Amortization of intangibles | (74 | ) | (82 | ) | |||||||||||
General corporate expenses | (161 | ) | (162 | ) | |||||||||||
Equity (income)/loss in unconsolidated subsidiaries, net | (94 | ) | (105 | ) | |||||||||||
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Operating income | $ | 10,815 | $ | 10,623 | 1.8 | % | |||||||||
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Reconciliation of Reported Operating Companies Income to Adjusted Operating Companies Income,
excluding Currency and Acquisitions
For the Years Ended December 31,
($ in millions)
(Unaudited)
| Operating Companies Income | Less Asset Impairment & Exit Costs | Adjusted Operating Companies Income | Less Currency | Less Acquisi- tions | Adjusted Operating Companies Income excluding Currency & Acquisitions | % Change in Adjusted Operating Companies Income | ||||||||||||||||||||||||||||||||||
| Adjusted | Adjusted excluding Currency & Acquisitions | |||||||||||||||||||||||||||||||||||||||
2016 Reconciliation: | ||||||||||||||||||||||||||||||||||||||||
European Union | $ | 3,994 | $ | - | $ | 3,994 | $ | 34 | $ | - | $ | 3,960 | 9.6 | % | 8.7 | % | ||||||||||||||||||||||||
EEMA | 3,016 | - | 3,016 | (839 | ) | - | 3,855 | (11.9) | % | 12.6 | % | |||||||||||||||||||||||||||||
Asia | 3,196 | - | 3,196 | 52 | - | 3,144 | 10.7 | % | 8.9 | % | ||||||||||||||||||||||||||||||
Latin America & Canada | 938 | - | 938 | (282 | ) | - | 1,220 | (13.5) | % | 12.4 | % | |||||||||||||||||||||||||||||
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Total | $ | 11,144 | $ | - | $ | 11,144 | $ | (1,035 | ) | $ | - | $ | 12,179 | 0.9 | % | 10.3 | % | |||||||||||||||||||||||
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2015 Reconciliation: | ||||||||||||||||||||||||||||||||||||||||
European Union | $ | 3,576 | $ | (68 | ) | $ | 3,644 | |||||||||||||||||||||||||||||||||
EEMA | 3,425 | - | 3,425 | |||||||||||||||||||||||||||||||||||||
Asia | 2,886 | - | 2,886 | |||||||||||||||||||||||||||||||||||||
Latin America & Canada | 1,085 | - | 1,085 | |||||||||||||||||||||||||||||||||||||
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Total | $ | 10,972 | $ | (68 | ) | $ | 11,040 | |||||||||||||||||||||||||||||||||
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PMI 2017 Proxy Statement • 95
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Operating Income | Less Asset Impairment & Exit Costs | Adjusted Operating Income | Less Currency | Less Acquisitions | Adjusted Operating Income excluding Currency & Acquisitions | % Change in Adjusted Operating Income | ||||||||||||||||||||||||||
| Adjusted | Adjusted excluding Currency & Acquisitions | |||||||||||||||||||||||||||||||
2018 Reconciliation: | ||||||||||||||||||||||||||||||||
European Union | $ | 4,105 | $ - | $ | 4,105 | $ | 308 | $ - | $ | 3,797 | 11.2 % | 2.9 % | ||||||||||||||||||||
Eastern Europe | 902 | - | 902 | (101 | ) | - | 1,003 | 1.7 % | 13.1 % | |||||||||||||||||||||||
Middle East & Africa | 1,627 | - | 1,627 | (263 | ) | - | 1,890 | (13.6)% | 0.3 % | |||||||||||||||||||||||
South & Southeast Asia | 1,747 | - | 1,747 | (124 | ) | - | 1,871 | 15.4 % | 23.6 % | |||||||||||||||||||||||
East Asia & Australia | 1,851 | - | 1,851 | (2 | ) | - | 1,853 | (29.0)% | (28.9)% | |||||||||||||||||||||||
Latin America & Canada | 1,145 | - | 1,145 | (32 | ) | - | 1,177 | 14.8 % | 18.1 % | |||||||||||||||||||||||
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Total | $ | 11,377 | $ - | $ | 11,377 | $ | (214 | ) | $ - | $ | 11,591 | (1.8)% | 0.1 % | |||||||||||||||||||
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2017 Reconciliation: | ||||||||||||||||||||||||||||||||
European Union | $ | 3,691 | $ - | $ | 3,691 | |||||||||||||||||||||||||||
Eastern Europe | 887 | - | 887 | |||||||||||||||||||||||||||||
Middle East & Africa | 1,884 | - | 1,884 | |||||||||||||||||||||||||||||
South & Southeast Asia | 1,514 | - | 1,514 | |||||||||||||||||||||||||||||
East Asia & Australia | 2,608 | - | 2,608 | |||||||||||||||||||||||||||||
Latin America & Canada | 997 | - | 997 | |||||||||||||||||||||||||||||
