Securities
Filed by a Party other than the Registrant ☐
☒ | Preliminary Proxy Statement | |
☐ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |
☐ | Definitive Proxy Statement | |
☐ | Definitive Additional Materials | |
☐ | Soliciting Material to §240.14a-12 |
☒ | No fee required. | |||
☐ | Fee paid previously with preliminary materials. | |||
☐ | Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11. |
PRELIMINARY PROXY STATEMENT DATED MARCH 24, 2023
SUBJECT TO COMPLETION
This document shall also serve as a circular to holders of the common stock of Yum China Holdings, Inc. for the purposes of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the(the “Hong Kong Stock Exchange”) (the(the “Hong Kong Listing Rules”).
Warning: The contents of this document have not been reviewed by any regulatory authority in Hong Kong. You are advised to exercise caution when dealing in the securities of Yum China Holdings, Inc. If you are in doubt about any of the contents of this document, you should obtain independent professional advice.
Hong Kong Exchanges and Clearing Limited and the Hong Kong Stock Exchange take no responsibility for the contents of this circular,document, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.
PRELIMINARY PROXY STATEMENT DATED AUGUST 15, 2022
SUBJECT TO COMPLETIONdocument.
Yum China Holdings, Inc.
(NYSE TRADING SYMBOL: YUMC; HONG KONG STOCK CODE: 9987)
Plano, Texas
United States of America | Yum China Building
20 Tian Yao Qiao Road
Shanghai 200030
People’s Republic of China |
August [ ], 20222023
Dear Fellow Stockholders:
We are pleased to invite you to attend a Specialthe 2023 Annual Meeting of Stockholders of Yum China Holdings, Inc. (the “SpecialAnnual Meeting”), which. The Annual Meeting will be held on Tuesday, October 11, 2022,Thursday, May 25, 2023, at 8:00 a.m. Beijing/local time, at Mandarin Oriental Hong Kong, time (Monday, October 10, 2022, at 8:00 p.m. U.S. Eastern time). The Special Meeting will be held entirely online due to the COVID-19 pandemic and related travel restrictions, in order to support the health and well-being of our partners, employees, and stockholders.5 Connaught Road, Central, Hong Kong.
The common stock of Yum China Holdings, Inc. (the “Company,” “Yum China,” “we,” “us” or “our”) currently trades on the New York Stock Exchange (the “NYSE”), where it is primarily listed, and the Hong Kong Stock Exchange, where it is secondary listed. On August 15, 2022, the Company announced that it has received the acknowledgment from the Hong Kong Stock Exchange for its application for a voluntary conversion of the listing status of the Company’s common stock listed on the Main Board of the Hong Kong Stock Exchange from a secondary listing status to a primary listing status (the “Primary Conversion”). Following the Primary Conversion, the Company’s common stock will be dual primary listed on the Hong Kong Stock Exchange and the New York Stock Exchange.
The Company considers it in the best interest of its stockholders to pursue the Primary Conversion. Therefore, in view of the Hong Kong Listing Rules applicable to issuers which have a primary listing status on the Hong Kong Stock Exchange, the Board of Directors of the Company (the “Board”) considers it in the best interest of the Company’s stockholders to call the Special Meeting for the following purposes (“Items of Business”):
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Stockholder approval for all the Items of Business is a condition to the Primary Conversion. The Primary Conversion shall not become effective if stockholders fail to approve any of the Items of Business described above for which the Special Meeting is called.
You may attend the Special Meeting via the Internet at www.virtualshareholdermeeting.com/YUMC2022SM. To participate in the Special Meeting, you will need the 16-digit control number which appears on your proxy card or the instructions that accompanied your proxy materials. The attached notice of SpecialAnnual Meeting and proxy statement contain details of the Items of Businessbusiness to be conducted at the Special MeetingAnnual Meeting. In addition, the Company’s 2022 annual report, which is being made available to you along with the proxy statement, contains information about the Company and the detailed procedures for attending, submitting questions and voting at the Special Meeting.its performance.
Your vote is important. We encourage you to vote promptly, whether or not you plan to attend the SpecialAnnual Meeting. You may vote your shares over the Internet or via telephone, ortelephone. If you received a paper copy of the proxy materials, you may complete, sign, date and mail the proxy card in the postage-paid envelope provided.
If you plan to attend the meeting, you may also vote in person. If you hold your shares through a bank, broker or other nominee, you will be required to show the notice or voting instructions form you received from your bank, broker or other nominee or a copy of a statement (such as a brokerage statement or legal proxy) from your bank, broker or other nominee reflecting your stock ownership as of March 27, 2023 in order to be admitted to the meeting. All attendees must bring valid photo identification to gain admission to the meeting. Whether or not you attend the meeting, we encourage you to consider the matters presented in the proxy statement and vote as soon as possible.
Sincerely,
Joey Wat
Chief Executive Officer
Yum China Holdings, Inc.
Notice Of SpecialAnnual Meeting
Of Stockholders
Time and Date: | 8:00 a.m.
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Location: |
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Items of Business: | (1) To elect the nine director nominees named in the accompanying proxy statement to serve for a one-year term expiring at the 2024 annual meeting of the Company’s stockholders. | |
(2) To approve and ratify the appointment of KPMG Huazhen LLP and KPMG as the Company’s independent auditors for 2023. | ||
(3) To approve, on an advisory basis, the Company’s named executive officer compensation. | ||
(4) To approve, on an advisory basis, the frequency of the advisory vote to approve the Company’s named executive officer compensation. | ||
(5) To approve, pursuant to the rules of the Hong Kong Stock Exchange, the Board’s continuing authority to approve the Company’s issuance of shares of its common stock or securities convertible into common stock in an amount not to exceed 20% of the total number of outstanding shares of common stock of the Company as of the date of the | ||
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Who Can Vote: | You can vote if you were a stockholder of record as of the close of business on | |
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How to Vote: | You may vote over the Internet or via telephone by following the instructions set forth in the accompanying proxy statement. |
Date of Mailing: |
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By Order of the Board of Directors,
Joseph Chan
Chief Legal Officer
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON OCTOBER 11, 2022 / OCTOBER 10, 2022:
The Notice of Special Meeting of Stockholders and Proxy Statement are available at http://www.proxyvote.com.
1290 Avenue of the Americas, 9th Floor
New York, NY 10104
Shareholders, Banks and Brokers
Call Toll Free:
866-316-3922
International Number:
781-575-2137
PROXY STATEMENT – TABLE OF CONTENTS
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This summary highlights information contained elsewhere in this proxy statement. This summary does not contain all of the information that you should consider, and you should read the entire proxy statement carefully before voting.
MEETING INFORMATION
Time and Date: 8:00 a.m. (local time) on Thursday, May 25, 2023 Location: Mandarin Oriental Hong Kong, 5 Connaught Road, Central, Hong Kong Record Date: March 27, 2023 |
HOW TO VOTE
The BoardStockholders of record as of the Company solicitsclose of business on March 27, 2023 may vote by using any of the enclosed proxy for use atfollowing methods:
Before the Special Meeting toAnnual Meeting:
• | Via Internet by following the instructions on www.proxyvote.com; |
• | Via telephone by calling 1 (800) 690-6903 (toll-free in the U.S.)and following the instructions provided by the recorded message; or |
• | Via mail,if you received your proxy materials by mail, by completing, signing, dating and mailing the proxy card in the postage-paid envelope provided. |
Proxies submitted through the Internet or by telephone as described above must be held at 8:00received by 11:59 a.m. Beijing/Hong Kong time on Tuesday, October 11, 2022May 24, 2023 / 8:0011:59 p.m. U.S.
Eastern time on Monday, October 10, 2022. The SpecialMay 23, 2023. Proxies submitted by mail must be received prior to the meeting.
At the Annual Meeting:
If you attend the Annual Meeting, will be heldyou may vote in a virtual-only format, through aperson.
live audio webcast. The SpecialEven if you plan to attend the Annual Meeting, will only be conducted via webcast; there will be no physical meeting location. This proxy statement contains information about the matterswe encourage you to be voted onvote your shares by proxy. You may still vote your shares at the SpecialAnnual Meeting andeven if you have previously voted by proxy.
If you hold your shares in the name of a bank, broker or other nominee, your ability to vote depends on their voting process.processes. Please follow the directions of your bank, broker or other nominee carefully.
Why has the Board of Directors called a Special Meeting?
The Board called the Special Meeting in order to seek stockholder approval of certain matters to facilitate a voluntary conversion of the Company’s listing status from secondary to primary listing on the Hong Kong Stock Exchange (the “Primary Conversion”). On September 10, 2020, the Company’s shares of common stock began trading on the Hong Kong Stock Exchange as a secondary-listed company, while also concurrently being primary listed and traded on the NYSE. The Board has determined that the Primary Conversion will provide strategic benefits to the Company, including enhancing our stock trading on an exchange that is closer to where we operate, and thus, to our employees, customers and other stakeholders, further broadening our shareholder universe and increasing liquidity.
In addition, our Board considered that the Primary Conversion will mitigate the delisting risk that the Company faces on the NYSE pursuant to the SEC’s implementation of the Holding Foreign Companies Accountable Act (the “Act”), which was signed into law on December 18, 2020. The Act requires the SEC to prohibit the securities of any “covered issuer,” including the Company, from being traded on any of the U.S. securities exchanges, including the NYSE, or traded “over-the-counter,” if the auditor of the covered issuer’s financial statements is not subject to inspection by the Public Company Accounting Oversight Board for three consecutive years, beginning in 2021. On December 2, 2021, the SEC adopted final rules
implementing the Act, pursuant to which the SEC will identify companies subject to the Act, known as “Commission-Identified Issuers,” as early as possible after the filing of their next annual report, and implement the trading prohibition as soon as practicable after they have been conclusively identified as Commission-Identified Issuers for three consecutive years.
Pursuant to the Act and the final rules adopted by the SEC, in March 2022, the Company was conclusively identified as a Commission-Identified Issuer by the SEC. In view of such identification, the Company’s shares of common stock may be delisted from the NYSE in early 2024, or in early 2023, if pending legislation passes reducing the number of consecutive non-inspection years required to trigger a trading prohibition under the Act. The Primary Conversion would provide a primary market for the trading of the Company’s shares if they are ultimately delisted from the NYSE in accordance with the Act and would facilitate the orderly transition of trading to the Hong Kong Stock Exchange in that event. Specifically, by initiating the Primary Conversion now, the Company is undertaking a voluntary conversion in order to be proactive and prepared in the event that the Company’s shares are ultimately delisted from the NYSE.
In view of the rationale described above, the Board determined that it is in the best interests of the Company and its stockholders to apply for the Primary Conversion.
YUM CHINA – 2023 Proxy Statement | 1 |
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On August 15,ITEMS OF BUSINESS
Proposal | Board Voting Recommendation | Page Reference | ||||
1. Election of the 9 Director Nominees Named in this Proxy Statement to Serve for a One-Year Term | FOR each nominee | 25 | ||||
2. Approval and Ratification of the Appointment of KPMG Huazhen LLP and KPMG as the Company’s Independent Auditors for 2023 | FOR | 31 | ||||
3. Advisory Vote on Named Executive Officer Compensation | FOR | 33 | ||||
4. Advisory Vote on the Frequency of the Advisory Vote on Named Executive Officer Compensation | for 1 YEAR | 34 | ||||
5. Authorization to Issue Shares up to 20% of Outstanding Shares | FOR | 35 | ||||
6. Authorization to Repurchase Shares up to 10% of Outstanding Shares | FOR | 37 |
COMPANY OVERVIEW
Yum China Holdings, Inc., a Delaware corporation (the “Company,” “we,” “us” or “our”) is the largest restaurant company in China in terms of 2022 system sales. We had $9.6 billion of revenues in 2022 and nearly 13,000 restaurants as of December 31, 2022. Our growing restaurant network consists of our flagship KFC and Pizza Hut brands, as well as emerging brands such as Taco Bell, Lavazza, Little Sheep and Huang Ji Huang. We have the Company receivedexclusive right to operate and sublicense the acknowledgement fromKFC, Pizza Hut and, subject to achieving certain
agreed-upon milestones, Taco Bell brands in China (excluding Hong Kong, Macau and Taiwan). We own the intellectual property of the Little Sheep and Huang Ji Huang concepts outright.
The Company’s common stock is dual-primary listed on the New York Stock Exchange (the “NYSE”) and on the Main Board of the The Stock Exchange of Hong Kong Limited (the “HKEX” or “Hong Kong Stock Exchangefor the Company’s applicationfor Primary Conversion.
As a secondary-listed issuer on the Hong Kong Stock Exchange under Chapter 19C of the Hong Kong Listing Rules, the Company has been and is currently exempt from certain provisions of the Hong Kong Listing Rules, including, among others, rules on share issuance, repurchases, notifiable transactions, connected transactions, share option schemes and content of financial statements, as well as certain other continuing obligations. As a secondary-listed issuer, the Company was also granted a number of waivers and/or exemptions from strict compliance with the applicable Hong Kong laws and regulations.
From the Primary Conversion Effective Date, the Company will have a primary listing status on the Hong Kong Stock Exchange and the Company will be subject to the full regime of the applicable Hong Kong laws and regulations, unless specific waivers have been obtained from the Hong Kong Stock Exchange or the Securities and Futures Commission of Hong Kong.
The Board of Directors called the Special Meeting in order to obtain, in accordance with the Hong Kong Listing Rules, stockholder approval with regard to the three Items of Business set forth below. Under Delaware law and NYSE listing rules, the Company and the Board are not required to obtain stockholder approval with respect to the first two Items of Business (subject to applicable restrictions)”). The Company is seeking approval of the first two Items of Business described below solely to comply with the Hong Kong Listing Rules, as described in more detail below. Stockholder approval of all the proposals is a condition to the completion of the conversion to primary listing on the Hong Kong Stock Exchange.
Subject to receiving stockholder approval of all proposed items at the Special Meeting and obtaining the necessary approvals from the Hong Kong Stock Exchange, the Primary Conversion Effective Date is expected to be October 24, 2022.
The Company believes that the continuing authority of the Board to issue shares, repurchase shares and grant equity awards under the 2022 LTIP as contemplated by these
proposals is critical to the Company’s business and operations. If stockholders fail to approve any of the Items of Business for which the Special Meeting is called, the Primary Conversion shall not become effective.
IN THE EVENT THAT THE PRIMARY CONVERSION DOES NOT BECOME EFFECTIVE, THE COMPANY AND ITS BOARD WILL RETAIN THE ABILITY TO AUTHORIZE AND CARRY OUT STOCK ISSUANCES AND STOCK REPURCHASES TO THE FULL EXTENT PERMITTED UNDER APPLICABLE U.S. FEDERAL LAW, DELAWARE LAW, THE NYSE LISTING STANDARDS, AND THE COMPANY’S ORGANIZATIONAL DOCUMENTS.
Proposal 1: The Hong Kong Listing Rules permit primary-listed companies to issue shares subject to certain restrictions. Among such restrictions, the Hong Kong Listing Rules require that all share issuances must be approved in advance by stockholders, either by way of a “general issuance mandate” or by specific approval of a particular transaction. At the Special Meeting, Yum China stockholders will vote to approve the Board’s continuing authority to approve the Company’s issuance of shares of its common stock or securities convertible into common stock in an amount not to exceed 20% of the total number of outstanding shares of common stock of the Company as of the date of the Special Meeting, effective from the Primary Conversion Effective Date until the earlier of the date the next annual meeting is held or June 26, 2023, unless earlier revoked or modified by a duly adopted resolution of the stockholders. This approval will operate as a general issuance mandate under the Hong Kong Listing Rules.
Proposal 2:The Hong Kong Listing Rules permit primary-listed companies to repurchase their shares subject to certain restrictions. Among such restrictions, the Hong Kong Listing Rules require that all repurchases of shares must be approved in advance by stockholders, either by way of a “general repurchase mandate” or by specific approval of a particular transaction. At the Special Meeting, Yum China stockholders will vote to approve the Board’s continuing authority to approve the Company’s repurchase of
2 | YUM CHINA– 2023 Proxy Statement |
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SUMMARY INFORMATION REGARDING NOMINEES
The following table provides summary information about each of the nominees to our board of directors (the “Board of Directors” or the “Board”).
Name | Age | Director Since | Primary Occupation | Independent | Board Committee Membership as of April 12, 2023 | |||||||||||
A | C | G | F | |||||||||||||
Fred Hu (Chairman) | 59 | 2016 | Chairman and founder of Primavera Capital Group | ✓ | CC | |||||||||||
Joey Wat | 51 | 2017 | Chief Executive Officer of the Company | |||||||||||||
Peter A. Bassi | 73 | 2016 | Former Chairman of Yum! Restaurants International | ✓ | CC | X | ||||||||||
Edouard Ettedgui | 71 | 2016 | Non-Executive Chairman of Alliance Française, Hong Kong | ✓ | X | X | X | |||||||||
Ruby Lu | 52 | 2016 | Venture capitalist | ✓ | CC | X | ||||||||||
Zili Shao | 63 | 2016 | Non-executive Chairman of Fangda Partners | ✓ | X | CC | ||||||||||
William Wang | 48 | 2017 | Partner of Primavera Capital Group | ✓ | X | |||||||||||
Min (Jenny) Zhang | 49 | 2021 | Former Vice-chairlady of Huazhu Group Limited | ✓ | X | X | X | |||||||||
Christina Xiaojing Zhu | 50 | — | President and Chief Executive Officer of Walmart China | ✓ |
A – Audit Committee; C – Compensation Committee; G – Nominating and Governance Committee; F – Food Safety and Sustainability Committee;
CC – Committee Chair
* Cyril Han is a member of the Audit Committee. Louis T. Hsieh is a member of the Audit Committee and Food Safety and Sustainability Committee. Messrs. Han and Hsieh will not stand for re-election to the Board at the Annual Meeting.
The following charts summarize the diversity of our director nominees.
YUM CHINA – 2023 Proxy Statement | 3 |
PROXY STATEMENT SUMMARY |
GOVERNANCE HIGHLIGHTS
The Board believes that good corporate governance is a critical factor in achieving business success and in fulfilling the Board’s responsibilities to stockholders. The Board believes that its principles and practices align management and stockholder interests. Highlights include:
Director Independence | • Independent Board Chairman • 8 of 9 director nominees are independent | |
Director Elections and Attendance | • Annual election of all directors • Majority voting policy for elections of directors in uncontested elections • Proxy access for director nominees by stockholders • 97% director attendance at Board and committee meetings in 2022 | |
Board Refreshment and Diversity | • Board Diversity Policy • Directors with experience, qualifications and skills across a wide range of public and private companies • Directors reflect diversity of age, gender, race and nationality • Average director nominee age of 57 as of April 12, 2023 • Independent and non-management directors may generally not stand for re-election after age 75 | |
Other Governance Practices | • Stockholders holding at least 25% of the Company’s outstanding shares have the right to call special meetings • Active stockholder engagement • No shareholder rights plan (also known as a poison pill) • Director and executive officer stock ownership policies • Policy prohibiting hedging or other speculative trading of Company stock • Policy regarding resignation if any director experiences a significant change in professional roles and responsibilities • Board access to senior management and independent advisors |
4 | YUM CHINA– 2023 Proxy Statement |
PROXY STATEMENT SUMMARY |
WHERE YOU CAN FIND ADDITIONAL INFORMATION
Our Investor Relations website is located at ir.yumchina.com. Although the information contained on or connected to our website is not part of this proxy statement, you can view additional information on our website, such as our 2022 annual report, the charters of our Board committees, our Corporate Governance Principles, our Code of Conduct and reports that we file with the
Securities and Exchange Commission (the “SEC”) and the HKEX. Copies of these documents may also be obtained free of charge by writing to Yum China Holdings, Inc., 101 East Park Boulevard, Suite 805, Plano, Texas 75074, or Yum China Holdings, Inc., Yum China Building, 20 Tian Yao Qiao Road, Shanghai 200030 People’s Republic of China, Attention: Corporate Secretary.
YUM CHINA – 2023 | 5 |
QUESTIONS AND ANSWERS ABOUT THE MEETING AND VOTING |
The Board of Directors of Yum China Holdings, Inc. solicits the enclosed proxy for use at the Annual Meeting to be held at 8:00 a.m., local time, on Thursday, May 25, 2023 at Mandarin Oriental Hong Kong, 5 Connaught Road, Central, Hong Kong. This proxy statement contains
Proposal 3: Approval ofinformation about the 2022 LTIP.
Pursuantmatters to be voted on at the Company’s AmendedAnnual Meeting and Restated Bylaws, only business within the purpose or purposes described in the notice of special may be conducted at a special meeting. Accordingly, the only matters that will be brought before the Special Meeting are those described in the Notice.voting process, as well as information about our directors and most highly paid executive officers.
What is the purpose of the Annual Meeting?
At the Annual Meeting, stockholders will vote on several important Company matters. In addition, our management will report on the Company’s performance over the
last fiscal year and, following the meeting, respond to questions from stockholders.
Why am I receiving these materials?
You received these materials because our Board of Directors is soliciting your proxy to vote your shares at the SpecialAnnual Meeting. As a stockholder of record as of the close of
close of business on August 24, 2022,March 27, 2023, you are invited to attend the SpecialAnnual Meeting and are entitled to vote on the Itemsitems of Businessbusiness described in this proxy statement.
How doWhy did I attendreceive a one-page notice in the Special Meeting?mail regarding the Internet availability of proxy materials instead of a full set of proxy materials?
The Special MeetingAs permitted by SEC rules, we are making this proxy statement and our 2022 annual report available to our stockholders electronically via the Internet. On or about April 12, 2023, we mailed to our stockholders the Notice containing instructions on how to access this proxy statement and our 2022 annual report and vote online. If you received a Notice by mail, you will be held innot receive a virtual-only format, through a live audio webcast. The Special Meeting will only be conducted via webcast; there will be no physical meeting location. Stockholders of record asprinted copy of the closeproxy materials unless you request a copy. The Notice contains instructions on how to access and review all of business on August 24, 2022the important information contained in the proxy statement and the general public will be able to attend the Special Meeting by visiting our Special Meeting website at www.virtualshareholdermeeting.com/YUMC2022SM. To participate in the Special Meeting, you will need the 16-digit control number included on yourannual report. The Notice also
instructs you on how you may submit your proxy card orover the Internet. If you received a Notice by mail and would like to receive a printed copy of our proxy materials, you should follow the instructions for requesting such materials contained on the instructions that accompanied your proxy materials.Notice.
The Special Meeting will begin promptly at 8:00 a.m. Beijing/Hong Kong time on Tuesday, October 11, 2022 / 8:00 p.m. U.S. Eastern time on Monday, October 10, 2022. Online check-in will begin 15 minutes priorWe encourage you to the starttake advantage of the meeting, and you should allow ample time for the online check-in procedures. We encourage our stockholders to access the meeting prior to the start time.
May stockholders ask questions?
Yes. Stockholders will have the ability to submit questions during the Special Meeting via the Special Meeting website. As partavailability of the Special Meeting, we will hold a live Q&A session, during which we intendproxy materials on the Internet in order to answer all
questions submitted duringhelp lower the meeting in accordance withcosts of delivery and reduce the Special Meeting’s Rules of Conduct which are pertinent to the Company and the meeting matters, as time permits.Company’s environmental impact.
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QUESTIONS AND ANSWERS ABOUT THE
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What if I have technical difficulties or trouble accessingWho may attend the SpecialAnnual Meeting?
Beginning 30 minutes prior
The Annual Meeting is open to all stockholders as of the close of business on March 27, 2023. If you hold your shares through a bank, broker or other nominee, you will be required to show the notice or voting instructions form you received from your bank, broker or other nominee or a copy of a statement (such as a brokerage statement or legal proxy) from your bank, broker or other
nominee reflecting your stock ownership as of March 27, 2023 in order to be admitted to the start ofmeeting.
All attendees must bring valid photo identification to gain admission to the meeting. Please note that computers, cameras, sound or video recording equipment, large bags, briefcases and duringpackages will not be allowed in the Special Meeting, you may contact the technical support number posted on the virtual meeting platform for assistance in accessing the Special Meeting.room.
Who may vote?
You may vote if you owned any shares of Company common stock as of the close of business on the record date, August 24, 2022.March 27, 2023. Each share of Company common stock
is entitled to one vote. As of August 24, 2022,March 27, 2023, there were [ ] shares of Company common stock outstanding.
What am I voting on?
You will be voting on the following three Itemssix items of Businessbusiness at the SpecialAnnual Meeting:
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• | The approval and ratification of the appointment of KPMG Huazhen LLP and KPMG as the Company’s independent auditors for 2023; |
• | The approval, on an advisory basis, of the Company’s named executive officer compensation; |
• | The approval, on an advisory basis, of the frequency of the advisory vote to approve the Company’s |
• | The authorization to issue shares |
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Pursuant to the Company’s Amended and Restated Bylaws, onlyWe will also consider other business within the purpose or purposes described in the notice of special meeting may be conducted at a special meeting. Accordingly, the only matters that will be broughtproperly comes before the Special Meeting are those described in the Notice.
THE PRIMARY CONVERSION SHALL NOT BECOME EFFECTIVE IF STOCKHOLDERS FAIL TO APPROVE ANY OF THE ITEMS OF BUSINESS FOR WHICH THE SPECIAL MEETING IS CALLED.meeting.
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How does the Board of Directors recommend that I vote?
Our Board of Directors recommends that you vote your shares:
FOR the approval of the Board’s continuing authority to approve the Company’s issuance of shares of its common stock or securities convertible into common stock in an amount not to exceed 20% of the total number of outstanding shares of common stock of the Company as of the date of the Special Meeting, effective from the Primary Conversion Effective Date until the earlier of the date the next annual meeting is held or June 26, 2023;
FOR the approval of the Board’s continuing authority to approve the Company’s repurchase of shares of its common stock in an amount not to exceed 10% of the total number of outstanding shares of common stock of the Company as of the date of the Special Meeting, effective from the Primary Conversion Effective Date until the earlier of the date the next annual meeting is held or June 26, 2023; and
• | FOR each of the nine nominees named in this proxy statement for election to the Board; |
• | FOR the approval and ratification of the appointment of KPMG Huazhen LLP and KPMG as our independent auditors for 2023; |
• | FOR the proposal on named executive officer compensation; |
• | for 1 YEAR as the frequency of the proposal on named executive officer compensation; |
FOR the approval of the 2022 LTIP.
• | FOR the authorization to issue shares up to 20% of the total number of outstanding shares of common stock of the Company; and |
• | FOR the authorization to repurchase up to 10% of the total number of outstanding shares of common stock of the Company. |
YUM CHINA – 2023 Proxy Statement | 7 |
QUESTIONS AND ANSWERS ABOUT THE MEETING AND VOTING |
How do I vote before the SpecialAnnual Meeting?
There are three ways to vote before the meeting:
• | By Internet—we encourage you to vote online at www.proxyvote.com by following instructions on the Notice or proxy card; |
By telephone—you may vote by making a telephone call to 1 (800) 690-6903 (toll-free in the U.S.); or
• | By telephone—you may vote by making a telephone call to 1 (800) 690-6903 (toll-free in the U.S.); or |
By mail—if you received your proxy materials by mail, you may vote by completing, signing, dating and mailing the proxy card in the postage-paid envelope provided.
• | By mail—if you received your proxy materials by mail, you may vote by completing, signing, dating and mailing the proxy card in the postage-paid envelope provided. |
Proxies submitted through the Internet or by telephone as described above must be received by 11:59 a.m. Beijing/Hong Kong time on October 10, 2022May 24, 2023 / 11:59 p.m. U.S. Eastern time on October 9, 2022.May 23, 2023. Proxies submitted by mail must be received prior to the meeting.
If you hold your shares in the name of a bank, broker or other nominee, your ability to vote before the SpecialAnnual Meeting depends on their voting processes. Please follow the directions of your bank, broker or other nominee carefully.
Can I vote duringat the SpecialAnnual Meeting?
Yes. ToShares registered directly in your name as the stockholder of record may be voted in person at the Annual Meeting. Shares held through a bank, broker or other nominee may be voted in person only if you obtain a legal proxy from the bank, broker or other nominee that holds your shares giving you the right to vote during the Special Meeting, you will need the 16-digit control number included on your proxy card or on the instructions that accompanied your proxy materials.shares. Even if you plan to attend the SpecialAnnual Meeting, we encourage you to vote your shares by proxy. You may still vote your shares duringin
person at the SpecialAnnual Meeting even if you have previously voted by proxy.
If you hold your shares in the name of a bank, broker or other nominee, your ability to vote duringat the SpecialAnnual Meeting depends on their voting processes. Please follow the directions of your bank, broker or other nominee carefully.
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Can I change my mind after I vote?
YouIf you are a stockholder of record, you may change youror revoke any previously cast vote, at any timeso long as the new vote or revocation is received before the polls close at the SpecialAnnual Meeting. You may do this by:
signing another proxy card with a later date and returning it to us for receipt prior to the Special Meeting;
• | signing another proxy card with a later date and returning it to us for receipt prior to the Annual Meeting; |
voting again through the Internet or by telephone prior to 11:59 a.m. Beijing/Hong Kong time on October 10, 2022 / 11:59 p.m. U.S. Eastern time on October 9, 2022;
giving written notice to the Corporate Secretary of the Company prior to the Special Meeting; or
• | voting again through the Internet or by telephone prior to 11:59 a.m. Beijing/Hong Kong time on May 24, 2023 / 11:59 p.m. U.S. Eastern time on May 23, 2023; |
• | giving written notice to the Corporate Secretary of the Company prior to the Annual Meeting; or |
voting again during the Special Meeting.
• | voting again at the Annual Meeting. |
Taking the above steps will result in the revocation of your prior vote or votes.
If you hold your shares in the name of a bank, broker or other nominee, your ability change your vote depends on their voting processes. Please follow the directions of your bank, broker or other nominee carefully.
Who will count the votes?
Representatives of Broadridge Financial Solutions will count the votes and will serve as the independent inspector of election.
8 | YUM CHINA– 2023 Proxy Statement |
QUESTIONS AND ANSWERS ABOUT THE MEETING AND VOTING |
What if I return my proxy card but do not provide voting instructions?
If you vote by proxy card, your shares will be voted as you instruct by the individuals named on the proxy card. If you sign and return a proxy card but do not specify how your
shares are to be voted, the persons named as proxies on the proxy card will vote your shares in accordance with the recommendations of the Board set forth on page [ ].2.
What does it mean if I receive more than one Notice or proxy card?
If you received more than one Notice or 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 U.S. transfer agent is Computer-
shareis Computershare Trust Company, N.A., which may be reached at 1 (877) 854-0865 (U.S.) and 1 (781) 575-3102 (International). Computershare Investor Services Limited, which can be reached at 852-2862-8500 (Hong Kong), acts as our co-transfer agent to maintain the Hong Kong share register.
Will my shares be voted if I do not provide my proxy?
Your shares may be voted on certain matters if they are held in the name of a brokerage firm, even if you do not provide the brokerage firm with voting instructions. Brokerage firms have the authority under NYSE rules to vote shares for which their customers do not provide voting instructions on certain “routine” matters.
The proposal to approve and ratify the appointment of KPMG Huazhen LLP and KPMG as our independent
auditors for 2023 is considered a routine matter for which brokerage firms may vote shares for which they have not received voting instructions. The other matters to be voted on at our SpecialAnnual Meeting are not considered “routine” under applicable rules. When a matter is not a routine matter and the brokerage firm has not received voting instructions from the beneficial owner of the shares with respect to that matter, the brokerage firm
cannot vote the shares on that proposal. This is called a “broker non-vote.” Because there are no routine matters on which brokerage firms can vote without instruction, no broker non-votes are expected at the Special Meeting.
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How many votes must be present to hold the SpecialAnnual Meeting?
Your shares are counted as present at the SpecialAnnual Meeting if you attend the SpecialAnnual Meeting via webcast using your 16-digit control numberin person or if you properly submit a proxy by Internet, telephone or mail. In order for us to conduct our SpecialAnnual Meeting, a majority of the shares of Company
common stock outstanding as of August 24, 2022
March 27, 2023 must be present via webcastin person or represented by proxy at the SpecialAnnual Meeting. This is referred to as a “quorum.” Abstentions and broker non-votes will be counted for purposes of establishing a quorum at the SpecialAnnual Meeting.
How many votes are needed to elect directors?
You may vote “FOR” each nominee or “AGAINST” each nominee, or “ABSTAIN” from voting on one or
more nominees. Unless you mark “AGAINST” or “ABSTAIN” with respect to a particular nominee or
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QUESTIONS AND ANSWERS ABOUT THE MEETING AND VOTING |
nominees or for all nominees, your proxy will be voted “FOR” each of the director nominees named in this proxy statement. In an uncontested election, a nominee will be elected as a director if the number of “FOR” votes exceeds 50% of the number of votes cast with respect to that director’s election. Abstentions will be counted as
present but not voted. Abstentions and broker non-votes will not affect the outcome of the election of directors. Full details of the Company’s majority voting policy are set out in our Corporate Governance Principles and are described under “Governance of the Company—Majority Voting Policy.”
How many votes are needed to approve the other proposals?
Proposals 1, 2, 3, 5 and 36 must receive the “FOR” vote of a majority of the shares of our common stock, present via webcastin person or represented by proxy, and entitled to vote at the SpecialAnnual Meeting. For each of thethese proposals, you may vote “FOR,” “AGAINST,”“AGAINST” or “ABSTAIN.” Abstentions will be counted as shares present and entitled to vote at the SpecialAnnual Meeting. Accordingly, abstentions will have the
same effect as a vote “AGAINST” proposals 1,Proposals 2, 3, 5 and 3. Because matters to be voted on at our Special Meeting are not considered “routine,” broker 6. Broker non-votes will not be counted as shares present and entitled to vote with respect to anythe particular matter on which the broker has
not voted. Thus, broker non-votes will not affect the outcome of any of these proposals.
For Proposal 4, you may vote for the option of “1 YEAR,” “2 YEARS,” “3 YEARS” or “ABSTAIN.” The frequency that receives the highest number of votes cast will be the stockholders’ recommendation as to the frequency of future advisory votes to approve named executive officer compensation. Abstentions will be counted as present but not voted. Abstentions and broker non-votes will not affect the outcome of Proposal 4.
May stockholders ask questions?
Yes. Representatives of the Company will answer stockholders’ questions of general interest following the Annual Meeting.
When will the Company announce the voting results?
The Company will announce the voting results of the SpecialAnnual Meeting on a Current Report on Form 8-K filed with the SEC within four business days of the SpecialAnnual
Meeting. The voting results will also be filed with Hong Kong Stock ExchangeHKEX simultaneously.
What if other matters are presented for consideration at the SpecialAnnual Meeting?
The Company knows of no other matters to be submitted to the stockholders at the SpecialAnnual Meeting, other than the proposals referred to in this proxy statement. If any other matters properly come before the stockholders at the
SpecialAnnual Meeting, it is the intention of the persons named on the proxy to vote the shares represented thereby on such matters in accordance with their best judgment.
10 | YUM CHINA– 2023 Proxy Statement |
How
GOVERNANCE OF THE COMPANY |
The business and affairs of the Company are dollar values indicatedmanaged under the direction of the Board of Directors. The Board believes that good corporate governance is a critical factor in this proxy statement?achieving business success and in fulfilling the Board’s responsibilities to stockholders. The Board believes that its practices align management and stockholder interests.
The corporate governance section of our website makes available certain of the Company’s corporate governance materials, including our Corporate Governance Principles, the charters for each committee and our Code of Conduct. To access these documents on our Investor Relations website, ir.yumchina.com, click on “About Yum China” and then “Corporate Governance.”
In this proxy statement, the Company uses “$” to refer to U.S. dollars,Highlights of our corporate governance policies and “HK$” to refer to Hong Kong dollars.practices are described below.
Director Independence | • Independent Board Chairman • 8 of 9 director nominees are independent | |
Director Elections and Attendance | • Annual election of all directors • Majority voting policy for elections of directors in uncontested elections • Proxy access for director nominees by stockholders • 97% director attendance at Board and committee meetings in 2022 | |
Board Refreshment and Diversity | • Board Diversity Policy • Directors with experience, qualifications and skills across a wide range of public and private companies • Directors reflect diversity of age, gender, race and nationality • Average director nominee age of 57 as of April 12, 2023 • Independent and non-management directors may generally not stand for re-election after age 75 | |
Other Governance Practices | • Stockholders holding at least 25% of the Company’s outstanding shares have the right to call special meetings • Active stockholder engagement • No shareholder rights plan (also known as a poison pill) • Director and executive officer stock ownership policies • Policy prohibiting hedging or other speculative trading of Company stock • Policy regarding resignation if any director experiences a significant change in professional roles and responsibilities • Board access to senior management and independent advisors |
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GOVERNANCE OF THE COMPANY |
What is the composition of the Board of Directors and how often are members elected?
Our Board of Directors presently consists of 10 directors, eight of whom are standing for re-election at the Annual Meeting. Each director is elected for a one-year term. Two of our current directors, Cyril Han and Louis T. Hsieh, will not stand for re-election at the Annual Meeting. The Company thanks Messrs. Han and Hsieh for their service
as members of our Board. Christina Xiaojing Zhu is standing for election for the first time at the Annual Meeting. The Board has determined to reduce the number of directors constituting the Board from 10 to nine following the Annual Meeting. Proxies may not be voted for more than nine persons in the election of directors.
How often did the Board meet in 2022?
Directors are expected, absent extraordinary circumstances, to attend all Board meetings and meetings of committees on which they serve. Our Board met 7 times and the committees collectively met 25 times during 2022. In 2022, overall attendance at Board and committee meetings was 97% and all directors attended at least 75%
of the aggregate total of meetings of the Board and committees on which the director served. Our independent directors meet privately in executive session without management present at each regularly scheduled Board meeting. Our independent Chairman leads these Board executive sessions.
What is the Board’s policy regarding director attendance at the Annual Meeting?
All directors are encouraged to attend the Annual Meeting. All incumbent directors attended the 2022 annual meeting of the Company’s stockholders.
How are director nominees selected?
The Nominating and Governance Committee is responsible for recommending director candidates to the full Board for nomination and election at the annual meetings of stockholders. The Nominating and Governance Committee’s charter provides that it may retain third-party search firms to identify candidates from time to time. When the Nominating and Governance Committee engages a search firm, it provides the firm with guidance as to the skills, experience and qualifications that it is seeking in potential candidates, which may include, among other things, new directors who would contribute to the collective diversity of the Board. After conducting skills mapping and interviewing candidates, the search firm then provides a candidate
list to the Nominating and Governance Committee. The Nominating and Governance Committee then interviews the candidates before any candidate is submitted to the full Board for approval.
After considering and evaluating a number of highly qualified candidates, the Nominating and Governance Committee recommended to the Board that Christina Xiaojing Zhu be nominated to stand for election by our stockholders at the Annual Meeting.
The Nominating and Governance Committee will also consider director candidates recommended by stockholders or other sources in the same manner as nominees identified
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GOVERNANCE OF THE COMPANY |
by the Committee. For a stockholder to submit a candidate for consideration by the Nominating and Governance Committee, a stockholder must notify the Company’s Corporate Secretary by mail at Yum China Holdings, Inc., 101 East Park Boulevard, Suite 805, Plano, Texas 75074 or at Yum China Holdings, Inc., Yum China Building, 20 Tian Yao Qiao Road, Shanghai 200030, People’s Republic of China.
In accordance with the Corporate Governance Principles, our Board seeks members from diverse professional backgrounds who combine a broad spectrum of experience and expertise with a reputation for integrity. Directors should have experience in positions with a high degree of responsibility and be leaders in the companies or institutions with which they are affiliated, and are selected based upon contributions they can make to the Board and management. The Nominat-
ing and Governance Committee seeks to complete customary vetting procedures and background checks with respect to individuals suggested for potential Board membership by stockholders of the Company or other sources. We believe that each of our directors and director nominees has met the guidelines set forth in the Corporate Governance Principles.
The Company is party to a shareholders agreement with Primavera Capital Group (“Primavera”), and API (Hong Kong) Investment Limited, an affiliate of Zhejiang Ant Small and Micro Financial Services Group Co., Ltd. (currently known as Ant Group Co., Ltd., “Ant Group”) pursuant to which Primavera has identified two director designees, Dr. Fred Hu and Mr. William Wang. In addition, Mr. Cyril Han served as the non-voting Board observer designated by Ant Group since November 2016 and was elected as a director at the 2019 annual meeting of the Company’s stockholders.
What are the director nominees’ qualifications and skills?
As listed below, our director nominees have experience, qualifications and skills across a wide range of public and private companies spanning many different industries,
possessing a broad spectrum of experience both individually and collectively. They possess a diverse mix of regional, industry and professional expertise.
Executive Leadership | Industry | Information Technology | Regional (China/Asia Pacific) | Public Company Board | ||||||
Fred Hu | ✓ | ✓ | ✓ | ✓ | ||||||
Joey Wat | ✓ | ✓ | ✓ | ✓ | ✓ | |||||
Peter A. Bassi | ✓ | ✓ | ✓ | |||||||
Edouard Ettedgui | ✓ | ✓ | ✓ | ✓ | ||||||
Ruby Lu | ✓ | ✓ | ✓ | ✓ | ||||||
Zili Shao | ✓ | ✓ | ✓ | |||||||
William Wang | ✓ | ✓ | ✓ | ✓ | ||||||
Min (Jenny) Zhang | ✓ | ✓ | ✓ | ✓ | ✓ | |||||
Christina Xiaojing Zhu | ✓ | ✓ | ✓ | ✓ | ✓ |
How does the composition of our Board reflect diversity?
The Nominating and Governance Committee seeks to recommend nominees that bring a unique perspective to the Board in order to contribute to the collective diversity of the Board. The Board believes that having directors of diverse backgrounds helps the Board better oversee the Company’s management and operations and assess risk
and opportunities for the Company’s business model from a variety of perspectives. Under our Board Diversity Policy, diversity is broadly construed to mean a variety of perspectives, skills, personal and professional experiences and backgrounds, and other characteristics represented in both visible and non-visible ways that include, but are not
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GOVERNANCE OF THE COMPANY |
limited to, age, gender, race and nationality. As a part of the director nominating process, the Nominating and Governance Committee considers several factors to ensure the entire Board collectively embraces a wide variety of characteristics. Each director nominee will generally exhibit different and varying degrees of these
characteristics. With respect to the Company’s current slate of director nominees, the Company also benefits from the diversity inherent from differences in Board member age, gender, race and nationality. Forty-four percent of director nominees are women.
Can stockholders nominate directors for election to the Board?
Yes, under our Amended and Restated Bylaws (the “Bylaws”), stockholders may nominate persons for election as directors at an annual meeting by following the procedures described under “Additional Information.”
What is the Board’s leadership structure?
Our Board is currently led by an independent Chairman, Dr. Fred Hu. Our Board believes that Board independence and oversight of management are effectively maintained through a strong independent Chairman and through the Board’s composition, committee system and policy of having regular executive sessions of non-management directors, all of which are discussed below this section. Further, separating the Chairman and Chief Executive Officer roles enables the Chairman to focus on corporate governance matters and the Chief Executive Officer to
focus on the Company’s business. We find that this structure works well to foster an open dialogue and constructive feedback among the independent directors and management. It further allows the Board to effectively represent the best interests of all stockholders and contribute to the Company’s long-term success.
To promote effective independent oversight, the Board has adopted a number of governance practices discussed below.
What are the Company’s governance policies and ethical guidelines?
• | Board Committee Charters. The Audit Committee, Compensation Committee, Nominating and Governance Committee and Food Safety and Sustainability Committee of the Board of Directors operate pursuant to their respective written charters. These charters were approved by the Board of Directors and are reviewed annually by the respective committees. Each charter is available on the Company’s website at ir.yumchina.com. |
• | Governance Principles. The Board of Directors has adopted Corporate Governance Principles, which are |
intended to embody the governance principles and procedures by which the Board functions. These principles are available on the Company’s website at ir.yumchina.com. |
• | Ethical Guidelines. Yum China’s Code of Conduct was adopted to emphasize the Company’s commitment to the highest standards of business conduct. The Code of Conduct also sets forth information and procedures for employees to report ethical or accounting concerns, misconduct or violations of the Code of Conduct in a confidential manner. The Code of Conduct applies to all |
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GOVERNANCE OF THE COMPANY |
directors and employees of the Company, including the principal executive officer, the principal financial officer and the principal accounting officer. All employees of the Company are required, on an annual basis, to complete the Yum China Code of Conduct Questionnaire and certify in writing that they have read and understand the Code of Conduct. The Code of Conduct is available on the Company’s website at ir.yumchina.com. The Company intends to post amendments to or waivers from the Code of Conduct (to the extent applicable to directors or executive officers and required by the rules of the SEC, NYSE or HKEX) on this website. |
Conflicts of Interest Policy Applicable to Directors. As set out in Yum China’s Code of Conduct, Yum China’s conflicts of interest policy with respect to directors is designed to ensure adequate disclosure and consideration of the types of conflict of interest situations that are reasonably likely to be of concern to the Company.
Accordingly, directors are required to disclose to the Company all potential conflict of interest situations that could reasonably be expected to impact the independence and judgment of directors in performing their duties as members of the Board of Directors of the Company. Such disclosures are required to be made by the director at such time and in such manner as to provide adequate notice and sufficient information to the Company to enable the Company to fully and adequately consider the relevant facts and circumstances related to the potential conflict of interest and to determine the actions, if any, that should be taken to resolve such potential conflict of interest.
The Company’s governance policies are compliant with applicable rules and regulations of both the NYSE and the HKEX.
What other significant Board governance practices does the Company have?
• | Annual Election of Directors. In accordance with our Amended and Restated Certificate of Incorporation, our directors are elected to serve a one-year term and until their successors are elected and qualified or until their earlier death, resignation or removal. |
• | Role of Lead Director. Our Corporate Governance Principles require the independent directors to appoint a Lead Director when the Chairman does not qualify as independent in accordance with the applicable rules of the NYSE. The Company currently does not have a Lead Director because the Chairman of the Board is independent. |
• | Executive Sessions. Our independent and non-management directors meet regularly in executive session. The executive sessions are attended only by the independent and non-management directors and are presided over by the independent Chairman. Our independent directors also meet in executive session at least once per year. |
• | Board and Committee Evaluations. The Board recognizes that a thorough, constructive evaluation process enhances our Board’s effectiveness and is an essential element of good corporate governance. Each year, the Nominating and Governance Committee oversees the design and implementation of the evaluation process, focused on the Board’s contribution to the Company and on areas in which the Board believes a better contribution could be made. In addition, each of the Audit Committee, the Compensation Committee, the Nominating and Governance Committee and the Food Safety and Sustainability Committee also conducts a similar annual self-evaluation pursuant to their respective charters. Written questionnaires completed by each director, as well as discussions with selected directors, solicit feedback on a wide range of issues, including Board/committee composition and leadership, meetings, responsibilities and overall effectiveness. A summary of the Board and committee evaluation results is discussed with the Board and with the respective committees, and policies and practices are updated in response |
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GOVERNANCE OF THE COMPANY |
to the evaluation results. Director suggestions for improvements to evaluation questionnaires and processes are considered for incorporation for the following year. |
• | Retirement Policy. Pursuant to our Corporate Governance Principles, independent or non-management directors may not stand for re-election to the Board after they have reached the age of 75, unless the Board unanimously elects to have the director stand for re-election. |
• | Limits on Director Service on Other Public Company Boards. Our Corporate Governance Principles provide that directors may serve on no more than four other public company boards. The Company’s Chief Executive Officer, if a director, may serve on no more than one other public company board. All directors are expected to advise the Chairman and the Chair of the Nominating and Governance Committee prior to accepting any other public company directorship or any assignment to the audit committee or compensation committee of other public company boards. |
• | Majority Voting Policy. Our Bylaws require majority voting for the election of directors in uncontested elections. This means that director nominees in an uncontested election for directors must receive a number of votes “FOR” their election in excess of 50% of the number of votes cast with respect to that director’s election. The Corporate Governance Principles further provide that any incumbent director who does not receive a majority of “FOR” votes will promptly tender to the |
Board his or her resignation from the Board. The resignation will specify that it is effective upon the Board’s acceptance of the resignation. The Board will, through a process managed by the Nominating and Governance Committee and excluding the nominee in question, accept or reject the resignation and publicly disclose the Board’s decision regarding the resignation and the rationale behind the decision within 90 days from the date of the certification of the election results. |
• | Access to Management and Employees. Our directors have complete and open access to senior members of management. Our Chief Executive Officer invites key employees of the Company to attend Board sessions at which the Chief Executive Officer believes they can meaningfully contribute to Board discussion. |
• | Access to Outside Advisors. The Board and Board committees have the right to consult and retain independent legal and other advisors at the expense of the Company. The Audit Committee has the sole authority to appoint and replace the independent auditors, subject to stockholder approval. The Compensation Committee has the sole authority to retain any advisor to assist it in the performance of its duties, after taking into consideration all factors relevant to the advisor’s independence from management. The Nominating and Governance Committee has the sole authority to retain search firms to be used to identify director candidates. The Food Safety and Sustainability Committee has the authority to consult and retain any advisor to assist it in connection with the exercise of its responsibilities and authority. |
What is the Board’s role in risk oversight?
The Board maintains overall responsibility for overseeing the Company’s risk management framework. The Board regularly reviews risks that may be material to the Company. In furtherance of its responsibility, the Board has delegated specific risk-related responsibilities to the Audit Committee, the Compensation Committee and the Food Safety and Sustainability Committee.
The Board and its committees consult with external advisors and internal experts regarding anticipated future threats, trends and risks that may be applicable to our Company, our industry and our operations.