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Total | $ | 11,581 | $ - | $ | 11,581 | |||||||||||||||||||||||||||
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Reconciliation of Reported Diluted EPS to Adjusted Diluted EPS
and Adjusted Diluted EPS, excluding Currency
For the Years Ended December 31,
(Unaudited)
| 2016 | 2015 | % Change | 2018 | 2017 | % Change | ||||||||||||||||||||||
Reported Diluted EPS | $ | 4.48 | $ | 4.42 | 1.4 | % | $ | 5.08 | $ | 3.88 | 30.9 | % | |||||||||||||||
Adjustments: | |||||||||||||||||||||||||||
Asset impairment and exit costs | - | 0.03 | - | - | |||||||||||||||||||||||
Tax items | - | (0.03 | ) | 0.02 | 0.84 | ||||||||||||||||||||||
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Adjusted Diluted EPS | $ | 4.48 | $ | 4.42 | 1.4 | % | $ | 5.10 | $ | 4.72 | 8.1 | % | |||||||||||||||
Less: | |||||||||||||||||||||||||||
Currency impact | (0.46 | ) | (0.11 | ) | |||||||||||||||||||||||
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Adjusted Diluted EPS, excluding Currency | $ | 4.94 | $ | 4.42 | 11.8 | % | $ | 5.21 | $ | 4.72 | 10.4 | % | |||||||||||||||
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65 • PMI 2019 Proxy Statement
| EXHIBIT B: RECONCILIATIONS | |
Reconciliation of Operating Cash Flow to Free Cash Flow, and
FreeOperating Cash Flow, excluding Currency
For the Years Ended December 31,
($ in millions)
(Unaudited)
| 2016 | 2015 | % Change | 2018 | 2017 | % Change | ||||||||||||||||||||
Net cash provided by operating activities (operating cash flow) | $ | 8,077 | $ | 7,865 | 2.7 | % | $ | 9,478 | $ | 8,912 | 6.4% | ||||||||||||||
Less: | |||||||||||||||||||||||||
Capital expenditures | 1,172 | 960 | |||||||||||||||||||||||
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Free cash flow | $ | 6,905 | $ | 6,905 | - | % | |||||||||||||||||||
Less: | |||||||||||||||||||||||||
Currency impact | (340 | ) | (223 | ) | |||||||||||||||||||||
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Free cash flow, excluding currency | $ | 7,245 | $ | 6,905 | 4.9 | % | |||||||||||||||||||
Net cash provided by operating activities (operating cash flow), excluding currency | $ | 9,701 | $ | 8,912 | 8.9% | ||||||||||||||||||||
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PMI 2019 Proxy Statement96 • 66PMI 2017 Proxy Statement
2019 PROXY STATEMENT
And Notice of Annual Meeting of Shareholders
To be held on Wednesday, May 1, 2019
Printed on |
Printed on Recycled Paper
PMPHILIP MORRIS INTERNATIONALPHILIP MORRIS INTERNATIONALIMPORTANT ANNUAL MEETING INFORMATION 000004ENDORSEMENT LINE SACKPACKMR A SAMPLEDESIGNATION (IF ANY)ADD 1ADD 2ADD 3ADD 4ADD 5ADD 6
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Your vote matters – here’s how to vote! MR A SAMPLE You canmay vote online or by Internet or telephone! Available 24 hours a day, 7 days a week!Proxiesphone instead of mailing this card. DESIGNATION (IF ANY) Votes submitted by Internet or telephoneelectronically must be ADD 1 ADD 2 received by 11:59 p.m. (EDT), EDT, on May 2, 2017.Instead of mailing your proxy, you may choose one of the two voting methods outlined below to vote your proxy.VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR.Vote by Internet
ADD 3 April 30, 2019 ADD 4 MMMMMMMMM ADD 5 Online ADD 6 Go to www.investorvote.com/pm;pm orScan scan the QR code with your smartphone.Follow— login details are located in the steps outlined on the secure Web site.Vote by telephone
shaded bar below. Phone Call toll free1-800-652-VOTE (8683) within the USA, U.S. territories & Canada on a touch-tone telephone.and Canada. Call toll free1-781-575-2300Outside outside the USA, U.S. territories & Canada, call1-781-575-2300 on a touch-tone telephone.Follow the instructions provided by the recorded message.
Canada. Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas. X
2019 Annual Meeting Proxy Card 1234 5678 9012 345IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, qIF VOTING BY MAIL, SIGN, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE AFTER COMPLETING, SIGNING AND DATING.