Audit Committee
The Audit Committee engages in substantive discussions with management regarding the Company’s major risk
16 | YUM CHINA– 2023 Proxy Statement |
GOVERNANCE OF THE COMPANY |
exposures and the steps management has taken to monitor and control such exposures, including the Company’s risk assessment and risk management policies. Our Head of Corporate Audit reports directly to the Audit Committee, as well as our Chief Financial Officer. The Audit Committee also receives reports at committee meetings regarding legal and regulatory risks from management and meets periodically in separate executive sessions with our independent auditors and our Head of Corporate Audit. The Audit Committee periodically provides a summary to the full Board of the risk areas reviewed together with any other risk-related subjects discussed at the Audit Committee meeting. Alternatively, the Board may review and discuss directly with management the major risks arising from the Company’s business and operations.
The Company also maintains the Compliance Oversight Committee, a management-level committee, which is co-chaired by the Chief Legal Officer and the Chief Financial Officer of the Company and comprised of leaders from multiple functions. The Compliance Oversight Committee meets regularly to monitor and review the implementation of the Company’s compliance programs. The Chief Legal Officer reports regularly to the Audit Committee on the Company’s key risk areas and compliance programs.
Compensation Committee
The Compensation Committee considers the risks that may be implicated by our compensation programs through a risk assessment conducted by management and reports its conclusions to the full Board. This oversight helps ensure the Company’s compensation programs align with the Company’s goals and compensation philosophies and, along with other factors, operate to mitigate against the risk that such programs would encourage excessive or inappropriate risk-taking.
Food Safety and Sustainability Committee
The Food Safety and Sustainability Committee assists the Board in its oversight of the Company’s practices, policies, procedures, strategies and initiatives relating to the protection of food safety. The Committee monitors trends, issues and concerns affecting the Company’s food safety practices, and the risks arising therefrom, in light of the Company’s overall efforts related to food safety.
The Food Safety and Sustainability Committee also assists the Board in its oversight of the Company’s practices, policies, procedures, strategies and initiatives relating to sustainability, including environmental, supply chain and food nutrition and health. The Committee monitors trends, issues and concerns affecting the Company’s sustainability practices, policies, procedures, strategies and initiatives.
How does the Board oversee food safety risk?
The Board and the Food Safety and Sustainability Committee are involved in oversight of the Company’s food safety risk. The Food Safety and Sustainability Committee assists the Board in the oversight of food safety risk and regularly receives reports from management in connection with the Company’s practices, procedures, strategies and initiatives relating to food safety and the risks arising therefrom. The Board and the Food Safety and
Sustainability Committee also monitor and evaluate significant changes in regulatory requirements on food safety, material food safety incidents that could potentially affect the Company, as well as any severe public health situations, including the COVID-19 pandemic, that could adversely affect the Company’s business and operations.
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GOVERNANCE OF THE COMPANY |
How does the Board oversee cybersecurity risk?
The Board and the Audit Committee are involved in oversight of the Company’s cybersecurity risk. The Audit Committee assists the Board in the oversight of cybersecurity and other technology risks, discusses with management cybersecurity risk mitigation and incident management, and reviews management reports regarding the Company’s cybersecurity governance processes, incident response system and applicable cybersecurity laws, regulations and standards, status of projects to strengthen internal cybersecurity, the evolving threat environment, vulnerability assessments, specific cybersecurity incidents and management’s efforts to monitor, detect and prevent cybersecurity threats.
The Company’s cybersecurity programs are regularly reviewed, internally or externally by independent third parties, against established regulatory and industry standards. The Company has maintained ISO/IEC 27001:2013 certification since 2018 for certain online business. We incorporate regular information security training as part of our employee education and development program. To its knowledge, the Company has not experienced a significant cybersecurity breach within the last three years. The Company maintains cybersecurity insurance as part of its overall insurance portfolio.
How does the Board oversee sustainability risk?
The Company strives to establish a responsible ecosystem by building sustainable restaurants, creating a sustainable supply chain with partners, and building sustainable communities with all stakeholders. The Company has established sustainability management mechanisms all the way from the Board to the frontline restaurant teams. At the Board level, the Food Safety and Sustainability Committee assists the Board in its oversight of the Company’s practices, policies, procedures, strategies and initiatives relating to sustainability, including environmental, supply chain and food nutrition and health. The Food Safety and Sustainability Committee monitors trends, issues and concerns affecting the Company’s sustainability prac-
tices, policies, procedures, strategies and initiatives. The Food Safety and Sustainability Committee obtains reports from management as the Committee deems necessary or desirable. The Company has also established a Sustainability Committee comprised of selected leadership team members, the sustainability officer, and cross-functional teams. The Sustainability Committee members meet quarterly to track the implementation of material topics, evaluate sustainability risks, and develop risk management strategies and measures. The Board considers these sustainability matters at least annually in connection with the strategic plan.
How has the Board overseen the Company’s response to COVID-19?
Starting in the first quarter of 2020 and throughout 2021 and 2022, the COVID-19 pandemic significantly impacted the restaurant industry in China. 2022 was in many ways the most volatile year among the past three years, during which the restaurant sector in China operated in a fast-changing operating environment, facing challenges from sporadic COVID-19 outbreaks, entire
city lockdowns and, in December 2022, nationwide infections.
The Board and its committees took additional actions to ensure effective oversight of the Company’s response plans to mitigate the risks related to the pandemic. In addition to a COVID-19 crisis management team com-
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GOVERNANCE OF THE COMPANY |
prised of cross-brand and cross-functional executives at the management level, the Board reviewed the immediate actions taken by the Company to address the challenges and volatility caused by the COVID-19 pandemic. Through regular updates and additional communications with management, the Board has actively participated in overseeing the Company’s management of the COVID-19 crisis, including protecting the health and safety of our employees and customers, evaluating the impact of the pandemic on the Company’s operations and
strategies, monitoring continued compliance with applicable regulatory requirements, managing human capital and assessing the impact of the pandemic on the Company’s liquidity and financial position.
With support from the Board, management led the successful implementation of immediate emergency actions to protect employees, sustain operations, drive sales, protect profitability, drive stockholder value-creation and give back to the community.
What is the Board’s role in management development and succession planning?
The Board considers management development and succession planning to be a critical part of our Company’s long-term strategy. In accordance with our Corporate Governance Principles, the Board reviews the Company’s succession planning, including succession planning in the case of retirement of the Chief Executive Officer of the Company. The Chief Executive Officer periodically reports to the Board with regard to his or her recommen-
dations for potential successors to senior executive positions and development plans for such individuals. In addition, the Board reviews recommendations from an independent committee with regard to the performance evaluation of the Chief Executive Officer, which the committee conducts annually, in accordance with its charter.
How does the Board determine which directors are considered independent?
The Company’s Corporate Governance Principles, adopted by the Board, require that a majority of the directors qualify as independent in accordance with the applicable rules of the NYSE. The Board also considers independence requirements of the Rules Governing the Listing of Securities on Hong Kong Listing Rules. The Board determines on an annual basis whether each director qualifies as independent pursuant to the applicable rules of the NYSE and the Hong Kong Listing Rules.
Pursuant to the Corporate Governance Principles, the Board undertook its annual review of director independence. During this review, the Board considered transactions and relationships between each director or any member of his or her immediate family and the Company and its subsidiaries and affiliates. As provided in the Corporate Governance Principles, the purpose of this review
was to determine whether any such relationships or transactions were inconsistent with a determination that the director is independent.
As a result of the review, the Board affirmatively determined that all of the directors and director nominees are independent of the Company and its management under NYSE rules and the Hong Kong Listing Rules, with the exception of Joey Wat. Ms. Wat is not considered an independent director because she is the current Chief Executive Officer of the Company.
In reaching this conclusion, the Board determined that Dr. Hu, Messrs. Bassi, Ettedgui, Han, Hsieh, Shao and Wang and Mess. Lu, Zhang and Zhu had no material relationship with the Company other than their relationship as a director.
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GOVERNANCE OF THE COMPANY |
How do stockholders communicate with the Board?
Stockholders or other parties who wish to communicate directly with the non-management directors, individually or as a group, or the entire Board may do so by writing to the Nominating and Governance Committee, c/o the Corporate Secretary, Yum China Holdings, Inc., 101 East Park Boulevard, Suite 805, Plano, Texas, 75074. The Nominating and Governance Committee of the Board has approved a process for handling correspondence received by the Company and addressed to non-management members of the Board or the entire Board. Under that pro
cess, the Corporate Secretary of the Company reviews all such correspondence and regularly forwards to a designated member of the Nominating and Governance Committee copies of all such correspondence (except commercial correspondence and correspondence that is
duplicative in nature) and a summary of all such correspondence. Directors may at any time review a log of all correspondence received by the Company that is addressed to members of the Board and request copies of any such correspondence. Written correspondence from stockholders relating to accounting, internal controls or auditing matters are brought to the attention of the Chairperson of the Audit Committee and to the internal audit department and are handled in accordance with procedures established by the Audit Committee with respect to such matters (described below). Correspondence from stockholders relating to Compensation Committee matters are referred to the Chairperson of the Compensation Committee.
How do the Board and management engage with stockholders?
Our Board and management are committed to regular engagement with our stockholders. We reached out to our top 75 stockholders, representing over 66% of the outstanding shares of Company common stock, in summer 2022 in connection with the voluntary conversion of our secondary listing status to a primary listing status on the HKEX. In winter 2022, we again approached our top 10 stockholders, as well as top 25 stockholders that had not engaged with us in 2021 or the summer of 2022, which comprised holders of nearly 50% of the outstanding shares of Company common stock, in order to solicit their input on important governance, executive compensation, sustainability and other matters. Additionally, our directors directly engage with stockholders from time to time upon stockholders’ request. Our senior management team, including our Chief Executive Officer and Chief Financial Officer, regularly engage in meaningful dialogue with our stockholders, including through our quarterly earnings calls and investor conferences and meetings. Our senior management team regularly reports to our Board and, as applicable, committees of our Board, regarding stockholder views.
We regularly evaluate and respond to the views voiced by our stockholders. In response to the continuous stockholder focus on environmental, social and governance (“ESG”) matters, we discussed with our stockholders our commitment to environmental sustainability and our enhanced sustainability performance. In 2022, we set near-term science-based targets (SBTs) for 2035. We identified and assessed climate-related risks and opportunities in our operations and value chain in line with the recommendations of the Task Force on Climate-Related Financial Disclosure (“TCFD”), and released our first TCFD report in 2022. In 2022, we also participated in the CDP Questionnaire for the second year.
In addition, beginning with the 2021 annual incentive program, ESG measures have been incorporated into the key performance indicators that are used to determine the individual performance factor for each leadership team member and we have expanded our disclosures on the ESG measures. See “Recent Compensation Highlights” and “2022 NEO Compensation and Performance Summary” under “Executive Compensation” for more information.
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What are the Company’s policies on reporting of concerns regarding accounting and auditing matters?
The Audit Committee has established policies on reporting concerns regarding accounting and auditing matters in addition to our policy on communicating with our non-management directors. Any employee may, on a confidential or anonymous basis, submit complaints or concerns regarding accounting or auditing matters to the Chief Legal Officer of the Company through the Company’s Employee Hotline or by e-mail or regular mail. If an
employee is uncomfortable for any reason contacting the Chief Legal Officer, the employee may contact the Chairperson of the Audit Committee. The Chief Legal Officer maintains a log of all complaints or concerns, tracking their receipt, investigation and resolution and prepares a periodic summary report thereof for the Audit Committee.
What are the Committees of the Board?
The Board of Directors has standing Audit, Compensation, Nominating and Governance and Food Safety and Sustainability Committees. Set forth below is a summary of the functions of each committee, the members of each committee as of April 12, 2023 and the number of meetings each committee held in 2022.
Audit Committee Peter A. Bassi, Chair Cyril Han* Louis T. Hsieh* Zili Shao Min (Jenny) Zhang Number of meetings held in 2022: 11 | • Possesses sole authority regarding the selection and retention of the independent auditors, subject to stockholder approval • Reviews and has oversight over the Company’s internal audit function • Reviews and approves all auditing services, internal control-related services and permitted non-audit services to be performed for the Company by the independent auditors • Reviews the independence, qualification and performance of the independent auditors • Reviews and discusses with management and the independent auditors any major issues as to the adequacy of the Company’s internal controls, any special steps adopted in light of material control deficiencies and the adequacy of disclosures about changes in internal control over financial reporting • Reviews and discusses with management and the independent auditors the annual audited financial statements, results of the review of the Company’s quarterly financial statements and significant financial reporting issues and judgments made in connection with the preparation of the Company’s financial statements • Reviews and discusses with the independent auditors any critical audit matter (“CAM”) addressed in the audit of the Company’s financial statements and the relevant financial statement accounts and disclosures that relate to each CAM • Reviews the Company’s accounting and financial reporting principles and practices, including any significant changes thereto • Advises the Board with respect to Company policies and procedures regarding compliance with applicable laws and regulations and with the Company’s Code of Conduct • Discusses with management the Company’s major risk exposures and the steps management has taken to monitor and control such exposures; and assists the Board in the oversight of cybersecurity and other technology risks. Further detail about the role of the Audit Committee in risk assessment and risk management is included in the section entitled “What is the Board’s role in risk oversight?” and “How does the Board oversee cybersecurity risk?” |
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The Board of Directors has determined that all of the members of the Audit Committee are independent within the meaning of applicable SEC regulations and listing standards of the NYSE. The Board has also determined that each member of the Audit Committee is financially literate within the meaning of the listing standards of the NYSE and that each of Messrs. Bassi, Han and Hsieh and Ms. Zhang is qualified as an audit committee financial expert within the meaning of SEC regulations.
Compensation Committee Ruby Lu, Chair Edouard Ettedgui William Wang Min (Jenny) Zhang Number of meetings held in 2022: 8 | • Oversees the Company’s executive compensation plans and programs and reviews and recommends changes to these plans and programs • Monitors the performance of the Chief Executive Officer and other senior executives in light of corporate goals set by the Committee • Reviews and approves the corporate goals and objectives relevant to the Chief Executive Officer’s and other senior executives’ compensation and evaluates their performance in light of those goals and objectives • Determines and approves, either as a committee or together with the other independent Board members, the compensation level of the Chief Executive Officer and other senior executive officers based on this evaluation • Reviews the Company’s compensation plans, policies and programs to assess the extent to which they encourage excessive or inappropriate risk-taking or earnings manipulation |
The Board has determined that all of the members of the Compensation Committee are independent within the meaning of the listing standards of the NYSE.
Nominating and Governance Fred Hu, Chair Edouard Ettedgui Ruby Lu Min (Jenny) Zhang Number of meetings held in 2022: 3 | • Identifies and proposes to the Board individuals qualified to become Board members and recommends to the Board director nominees for each committee • Advises the Board on matters of corporate governance • Reviews and reassesses from time to time the adequacy of the Company’s Corporate Governance Principles and recommends any proposed changes to the Board for approval • Receives comments from all directors and reports annually to the Board with assessment of the Board’s performance • Reviews annually and makes recommendations to the Board with respect to the compensation and benefits of directors • Reviews management succession planning and makes recommendations to the Board • Review emerging corporate governance issues and best practices |
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The Board has determined that all of the members of the Nominating and Governance Committee are independent within the meaning of the listing standards of the NYSE.
Food Safety and Sustainability Committee Zili Shao, Chair Peter A. Bassi Edouard Ettedgui Louis T. Hsieh* Number of meetings held in 2022: 3 | • Reviews, evaluates and advises the Board regarding the practices, procedures, strategies and initiatives to protect food safety • Reviews, evaluates and advises the Board regarding trends, issues and concerns which affect or could affect the Company’s food safety practices, and the risks arising therefrom, in light of the Company’s overall efforts related to food safety • Reviews and evaluates any corrective action taken by management to address any food safety related risks or incident, if any, and advises the Board regarding any proposed action in relation thereto • Reviews, evaluates and advises the Board regarding the Company’s practices, policies, procedures, strategies and initiatives relating to sustainability, including environmental, supply chain and food nutrition and health • Reviews and evaluates the trends, issues and concerns which affect or could affect the Company’s sustainability practices, policies, procedures, strategies and initiatives • Reviews and oversees the development and implementation of the goals the Company may establish from time to time with respect to its sustainability initiatives • Oversees the reporting and communication with stakeholders with respect to sustainability |
* At the Annual Meeting, Messrs. Han and Hsieh are stepping down from the Board and its committees and are not standing for re-election.
What are the Company’s policies and procedures with respect to related person transactions?
Under the Company’s Related Person Transaction Policies and Procedures, the Audit Committee reviews the material facts of all related person transactions that require the Audit Committee’s approval and either approves or disapproves of the entry into the related person transaction. In determining whether to approve or ratify a related person transaction, the Audit Committee will determine whether such transaction is in, or not opposed to, the best interest of the Company and will take into account, among other factors it deems appropriate, whether such transaction is on terms no less favorable to the Company than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related person’s interest in the transaction. Transactions, arrangements or relationships or any series of similar transactions, arrangements or relationships in which (i) a related person has or will have a direct or indirect material interest, (ii) the Company is a participant and (iii) that exceed $120,000 in any calendar year are subject
to the Audit Committee’s review. Any director who is a related person with respect to a transaction under review may not participate in any discussion or approval of the transaction, except that the director will provide all material information concerning the transaction to the Audit Committee.
Related persons are directors, director nominees, executive officers, beneficial owners of 5% or more of the outstanding shares of Company common stock and their immediate family members. An immediate family member includes a person’s children, stepchildren, parents, stepparents, spouse, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law and anyone sharing such person’s household (other than a tenant or employee).
After its review, the Audit Committee may approve or ratify the transaction. The policies and procedures provide
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that certain transactions are deemed to be pre-approved even if they will exceed $120,000. These transactions include employment of executive officers, director compensation and transactions with other companies if the aggregate amount of the transaction does not exceed the greater of $1 million or 2% of that company’s total con-
solidated gross revenues and the related person is not an executive officer of the other company.
There were no transactions considered to be a related person transaction from January 1, 2022 through the date of this proxy statement.
Does the Company require stock ownership by directors?
The Board believes that the number of shares of Company common stock owned by each director is a personal decision. However, the Board strongly supports the position that directors should own a meaningful number of shares of Company common stock and expects that a director will not sell any shares received as director compensation until at least 12 months following the director’s retirement or departure from the Board.
The Company’s non-employee directors receive a significant portion of their annual compensation in shares of Company common stock. The Company believes that the emphasis on the equity component of director compensation serves to further align the interests of directors with those of our stockholders.
Does the Company require stock ownership by executive officers?
The Board has adopted Stock Ownership Guidelines, which require executive officers to own a substantial amount of Company common stock in order to promote an ownership mentality among management and align
their interests with those of stockholders. See “Executive Compensation—Compensation Policies—Stock Ownership Guidelines and Retention Policy” for more information.
How many shares of Company common stock do the directors and executive officers own?
Stock ownership information for our directors and executive officers is shown under “Stock Ownership Information.”
Does the Company have a policy on hedging or other speculative trading in Company common stock?
Directors, executive officers and certain other designated employees are prohibited from speculative trading in Company common stock, including trading in puts, calls or other hedging or monetization transactions.
How are directors compensated?
Employee directors do not receive additional compensation for serving on the Board of Directors. The annual compensation for each director who is not an employee of the Company is discussed under “2022 Director Compensation.”
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Who are the director nominees?
Each of the director nominees, other than Christina Xiaojing Zhu, currently serves as a director of the Company. Christina Xiaojing Zhu is being nominated as a director for election at the Annual Meeting following a search process undertaken by the Nominating and Governance Committee, as described above under “Governance of the Company—How are director nominees selected?”
Each nominee has been nominated by the Board for election at the Annual Meeting to hold office for a one-year term. If elected, the nominees will hold office until the 2024 annual meeting of the Company’s stockholders and until their respective successors have been duly elected and qualified or until their earlier death, resignation or removal.
The biographies of each of the nominees below contain information regarding the person’s service as a director, business experience, director positions held currently or at any time during the last five years, information regarding involvement in certain legal or administrative proceedings, if applicable, and the experiences, qualifications, attributes or skills that caused the Nominating and Governance Committee and the Board to determine that the person should serve as a director for the Company. In addition to the information presented below regarding
each nominee’s specific experience, qualifications, attributes and skills that led our Board to the conclusion that he or she should serve as a director, we also believe that all of our director nominees have a reputation for integrity, honesty and adherence to high ethical standards. They each have demonstrated business acumen and an ability to exercise sound judgment, as well as a commitment of service to the Company and our Board.
There are no family relationships among any of the directors, director nominees and executive officers of the Company. Ages are as of April 12, 2023.
What if a nominee is unwilling or unable to serve?
That is not expected to occur. If it does, proxies may be voted for a substitute nominated by the Board of Directors.
What vote is required to elect directors?
A nominee will be elected as a director if the number of “FOR” votes exceeds the number of “AGAINST” votes with respect to his or her election.
The Board of Directors recommends that you vote FOR the election of the nine director nominees.