ENVELOPE. q Proposals — The Board recommendsof Directors recommend a vote FOR all the nominees listed in Proposal 1 and FOR Proposals 2 4, 5 and 6, every 1 YEAR for Proposal 3, and AGAINST Proposals 7 and 8.3. 1. Election of Directors: +
For Against Abstain For Against Abstain For Against Abstain 01—André Calantzopoulos 05—Lisa A. Hook 09—Lucio A. Noto 02—Louis C. Camilleri 06—Jennifer Li 10—Frederik Paulsen 03—Massimo Ferragamo 07—Jun Makihara 11—Robert B. Polet 04—Werner Geissler 08—Kalpana Morparia 12—Stephen M. Wolf The Board of Directors recommends a vote FOR:1. Election of Directors: For Against Abstain01 - Harold Brown02 - André Calantzopoulos03 - Louis C. Camilleri04 - Massimo Ferragamo05 - Werner GeisslerFor Against Abstain06 - Jennifer Li07 - Jun Makihara08 - Sergio Marchionne09 - Kalpana Morparia10 - Lucio A. NotoFor Against Abstain11 - Frederik Paulsen12 - Robert B. Polet13 - Stephen M. Wolf
The Board of Directors recommends a vote FOR:
For Against Abstain
For Against Abstain 2. Advisory Vote Approving Executive CompensationThe Board of Directors recommends a vote for every 1 YEAR:1 Year 2 Years 3 Years Abstain
3. Advisory Resolution on the Frequency of Future Advisory Votes on Executive CompensationThe Board of Directors recommends a vote FOR:For Against Abstain4. Approval of the 2017 Performance Incentive Plan5. Approval of the 2017 Stock Compensation Plan for Non-Employee DirectorsThe Board of Directors recommends a vote FOR:For Against Abstain6. Ratification of the Selection of Independent Auditors
Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below Please sign this proxy exactly as name appears hereon. When shares are held by joint tenants, both should sign. When signing as attorney, administrator, trustee or guardian, please give full title as such. The Board of Directors recommends asigner hereby revokes all proxies heretofore given by the signer to vote AGAINST:For Against Abstain7. Shareholder Proposalat said meeting or any adjournments thereof. Date (mm/dd/yyyy) — Please print date below. Signature 1 - Human Rights Policy8. Shareholder Proposal— Please keep signature within the box. Signature 2 - Mediation of Alleged Human Rights Violations
— Please keep signature within the box. C 1234567890 J N T1 P C F 3 2 0 2 5 6 1
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PMPHILIP MORRIS INTERNATIONALPHILIP MORRIS INTERNATIONAL
PHILIP MORRIS INTERNATIONAL INC.2017 DIRECTIONS 2019 ANNUAL MEETING OF
SHAREHOLDERSWednesday, May 3, 20179:00 A.M., EDTGrand Hyatt New YorkEmpire State Ballroom, Fourth Floor109 East 42nd StreetNew York, NY 10017DIRECTIONS
You may request directions by calling1-866-713-8075.
Wednesday, May 1, 2019 9:00 A.M., EDT Grand Hyatt New York Empire State Ballroom, Fourth Floor 109 East 42nd Street New York, NY 10017 In order to attend the Meeting you must have an admission ticket. To request an admission ticket, please follow the instructions set forth in the accompanying proxy statement in response to Question #4 in Exhibit A.
It is important that your shares are represented at this Meeting, whether or not you attend the Meeting in person. To make sure your shares are represented, we urge you to complete and mail this proxy card OR vote your shares over the Internet or by telephone in accordance with the instructions provided on the reverse side.
Sign Up Today For Electronic Delivery
If you prefer to receive your future proxy statements, proxy cards and annual reports electronically viae-mail or the Internet, sign up today at www.computershare.com/pmi.IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, qIF VOTING BY MAIL, SIGN, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE AFTER COMPLETING, SIGNING AND DATING.
ENVELOPE. q Philip Morris International Inc.
Proxy Solicited on Behalf of the Board of Directors
Annual Meeting of Shareholders - Shareholders—May 3, 2017 +
1, 2019 André Calantzopoulos, Louis C. Camilleri and Jerry Whitson, and each of them, are appointed attorneys, with power of substitution, to vote, as indicated on the matters set forth on the reverse hereof and in their discretion upon such other business as may properly come before the Meeting, all shares of Common Stock held by the undersigned in Philip Morris International Inc. (the “Company”) at the Annual Meeting of Shareholders to be held at the Grand Hyatt New York, Empire State Ballroom, May 3, 2017,1, 2019, at 9:00 a.m. EDT, and at all adjournments thereof.
This proxy when properly executed will be voted as specified. If no specification is made, this proxy will be voted FOR all nominees in Proposal 1 and FOR Proposals 2 4, 5 and 6, every 1 YEAR for Proposal 3, and AGAINST Proposals 7 and 8.
3. This card also serves to instruct the administrator of the Company’s Direct Stock Purchase and Dividend Reinvestment Plan and the trustee of each defined contribution plan sponsored by the Company or any of its subsidiaries how to vote shares held for a participant in any such plan. Unless your proxy for your defined contribution plan shares is received by April 28, 2017,24, 2019, the trustee of such defined contribution plan will vote your plan shares in the same proportion as those plan shares for which instructions have been received, unless contrary to law.
If you have voted by Internet or telephone, please DO NOT mail back this proxy card.
THANK YOU FOR VOTINGAuthorized Signatures - This section must be completed for your vote to be counted. - Date and Sign BelowPlease sign this proxy exactly as name appears hereon. When shares are held by joint tenants, both should sign. When signing as attorney, administrator, trustee or guardian, please give full title as such. The signer hereby revokes all proxies heretofore given by the signer to vote at said meeting or any adjournments thereof.Date (mm/dd/yyyy) - Please print date below. Signature 1 - Please keep signature within the box. Signature 2 - Please keep signature within the box./ /+