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Director Nominees
Fred Hu Age 59 Director Since 2016 | ||
Fred Hu has served as the chairman and founder of Primavera, a China-based global investment firm, since its inception in 2011. Prior to Primavera, Dr. Hu served in various roles at Goldman Sachs from 1997 to 2010, including as partner and chairman of Greater China at Goldman Sachs Group, Inc. From 1991 to 1996, he served as an economist at the International Monetary Fund (IMF) in Washington D.C. Dr. Hu currently is a member of the board of directors of Industrial and Commercial Bank of China Limited, a company listed on both the Hong Kong Stock Exchange (stock code: 1398) and the Shanghai Stock Exchange (SHA: 601398), and UBS Group AG, a company listed on both the SIX Swiss Stock Exchange (SIX: UBSG) and the New York Stock Exchange (NYSE: UBS). From May 2011 to May 2018, Dr. Hu served as an independent non-executive director of Hang Seng Bank Limited, a company listed on the Hong Kong Stock Exchange (stock code: 0011). From November 2014 to April 2021, he served as an independent non-executive director of Hong Kong Exchanges and Clearing Limited, a company listed on the Hong Kong Stock Exchange (stock code: 0388). From August 2020 to March 2022, he served as an independent non-executive director for Ant Group. Dr. Hu serves as a co-director of the National Center for Economic Research and a professor at Tsinghua University. Dr. Hu obtained his doctoral degree in economics from Harvard University. Dr. Hu brings to our Board extensive expertise in international affairs and the Chinese economy. In addition, Dr. Hu brings valuable business, strategic development and corporate leadership experience as well as expertise in economics, finance and global capital markets. |
Joey Wat Age 51 Director Since 2017 | ||
Joey Wat has served as a director of our Company since July 2017 and as the Chief Executive Officer of our Company since March 2018. She served as our President and Chief Operating Officer from February 2017 to February 2018 and the Chief Executive Officer, KFC from October 2016 to February 2017, a position she held at Yum! Restaurants China, from August 2015 to October 2016. Ms. Wat joined Yum! Restaurants China in September 2014 as President of KFC China and was promoted to Chief Executive Officer for KFC China in August 2015. Before joining YUM, Ms. Wat served in both management and strategy positions at A.S. Watson Group (“Watson”), an international health, beauty and lifestyle retailer, in the U.K. from 2004 to 2014. Her last position at Watson was managing director of Watson Health & Beauty U.K., which operates Superdrug and Savers, two retail chains specializing in the sale of pharmacy and health and beauty products, from 2012 to 2014. She made the transition from head of strategy of Watson in Europe to managing director of Savers in 2007. Before joining Watson, Ms. Wat spent seven years in management consulting including with McKinsey & Company’s Hong Kong office from 2000 to 2003. Ms. Wat obtained a master of management degree from Kellogg School of Management at Northwestern University in 2000. Ms. Wat brings to our Board extensive knowledge of the Company’s business and her industry acumen acquired in the course of a career that included several leadership roles in retail companies. |
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Peter A. Bassi Age 73 Director Since 2016 | ||
Peter A. Bassi served as Chairman of Yum! Restaurants International from 2003 to 2005 and as its President from 1997 to 2003. Prior to that position, Mr. Bassi spent 25 years in a wide range of financial and general management positions at PepsiCo, Inc., Pepsi-Cola International, Pizza Hut (U.S. and International), Frito-Lay and Taco Bell. Mr. Bassi currently serves as lead independent director and chairman of the governance and nominating committee of BJ’s Restaurant, Inc. (NASDAQ: BJRI), where he also serves on the audit committee and compensation committee. He has been a member of the board of BJ’s Restaurant, Inc. since 2004. From January 2009 to May 2019, Mr. Bassi held various positions on the board of Potbelly Corporation (NASDAQ: PBPB). From June 2015 to December 2018, Mr. Bassi served on the value optimization board for Mekong Capital Partners, a private equity firm based in Vietnam. He also served on the board of supervisors of AmRest Holdings SE (WSE: EAT) from 2013 to 2015, and served on the board of the Pep Boys—Manny, Moe & Jack from 2002 to 2009. Mr. Bassi received his master’s degree of business administration (MBA) from the University of Rhode Island in 1972. He brings to our Board knowledge of the restaurant industry and global franchising, as well as financial expertise and extensive public company board and corporate governance experience. |
Edouard Ettedgui Age 71 Director Since 2016 | ||
Edouard Ettedgui has served as the non-executive chairman of Alliance Française, Hong Kong since 2016. He also served as a non-executive director of Mandarin Oriental International Limited from April 2016 to May 2020, the company for which he was the group chief executive from 1998 to 2016. Prior to his time at Mandarin Oriental International, Mr. Ettedgui was the chief financial officer for Dairy Farm International Holdings, and he served in various roles for British American Tobacco (“BAT”), including as the business development director, group finance controller and group head of finance. From 1990 to 1996, he spent around six years with BAT Industries PLC in London, initially as the head of finance and later as the group finance controller and director for new business development. Mr. Ettedgui graduated from ESSEC Business School (France) in 1975. He brings to our Board senior management experience in various international consumer-product industries, extensive financial expertise and public company board experience. |
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Ruby Lu Age 52 Director Since 2016 | ||
Ruby Lu is a venture capitalist investing in technology start-ups in the U.S. and China. Ms. Lu founded Atypical Ventures, an early-stage technology venture investment firm, in 2019. In 2006, she co-founded DCM China, a venture capital firm. During her more than 12-year tenure at DCM, she invested in, and served as a board member for, many leading technology companies, including BitAuto Holdings Limited, Ecommerce China Dangdang Inc. and Pactera Technology International Ltd. Prior to joining DCM in 2003, Ms. Lu was a vice president in the investment banking group of technology, media and telecommunications at Goldman Sachs & Co. in Menlo Park, California. She is currently an independent director on the boards of Unilever (NYSE: UL) and Uxin Limited (NASDAQ: UXIN). She also served as an independent director and on the audit committee of iKang Healthcare Group, Inc. and as an independent director and Chairman of the special committee for iDreamSky Technologies Limited before these two companies were taken private, as well as an independent director of Blue City Holdings Limited (NASDAQ: BLCT). Ms. Lu obtained her master of arts from Johns Hopkins University in 1996. She brings to our Board public company board experience as well as extensive financial and global market experience. |
Zili Shao Age 63 Director Since 2016 | ||
Zili Shao is the founder and chairman of MountVue Capital Management Co. Ltd. Mr. Shao also serves as an independent non-executive director of Bank of Montreal (China) Co., Ltd. and an independent member of the general and supervisory board of EDP – Energias de Portugal, S.A., a multinational energy company listed on the Euronext Lisbon Stock Exchange (stock code: EDP).Mr. Shao also served as co-chairman and partner at King & Wood Mallesons China from April 2015 to May 2017. From 2010 to 2015, Mr. Shao held various positions at JP Morgan Chase & Co. (“JP Morgan”), including roles such as chairman and chief executive officer of JP Morgan China and vice chairman of JP Morgan Asia Pacific. Prior to JP Morgan, he was a partner at Linklaters LLP, a leading international law firm, for 12 years. He acted as managing partner of Linklaters of Greater China and subsequently was appointed managing partner of the Asia Pacific region. Mr. Shao obtained his master’s degree in law from the University of Melbourne in 1994. Mr. Shao brings to our Board extensive professional experience in Asia and public company board and corporate governance experience. |
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William Wang Age 48 Director Since 2017 | ||
William Wang is one of the founding partners of Primavera. Prior to Primavera, Mr. Wang served as a managing director of Goldman Sachs Merchant Banking/Principal Investment Area, where he led significant successful investments in China for the group. Prior to that, Mr. Wang worked in the investment banking division and private equity group of China International Capital Corporation Limited. Mr. Wang currently serves as a director on the board of Geely Automobile Holdings Limited, a company listed on the Hong Kong Stock Exchange (stock code: 0175), and Sunlands Technology Group, a company listed on the New York Stock Exchange (NYSE: STG), in addition to directorships at Primavera’s portfolio companies. Mr. Wang obtained a master of management degree in management science and engineering from Shanghai Jiao Tong University in 2000. He brings to our Board deep knowledge and investment insights of the Chinese market. |
Min (Jenny) Zhang Age 49 Director Since 2021 | ||
Min (Jenny) Zhang held various leadership positions in Huazhu Group Limited, a multi-brand hotel group listed on both the Nasdaq Stock Market (NASDAQ: HTHT) and the Hong Kong Stock Exchange (stock code: 1179) from September 2007 to August 2021, including as vice-chairlady from July 2020 to August 2021, executive vice-chairlady from November 2019 to July 2020, chief executive officer from May 2015 to November 2019, president from January 2015 to May 2015, chief financial officer from March 2008 to May 2015, chief strategic officer from November 2013 to January 2015 and senior vice president of finance from September 2007 to February 2008. Ms. Zhang served as an independent director of LAIX Inc., an artificial intelligence company listed on the New York Stock Exchange (NYSE: LAIX), from May 2020 to October 2022. She served as an independent non-executive director of Genscript Biotech Corporation, a company listed on the Hong Kong Stock Exchange (stock code: 1548), from August 2015 to November 2018, and an independent director of OneSmart Education Group Limited, a company listed on the New York Stock Exchange (NYSE: ONE), from March 2018 to February 2020. Ms. Zhang received a master of business administration degree from Harvard Business School in 2003. Ms. Zhang brings to our Board leadership experience in a consumer-focused industry in China, extensive financial expertise and public company board experience. |
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Christina Xiaojing Zhu Age 50 | ||
Christina Xiaojing Zhu is the president and chief executive officer of Walmart China. Prior to joining Walmart Group in May 2020, Ms. Zhu served as the president of Fonterra Greater China, a global dairy exporter and milk processor, where she led Fonterra group’s businesses in mainland China, Hong Kong and Taiwan region, from August 2016 to December 2019, and served as a managing director and vice president from September 2011 to July 2016. Prior to joining Fonterra, Ms. Zhu served as a vice president of Honeywell International Inc., a NYSE-listed technology company, where she was responsible for strategy and development, from January 2005 to May 2008, and served as director for strategy and business development from February 2003 to January 2005. Prior to that, Ms. Zhu worked as an engagement manager of McKinsey & Company with a focus on serving financial institutions from 1999 to 2003. Ms. Zhu currently serves as a director of Dada Nexus Limited (NASDAQ: DADA), a platform of local on-demand retail and delivery in China listed on the Nasdaq Global Select Market. Ms. Zhu also serves as a non-voting observer of JD.com, Inc., an e-commerce company that is listed on the Nasdaq Stock Market (NASDAQ: JD) and the Hong Kong Stock Exchange (stock code: 9618). Ms. Zhu received a bachelor’s degree in western studies from Beijing Foreign Studies University and an MBA from Columbia Business School. Ms. Zhu will bring to our Board leadership, operational and digital experience in a customer-centric industry in China. |
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ITEM 2. Approval and Ratification of Independent Auditors
What am I voting on?
We are asking stockholders to approve and ratify the appointment of KPMG Huazhen LLP and KPMG as our independent auditors for U.S. financial reporting and Hong Kong financial reporting purposes, respectively, for the year 2023. KPMG Huazhen LLP has served as our independent auditor since 2016. KPMG has served as our independent auditor since 2020 after our listing on the Hong Kong Stock Exchange (KPMG Huazhen LLP and KPMG shall hereafter collectively referred as “KPMG”).
As part of its audit engagement process, the Audit Committee considers on at least an annual basis the engagement of independent auditors. In deciding to engage KPMG as independent auditors for 2023, the Audit Committee considered:
• | KPMG’s performance in 2022; |
• | KPMG’s independence; |
• | The depth and expertise of the KPMG’s audit teams, including their understanding of the Company’s industry, business, operations and systems, as well as accounting policies and processes; |
• | The appropriateness of KPMG’s fees; |
• | A consideration of KPMG’s known legal risks and significant proceedings that may impair its ability to perform the audit; and |
• | KPMG’s tenure as the Company’s independent auditors. |
KPMG rotates its lead audit engagement partner every five years. The Audit Committee is directly involved in the evaluation of the lead audit engagement partner to ensure that the he or she is appropriately qualified to lead the Company’s audit. After considering the criteria set forth above, the Audit Committee believes that retaining KPMG as the Company’s independent auditors is in the best interests of the Company and its stockholders.
Will a representative of KPMG attend the Annual Meeting?
Representatives of KPMG will attend the Annual Meeting, will have the opportunity to make a statement if they desire and will be available to respond to appropriate questions from stockholders.
What vote is required to approve this proposal?
Approval of this proposal requires the affirmative vote of a majority of shares present in person or represented by proxy and entitled to vote at the Annual Meeting. In the event this proposal is not approved, the Audit Committee will reconsider the selection of KPMG as the Company’s independent auditors.
The Audit Committee and the Board of Directors recommend that you vote FOR approval of this proposal.
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What were KPMG’s fees for audit and other services for 2022 and 2021?
The following table presents fees for professional services rendered by KPMG for the audit of the Company’s annual financial statements, and fees billed for audit-related services, tax services and all other services for 2022 and 2021. All KPMG services for 2022 and 2021 were approved in advance by the Audit Committee specifically or pursuant to procedures outlined below.
2022 | 2021 | |||||||
Audit fees(1) | $ | 2,856,814 | $ | 3,085,148 | ||||
Audit-related fees(2) | 39,858 | 10,741 | ||||||
Tax fees(3) | 30,603 | 37,766 | ||||||
All other fees | — | — | ||||||
|
| |||||||
TOTAL FEES | $ | 2,927,275 | $ | 3,133,655 | ||||
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(1) | Audit fees include fees for the audit of the annual consolidated financial statements, reviews of the interim condensed consolidated financial statements, and services related to statutory filings or engagements. |
(2) | Audit-related fees consist principally of fees for the attestation services related to certain employee benefit plans and key data as defined in the sustainability report of the Company. |
(3) | Tax fees consist principally of fees for tax filling assistance and tax advisory services. |
What is the Company’s policy regarding the approval of audit and non-audit services?
The Audit Committee has implemented a policy for the pre-approval of all audit and permitted non-audit services,
including tax services, proposed to be provided to the Company by its independent auditors. Under the policy, the Audit Committee may approve engagements on a case-by-case basis or pre-approve engagements on a categorical basis pursuant to the Audit Committee’s pre-approval policy. The Audit Committee may delegate pre-approval authority to one of its independent members and has currently delegated pre-approval authority up to certain amounts to its Chairperson.
In considering pre-approvals, the Audit Committee considers the nature, scope and fees of the service to be provided to the Company as well as the principles and guidance established by the SEC and the Public Company Accounting Oversight Board (“PCAOB”) with respect to auditor independence. Services as to which a general pre-approval has been granted on an annual basis are effective for the applicable year. Any proposed service for which the estimated fees would cause the total fees for that class of service to exceed the applicable estimated fee threshold requires specific approval by the Audit Committee or its delegate.
The Principal Accounting Officer monitors the performance of all services provided by the independent auditors and determines whether such services are in compliance with this policy. The Principal Accounting Officer reports periodically to the Audit Committee with respect to compliance with this policy and the status of outstanding engagements, including actual services provided by the independent auditors and associated fees, and must promptly report to the Chairperson of the Audit Committee any non-compliance (or attempted non-compliance) with this policy of which the Principal Accounting Officer becomes aware.
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ITEM 3. Advisory Vote on Named Executive Officer Compensation
What am I voting on?
In accordance with SEC rules, we are asking stockholders to approve, on a non-binding basis, the compensation of the Company’s named executive officers as disclosed in this proxy statement. This non-binding advisory vote is also known as the “Say on Pay” vote. This is not a vote on the Company’s general compensation policies or the compensation of the Board. At the 2022 annual meeting of the Company’s stockholders, approximately 89% of the votes cast by our stockholders were voted in approval of the compensation of our named executive officers as disclosed in the 2022 proxy statement.
Our performance-based executive compensation program is designed to attract, reward and retain the talented leaders necessary for our Company to succeed in the highly competitive market for talent, while maximizing stockholder returns. This approach has made our management team a key driver in the Company’s strong performance over both the long and short term. We believe that our compensation program has attracted and retained strong leaders, and is closely aligned with the interests of our stockholders.
In deciding how to vote on this proposal, we urge you to read the Compensation Discussion and Analysis section of this proxy statement, which discusses in detail how our
compensation policies and procedures operate and are designed to meet our compensation goals and how our Compensation Committee makes compensation decisions under our programs.
Accordingly, we ask our stockholders to vote in favor of the following resolution at the Annual Meeting:
“RESOLVED, that the compensation paid to the named executive officers, as disclosed in the Compensation Discussion and Analysis, the compensation tables and related materials included in the proxy statement, is hereby approved.”
What vote is required to approve this proposal?
Approval of this proposal requires the affirmative vote of a majority of shares present in person or represented by proxy and entitled to vote at the Annual Meeting. While this vote is advisory and non-binding on the Company, the Board of Directors and the Compensation Committee will review the voting results and consider stockholder concerns in its continuing evaluation of the Company’s compensation program.
The Board of Directors recommends that you vote FOR approval of this proposal.
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ITEM 4. Advisory Vote on the Frequency of the Advisory Vote on Named Executive Officer Compensation
What am I voting on?
In accordance with SEC rules, we are asking stockholders to determine, on a non-binding basis, whether the Say on Pay vote should occur every year, every two years or every three years. This non-binding advisory vote is also known as the “Say When on Pay” vote.
The Board believes that continuing to conduct an advisory Say on Pay vote every year is the best approach for the Company. This frequency will enable our stockholders to provide timely feedback on our executive compensation program based on the most recent information presented in our proxy statement.
What vote is required to approve this proposal?
Stockholders are not voting to approve or disapprove of the Board’s recommendation to hold the Say on Pay Vote
every year. Instead, stockholders may cast their vote in one of four manners with respect to this proposal: (1) one year; (2) two years; (3) three years; or (4) abstaining from voting on the proposal. The frequency with the most votes cast shall be the desired frequency of the stockholders of the Company. Although the vote is non-binding, we value continuing and constructive feedback from our stockholders on compensation and other important matters. The Board of Directors and the Compensation Committee will take into consideration the voting results when determining how often the Say on Pay vote should occur.
The Board of Directors recommends that you vote for “1 YEAR” as the frequency which the non-binding advisory vote to approve named executive officer compensation should be held.
34 | YUM CHINA– 2023 Proxy Statement |
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ITEM 5. Authorization to Issue Shares up to 20% of Outstanding Shares.Shares
Prior to the Primary Conversion Effective Date,voluntary conversion of our secondary listing status to a primary listing status on the HKEX, the Board’s authority includesincluded the ability to issue shares. Such authority is generally on par with other NYSE-listed U.S. companies. This authority is fundamental to our business and enables us to issue shares, including, if applicable, in connection with acquisitions and raising capital. However, under the Hong Kong Listing Rules, a primary-listed company must have authority from its stockholders to issue any shares, including shares that are part of the company’s authorized but unissued share capital, unless they are offered to existing stockholders pro-rata to their existing holdings. Granting the Board this authority is an annual, routine matter for primary-listed companies on the Hong Kong Stock Exchange and is consistent with market practice. Approval of this proposal will permit the Board the authority to authorize the Company to issue shares in compliance with the Hong Kong Listing Rules to the same extent already authorized under our Amended and Restated Certificate of Incorporation.Incorporation and the rules of the NYSE. We are not asking youstockholders to approve an increase in our authorized share capital orcapital.
In light of the dynamics of the China market in which it operates, the Company has always believed in maintaining a strong balance sheet and maximum financial flexibility. This authority will enable the Company to address business contingencies and capture growth opportunities, in accordance with its long-term strategic goals, in a timely manner. Consistent with its past practice, the Board will authorize future issuances of securities only if it determines that such issuances are in the best interests of the Company and its stockholders. The Board has no immediate plans to issue any shares pursuant to this authorization and we are not asking stockholders to approve a specific issuance of shares, norshares.
Furthermore, the Company does the Board have any current plansnot intend to issue any shares pursuantunder this authority at a discount of more than 10% to this authorization.
In addition, we note that, because the Company is listed on the NYSE, our stockholders continue to benefit from the protections afforded to them under the rules and regulations“benchmarked price” (as described in Rule 13.36(5) of the NYSE and SEC, including those rules that limit our ability to issue shares without stockholder approval in specified circumstances. Furthermore, we note that this authorization is required solely to comply with the Hong Kong Listing Rules andRules), which is not otherwise requiredmore restrictive than the maximum discount of 20% permitted under the Hong Kong Listing Rules.
Granting the Board this authority is an annual, routine matter for us to comply withprimary-listed companies on the rules of the NYSE.
Hong Kong Stock Exchange. In accordance with the Hong Kong ListingList-
ing Rules, it is a customary practice for primary-listed companies on the
Hong Kong Stock Exchange to seek stockholder authority to issue up to 20% of a company’s outstanding shares and for such authority to be effective until the next annual meeting of stockholders, unless otherwise earlier revoked or modified by a duly adopted resolution of the stockholders. June 26, 202325, 2024 is the thirteen-month13-month anniversary of the 2022 Annual Meeting and reflects the end date of the authorization, after which the authorization cannot extend. Therefore, consistent with this market practice, and as allowed under the Hong Kong Listing Rules, we are seeking approval for continuing authority for the Board to authorize the Company to issue common stock or securities convertible into common stock up to a maximum of 20% of our outstanding shares as of the date of the SpecialAnnual Meeting, for a period from the Primary Conversion Effective DateAnnual Meeting until the earlier of the 2023 Annual Meeting2024 annual meeting of Stockholdersstockholders or June 26, 2023.25, 2024. We expect to propose a renewal of this authorization at our 2023 Annual Meeting of Stockholders, and then annually thereafter.annually. Pursuant to this proposal, assuming for illustrative purposes that our outstanding shares remain unchanged from August 24, 2022March 27, 2023 to the date of the SpecialAnnual Meeting, the Company will be allowed to issue a maximum of [ ] shares of common stock.
The approval of this proposal is a condition for the Primary Conversion to become effective.
In the event that the Primary Conversion does not become effective, the Company and its Board will retain the ability to authorize and carry out stock issuances to the full extent permitted under applicable U.S. federal law, Delaware law, the NYSE listing standards, and the Company’s organizational documents notwithstanding the outcome of this vote.
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Accordingly, we ask our stockholders to vote in favor of the following resolution at the SpecialAnnual Meeting:
To“RESOLVED, to approve the Board’s continuing authority to approve the Company’s issuance of shares of its common stock or securities convertible into common stock in an amount not to exceed 20% of the total number of outstanding shares of common stock of the Company as of the date of the SpecialAnnual Meeting, effective from date of the Primary Conversion Effective DateAnnual Meeting until the earlier of the date the next annual meeting is held or June 26, 2023.25, 2024.”
For clarity, this authority will include the authority to issue securities convertible into shares of common stock, or options, warrants or similar rights to subscribe for shares of common stock or such convertible securities of the Company and to make or grant offers, agreements
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and/or options (including bonds, warrants and debentures convertible into shares of common stock), subject to the limitations described in the resolution set forth above.
What vote is required to approve this proposal?
Approval of this proposal requires the affirmative vote of a majority of shares present via webcastin person or represented by proxy and entitled to vote at the SpecialAnnual Meeting.
The Board of Directors recommends that stockholdersyou vote FOR the approval of this proposal.
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ITEM 2.6. Authorization to Repurchase Shares up to 10% of Outstanding Shares.Shares
This section serves as a reference to the explanatory statement pursuant to Rule 10.06(1)(b) of the Hong Kong Listing Rules to provide information for our stockholders to make a reasonably informed decision on whether to vote for or against the resolution with respect to the authorization to repurchase shares to be proposed at the SpecialAnnual Meeting.
We have historically used share repurchases as a means of returning cash to stockholders. The Board believes that, after we becomebecame a primary-listed company on the Hong Kong Stock Exchange, it is in the best interests of the Company and our stockholders to continue have a general authority from our stockholders to enable our Company to purchase shares of common stock in the markets. Further, the Company prioritizes the equality of our stockholders, regardless of the exchange on which the shares they hold trade. After we becomebecame a primary-listed company on the Hong Kong Stock Exchange, our goal is to maintain that priority and ensure that our stockholders holding our shares that trade on the Hong Kong Stock Exchange are also allowed the benefit of our share repurchase program.
The Company first adopted a share repurchase program in the U.S. in 2017 (the “U.S. Repurchase Program”) and has increased the authorization thereunder from time to time. The Company has also adopted plans in compliance with Rule 10b5-1 and/or Rule 10b-18 of the Securities Exchange Act of 1934 (the “Exchange Act”) to effect repurchases under the U.S. Repurchase Program. After we becomebecame a primary-listed company on the Hong Kong Stock Exchange, we intend to carrycarried on the U.S. Repurchase Program. It isProgram, and we also anticipated that we will adoptadopted a share repurchase program in Hong Kong which is analogous to the U.S. Repurchase Program after the Primary Conversion.Program.
Under the Hong Kong Listing Rules, a primary-listed company must obtain authority from its stockholders to repurchase its shares on the Hong Kong Stock Exchange if it wishes to conduct share repurchases on the Hong Kong Stock Exchange. Granting the Company this authority is a routine matter for primary-listed companies on the Hong Kong Stock Exchange and is consistent with
market practice. After we become a primary-listed company on the Hong Kong Stock Exchange, we expect to propose a renewal of this authorization during our 2023 Annual Meeting of Stockholders and annually thereafter. Without this authority, the Company’s
ability to repurchase shares would be limited to the repurchase of shares that trade on the NYSE and would not include repurchases on the Hong Kong Stock Exchange. Granting the Company this authority will ensure continuous parity between investors who hold our shares that trade on the NYSE and investors that hold our shares that trade on the Hong Kong Stock Exchange. Any repurchases made in Hong Kong or the United States will reduce the available authority under the repurchase mandate and the repurchase authorization.
In connection with the authorizations established by the Board regarding our share repurchase programs, these repurchases would be made only at price levels that the Company would consider to be in the best interests of the stockholders generally, after taking into account the Company’s overall financial position. Our Board of Directors has authorized an aggregate of $2.4 billion for our share repurchase program, including its most recent increase in authorization in March 2022. As of June 30,December 31, 2022, approximately $1.2 billion remained available under that program. As a Delaware corporation, we are bound by the requirements the Delaware General Corporation Law, which prohibits a corporation from purchasing its shares of capital stock when the purchase would cause any impairment of our capital, as well as applicable SEC and NYSE requirements.
Share Capital
As of August 24, 2022,March 27, 2023, the total number of outstanding shares of common stock of the Company was [ ]. Pursuant to this proposal, and assuming for illustrative purposes that our outstanding shares remain unchanged from August 24, 2022March 27, 2023 to the date of the SpecialAnnual Meeting, we are seeking continuing authority to repurchase up to a maximum of [ ] shares of common stock, representing 10% of our outstanding shares as of the date
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of the SpecialAnnual Meeting. The authority will be effective for a period from the Primary Conversion Effective DateAnnual Meeting until the earlier of the 2023 Annual Meeting2024 annual meeting of Stockholdersstockholders or June 26, 2023,25, 2024, unless earlier revoked or modified by a duly adopted resolution of the
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stockholders. As noted above, June 26, 202325, 2024 is the thirteen-month13-month anniversary of the 2022 Annual Meeting and reflects the end date of the authorization, after which the authorization cannot extend.
Funding of Repurchase
The repurchases may depend on market conditions and funding arrangements at the time and will be made only when the Company believes that such repurchases will benefit the Company and our stockholders. Repurchases of shares of common stock will be funded out of funds legally available for such purposes in accordance with the Company’s Amended and Restated Bylaws, the Hong Kong Listing Rules, applicable U.S. federal law, Delaware law, the NYSE listing standards, and other applicable laws and regulations in U.S. and Hong Kong.
Impact of Repurchases
The repurchase of common stock pursuant to this proposal may have a material adverse impact on the working capital or leverage of the Company as compared with the position as at June 30,December 31, 2022 in the event that the proposed repurchases were to be carried out in full at any time during proposed repurchase period. However, our directors are subject to fiduciary duties to the Company and are bound by the requirements the State of Delaware General Corporation Law, which prohibits a corporation from purchasing its shares of capital stock when the purchase would cause any impairment of our capital.
The Code on Takeovers and Mergers (the“Takeovers “Takeovers Code”)
If, as a result of a repurchase pursuant to the authorization to repurchase shares, a stockholder’s proportionate interest in the voting rights of our Company increases, such increase will be treated as an acquisition of voting rights for the purposes of the Takeovers Code. Accordingly, a stockholder, or a group of stockholders acting in concert (within the meaning under the Takeovers Code), depend-
ingdepending on the level of increase in the stockholder’s interest, could obtain or consolidate control of our Company and thereby become obliged to make a mandatory offer in accordance with Rule 26 of the Takeovers Code.
As of August 24, 2022,March 27, 2023, to the best knowledge and belief of our Board of Directors, our largest stockholder beneficially owned 40,727,617[ ] shares of common stock, representing approximately [ ]% of our outstanding shares, based on Amendment No. 34 to the Schedule 13G filed on February 10, 20222023 with the SEC by the stockholder. In the event that our Board of Directors should exercise in full the authorization to repurchase shares, and the shareholding of our largest stockholder remains the same, the beneficial ownership of our largest stockholder will be increased to approximately [ ]% of our outstanding shares.
To the best knowledge and belief of our Board of Directors, such increase would not give rise to an obligation to make a mandatory offer under the Takeovers Code. Our Board of Directors has no present intention to repurchase the shares of common stock to the extent that will trigger the obligations under the Takeovers Code for our largest stockholder to make a mandatory offer. Our Board of Directors is not aware of any other consequences which may arise under the Takeovers Code as a result of a repurchase pursuant to the authorization to repurchase shares. The Hong Kong Listing Rules prohibit a company from buying back shares on the Hong Kong Stock Exchange if the result of the repurchases would be that less than 25% (or such other prescribed minimum percentage as determined by the Hong Kong Stock Exchange) of our outstanding shares would be in public hands. Our Board of Directors does not propose to repurchase shares which would result in less than the prescribed minimum percentage of shares of common stock in public hands.
Market Prices of Shares
This section includes information required to be provided pursuant to Rule 10.06(1)(b) of the Hong Kong Listing Rules. While our shares are primarydual-primary listed on the NYSE and HKEX, the information set forth below relates exclusively to our secondary listing on the Hong Kong Stock Exchange and is therefore provided in Hong Kong dollars. The below values do not represent trading prices of our shares on the NYSE.
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The shares ofOur common stock werewas listed on the Hong Kong Stock Exchange on September 10, 2020. The following table sets forth the highest and lowest closing prices at which the shares of common stock traded on the Hong Kong Stock Exchange during each month duringof the previous twelve12 months and until July 2022:March 2023:
Yum China’s Highest and Lowest Monthly Close Price (July 2021(March 2022 – July 2022)March 2023)
Share price | Share price | |||||||||||||||
Highest | Lowest | Highest | Lowest | |||||||||||||
(HK$) | (HK$) | (HK$) | (HK$) | |||||||||||||
2021 | ||||||||||||||||
2022 | ||||||||||||||||
March | 416.4 | 290.0 | ||||||||||||||
April | 355.4 | 313.2 | ||||||||||||||
May | 360.2 | 292.8 | ||||||||||||||
June | 385.2 | 320.4 | ||||||||||||||
July | 514.5 | 467.8 | 392.2 | 358.2 | ||||||||||||
August | 480.2 | 453.0 | 401.4 | 365.6 | ||||||||||||
September | 498.2 | 416.4 | 417 | 367 | ||||||||||||
October | 473.8 | 450.0 | 395 | 312.8 | ||||||||||||
November | 449.8 | 390.2 | 431.4 | 342.6 | ||||||||||||
December | 407.0 | 366.6 | 456.6 | 421 | ||||||||||||
2022 | ||||||||||||||||
2023 | ||||||||||||||||
January | 390.4 | 348.8 | 494 | 433.6 | ||||||||||||
February | 412.8 | 347.4 | 491.6 | 454.8 | ||||||||||||
March | 416.4 | 290.0 | [ ] | [ ] | ||||||||||||
April | 355.4 | 313.2 | ||||||||||||||
May | 360.2 | 292.8 | ||||||||||||||
June | 385.2 | 320.4 | ||||||||||||||
July | 392.2 | 358.2 |
Undertaking
None of our directors, nor, to the best of our directors’ knowledge after having made all reasonable inquiries, any of their close associates (as defined in the Hong Kong Listing Rules), have any present intention, in the event that the authorization to repurchase shares is approved, to sell any shares of common stock to our Company.
No core connected person (as defined in the Hong Kong Listing Rules) has notified our Company that he/she/it has a present intention to sell shares of common stock to our Company pursuant to the authority being sought in this proposal, if the authorization to repurchase shares is exercised.
Our directors have undertaken to the Hong Kong Stock Exchange that, so far as the same may be applicable, they will exercise the authorization to repurchase shares in accordance with the Hong Kong Listing Rules and the applicable laws of the Delaware (being the jurisdiction of the Company’s incorporation).
Repurchases of Shares
For the year ended December 31, 2021 and the six months ended June 30, 2022, we repurchased approximately 1.3 million shares and 910.5 million shares of our common stock in open market transactions on the New York Stock Exchange for a total cost of approximately $75 million and $400 million, respectively.$466 million.
The approvalDetails of this proposal is a condition forshares repurchased on the Primary Conversion to become effective.New York Stock Exchange in the previous six months are as follows:
In the event that the Primary Conversion does not become effective, the Company and its Board will retain the ability to authorize and carry out stock repurchases to the full extent permitted under applicable U.S. federal law, Delaware law, the NYSE listing standards, and the Company’s organizational documents, notwithstanding the outcome of this vote.
Price paid per share | ||||||||
Highest | Lowest | |||||||
(US$) | (US$) | |||||||
2022 | ||||||||
September | 50.00 | 46.13 | ||||||
October | 50.00 | 38.76 | ||||||
November | 50.00 | 42.48 | ||||||
2023 | ||||||||
January | 62.43 | 55.81 | ||||||
February | 63.01 | 56.97 | ||||||
March | [ ] | [ | ] |
Accordingly, we ask our stockholders to vote in favor of the following resolution at the SpecialAnnual Meeting:
To“RESOLVED, to approve the Board’s continuing authority to approve the Company’s repurchase of shares of its common stock in an amount not to exceed 10% of the total number of outstanding shares of common stock of the Company as of the date of the SpecialAnnual Meeting, effective from date of the Primary Conversion Effective DateAnnual Meeting until the earlier of the date the next annual meeting is held or June 26, 2023.25, 2024.”
What vote is required to approve this proposal?
Approval of this proposal requires the affirmative vote of a majority of shares present via webcastin person or represented by proxy and entitled to vote at the SpecialAnnual Meeting.
The Board of Directors recommends that stockholdersyou vote FOR the approval of this proposal.
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ITEM 3. Approval of Yum China Holdings, Inc. 2022 Long Term Incentive Plan.
On August 15, 2022, the Board approved the Yum China Holdings, Inc. 2022 Long Term Incentive Plan (the “2022 LTIP”), subject to approval by our stockholders at the Special Meeting. Following approval by our stockholders at the Special Meeting, the 2022 LTIP will become effective upon consummation of the Primary Conversionin accordance with its terms.
If the 2022 LTIP is approved by stockholders, the 2022 LTIP will replace the Yum China Holdings, Inc. Long Term Incentive Plan (the “2016 LTIP”), which was adopted in connection with our spin-off from Yum! Brands, Inc. (“YUM”). No new awards will be granted under the 2016 LTIP after the 2022 LTIP becomes effective, but the 2016 LTIP will continue to govern awards granted under the 2016 LTIP prior to the effectiveness of the 2022 LTIP. After the 2022 LTIP becomes effective upon consummation of the Primary Conversion, we will be able to make awards of long-term equity incentives under the 2022 LTIP, which we believe are critical for attracting, motivating, rewarding and retaining a talented team who will contribute to our success.
If the 2022 LTIP is not approved by our stockholders or the Primary Conversation does not become effective, the Company will continue to operate the 2016 LTIP pursuant to its current provisions and grant awards under the 2016 LTIP.
The 2022 LTIP is largely based on the 2016 LTIP, but with updates to conform to the Hong Kong Listing Rules, to delete provisions relating to our spin-off that are no longer applicable and to make certain other administrative changes.The 2022 LTIP will be subject to the requirements under Chapter 17 of the Hong Kong Listing Rules, as amended, supplemented or otherwise modified from time to time.
Equity Grant Practices
We attempt to manage our long-term shareholder dilution by limiting the number of equity incentive awards we grant annually. The Compensation Committee carefully monitors our annual burn rate, total dilution, and equity expense in order to maximize shareholder value by granting only the number of equity incentive awards that it believes is necessary to attract, reward, and retain employees.
As of August 24, 2022, there were [ ] shares of Company common stock subject to restricted stock unit (“RSU”) and performance stock unit (“PSU”) awards granted and outstanding under the 2016 LTIP (assuming achievement of the target vesting level for the outstanding PSUs). Under the terms of the award agreements, the vesting levels for PSU awards may range from 0% to 200% of target (or, in some cases, 240% of target), depending on achievement against the applicable performance goals with respect to such awards. As of August 24, 2022, there were [ ] shares of Company common stock subject to stock options and stock appreciation rights (“SARs”) outstanding under the 2016 LTIP. As of that date, the weighted average base price of our outstanding SARs and stock options was $[ ], and the weighted average remaining contractual term for the outstanding SARs and stock options was [ ] years. As of August 24, 2022, there were [ ] shares of Company common stock that remained available for future issuances under the 2016 LTIP (assuming outstanding performance awards are counted at the maximum vesting level and applying the two-for-one fungible share ratio applicable to RSU and PSU awards). If our stockholders approve the 2022 LTIP, then after the 2022 LTIP becomes effective upon consummation of the Primary Conversion, we will not make any additional awards under the 2016 LTIP.
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Burn rate is a measure of the number of shares subject to equity awards that we grant annually, which helps indicate the life expectancy of our equity plans and is a measure of stockholder dilution. We determine our burn rate
by dividing the aggregate number of shares subject to awards granted during the year by the weighted average number of shares outstanding during the year. Our burn rate for the past three fiscal years has been as follows:
Full Value Awards | | Weighted Average Number of Ordinary |
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SARs Granted | RSUs Granted | PSUs Granted(1) | Direct Stock Granted | SARs + Full Value Awards | Burn Rate | |||||||||||||||||||||||
2021 | 1,171,030 | 460,785 | 135,241 | 31,182 | 1,798,238 | 422,540,478 | 0.43 | % | ||||||||||||||||||||
2020 | 1,313,547 | 103,913 | 1,110,091 | 54,757 | 2,582,308 | 389,907,587 | 0.66 | % | ||||||||||||||||||||
2019 | 1,468,569 | 284,076 | 47,700 | 60,419 | 1,860,764 | 377,361,406 | 0.49 | % |
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Our three-year average burn rate is 0.53%. Applying the two-for-one fungible share ratio applicable to full value awards granted under the 2016 LTIP would result in a three-year average burn rate of 0.72%.
Certain Corporate Governance Features of the 2022 LTIP
The following features of the 2022 LTIP are designed to reinforce alignment between the equity compensation arrangements awarded pursuant to the 2022 LTIP and our stockholders’ interests:
Awards will be subject to a one-year minimum vesting period, subject to limited exceptions set forth in the 2022 LTIP as described below and the Committee’s (as defined below) ability to provide for accelerated exercisability or vesting of any award in cases of retirement, separation, retention, death, disability or a change in control, as set forth in the terms of the award agreement or otherwise;
Full Value Awards (as defined below) reduce the available share pool on a two-for-one basis, while stock options and SARs reduce the share reserve on a one-for-one basis;
No discounting of stock options or SARs;
No repricing or replacement of underwater stock options or SARs without stockholder approval;
No dividend equivalents on stock options or SARs;
No dividends or dividend equivalents paid on unearned awards;
Annual non-employee director compensation limit;
During any five calendar-year period, no individual may receive stock options and SARs with respect to more than 9,000,000 shares or Full Value Awards with respect to more than 3,000,000 shares;
No “liberal” change in control definition under the 2022 LTIP;
No automatic single trigger vesting upon a change in control; and
Awards granted under the 2022 LTIP will be, unless otherwise specified by the Committee, subject to our compensation recovery, clawback and recoupment policies as in effect from time to time.
Purposes of the 2022 LTIP
Equity-based compensation is a significant component of our compensation program and the 2022 LTIP is intended to serve the following purposes:
Attract and retain persons eligible to participate in the 2022 LTIP;
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Motivate participants, by means of appropriate incentives, to achieve long-range goals;
Provide incentive compensation opportunities that are competitive with those of other similar companies; and
Align the interests of participants with those of the Company’s stockholders.
Under the 2022 LTIP, the Company may grant:
Non-qualified stock options;
Incentive stock options (within the meaning of Section 422 of the Internal Revenue Code);
SARs;
“Full Value Awards” (including restricted stock, RSUs, performance shares and performance units); and
Cash incentive awards.
Description of the 2022 LTIP
The following description is qualified in its entirety by reference to the plan document, a copy of which is attached as Appendix A and incorporated into this proxy statement by reference.
Administration
The 2022 LTIP is administered by a “Committee” selected by the Board consisting of two or more non-employee members of the Board or, if no Committee is selected or for any other reason determined by the Board, the Board may take any action under the 2022 LTIP that would otherwise be the responsibility of the Committee. The Compensation Committee currently serves as the “Committee” under the 2016 LTIP and is expected to serve as the “Committee” under the 2022 LTIP. The members of the Compensation Committee meet the independence requirements of the NYSE.
Subject to the express provisions of the 2022 LTIP, the Committee has the authority and discretion to, among other items, (a) select from among the eligible individuals
those persons who will receive awards under the 2022 LTIP, (b) determine the time or times of receipt, (c) determine the types of awards and the number of shares covered by the awards, (d) establish the terms, conditions, performance targets, restrictions and other provisions of such awards, and, subject to the terms and conditions of the 2022 LTIP, cancel or suspend awards or accelerate the exercisability or vesting of any award, (e) to the extent that the Committee determines that the restrictions imposed by the 2022 LTIP preclude the achievement of the material purposes of the awards in jurisdictions outside the United States, modify those restrictions as the Committee determines to be necessary or appropriate to conform to applicable requirements or practices of jurisdictions outside of the United States, (f) conclusively interpret the 2022 LTIP, (g) establish, amend and rescind any rules and regulations relating to the 2022 LTIP, (h) determine the terms and provisions of any award agreement made pursuant to the 2022 LTIP and (i) make all other determinations that may be necessary or advisable for the administration of the 2022 LTIP.
Except to the extent prohibited by applicable law or the applicable rules of a stock exchange on which shares of the Company’s common stock are listed, the Committee may allocate all or any portion of its responsibilities and powers to any one or more of its members and may delegate all or any part of its responsibilities and powers to any person or persons selected by it.
Available Shares
Subject to the capitalization adjustment provisions included in the 2022 LTIP, the maximum number of shares of Company common stock that may be delivered to participants and their beneficiaries in respect of all awards to be granted under the 2022 LTIP will be the lower of (i) 32,000,000 shares and (ii) 10% of the total number of shares of Company common stock outstanding as of the date of the Special Meeting (the “10% Limit”), reduced by the number of shares (or, with respect to Full Value Awards, two times the number of shares) subject to any grants that occur under the 2016 LTIP between August 24, 2022 and the effectiveness of the 2022 LTIP. The number of shares that may be delivered to participants and their beneficiaries under the 2022 LTIP may be increased by our stockholders in a general meeting after
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three years from the date of their approval of the previous increase (or the date of the adoption of the 2022 LTIP). Additional increases within any three-year period must be approved by our independent stockholders in a manner compliant with Chapter 17 of the Hong Kong Listing Rules in force from time to time. Any increase to the share limit under the 2022 LTIP may not result in the number of shares of Company common stock that may be delivered to participants and their beneficiaries under the 2022 LTIP exceeding 10% of the total number of shares outstanding as of the date our stockholders approve such increase. On the record date, the closing sales price per share of Company common stock as reported on the NYSE was $[]. Shares available under the 2022 LTIP will be authorized but unissued shares.
To the extent shares subject to an award granted under the 2022 LTIP were not issued or delivered by reason of (i) lapse of awards due to termination, expiration or forfeiture of such award, (ii) the settlement of such award in cash, or (iii) the withholding of such shares by the Company to satisfy the applicable tax withholding obligation or exercise price (by way of net settlement or net exercise), in each case, then such shares will not reduce the number of shares remaining available for issuance under the 2022 LTIP. Only the shares subject to a stock-settled SAR that are issued to a participant upon exercise of such stock-settled SAR will reduce the number of shares remaining available for issuance under the 2022 LTIP. In addition, subject to the 10% Limit, (x) shares withheld by the Company after August 24, 2022 to pay the withholding taxes related to an outstanding award granted under the 2016 LTIP and (y) shares subject to awards granted under the 2016 LTIP between August 24, 2022 and the date of the Special Meeting which are not delivered to a participant or beneficiary because they have lapsed in accordance with the terms of the 2016 LTIP, including due to forfeiture, termination, or expiration of the award, in each case, will also become available for grant under the 2022 LTIP.
The 2022 LTIP uses a fungible share counting method, such that Full Value Awards reduce the 2022 LTIP’s share reserve at a ratio of two shares for every share subject to the Full Value Award and stock options and SARs will reduce the share reserve on a one-for-one basis.
Other Share Limits
Under the terms of the 2022 LTIP, (i) the number of shares initially available for grants of incentive stock options under the 2022 LTIP equals 32,000,000, subject to any lower limits imposed under the Hong Kong Listing Rules or the rules of the NYSE; (ii) the maximum number of shares that may be covered by stock options or SARs granted to any one individual during any five calendar-year period will be 9,000,000; (iii) for Full Value Awards, no more than 3,000,000 shares may be subject to Full Value Awards granted to any one individual during any five-calendar-year period; and (iv) a non-employee director may not be granted during any calendar year an award or awards having a value determined on the grant date in excess of $1,500,000.
In addition, to the extent any grant of an award to any one individual would result in the shares issued or to be issued in respect of all awards granted to such individual (excluding any awards that have been forfeited or lapsed in accordance with the terms of the 2022 LTIP) in the 12-month period up to and including the date of such grant representing in the aggregate more than the limit set out in the Hong Kong Listing Rules (currently 1% of the shares of the Company issued as of such date), then such grant must be separately approved by our stockholders in accordance with the Hong Kong Listing Rules. Pursuant to the Hong Kong Listing Rules, if (i) a grant of an award (excluding options and SARs) (the “Other Equity Awards”) to any one of our directors whose role is executive in nature or our Chief Executive Officer or any of their associates would result in the shares issued and the shares to be issued in respect of all Other Equity Awards granted (excluding the awards lapsed in accordance with the 2022 LTIP) in the 12-month period up to and including the date of such grant representing in aggregate over 0.1% of the total issued shares on the date of such grant, or (ii) a grant of an award (including options, SARs and any other types of share awards) to any one of our independent directors or substantial shareholder of the Company or any of their associates would result in the shares issued and the shares to be issued in respect of all awards (excluding the awards lapsed in accordance with the 2022 LTIP) in the 12-month period up to and including the date of such grant representing in aggregate over 0.1% of the total issued shares on
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the date of such grant, such further grant exceeding the 0.1% limit must be approved by our stockholders.
Change in Control
Unless otherwise provided in the 2022 LTIP or an award agreement, in the event a participant’s employment is involuntarily terminated by the Company other than for cause on or within two years following a change in control of the Company, then (i) all outstanding options (regardless of whether in tandem with SARs) will become fully exercisable, (ii) all outstanding SARs (regardless of whether in tandem with options) will become fully exercisable, and (iii) all Full Value Awards will become fully vested and the Committee will determine the extent to which any applicable performance conditions have been met in accordance with the terms of the 2022 LTIP and the applicable award agreement. In no event will the application of this provision cause the vesting period of any award held by a participant who is not an Employee Participant (as defined below) to be less than 12 months.
Under the terms of the 2022 LTIP, a change in control is generally defined as (i) a change in our Board resulting in the incumbent directors ceasing to constitute at least a majority of our Board, (ii) certain acquisitions of 35% or more of the Company’s then outstanding securities eligible to vote for the election of our Board, or (iii) the consummation of certain mergers or consolidations involving the Company or any of its subsidiaries.
No Repricing
Other than pursuant to the adjustment provisions described below or as approved by the Company’s stockholders, the exercise price for any outstanding option or SAR may not be decreased and no outstanding option or SAR may be surrendered to the Company in exchange for a replacement option or SAR with a lower exercise price or a Full Value Award. Except as approved by the Company’s stockholders, no option or SAR may be surrendered to the Company in consideration for a cash payment if, at the time of such surrender, the exercise price of the option or SAR is greater than the then current fair market value of a share of Company common stock.
Restrictions, Misconduct and Recoupment
The Committee, in its discretion, may impose such restrictions on shares of stock acquired pursuant to the 2022 LTIP, whether pursuant to the exercise of a stock option or SAR, settlement of a Full Value Award or otherwise, as it determines to be desirable, including restrictions relating to disposition of the shares and forfeiture restrictions based on service, performance, stock ownership by the participant, conformity with our recoupment, compensation recovery or clawback policies and such other factors as the Committee determines to be appropriate.
If the Committee determines that a present or former employee has (a) used for profit or disclosed to unauthorized persons, confidential or trade secrets of the Company or our subsidiaries, (b) breached any contract with or violated any fiduciary obligation to the Company or our subsidiaries, or (c) engaged in any conduct which the Committee determines is injurious to us or our subsidiaries, the Committee may cause that employee to forfeit his or her outstanding awards under the 2022 LTIP. This provision does not apply during any period where there is a potential change in control in effect or following a change in control.
Effective Date, Termination and Amendment
The 2022 LTIP will become effective upon consummation of the Primary Conversionand will terminate on the ten-year anniversary of its approval by our stockholders. Subject to applicable law and the listing rules of the NYSE and the Hong Kong Stock Exchange, the Board may, at any time, amend or terminate the 2022 LTIP (and the Committee may amend any award agreement). However, no amendment or termination of the 2022 LTIP or amendment of any award agreement may, in the absence of written consent to the change by the affected participant or beneficiary, if applicable, adversely affect in any material way the rights of any participant or beneficiary under any award granted under the 2022 LTIP prior to the date of such amendment or termination, unless the Committee expressly reserved the right to do so at the time the award was granted. Adjustments pursuant to corporate transactions and restructurings are not subject to the foregoing limitations. In addition, all material amendments to the 2022 LTIP, including but not limited to amendments to
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the provisions of the 2022 LTIP that prohibit the repricing of stock options and SARs, amendments expanding the group of eligible individuals, or amendments increasing the aggregate number of shares reserved under the 2022 LTIP, the shares that may be issued in the form of incentive stock options, the individual limits on awards and the limitations on awards, will not be effective unless approved by our stockholders, in each case, to the extent required by applicable law. In addition, no amendment will be made to the 2022 LTIP, applicable award agreements or the terms of award granted under the 2022 LTIP without the approval of our stockholders, the Board, the independent directors of the Board or the Committee, as applicable, if such approval is required by law or the rules of any stock exchange on which shares of the Company common stock are listed, including the rules of the NYSE and the Hong Kong Stock Exchange. Further, the amended Plan or the amended award agreement must still comply with the relevant applicable laws or applicable rules of any stock exchange on which the Stock is listed. Upon termination of the 2022 LTIP, no further award will be offered but the provisions of the 2022 LTIP will remain in full force and effect with respect to awards granted prior to the termination of the 2022 LTIP, and termination of the 2022 LTIP will not affect the terms or conditions of any award granted prior to termination. Awards granted prior to such termination will continue to be valid and exercisable in accordance with the 2022 LTIP.
Eligibility
Participants in the 2022 LTIP will consist of such officers, directors or other employees of the Company, its subsidiaries or its associated companies in which the Company has an equity interest and persons who are expected to become officers, employees or directors of the Company or a subsidiary or an associated company in which the Company has an equity interest, as may be selected by the Committee. Grants of awards under the 2022 LTIP will be made based on the basis of the contributions of participants to the development and growth of the Company, as determined by the Company and, except as required by applicable law, the participant is not required to pay any amount in order to apply or accept an award.
As of July 31, 2022, approximately 400,000 employees, including ten executive officers, and nine non-employee
directors would be eligible to participate in the 2022 LTIP if selected by the Committee.
Performance Measures
Performance measures used with respect to performance-based awards granted under the 2022 LTIP may include any one or more of the following corporate-wide or subsidiary, division, operating unit, line of business, project, geographic or individual measures: cash flow; earnings; earnings per share; market value added or economic value added; profits; return on assets; return on equity; return on investment; sales; revenues; stock price; total shareholder return; customer satisfaction metrics; restaurant unit development; and such other goals as the Committee may determine whether or not listed in the 2022 LTIP, or any combination of the foregoing.
Minimum Vesting Conditions
Notwithstanding any other provision of the 2022 LTIP to the contrary, awards granted under the 2022 LTIP (other than cash-based awards) will vest no earlier than the first anniversary of the date on which the award is granted; provided, that the following awards granted to directors, officers or other employees of the Company or any of its subsidiaries and persons who are expected to become directors, officers or other employees of the Company or any of its subsidiaries (“Employee Participants”) will not be subject to the foregoing minimum vesting requirement: any (i) substitute awards granted in connection with awards that are assumed, converted or substituted pursuant to a merger, acquisition or similar transaction entered into by the Company or any of its subsidiaries, (ii) shares subject to a minimum holding period of 12 months which are delivered to an Employee Participant under his or her compensation arrangements with the Company (including shares of Company common stock delivered to non-employee directors in respect of their annual retainers), (iii) awards to non-employee directors that vest on earlier of the one-year anniversary of the date of grant and the next annual meeting of stockholders which is at least 50 weeks after the immediately preceding year’s annual meeting, and (iv) additional awards the Committee may grant, up to a maximum of five percent (5%) of the available share reserve authorized for issuance under the 2022 LTIP (subject to adjustment under the corporate
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capitalization provisions under the 2022 LTIP) in respect of (A) sign-on or make-whole grants to new Employee Participants, (B) grants of awards with performance-based vesting conditions, (C) grants of awards that are made in batches for administrative or compliance reasons, (D) grants of awards that vest evenly over a period of 12 months or more and (E) grants of awards with a total vesting and holding period of more than 12 months.
The Board and the Committee believe that the types of awards described in clauses (i) to (iv) in the previous paragraph are appropriate and align with the purposes of the 2022 LTIP (i.e., to attract and retain individuals to the Company, motivate performance, provide competitive incentive opportunities and align the interests of participants with those of our stockholders). In clause (i), in the context of an acquisition of a target, the transaction may involve the assumption of equity awards granted to the target’s employees. Because the equity awards with respect to the target would represent a contractual arrangement between the target and the participant, the Company would not be able to unilaterally change the terms in a way that would be adverse to the interests of the participant. As such, the Company needs flexibility to grant equity awards with vesting schedules of less than one year to the extent the corresponding award of the target had a vesting schedule of less than one year. In clause (ii), the equity granted would not be a new compensation arrangement but would rather be a settlement of compensation that had already been earned by the participant. To require the Company to include an additional vesting condition of at least 12 months would impair the Company’s ability to stock-settle fully earned awards when the circumstances warranted it and would be unfair to the participants who had already earned such retainer or payment. In the case of awards described in clause (iii), the Committee believes that such awards are appropriate and align with the purposes of the 2022 LTIP as such grants would coincide with the directors’ term in office generally. The exception in clause (iii) would allow the award to vest if the next annual meeting at which directors are elected falls short of the 12-month anniversary of the date of grant, which happens on occasion. In such instance, any director that does not stand for re-election would still vest in his/her award since they served the full term, provided that the annual meeting occurs at least 50 weeks following the prior
annual meeting. Clauses (iv)(A)-(iv)(E) provide the Board and the Committee with the flexibility to grant awards from a limited pool of shares. Sign-on and make-whole grants assist the Company in attracting key talent; and awards with performance-based vesting conditions align the interests of participants with those of our stockholders and provide competitive incentive compensation opportunities. The 12-month minimum vesting requirement does not apply to the Committee’s discretion to provide for accelerated exercisability or vesting of any award in cases of retirement, separation, retention arrangements, death, disability or a change in control, to the extent set forth in the terms of the award agreement or otherwise.The Committee believes that its ability to provide for the accelerated exercisability or vesting of an award in such cases allows it to attract and retain individuals to provide services to the Company and its subsidiaries, and to provide for succession planning and the effective transition of employee responsibilities.
Stock Options and SARs
The 2022 LTIP provides for the grant of stock options and SARs. A SAR entitles the holder to receive upon exercise (subject to withholding taxes) cash or shares of Company common stock with an aggregate value equal to the difference between the fair market value of the shares of Company common stock on the exercise date and the exercise price of the SAR.
The Committee will determine the conditions to the exercisability of each option and SAR. Each option and SAR will be exercisable for no more than ten (10) years after its date of grant. Except in the case of substitute awards granted in connection with a corporate transaction (subject to approval, waiver, confirmation or otherwise as applicable from the Hong Kong Stock Exchange), the exercise price of an option or SAR will not be less than the higher of (i) the fair market value of a share of Company common stock on the date of grant (which must be a NYSE trading day) and (ii) the average fair market value of a share of Company common stock for the five NYSE trading days immediately preceding the date of grant (or, if greater, the par value of a share of Company common stock on such date(s)).
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The exercise price of each option or SAR will be established or determined by a method established by the Committee at the time of grant, subject to the restrictions described above.
Notwithstanding anything in the award agreement to the contrary, the holder of an option or SAR will not be entitled to receive dividend equivalents with respect to the shares of Company common stock subject to such option or SAR.
Full Value Awards and Cash Incentive Awards
A “Full Value Award” is a grant of one or more shares of Company common stock or a right to receive one or more shares of Company common stock in the future (including restricted stock, restricted stock units, performance shares and performance units) that is contingent on continuing service, the achievement of performance objectives during a specified performance period or other restrictions as determined by the Committee. The grant of Full Value Awards may also be subject to such other conditions, restrictions and contingencies, as determined by the Committee. Except as otherwise provided in the 2022 LTIP, no award under the 2022 LTIP will confer upon its holder any rights as a stockholder of the Company prior to the date on which the individual fulfills all conditions for receipt of such rights and shares are registered in his or her name.
A “Cash Incentive Award” is the grant of a right to receive a payment of cash (or in the discretion of the Committee, shares of stock having value equivalent to the cash otherwise payable) that is contingent on achievement of performance objectives over a specified period established by the Committee. The grant of Cash Incentive Awards may also be subject to such other conditions, restrictions and contingencies, as determined by the Committee.
Grants of Full Value Awards will be made based on the basis of their contributions to the development and growth of the Company and its subsidiaries, as determined by the Company, and the participant is not required to pay any purchase price of shares of Company common stock awarded under the Full Value Award and the Cash Incentive Award.
Lapse and Cancellation of Awards
Unless otherwise set forth in the award agreement or determined by the Committee, awards will cease to vest upon a termination of the participant’s employment or service with the Company or the participant ceasing to be an eligible individual under the 2022 LTIP. In the event an option or SAR expires without being exercised during the exercise period or an award does not vest, such award will lapse automatically and be forfeited and cancelled by the Company without action on the part of the participant and for no consideration and the Company will owe no liability to any participant for the lapse of any award under this paragraph.
Rights as Stockholders
The shares of Company common stock to be allotted and issued upon settlement or exercise of an award will rank pari passu in all respects with other fully-paid shares of Company common stock in issue as of the date of allotment. No participant will have any right as a stockholder of the Company with respect to any shares of Company common stock unless and until such participant becomes a stockholder of record with respect to such share of Company common stock. Once a participant becomes a stockholder of record with respect to the share of Company common stock subject to the award, the participant will have all rights as a stockholder, including, but not limited to, voting rights, the right to receive dividends and the right to participate in any capital adjustment applicable to all stockholders.
Transferability of Awards
An award will not be transferable except as designated by the participant by will or by the laws of descent and distribution or, if provided by the Committee, pursuant to a qualified domestic relations order (within the meaning of the Internal Revenue Code and applicable rules thereunder), in each case, to the extent permitted by applicable law. To the extent that a participant who receives an award under the 2022 LTIP has the right to exercise such award, the award may be exercised during the lifetime of the participant only by the participant. Notwithstanding the foregoing, if provided by the Committee and subject to approval, waiver, confirmation or otherwise (as
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applicable) from the Hong Kong Stock Exchange, awards may be transferred to or for the benefit of the participant’s family (including, without limitation, to a trust or partnership for the benefit of a participant’s family), subject to such procedures as the Committee may establish. In no event will an incentive stock option be transferable to the extent that such transferability would violate the requirements applicable to such option under Section 422 of the Internal Revenue Code.
Effect of Capitalization Adjustments
In the event of a capitalization issue, rights issue, subdivision or consolidation of shares or reduction of capital, the Committee will make such equitable adjustments, in accordance with Section 409A of the Internal Revenue Code and the Hong Kong Listing Rules to the extent applicable and as it determines are necessary and appropriate, in: (i) the number and class of securities available under the 2022 LTIP; (ii) the terms of each outstanding option and SAR (including the number and class of securities subject to each outstanding option or SAR and the exercise price or base price per share); and (iii) the terms of each outstanding Full Value Award (including the number and class of securities subject thereto). Only where approval, waiver, confirmation or otherwise as applicable from the Hong Kong Stock Exchange is obtained, in the event of any other equity restructuring event as defined under Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock Compensation or any successor or replacement accounting standard, or any other change in corporate capitalization, including a merger, consolidation, reorganization, or partial or complete liquidation of the Company, such equitable adjustments described in the foregoing sentence may be made as determined to be appropriate and equitable by the Committee to prevent dilution or enlargement of rights of participants. In case of an adjustment pursuant to the adjustment provisions of the 2022 LTIP, the decision of the Committee regarding any such adjustment will be final, binding and conclusive.
New Plan Benefits
The 2022 LTIP does not provide for set benefits or amounts of awards and the Committee has not approved any awards that are conditioned on shareholder approval. The Committee has the discretion to grant awards under the
2022 LTIP and, therefore, it is not possible as of the date of this proxy statement to determine future awards that will be received by participants under the 2022 LTIP. Information regarding awards granted in 2021 under the 2016 LTIP to the named executive officers is provided in the “2021 Summary Compensation Table” and the “2021 Grants of Plan-Based Awards” table. Information regarding awards granted in 2021 under the 2016 LTIP to non-employee directors is provided in the “2021 Director Compensation” table.
U.S. Federal Income Tax Consequences
The following is a brief summary of certain United States federal income tax consequences generally arising with respect to awards under the 2022 LTIP. This discussion does not address all aspects of the United States federal income tax consequences of participating in the 2022 LTIP that may be relevant to participants in light of their personal investment or tax circumstances and does not discuss any state, local or non-United States tax consequences of participating in the 2022 LTIP. Each participant is advised to consult his or her particular tax advisor concerning the application of the United States federal income tax laws to such participant’s particular situation, as well as the applicability and effect of any state, local or non-United States tax laws before taking any actions with respect to any awards.
Section 162(m) of the Internal Revenue Code
Section 162(m) of the Internal Revenue Code generally limits to $1 million the amount that a publicly held corporation is allowed each year to deduct for the compensation paid to each of the corporation’s chief executive officer, the corporation’s chief financial officer and certain other current and former executive officers of the corporation.
Stock Options
A participant will not recognize taxable income at the time an option is granted and the Company will not be entitled to a tax deduction at that time. A participant will recognize compensation taxable as ordinary income (and subject to income tax withholding in respect of an employee) upon exercise of a non-qualified stock option equal to the excess of the fair market value of the shares purchased over their exercise price, and the Company will
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be entitled to a corresponding deduction, subject to the deduction limits under Section 162(m) of the Internal Revenue Code. A participant will not recognize income (except for purposes of the alternative minimum tax) upon exercise of an incentive stock option. If the shares acquired by exercise of an incentive stock option are held for the longer of two years from the date the option was granted and one year from the date it was exercised, any gain or loss arising from a subsequent disposition of those shares will be taxed as long-term capital gain or loss, and the Company will not be entitled to any deduction. If, however, those shares are disposed of within the above-described period, then in the year of that disposition the participant will recognize compensation taxable as ordinary income equal to the excess of (1) the lesser of the amount realized upon that disposition and the fair market value of those shares on the date of exercise over (2) the exercise price, and the Company will be entitled to a corresponding deduction, subject to the deduction limits under Section 162(m) of the Internal Revenue Code.
SARs
A participant will not recognize taxable income at the time SARs are granted and the Company will not be entitled to a tax deduction at that time. Upon exercise, the participant will recognize compensation taxable as ordinary income (and subject to income tax withholding in respect of an employee) in an amount equal to the fair market value of any shares delivered and the amount of cash paid by the Company, and the Company will be entitled to a corresponding deduction, subject to the deduction limits under Section 162(m) of the Internal Revenue Code.
Full Value Awards
The U.S. federal income tax consequences of a Full Value Award will depend on the type of award. The tax treatment of the grant of shares of Company common stock depends on whether the shares are subject to a substantial risk of forfeiture (as determined under the Internal Revenue Code) at the time of the grant. If the shares are subject to a substantial risk of forfeiture, the participant will not recognize taxable income at the time of the grant (and the
Company will not be entitled to a tax deduction) and when the restrictions on the shares lapse (that is, when the shares are no longer subject to a substantial risk of forfeiture), the participant will recognize ordinary taxable income in an amount equal to the fair market value of the shares at that time less the price paid, if any, for such shares. If the shares are not subject to a substantial risk of forfeiture or if the participant elects to be taxed at the time of the grant of such shares under Section 83(b) of the Internal Revenue Code, the participant will recognize taxable income at the time of the grant of the shares in an amount equal to the fair market value of such shares at that time, determined without regard to any of the restrictions, less the price paid, if any, for such shares.
If the shares are forfeited before the restrictions lapse, the participant will not be entitled to any deduction on account of such forfeiture. The participant’s tax basis in the shares is the amount recognized by him or her as income attributable to such shares plus the amount, if any, that the participant paid for such shares.
In the case of RSUs or PSUs, the participant generally will not have taxable income upon the grant of the award. Participants will generally recognize ordinary income when the award is settled. At that time, the participant will recognize taxable income equal to the cash or the then fair market value of the shares issuable in settlement of such award, and such amount will be the tax basis for any shares received.
Cash Incentive Awards
A participant generally will not recognize income at the time a Cash Incentive Award is granted. When a Cash Incentive Award vests and is paid, the participant will recognize ordinary income in an amount equal to the cash paid. The Company will generally be entitled to a deduction at the same time and in the same amount as the participant recognizes ordinary income.
The Board of Directors recommends that stockholders vote FOR the approval of the Yum China Holdings, Inc. 2022 Long Term Incentive Plan.
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Who are our largest stockholders?
The following table sets forth the number of shares of Company common stock beneficially owned as of August 24, 2022,March 27, 2023, except as otherwise noted, by (i) beneficial owners of more than 5% of the outstanding shares of Company common stock, (ii) each of the Company’s named executive officers, (iii) each of the Company’s directors and director nominees and (iv) all of the Company’s directors and executive officers as a group.
In accordance with SEC rules, beneficial ownership includes all shares the stockholder actually owns beneficially or of record, all shares over which the stockholder has or shares voting or dispositive control and all shares the stockholder has the right to acquire within 60 days of August 24, 2022.March 27, 2023. Except as indicated in the footnotes to the table, the Company believes that the persons named in the table have sole voting and investment power with respect to all shares owned beneficially by them.
Name of Beneficial Owner | Number of Shares Beneficially Owned | Percent of Shares(1) | |||||||
More Than 5% Owners | |||||||||
Invesco Ltd. | (2) | [ | ]% | ||||||
1555 Peachtree Street NE, Suite 1800 | |||||||||
Atlanta, GA 30309 | |||||||||
BlackRock, Inc. | (3) | [ | ]% | ||||||
55 East 52nd Street | |||||||||
New York, NY 10055 | |||||||||
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Named Executive Officers | |||||||||
Joey Wat | [ | ](4) | |||||||
Andy Yeung | [ | ](5) | |||||||
Joseph Chan | [ | ] (6) | |||||||
Johnson Huang | [ | ](7) | |||||||
Aiken Yuen | [ | ](8) | |||||||
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Non-Employee Directors | |||||||||
Peter A. Bassi | [ | ] | |||||||
Edouard Ettedgui | [ | ] | |||||||
Cyril Han | [ | ] | |||||||
Louis T. Hsieh | [ | ] | |||||||
Fred Hu | [ | ] | |||||||
Ruby Lu | [ | ] | |||||||
Zili Shao | [ | ] | |||||||
William Wang | [ | ] | |||||||
Min (Jenny) Zhang | [ | ] | |||||||
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Ownership of all directors and executive officers as a group | [ | ](9) | |||||||
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40 | YUM CHINA– 2023 Proxy Statement |
STOCK OWNERSHIP INFORMATION |
* | Represents less than one percent |
(1) | Percentage ownership is determined based on a total of [ ] shares of Company common stock outstanding as of |
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(2) | Based on Amendment No. |
(3) | Based on Amendment No. |
(4) | Includes [ ] shares issuable upon the exercise of vested stock appreciation rights (“SARs”). |
(5) | Includes [ ] shares issuable upon the exercise of vested SARs. |
(6) | Includes [ ] shares issuable upon the exercise of vested SARs. |
(7) | Includes [ ] shares issuable upon the exercise of vested SARs. |
(8) | Includes [ ] shares issuable upon the exercise of vested SARs. |
(9) | Includes [ ] shares issuable upon the exercise of vested SARs. |
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COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis (our “CD&A”) provides an overview of our executive compensation programs for 2021,2022, the context under which our executive compensation decisions were determined, and how we performed within that environment.
Our named executive officers (“NEOs”) consist of our Chief Executive Officer, our Chief Financial Officer, and our
three other most highly compensated executive officers who were serving as executive officers at the end of 2021, and our former Chief Supply Chain Officer. References to “continuing NEOs” in this CD&A refer to the NEOs other than our former Chief Supply Chain Officer.for 2022.
Name | Title | |
Joey Wat | Chief Executive Officer (“CEO”) | |
Andy Yeung | Chief Financial Officer (“CFO”) | |
Joseph Chan | Chief Legal Officer | |
Johnson |
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Aiken Yuen | Chief People Officer | |
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* | Having served as General Manager, KFC through April 30, 2022, Mr. |
This CD&A is divided into four sections:
Executive Summary | • Context for Determining Executive Compensation Decisions | |||
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• Stockholder Engagement | ||||
Elements of the Executive Compensation | • Base Salary | |||
• Annual Performance-Based Cash Bonuses | ||||
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EXECUTIVE COMPENSATION
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How Compensation Decisions Are Made | • | |||
• Role of the Compensation Committee | ||||
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• Role of the | ||||
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• Competitive | ||||
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Compensation Policies | • Compensation Recovery Policy | |||
• Equity-Based Awards Grant Policy | ||||
• Stock Ownership Guidelines and Retention Policy | ||||
• Hedging and Pledging of Company Stock | ||||
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Executive Summary
Context for Determining Executive Compensation Decisions
A unique feature of the Company is that while it is incorporated in Delaware and listed on the NYSE and Hong Kong Stock Exchange, substantially all of its operations are located in China, with 11,788nearly 13,000 restaurants inacross over 1,6001,800 cities acrossin China at the end of 2021.2022. Our operating environment and regulatory requirements are complex, and our leadership must be capable of adapting our businesses, and supporting our growth goals, amid these complexities. As a result, the operating environment and competitive market in China are significant factors in the Compensation Committee’s decision-making process and the design of our compensation program. In making compensation decisions, the Compensation Committee considers our performance in the context of the Chinese operating environment, the restaurant industry in China and our China-based peers, as well as our performance against our U.S. peers. Importantly, because our operating environment and the restaurant industry in China may be uniquely, or more significantly, impacted by certain factors than on our U.S. peers, the Compensation Committee seeks to maintain flexibility to design, refine and refineadjust the Company’s executive compensation program to be responsive to, and reward performance within, our operating environment even if that results in a compensation program that differs from our U.S. peers.
In addition, as a Delaware-incorporated company listedwith dual-primary listing on both the NYSE and Hong Kong Stock Exchange, our leadership team must also possess, in addition to deep
knowledge of the U.S. and Hong Kong governance requirements, the global perspectives and
expertise required to resolve many novel and complex issues amid the evolving global regulatory landscape, including geo-political challenges. Because the Company is designing an executive compensation program that attracts, retains and incentivizes global talent, but with specific knowledge of the evolving Chinese regulatory and operating environment, including the challenges and complexities of managing the extensive supply chain, store and storedigital operations, the Company’s executive compensation program may differ from our U.S. peers to reflect the competitive market in China, the need to attract a global skillset with deep knowledge of both U.S. and Chinese regulatory regimes and the Company’s desire to incentivize an entrepreneurial mindset to encourage actions that support our long-term growth and strategy. For these reasons, the Compensation Committee lookedlooks at the totality of factors the Company faces when it considers and determines executive compensation.
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EXECUTIVE COMPENSATION |
China. The COVID-19 pandemic and strict public health measures persisted throughout 2022. In March 2022, over 1,700 of our stores in China, on average, were either temporarily closed or offered only takeaway and delivery services. During April and May 2022, that number increased to over 2,500 and our same-store sales declined by more than 20% year-over-year. In October and November 2022, sporadic occurrences of COVID infections quickly evolved into major regional outbreaks, leading to tightened COVID-related health measures and lockdowns. The number of our stores that were either temporarily closed or offered only takeaway and delivery services increased in October and November 2022, peaking at over 4,300 in late November 2022. In December 2022, the government significantly changed its COVID policies, including |
removing mass testing and central quarantine requirements as well as lifting travel restrictions. The temporary closures, combined with a massive wave of infections leading to substantial decline in dine-in traffic in December 2022, caused our same store sales to decrease 4% year-over-year in the fourth quarter of 2022. |
According to government statistics, total revenue of the restaurant industry in China in 2022 declined by 6%, both compared to 2021 and 2019, respectively. Notably, many restaurants in China exited the business over the 2020 to 2022 period. The graph below showing the China restaurant industry’s monthly revenue growth for the periods indicated illustrates the volatility:
Source: National Bureau of Statistics of China
2022 was in many ways the most volatile year among the past three years, during which the restaurant sector in China operated in a fast-changing operating environment, facing challenges from sporadic COVID outbreaks, entire city lockdowns and, in December 2022, nationwide infections. The fast-changing operating environment
required decisive emergency measures to sustain operations, drive sales and cut costs, which in turn put immense pressure on staff from top to bottom of the company. Some of these emergency measures required management to refocus its efforts on performance results that were not measured under our incentive programs, and
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management executed on emergency operating plans swiftly and effectively in order to allow the Company to sustain profitability since the onset of the COVID-19 pandemic and emerge stronger and better positioned post-pandemic. The resulting challenges and actions taken by management in response made it imperative to consider the total body of work during the past three years of the pandemic in evaluating and rewarding performance in an appropriate manner to attract and retain leaders with the unique mix of skills and to recognize their strong performance during this time.
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○ | The Company’s TSR ranked at the |
○ | The Company’s TSR ranked at the 98.50 percentile and 86.60 percentile, as compared to the TSR performance of the constituents of the MSCI China Consumer Discretionary Index over the three-year period from 2020 to 2022, and in 2022, respectively. |
○ | The Company’s TSR outperformed the S&P 500 |
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* | TSR is based on the average closing price over the 20 trading days up to and |
• | Peer Company Performance Comparisons: In assessing the performance of the Company and our executive team, the Compensation Committee considers performance against both U.S. |
China Restaurant Industry Monthly
Revenue Growth, 2021 vs. 2020
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Source: National BureauWe believe our ability to stay nimble and to adapt quickly to the rapidly-changing operating environment were key to our successfully navigating the pandemic to date. We managed to grow, with a 6% growth in total revenue (excluding foreign currency translation) in 2022 compared to 2019, while the total revenue of Statisticsthe China restaurant industry declined by 6% over the same period. Despite the magnitude of Chinaour store closures and limited services during various waves of the pandemic, we remained profitable over all 12 quarters of 2020 to 2022.
• | Competitive |
compensation packages with significant one-time equity grants and equity awards with time-based vesting, which |
In determining executive compensation decisions, the Compensation Committee also considered the fact that the challenging market for international executive talent was aggravated by a reduced number of global talent residing in China compared to pre-pandemic years. In particular, the Compensation Committee considered the hardship on the management team due to the inability to unite with their families for an extended period as a result of the strict travel restrictions and, at the same time, the requirements to continually evolve the Company’s operating plans to sustain operations, drive sales, and protect profits. Concerned with the risk of losing talent due to the large personal toll and sacri-
fice required of our management team for an extended period of time, as well as the potential inability to attract and retain future talent due to the ongoing COVID-19 pandemic restrictions, the Compensation Committee took actions that it considered appropriate to reward and recognize not only the strong Company performance that was led by the management team but also the significant retentive risks presented by the extended COVID-19 pandemic and public health measures in China.
Business Overview and Performance Highlights
As noted above, the COVID-19 pandemic had a significant impact on the Company’s operations starting in the first quarter of 2020 and continuing through 2022. Although the U.S. markets generally returned to normal, 2022 was in many ways the most volatile year for the Chinese restaurant sector during the past three years, during which we managed to navigate sporadic COVID outbreaks, entire city lockdowns and, in December 2022, nationwide infections. Right from the start of the pandemic, our management team took immediate actions to sustain operations, drive sales, and protect profits. As a result, the Company managed to grow, earned positive operating profit in every quarter of 2020 to 2022, and continued to invest in key strategic capabilities, which we believe helps position us with strengthened competitive edge to capture future growth opportunities. Key aspects of what we did and how we did it are highlighted below.
• | We quickly adapted our operations and offers to capture increasing off-premise demand when dine-in traffic was pressured. Enabled by dedicated riders, delivery sales of KFC and Pizza Hut combined grew by 17% year-over-year and accounted for approximately 39% of Company sales of these two brands in 2022. Combined with takeaway, off-premise services represented approximately 65% of Company sales in 2022, compared to approximately 40% in 2019. In addition, new retail packaged foods sales grew 50% and reached nearly RMB900 million in 2022. |
• | We continued to drive traffic and sales by delivering good food with great value. Leveraging our innovation capabilities and supported by our industry-leading supply chain management system to secure supply at scale, |
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we launched over 500 new or upgraded menu items in 2022, from regional offers to national launches. We effectively focused our marketing campaigns on more impactful value-for-money offerings. Our total system sales decreased 5% year-over-year in 2022, compared to a 6% decline for the China restaurant industry. |
• | We further broadened our member base and engaged with members to drive repeat purchases. Our loyalty programs grew approximately 70% from over 240 million members at the end of 2019 to over 410 million members at the end of 2022. Member sales accounted for approximately 60% of our system sales in 2022. |
• | We proactively managed costs by taking actions to improve operational efficiency. We leveraged digital capabilities, such as sales forecasting and inventory management, to continuously improve operational efficiency. Our initiatives such as optimizing staff scheduling and labor mix, as well as sharing restaurant management teams across stores enabled us to drive labor productivity. We also spent considerable efforts to add variable components to more of our leases. We emerged from the pandemic with a rebased cost structure that yielded a restaurant margin of 14.1% for the full year 2022, compared with 13.7% in the prior year, despite lower sales. |
• | We invested heavily in building our digital capabilities across the value chain. The most visible aspects are consumer-facing – the apps and screens that empower digital ordering and our membership programs. Digital orders accounted for approximately 89% of KFC and Pizza Hut’s Company sales in 2022, compared to 55% in 2019. Similarly, the digitalization of our operations, from the supply chain to our kitchens, has been impactful. |
• | We made significant investments in our supply chain infrastructure to support future business growth. We expanded from 29 to 33 logistics centers to enhance self-sufficiency in each province in China. In 2022, we began construction on our largest greenfield logistics center, which will serve as the headquarters for our logistics centers across China. Powered by our digital capabilities, our real-time inventory visibility from logistics centers to stores helped enable us to dispatch |
raw materials with greater precision, allowing for more efficient operations and reduced food waste. |
• | We maintained our rapid store network expansion with innovative store models and healthy payback periods. Over the 2020-2022 period, we expanded our store portfolio by approximately 40%, adding a total of approximately 3,800 new stores and reaching 12,947 total stores at the end of 2022. In 2022, we opened 1,824 gross new stores, closed underperforming stores, and achieved 1,159 net new stores in 2022 with healthy payback periods. KFC and Pizza Hut stores maintained an average payback period of two and three years, respectively. We lowered up-front investment and streamlined restaurant operations to improve efficiency. With multiple innovative store formats, we increased store density in higher tier cities and penetrated further into lower tier cities. |
• | We strengthened our portfolio of emerging brands. We launched growth initiatives at Taco Bell and Lavazza, while we closed the operations of COFFii & JOY and East Dawning. In 2022, Taco Bell doubled its store count to 91 stores and Lavazza reached 85 stores by year end. |
• | We continued to invest in sustainability and sustainable growth. In 2021, we committed to reaching net-zero value chain GHG emissions by 2050. In 2022, we set near-term science-based targets to reduce absolute Scope 1 and 2 GHG emissions by 63% by 2035 from a 2020 base year and reduce Scope 3 GHG emissions from purchased goods by 66.3% per ton of goods purchased by 2035 from a 2020 base year, which targets have been approved by the Science Based Targets initiative (SBTi). |
• | We successfully converted from secondary listing to primary listing on the Hong Kong Stock Exchange. As the first Delaware-incorporated company becoming dual-primary listed on both the New York Stock Exchange and Hong Kong Stock Exchange, our management team had to navigate many novel and complex regulatory issues during the conversion application process. We believe this strategic move will provide enhanced access to investors and broaden our shareholder base. |
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In summary, not only did we adapt rapidly to the many challenges of the pandemic to achieve outperforming total revenue growth compared to the China restaurant industry as noted above, but we also took the opportunity to strengthen our competitive position for the future. We expanded our store footprint, strengthened our supply chain, deepened our digital capabilities, and rebased our cost structure, laying the foundation for future growth opportunities. We rewarded our shareholders with leading TSRs compared to the constituents of the MSCI China Index and MSCI China Consumer Discretionary Index, as well as outperforming TSRs against the S&P 500 Consumer Discretionary Index, over the three-year period from 2020 to 2022, and in 2022, respectively, as noted above. All of these accomplishments were achieved in the context of an incredibly challenging and volatile operating environment.
Recent Compensation Highlights
In 2022, after extensive deliberations, the Compensation Committee implemented a few changes to our executive compensation program, as set forth below. In approving these changes, the Compensation Committee considered our strategic priorities, stockholder feedback, market practices in both the U.S. and China, input from the Compensation Committee’s compensation consultant, and the operating environment in China, as described further above.
• | AnnualLTI Grants—For 2022 annual long-term incentive awards, the Compensation Committee |
grants, and the difficulty in |
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2021 Business Overview and Performance Highlights
As noted above, the COVID-19 pandemic continued to significantly impact the Company’s operations in 2021.
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Our management team undertook immediate and strategic actions to drive sales and protect profits. These actions included:
We continue to prioritize the safety and health of our employees and customers. In 2021, we enhanced the medical insurance coverage for our restaurant general managers, restaurant management team and service team leaders. The enhanced benefits are expected to cover around 100,000 front-line employees and their family members.
We drove traffic and sales by delivering good food and great value. Leveraging our innovation capabilities, we launched over 500 new or upgraded products and expanded product categories, such as beef burgers and whole chicken, in 2021. We built on a well-established promotion mechanism to offer effective value promotions while minimizing margin impact.
To capture the shift to off-premise demand, we quickly adjusted operations and marketing offers. We also increased store density to improve our coverage and better serve the customers. Delivery sales grew 60% in 2021 compared to 2019 and contributed to approximately 32% of Company sales for 2021. Combined with takeaway, off-premise services presented more than half of Company sales in 2021.
Leveraging our vast member platform, we engaged with members to drive repeat purchases. We continued to improve the digital experience for our customers, including refining our apps for more convenient ordering and allowing for more personalization, while broadening our member base. Our loyalty program grew 20% in the past year to over 360 million members at the end of 2021, with member sales accounting for approximately 60% of our system sales in 2021. In addition, digital sales exceeded $7 billion, or over 85% of Company sales, in 2021.
We proactively managed costs to alleviate cost pressures and continued to improve labor productivity and operating efficiency using technology and automation. For example, we have adopted AI-enabled technology to analyze and forecast transaction volume so that we can improve labor scheduling and inventory
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We strengthened our market leadership with record openings of 1,806 gross new stores, or 1,282 net new stores during the year and remodeled 842 stores.
With the tremendous effort from all of the employees led by the management team and despite the continued negative impact on our business as a result of the COVID-19 pandemic, the Company delivered substantial profits in 2021. Our 2021 performance highlights include the following:
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Total system sales increased 10% year-over-year, excluding F/X.
Operating Profit increased 44% to $1.39 billion from $961 million, with the year-over-year increase primarily due to the re-measurement gain of the Hangzhou KFC joint venture acquisition and a year-over-year increase of 5% in Adjusted Operating Profit from $732 million to $766 million, despite that we received approximately $90 million less in one-time relief from the government and landlords comparing to 2020.
Net Income increased 26% to $990 million from $784 million in the prior year, primarily due to the increase in Operating Profit. Adjusted Net Income declined 15% to $525 million from $615 million in the prior year (a 7% increase excluding the net loss of $52 million in 2021 and the $75 million net gain in 2020 from mark-to-market investments).
Diluted Earnings Per Common Share increased 17% to $2.28 from $1.95 in the prior year, and Adjusted Diluted Earnings Per Common Share decreased 21% to $1.21 from $1.53 in the prior year (a 1% decrease excluding the net loss in 2021 and the net gain in 2020, respectively, from mark-to-market investments). Approximately 41.9 million shares of common stock were issued as a result of the secondary listing in
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See the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 for a reconciliation of the most directly comparable GAAP financial measures to the non-GAAP adjusted financial measures.
Company Total Shareholder Return Performance
The Board and the Compensation Committee believe that the leadership provided by the Company’s management
team was key to the Company’s strong performance in delivering multi-year shareholder returns. The graph below shows our TSR as the cumulative return to stockholders over the past five years. As illustrated, a $100 investment in our common stock on December 31, 2016 would have grown to $198 on December 31, 2021, with dividends reinvested. The Company’s shareholder return significantly outperformed that of the China market as measured by the MSCI China Index, which covers approximately 85% of the China equity market, and approximately 28% of its constituent companies are in the China Consumer Discretionary sector.
Recent Compensation Highlights
Although the key features of our executive compensation program are substantially unchanged, the Compensation Committee implemented several enhancements and changes to our executive compensation program, as set forth below. In approving these changes, the Compensation Committee considered our strategic priorities, stockholder feedback, market practices in both the U.S. and China, input from the Compensation Committee’s compensation consultant, and the operating environment in China, as described further above.
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The Executive Severance Plan aids in recruitment and retention and promotes smooth succession planning, while providing transitional pay for a limited period of time to executives whose employment is involuntarily terminated. Payments are conditioned upon the executive’s execution of a release of claims in favor of the Company and compliance with restrictive covenants. Severance benefits payable under the Executive Severance Plan are equal to two times the sum of annual base salary plus annual target bonus for the CEO and one time the sum of annual base salary plus target annual bonus for the other NEOs, will be in lieu of any cash severance benefits under any other arrangement with the participant and are subject to recoupment in the event the executive violates his or her restrictive covenants with the Company.
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Lavazza Joint Venture’s business plan, including the target to open 1,000 Lavazza stores in China |
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employees of the Company, including the |
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The Company’s annual incentive program targets, which were set in early 2022, reflected the Company’s
business goals and priorities in light of the then prevailing operating environment. While the Compensation Committee’s practice has generally been to establish and communicate goals at the beginning of each year, the Compensation Committee also retains flexibility to modify the Company’s executive compensation program when circumstances warrant, in order to continue to incentivize actions to drive operational performance and retain key talent. In the first half of 2022, the highly transmissible Omicron variant caused significant volatility in our business operations. For example, during April and May 2022, over 2,500 of our stores in China, on average, were either temporarily closed or offered only takeaway and delivery services. In July 2022, in light of the volatile operating environment and the significant impact of the Omicron-variant outbreaks on the Company’s operating and financial performance in the first half of 2022, the Compensation Committee considered potential real-time actions to help manage the immediate challenges, retain talent and motivate performance. The Compensation Committee approved (i) the maintaining of the original key performance indicators (“KPIs”) to hold participants accountable for such goals, but with a reduction in the weighting of such KPIs from 100% to 30%, (ii) the introduction of two supplemental KPIs, accounting for 30% of the team factor weighting, to motivate strategic actions to align with the Company’s key priorities at the time of protecting operating margin and profitability, and (iii) the introduction of two relative measures requiring above-market performance in the form of relative revenue growth (comparing the Company’s 2022 year-over-year growth rate in total revenues against that of the China restaurant industry) and rTSR (comparing the Company’s TSR in 2022 against the TSR of the constituents of the MSCI China Index), with the relative measures accounting for the remaining 40% of the team factor weighting. This modified program continued to maintain the same performance-based structure, but with updates to reflect the evolving operating challenges created by the pandemic and changes in business focuses to address these challenges and the inclusion of relative measures to assess the Company’s success in navigating the operational environment as compared to the market. The Compensation Committee determined that this combination of performance metrics was aligned with the Company’s strategic actions to help
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protect the Company’s operating margin and profitability during this challenging time and appropriate to motivate management to focus on the successful execution of the Company’s operational plan. When approving the final team factor for Company performance, the Compensation Committee applied discretion to reduce the result of Company performance from 135% to 120% of target. For details, see “Elements of the Executive Compensation Program—Annual Performance-Based Cash Bonuses—Team Performance Factors.”
• | Modification of 2020 Annual PSUs—Beginning with the 2020 annual equity grants, the group of recipients of PSUs had been expanded to include all of the Company’s |
Due to the ongoing impact of COVID-19, the Company was operating in a volatile and unpredictable market during the duration of the performance period. Compared to 2019, the 2022 total revenue for the China restaurant industry declined by 6%, with a negative CAGR of 2% from 2019 to 2022. As a result, the original absolute growth goals set for the 2020 Annual PSUs became less effective in incentivizing management and recognizing actions that would enable the Company to navigate the pandemic and emerge stronger. Facing the
unprecedented challenges, our revenue growth rate (excluding foreign currency translation) outperformed that of the China restaurant industry, with an increase by 6% comparing 2022 to 2019, and a CAGR of 2% from 2019 to 2022. In addition, comparing to the constituents of the MSCI China Index, the Company’s TSR ranked at the 68.91 percentile over the three-year period from 2020 to 2022.
In light of the Company’s strong performance against its peers despite the COVID-19 pandemic and considering that keeping the original design of the 2020 Annual PSUs potentially would have resulted in zero payout, which the Compensation Committee believed would not appropriately reflect management’s performance or be aligned with the Company’s compensation philosophy, the Compensation Committee determined to adjust the weighting of the performance metrics of the 2020 Annual PSUs in December 2022. As adjusted, the performance goals applicable to the 2020 Annual PSUs are rTSR (weighted 60%), adjusted total revenue growth (weighted 24%) and adjusted diluted EPS growth (weighted 16%), with adjusted total revenue growth and adjusted diluted EPS growth having the same relative weightings to each other as prior to adjustment. The Compensation Committee placed more emphasis on the rTSR measure in recognition of the difficulty of measuring performance against absolute growth goals set before the onset of the COVID -19 pandemic, in light of the volatile operating environment, and its assessment that rTSR would better measure the Company’s success in execution of its evolving and COVID-19 responsive operational plan during the three-year performance period. Accordingly, these weightings were adjusted to better measure our performance relative to the operating market in which we operate, while keeping all original performance goals applicable to the 2020 Annual PSUs. Except for the changes in weighting of the performance goals, the terms and conditions applicable to the 2020 Annual PSUs remained unchanged. The Compensation Committee determined that this modification to the 2020 Annual PSUs was aligned with the Company’s compensation philosophy of retaining talent and rewarding performance, particularly in light of the operational achievements of the Company since the 2020 Annual PSUs were granted. Based on the reallocated weighting
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of the performance metrics, the 2020 Annual PSUs vested at 87.82%. For details, see “Context for Determining Executive Compensation Decisions” and “Elements of the Executive Compensation Program—Long Term Equity Incentives—2020 Annual PSUs.”
• | Incorporated ESG Metrics since 2021 Annual Incentive Program—Management and the Board have engaged in extensive discussions regarding how to |
Alignment of Executive Compensation Program with Business Performance
Our pay-for-performance incentive compensation programs are designed to align the long-term interests of our executives with those of our stockholders and to attract and retain top talent in a competitive market. The Company’s executive compensation program is structured to support the long-term sustainable growth of the Company and create value for stockholders by aligning our executives with business performance goals and motivating entrepreneurial and innovative thinking. As such, the Compensation Committee reviews and endorses
performance goals that are deemed central to the Company’s
business performance, long-term strategy and stockholder value creation. Specifically, the Compensation Committee has selected performance goals under the Company’s 20212022 incentive programs that are based on metrics such as operating profit, same store sales, delivery sales, system net new builds, member sales,activity, rTSR, adjusted total revenue growth, adjusted diluted earnings per share growth, and other key performance indicatorsKPIs described in greater detail below. These performance goals comprise an overall executive compensation program that the Compensation Committee believes appropriately reflects the Company’s emphasis on increasing profitability and revenue, enhancing customer experience, supporting an entrepreneurial mindset, and creating stockholder value, while at the same time supporting key ESG initiatives.
While the Compensation Committee’s practice has generally been to establish and communicate goals at the beginning of each year, the Compensation Committee also retains flexibility to modify the Company’s executive compensation program when circumstances warrant, in order to continue to incentivize actions to drive operational performance and long-term strategies. For 2021,In 2022, in light of the changes in operating environment in China and the significant prolonged impact of the Delta-variant outbreaksCOVID-19 on the Company’s operating and financial performance during the year and over the three-year period since July 2021,2020, the Compensation Committee adjusted the 20212022 annual incentive program to measure performance with respect toand modified the Adjusted Operating Profit Growth and Same Store Sales Growth, using the same performance goals as established at the beginning2020 Annual PSUs. For details, see “Recent Compensation Highlights—Annual Incentive Program,” “Recent Compensation Highlights—Modification of 2020 Annual PSUs,” “Elements of the year, over three separate performance periods coveringExecutive Compensation Program—Annual Performance-Based Cash Bonuses—Team Performance Factors” and “Elements of the first half of 2021, the third quarter of 2021 and the fourth quarter of 2021.Executive Compensation Program—Long Term Equity Incentives—2020 Annual PSUs.” The Compensation Committee believes that maintaining this flexibility allows the Company to appropriately reward performance in areas deemed critical to the Company’s long-term strategy.
The following chart provides an overview of the 20212022 target total direct compensation program applicable to our CEO, consisting of base salary, annual performance-based cash incentives (i.e., short-term incentives, or “STI”), and long-term equity incentives (“LTI”).LTI. As demonstrated by the following chart, 20212022 compensation for our CEO was heavily weighted toward variable pay elements, and such elements represented approximately 87% of the 2021 annual target compensation for Ms. Watrepre-
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(consistingsented approximately 87% of the 2022 annual target compensation for Ms. Wat (consisting of the target payout opportunity under the annual performance-based cash bonus plan, target annual PSUs, RSUs and SARs). For purposes of this calculation, we have excluded the 2021 Chairman
target grant date fair value of the Lavazza ESOP Grants described below,and the incremental fair value associated with the modification of the 2020 Annual PSUs, as such grantsthese do not represent a component of the Company’s typical annual executive compensation program.
20212022 CEO Target Compensation Mix
The Company’s executive compensation program has three primary pay components: (i) base salary; (ii) annual performance-based cash bonuses (i.e., short-term incentives);
and (iii) long-term equity awards. We believe that
these key elements are aligned with the Company’s compensation philosophy and objectives, as illustrated in the following table.
Objective | Base Salary | Annual Performance- Based Cash Bonuses | Long-Term Equity | |||||||||||||
Attract and retain the right talent to achieve superior stockholder results — Competitive total reward program structure that enables pay to vary based on role, responsibility, experience, market value and future potential of talent in order to drive superior results
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Reward performance — Motivate both short-term and long-term performance through annual and long-term equity programs. A majority of NEO annual target compensation is performance-based or variable and, therefore,
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Emphasize long-term value creation — The Company’s belief is simple: if it creates long-term value for stockholders, then it shares a portion of that value with those responsible for the results.
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Drive ownership mentality — We require executives to invest in the Company’s success by owning a substantial amount of Company
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Executive Compensation Practices
The Compensation Committee reviews on an ongoing basis the Company’s executive compensation program to evaluate whether it supports the Company’s executive compensation philosophies and objectives and is aligned
with stockholder interests. Our executive compensation practices include the following, each of which the Compensation Committee believes reinforces our executive compensation philosophy and objectives:
Our Executive Compensation Practices
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✓ | We deliver a significant percentage of annual target compensation in the form of variable compensation tied to performance, with 87% of Ms. Wat’s | |
✓ | We deliver a significant portion of total compensation in the form of equity | |
✓ | Maximum payout opportunity for STI and PSUs | |
✓ | We have multi-year vesting periods for equity awards | |
✓ | We perform market comparisons of executive compensation against a relevant peer group, recognizing the different geographic regions where executives are sourced and recruited | |
✓ | The vesting of the rTSR portion of the PSU awards will be capped at target if our TSR performance is negative over the performance period | |
✓ | The payout for the rTSR measure for annual performance-based cash bonus program is capped at target if our TSR performance is negative | |
✓ | We use an independent compensation consultant reporting directly to the Compensation Committee | |
✓ | We have double-trigger vesting for equity awards in the event of a change in control under our long-term incentive | |
✓ | We maintain stock ownership guidelines, which includes a retention requirement until the guideline is achieved | |
✓ | We maintain a compensation recovery policy | |
✓ | We maintain an equity-based awards grant policy specifying pre-determined dates for annual equity grants | |
✓ | We hold an annual “say on pay” vote | |
✓ | We maintain an annual stockholder engagement process | |
✓ | Our Compensation Committee regularly meets in executive session without any members of management present
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X | We do not pay dividends or dividend equivalents on PSUs unless and until they vest | |
X | We do not allow repricing of underwater SARs under our long-term incentive plan without stockholder approval | |
X | We do not allow hedging, short sales or pledging of our securities | |
X | We do not allow backdating of SARs | |
X | We do not provide for tax gross-ups relating to a change in control | |
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In its compensation review process, the Compensation Committee focuses on structuring the executive compensation program to serve the interests of our stockholders. In that respect, as part of its ongoing review of our executiveexecu-
tive compensation program, the Compensation Committee considered the approval by approximately 93%89% of the
votes cast for the Company’s “say on pay” vote at our 2021 Annual Meeting2022 annual meeting of Stockholders.stockholders. Although the CompensationCom-
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pensation Committee was pleased with this favorable outcome and interpreted this level of support as an endorsement by our stockholders of our executive compensation program and policies, the Compensation
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Committee continuously evaluates program design and considers adjustments to the Company’s compensation program based on stockholder feedback, market practices, operating environment and other considerations in order to deliver a program designed to be aligned with our business strategy, the creation of long-term value and our stockholders’ interests.
During 2021,2022, the Company reached out to its 2575 largest stockholders and select stockholders who previously indicated interest for having engagement calls (which represented more than 50%over 66% of the Company’s outstanding shares) to solicit feedback on a variety of corporate
governance matters (including with respect to executive
compensation)the adoption of the Company’s 2022 Long Term Incentive Plan (the “2022 LTIP”)), and the Company held discussions with all stockholders who accepted an invitation. The topics of the discussions covered the 2022 LTIP and executive compensation matters more generally. Management shared thisthe stockholder feedback with the Compensation Committee for its consideration in designing the Company’s executive compensation program.consideration.
Based on feedback received during the Company’s stockholder engagement efforts over the past several years, the Compensation Committee has approved changes to its compensation program, including the incorporation of ESG measures and targets into the key performance indicators that are used to determineKPIs, and the individual performance factor underdisclosure of the 2021 annual incentive programthreshold and maximum achievement levels for each leadership team member.the KPIs discussed in the CD&A.
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Elements of the Executive Compensation Program
The Company’s 20212022 executive compensation program consists of three primary pay components: (i) base salary; (ii) annual performance-based cash bonuses (i.e., short-term incentives); and (iii) long-term equity awards. The following charts demonstrate that 20212022 annual target compensation for Ms. Wat, our CEO, and the continuing NEOs was heavily weighted toward variable pay elements. Such elements represented approximately 87% of
the 20212022 annual target compensation for Ms. Wat and, on average, 72% of
the 20212022 annual target compensation for our other NEOs (consisting of the target payout opportunity under the performance-based cash bonus plan and target annual equity grants and excludinggrants). For purposes of this calculation, we have excluded the 2021 Chairmantarget grant date fair value of the Lavazza ESOP Grants and all otherthe incremental fair value associated with the modification of the 2020 Annual PSUs, as these do not represent a component of the Company’s typical annual executive compensation reported in the 2021 Summary Compensation Table).program.
Target Compensation Mix |
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Base Salary
The Company provides a fixed level of cash compensation to attract and retain high-caliber talent. Base salary in the form of cash compensates executives for their primary roles and responsibilities. An executive’s actual salary is dependent on factors such as the executive’s role (including the market value of the role), level of responsibility, experience, individual performance and future potential. The Compensation Committee annually reviews salary levels of the Company’s executive officers to maintain
to maintain market competitiveness and reflect their evolving responsibilities.
Annual Performance-Based Cash Bonuses
The principal purpose of our cash-based annual incentive program is to motivate and reward short-term team and individual performance. The following is the formula used to calculate 20212022 annual performance-based cash bonuses:
Base Salary | × |
Target Bonus
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Team
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Final Individual
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Team Performance Factors
The Compensation Committee reviewed the performance measures used in the annual incentive plan to assess the program’s alignment of the incentive payouts with key performance measures of the Company’s overall business and operating segments. The Compensation Committee established the initial team performance measures, targets and weights for the 20212022 bonus program at the beginning of the year after receiving input and recommendations from management and the Compensation Committee’s compensation consultant. The team performance objectives and targets in 20212022 were developed through the Company’s annual financial planning process, which took into account growth strategies, historical performance, and the existing and expected future operating environment of the Company.
At the time theThe Company’s annual incentive program targets, which were set in early 2022, reflected the Company’s business goals and priorities in light of the then prevailing operating environment. While the Compensation Committee’s practice has generally been to establish and communicate goals at the beginning of each year, the Compensation Committee also retains flexibility to modify the Company’s executive compensation program when circumstances warrant, in order to continue to incentivize actions to drive operational performance and retain key talent. In
the first half of 2022, the highly transmissible Omicron variant caused significant volatility in our business operations. For example, during April and May 2022, over 2,500 of our stores in China, on average, were either temporarily closed or offered only takeaway and delivery services.
In light of the volatile operating environment and the significant impact of the Omicron-variant outbreaks on the Company’s operating and financial performance in the first half of 2022, the Compensation Committee considered potential real-time actions to help manage the immediate challenges, retain talent and motivate performance. The Compensation Committee revisited the structure of the 2022 annual incentive program in order to continue to incentivize performance and focus on key business priorities at the time. Based on this review, in July 2022, the Compensation Committee approved (i) the maintaining of the original KPIs to hold participants accountable for such goals, but with a reduction in the weighting of such KPIs from 100% to 30%, (ii) the introduction of two supplemental KPIs, accounting for 30% of the team factor weighting to motivate strategic actions to align with the Company’s key priorities to protect operating margin and profitability, and (iii) the introduction of two relative measures requiring above-industry performance in the form of relative revenue growth (comparing the Company’s 2022 year-over-year growth rate in total revenues
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against that of the China restaurant industry) and rTSR (comparing the Company’s TSR in 2022 against the TSR of the MSCI China Index), with the relative measures accounting for the remaining 40% of the team factor weighting. This modified program continued to maintain the same performance-based structure, but with updates to reflect the evolving operating challenges created by the pandemic and changes in business focuses to address these challenges and the inclusion of relative measures to assess the Company’s success in navigating the pandemic against peers in the same operating market. The Compensation Committee assigned a 40% weight to the two new relative measures in recognition of the difficulty of forecasting absolute performance in light of the volatile operating environment. The Compensation Committee set rigorous targets were designedfor the new relative measures, which
required above-industry performance and results: target performance for the rTSR measure required the Company to be challenging but achievable given the
operating environment at the 55th percentile and target performance for the relative revenue growth metric required the Company’s total revenues, excluding foreign currency translation, to be at least 2% higher than that of the China restaurant industry. The payout for the rTSR measure would have been capped at target if the Company’s TSR performance was negative. The Compensation Committee determined that this combination of performance metrics was aligned with the Company’s strategic actions to help protect the Company’s operating margin and profitability during this challenging time and appropriate to motivate management to focus on the successful execution of the Company’s operational plan.
The Company’s performance metrics were established as growth goals with strong management performance.2021 as the baseline measure. This methodology required performance better than 2021 in order to receive a target payout. A leverage formula for each team performance measure magnifies the potential impact that performance above or below the performance
target will have on the calculation of the annual bonus. This leverage increases the payouts when targets are exceeded, and reduces payouts when performance is below target, with a threshold level of performance required in order for any bonus associated with such metric to be paid and a cap on bonus payments.
The team performance targets and weights for each measure established at the beginning of 2021 for the Company’s NEOs are outlined below. The Company’s performance metrics were established as growth rate goals with 2020 as the base line measure. This methodology required performance better than in 2020 in order to receive a target payout.
Team Performance Measures | Target | Weighting | ||||||
Adjusted Operating Profit Growth* | 10 | % | 40 | % | ||||
Same Store Sales Growth** | 6.8 | % | 15 | % | ||||
Delivery Sales Growth | 20 | % | 15 | % | ||||
System Gross New Builds | 1,100 | 20 | % | |||||
Member Sales*** | 61.5 | % | 10 | % | ||||
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YUM CHINA – 2023 Proxy Statement |
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EXECUTIVE COMPENSATION
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The incentive targets for the Team Performance Factor were set based on the operating environment at the beginning of 2021 when the COVID-19 situation was relatively stable. However, multiple waves of Delta-variant outbreaks persisted, and our business was significantly affected, in the second half of the year. For details, see “Executive Summary—Context for Determining Executive Compensation Decisions—Operating Environment.”
In light of the changes in operating environment and the significant impact of the Delta-variant outbreaks on the Company’s operating and financial performance since July 2021, in September 2021, the Compensation Committee determined to measure performance with respect to the Adjusted Operating Profit Growth and Same Store
Sales Growth team performance measures over three separate performance periods: the first half of 2021 (weighted 50%); the third quarter of 2021 (weighted 25%);threshold, target and the fourth quarter of 2021 (weighted 25%). The performance targets for each of these three distinct performance periods were derived from the performance goals established in early 2021, with the only difference being the segregation of performance into the three distinct performance periods. This change retained the same performance-based program design and kept the original goals, but helped address the volatility associated with the COVID-19 pandemic. The team performance targets,maximum achievement levels, actual results, weights and overall
performance for each measure following the adjustments described above are outlined below.
Team Performance Measures | Target | Actual | | Earned As a % of Target | Weighting | | Final Team Performance | |||||||||||||
Adjusted Operating Profit Growth* | ||||||||||||||||||||
First Half of 2021 | 67 | % | 132 | % | 200 | % | 20 | % | 40 | |||||||||||
Third Quarter of 2021 | -7 | % | -52 | % | 0 | % | 10 | % | 0 | |||||||||||
Fourth Quarter of 2021 | -31 | % | -92 | % | 0 | % | 10 | % | 0 | |||||||||||
Same Store Sales Growth** | ||||||||||||||||||||
First Half of 2021 | 8.1 | % | 7.8 | % | 97 | % | 7.5 | % | 7 | |||||||||||
Third Quarter of 2021 | 6.9 | % | -7.1 | % | 0 | % | 3.75 | % | 0 | |||||||||||
Fourth Quarter of 2021 | 6.8 | % | -10.7 | % | 0 | % | 3.75 | % | 0 | |||||||||||
Delivery Sales Growth | 20 | % | 18 | % | 82 | % | 15 | % | 12 | |||||||||||
System Gross New Builds | 1,100 | 1,806 | 200 | % | 20 | % | 40 | |||||||||||||
Member Sales*** | 61.5 | % | 62.1 | % | 129 | % | 10 | % | 13 | |||||||||||
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FINAL COMPANY TEAM FACTOR | 112 | |||||||||||||||||||
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COMPANY
Team Performance Measures | Threshold | Target | Maximum | Actual | | Earned as a % of Target | Weighting* | | Final Team Performance | |||||||||||||||||||
Adjusted Operating Profit Growth(1) | 0% | 9.8% | 25% | -14% | 0% | 12% | 0% | |||||||||||||||||||||
Same Store Sales Growth | 0% | 2% | 4% | -7% | 0% | 4.5% | 0% | |||||||||||||||||||||
Delivery Sales Growth | 9% | 15% | 21% | 17% | 135% | 4.5% | 6% | |||||||||||||||||||||
System Net New Builds | 1,080 | 1,230 | 1,380 | 1,159 | 76% | 6% | 4% | |||||||||||||||||||||
Member Activity(2) | — | — | — | — | 0% | 3% | 0% | |||||||||||||||||||||
Commodity Cost Growth(3) | 4% | 2% | 0% | 2.1% | 98% | 15% | 15% | |||||||||||||||||||||
Labor Cost Growth(4) | 5% | 0% | -5% | -7% | 200% | 15% | 30% | |||||||||||||||||||||
Relative Revenue Growth(5) | 1% | 2% | 4% | 7% | 200% | 20% | 40% | |||||||||||||||||||||
R-TSR(6) | 40th | 55th | 85th | 93.65th | 200% | 20% | 40% | |||||||||||||||||||||
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FINAL COMPANY TEAM FACTOR | 135 | % | ||||||||||||||||||||||||||
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KFC(7)
Team Performance Measures | Threshold | Target | Maximum | Actual | | Earned as a % of Target | | Weighting* | | Final Team Performance | ||||||||||||||||||
Adjusted Operating Profit Growth (KFC)(1) | 1% | 12% | 28% | -1% | 0 | % | 12 | % | 0% | |||||||||||||||||||
Same Store Sales Growth (KFC) | 0% | 2% | 4% | -7% | 0 | % | 4.5 | % | 0% | |||||||||||||||||||
Delivery Sales Growth (KFC) | 9% | 15% | 21% | 18% | 143 | % | 4.5 | % | 6% | |||||||||||||||||||
System Net New Builds (KFC) | 700 | 800 | 900 | 926 | 200 | % | 6 | % | 12% | |||||||||||||||||||
Member Activity (KFC)(2) | 0% | 6.4% | 12.9% | -0.2% | 0 | % | 3 | % | 0% | |||||||||||||||||||
Commodity Cost Growth (YUMC)(3) | 4% | 2% | 0% | 2.1% | 98 | % | 15 | % | 15% | |||||||||||||||||||
Labor Cost Growth (YUMC)(4) | 5% | 0% | -5% | -7% | 200 | % | 15 | % | 30% | |||||||||||||||||||
Relative Revenue Growth (YUMC)(5) | 1% | 2% | 4% | 7% | 200 | % | 20 | % | 40% | |||||||||||||||||||
R-TSR (YUMC)(6) | 40th | 55th | 85th | 93.65th | 200 | % | 20 | % | 40% | |||||||||||||||||||
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FINAL KFC TEAM FACTOR | 143% | |||||||||||||||||||||||||||
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* | The original weighting established at the beginning of 2022 and prior to the July 2022 adjustments by the Committee was Adjusted Operating Profit Growth – 40%, Same Store Sales Growth – 15%, Delivery Sales Growth – 15%, System Net New Builds – 20%, and Member Activity – 10%, based on which the team factor results of the Company and KFC would have been 36% and 62%, respectively. |
(1) | Adjusted Operating Profit Growth as a team performance |
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As noted above, a team factor of 112% was achieved based on the five performance measures set out above with the performance periods for the performance measures of Adjusted Operating Profit Growth and Same Store Sales Growth being segregated into three distinct performance periods. With Adjusted Operating Profit Growth and Same Store Sales Growth measured on a full-year basis as established in early 2021, the team factor would have been 65% due to the volatility of COVID-19
on the Company’s performance during 2021. Although the strong performance, particularly in the first half of 2021, and the extraordinary effort of the management team in containing cost and delivering positive profit amid the severe impact of COVID-19 in the second half of 2021, would have resulted in a team factor of 112%, the Compensation Committee applied discretion to reduce the result from 112% and approved a final team factor of 105% for Company performance.
(4) | Labor Cost Growth measures the year-over-year change in labor costs, excluding foreign currency translation, for crews and restaurant management teams of the Company at the store level, with the impact from temporary store closures normalized in the calculation by excluding such periods. A lower or negative growth rate will result in higher achievement against target. |
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(5) | Relative Revenue Growth represents the excess of the Company’s 2022 year-over-year growth rate in total revenues, excluding foreign currency translation, over that of the China restaurant industry. |
(6) | The rTSR is measured as the Company’s achievement of total shareholder return compared against the constituents of the MSCI China Index. TSR percentile rank was calculated based on the 20 trading day average closing prices up to and including January 1, 2022 and the 20 day average closing prices up to and including December 31, 2022 and assumes reinvestment of dividends. The payout for the rTSR measure would be capped at target if the Company’s TSR performance is negative. |
(7) | The KFC Team Factor was determined based on a combination of Company (YUMC) and KFC goals as noted in the table above. The Compensation Committee believed that this combination of goals incentivized specific KFC goals but also aligned KFC participants with the broader efforts of the Company as a whole. |
As noted above, a Company team factor of 135% and a KFC team factor of 143% were achieved based on the performance metrics and weighting. The Compensation Committee applied discretion to reduce the results and approved a final team factor of 120% for Company performance and 125% for KFC performance.
Individual Performance Factors
In February 2021,2022, the Compensation Committee approved the performance goals that would be used to determine the Individual Performance Factor for the CEO and provided input on the performance goals recommended by the CEO for the other NEOs, which would subsequently be used by the CEO to recommend to the Compensation Committee as the Individual Performance Factor for each NEO. As part of the Company’s annual performance evaluation process, the CEO, after having received input from the Compensation Committee and after consultation with each NEO, establishes that NEO’s performance objectives for the coming year, which are ultimately approved by the Compensation Committee. These performance objectives are not intended to be rigid or formulaic, but rather to serve as the framework upon which the CEO evaluates the NEO’s overall performance.
These annual performance goals generally fell within the performance categories of mitigating the impact of the COVID-19 pandemic, increasing stockholder returns, accelerating the growth of our brands, driving new business initiatives, effectively managing costs, and achieving ESG and other strategic objectives. Under each performance goal category, each NEO has a number of underlying under-
lying pre-established goals against which the NEO’s performance is assessed to determine whether the NEO has achieved the overall performance goal. The evaluation of an executive’s performance relative to these goals is inherently subjective, involving a high degree of judgment based on the CEO’s observations of, and interactions with, the executive throughout the year. As an additional input to the evaluation of an executive’s performance, the CEO assesses the overall performance of the Company in light of the dynamics of the China market. As a result, no single performance goal or group of goals is determinative for the CEO’s evaluation of the executive’s performance.
The above evaluation provides the basis for the CEO’s recommendation to the Compensation Committee for the executive’s Individual Performance Factor. The Compensation Committee then meets with the CEO and discusses the CEO’s recommendations, and meets separately in executive session to discuss the CEO’s recommendations and makemakes a determination of the Individual Performance Factor for the NEOs, excluding the CEO.
The Compensation Committee applies similar factors in determining the Individual Performance Factor for the CEO. The Compensation Committee meets in executive session to discuss the CEO’s individual performance and then consults with the Chairman of the Board for their collective determination of the CEO’s Individual Performance Factor. The evaluation of the CEO’s overall performance relative to these factors is also inherently subjective, involving a high degree of judgment. The Compensation Committee and the other independent
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directors assess the overall performance of the Company in light of the dynamics of the China market in which the Company operates. As a result, no single performance goal or group of goals is determinative for the evaluation of the CEO’s performance.
The use of Individual Performance Factors provides the Company with a degree of flexibility (applied reasonablyto recognize performance and in moderation by the Compensation Committee) to reward contributions to strategic business initiatives and the building of organizational capabilities supportive of the creation of long-term value.
Based on the foregoing, the Compensation Committee assigned 20212022 Individual Performance Factors for the NEOs ranging from 100%80% to 130%140%, as described below under “2021“2022 NEO Compensation and Performance Summary.”
Long-Term Equity Incentives
The Company provides long-term equity compensation to its executives to encourage decision-making that creates long-term sustainable stockholder value. In determining the size of the annual equity awards, the Compensation Committee considers the following:
Prior year individual and team performance;
Expected contributions in future years;
The market value of the executive’s role compared with similar roles in the Company’s peer group, based on compensation survey data; and
Achievement of the Company’s stock ownership guidelines.
• | Prior year individual and team performance; |
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• | The market value of the executive’s role compared with similar roles in the Company’s peer group or based on compensation survey data; and
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• | Achievement of the Company’s stock ownership guidelines. |
Consistent withFor 2022, the 2020Compensation Committee granted annual equity grants,awards in the 2021 annual equity grants consistedform of SARs, PSUs and PSUs, equally weighted. The entire portionRSUs, weighted 50%, 30% and 20%, respectively. Eighty percent of the 2022 annual equity grant is considered by the Compensation Committee to be performance-based as the PSUs will vest based only on the Company’s achievement of performance goals relating to rTSR, Adjusted Total Revenue Growth and Adjusted Diluted Earnings Per Common Share Growth, and the SARs will realize value only to the extent the Company’s stock price increases from the date of grant.
The SARs and RSUs vest annually in equal installments of 25%, beginning on the first anniversary of the grant date and generally subject to continued employment through the applicable vesting date. The exercise price of each SAR grant is based on the closing market price of the underlying Company stock on the date of grant.
The 2022 Annual PSU Awards are designed to incentivize each NEO’s performance over the performance period from January 1, 20212022 to December 31, 20232024 and to further align their interests with the interests of our stockholders. In early 2021, in response tostockholders through the challenges presented by the COVID-19 pandemic with respect to setting targets for the Annual PSU Awards, the Compensation Committee determined to grant the Annual PSU Awards in two equally weighted grants, with the first grant occurring in February 2021 and to vest based on the Company’s achievementuse of an rTSR performance goals and the second grant occurring three months later in May 2021 and to vest based on the Company’s achievement of performance goals relating to Adjusted Total Revenue Growth (weighted 50%) and Adjusted Diluted Earnings Per Common Share Growth (weighted 50%). Given the uncertainty presented by the continuing COVID-19 pandemic, the Compensation Committee considered a number of options to design the Annual PSU Awards in a manner that served as an appropriate incentive vehicle while also aligning the long-term interests of recipients with our stockholders, including the possibility of setting annual performance goals for each year in the three-year performance period with respect to the Adjusted Total Revenue Growth and Adjusted Diluted Earnings Per Common Share Growth performance goals. In order to align the Annual PSU Awards with the long-term interest of the stockholders, the Compensation Committee ultimately decided to approve a three-year performance period from January 1, 2021 to
December 31, 2023, as compared to three annual performance periods. To obtain greater clarity on the operating environment and assess the rigor of these three-year performance goals, the Compensation Committee delayed the grant date by three months until May 2021 for the Annual PSU Awards with vesting tied to these two performance goals. Consistent with the Company’s usual practice of granting annual LTI awards in February, the number of shares subject to the May 2021 portion of the PSU grant was determined based on the February 2021 stock price rather than the stock price on the grant date in May 2021. This resulted in larger grant date fair value as compared to the grant level approved in February 2021 due to higher stock price in May 2021.
goal. The rTSR performance goal for the 3-yearthree-year performance period from January 1, 2021 to December 31, 2023 is measured as achievement compared against the constituents of the MSCI China Index. The vestingThis index was selected as the companies included are generally impacted by the same market conditions as the Company. TSR is based on the average closing price over the 20 trading days up to and including the start and end of the performance period. Vesting of the PSUs will be capped at target if the Company’s TSR performance is negative over the performance period. Forperiod regardless of how well the Company performance atperforms as compared to the 30th percentile, threshold shares (50% of target) would be earned, atindex. The following table sets forth the above median 55th percentile 100% of target shares would be earned, and atTSR vesting schedule for the 80th percentile or greater, maximum shares (200% of target) would be earned. The Adjusted Total Revenue Growth and Adjusted Diluted Earnings Per Share Growth goals use2022 Annual PSU Awards.
Threshold | Target | Maximum | ||||||||||||||
TSR Percentile Rank Achieved | <25 | % | 25 | % | 55 | % | 85 | % | ||||||||
Proportion of Target Award Vesting | 0 | % | 40 | % | 100 | % | 200 | % |
2020 Annual PSUs
Beginning with the 2020 results as a baseline from whichannual equity grants, the group of recipients of PSUs had been expanded to measure growth. Giveninclude all of the Company’s performance inleadership team, including the NEOs. Under the 2020 (and the first quarter of 2021 with respect to the Adjusted Total Revenue Growth and Adjusted Diluted Earnings Per Share Growth performance goals) and the Company’s operating plan over the three-year performance period, the performance goals applicable to the Annual PSU Awards were designed to be challenging but achievable with strong management performance.
2021 represented the final year of the 2019-2021 performance period for PSUs granted in 2019. Under the 2019 PSU program, Ms. Wat’s 2019 PSUs would be
settled in shares of our common stock based on our rTSR performance overcontinued service and the 2019-2021 performance period relative to 143achievement of the 149 companies in the MSCI International China Index as of January 1, 2019 and that were still active as of December 31, 2021. Under the program, payout would be capped at target if the Company’s TSR was negative overunderlying performance goals during the three-year performance period. Unlike the 2019 PSUs where only a relative measure was
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Threshold | Target | Maximum | ||||||||||||||
TSR Percentile Rank Achieved | <30 | % | 30 | % | 55 | % | 85 | % | ||||||||
Proportion of Target Award Vesting* | 0 | % | 35 | % | 100 | % | 200 | % |
used, the performance metrics and goals for the 2020 Annual PSUs adopted two absolute growth targets, including adjusted total revenue growth (weighted 60%) and adjusted diluted EPS growth (weighted 40%). A relative measure, the Company’s rTSR compared to the MSCI China Index, was included only as a modifier to increase or decrease the number of units to be earned by up to 20%. Based on performance, vesting could range from 0% to 240% of the target number of shares subject to the 2020 Annual PSUs. In 2021 and 2022, the Compensation Committee closely monitored the impact of the pandemic on the Company’s performance and considered different alternatives to fairly assess and reward management for their performance during the three-year performance period of the 2020 Annual PSUs. 2022 represented the final year of the 2020-2022 performance period for the 2020 Annual PSUs.
The absolute targets for the 2020 Annual PSUs were established in early 2020 at a time when the Company could not have anticipated or known the duration or impact of the COVID-19 pandemic on the market in which the Company operates. Due to the ongoing impact of COVID-19, the Company was operating in a volatile and unpredictable market during the duration of the performance period. Compared to 2019, the 2022 total revenue for the China restaurant industry declined by 6%, with a negative CAGR of 2% from 2019 to 2022. As a result, the original absolute growth goals set for the 2020 Annual PSUs became less effective in incentivizing management
and recognizing actions that would enable the Company to navigate the pandemic and emerge stronger.
As noted above, during the three-year period impacted by the COVID-19, we stayed nimble and quickly adapted to the rapidly-changing operating environment. With the tremendous efforts from our employees led by the leadership team, our revenue growth rate outperformed that of the China restaurant industry. The CAGR of our total revenue growth (excluding foreign currency translation) from 2019 to 2022 was 2%, compared to a negative CAGR of 2% in the total revenue of the China Restaurant industry over the same period. In addition, compared to the constituents of the MSCI China Index, the Company’s TSR ranked at the 68.91 percentile over the three-year period from 2020 to 2022.
In light of the Company’s strong performance against its peers despite the COVID-19 pandemic and considering that keeping the original design of the 2020 Annual PSUs potentially would have resulted in zero payout, which the Compensation Committee believed would not appropriately reflect management’s performance and incentivize management in directing the Company to continue to navigate the pandemic, the Compensation Committee determined to adjust the weighting of the performance metrics of the 2020 Annual PSUs in December 2022. The following graph illustrates the reallocation of the weighting of the performance metrics before and after the adjustment.
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(1) | The number of performance units that vest shall be modified by up to +20% for outperformance, or up to -20% for underperformance, as compared to the MSCI China Index. |
(2) | The following table sets forth the rTSR vesting schedule for the 2020 Annual PSUs after the adjustment: |
Threshold | Target | Maximum | ||||||||||||||
TSR Percentile Rank Achieved | <25 | % | 25 | % | 55 | % | 85 | % | ||||||||
Proportion of Target Award Vesting* | 0 | % | 40 | % | 100 | % | 200 | % |
* | Vesting proportion for performance between performance levels would be determined based on linear interpolation. Under the program, payout would be capped at target if the Company’s TSR was negative over the three-year performance period. TSR percentile rank was calculated based on the 20-trading day average closing prices up to and including January 1, 2020 and the 20-day average closing prices up to and including December 31, 2022 and assumes reinvestment of dividends. |
These weightings were adjusted to better reflect alignment between pay and performance over the multiple year performance period. The Compensation Committee maintained the relative weighting of adjusted total revenue growth and adjusted diluted EPS growth with each other. The Compensation Committee placed more emphasis on the rTSR metric in recognition of the difficulty of measuring performance against absolute growth goals in total revenue and EPS, which were set before the onset of the COVID-19 pandemic, in light of the volatile operating environment and its assessment that rTSR would better measure the Company’s success in execution of its evolving operational plan during the three-year performance period and its performance compared to the China restaurant industry and the MSCI China Index.
Except for the changes in weighting of the performance goals, the terms and conditions applicable to the 2020 Annual PSUs remained unchanged. The Compensation Committee determined that this modification to the 2020 Annual PSUs was aligned with the Company’s compensation philosophy of retaining talent and rewarding performance, particularly in light of the operational achievements of the Company since the 2020 Annual PSUs were granted.
The table below sets forth the threshold, target and maximum achievement levels, weights and actual results for each measure of the 2020 Annual PSUs following the reallocation of the weighting of performance metrics:
Performance Measure | Threshold | Target | Maximum | Actual | | Earned as a % of Target | | Weighting | | Final Team Performance | ||||||||||||||||||
R-TSR | 25th | 55th | 85th | 68.91th | 146.36% | 60% | 87.82% | |||||||||||||||||||||
Adjusted Total Revenue CAGR(1) | 4% | 7% | 10% | 3% | 0% | 24% | 0% | |||||||||||||||||||||
Adjusted Diluted EPS CAGR(2) | 4.5% | 7.25% | 10% | -12% | 0% | 16% | 0% | |||||||||||||||||||||
Final Payout Ratio | 87.82% | |||||||||||||||||||||||||||
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(1) | Adjusted Total Revenue represents total revenues as reported in the Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2022 (the “Audited Financial Statements”), but adjusted to exclude (i) revenues from transactions with franchisees and unconsolidated affiliates; (ii) revenues generated from certain emerging brands; and (iii) the impact of foreign currency fluctuations. The performance goal is measured from 2019 year-end results, which is the base year for measuring CAGR. |
(2) | Adjusted Diluted EPS is defined as Adjusted Net Income divided by Adjusted Weighted-Average Common and Diluted Potential Common Shares Outstanding, where: |
• | Adjusted Net Income represents adjusted net income presented in the Company’s annual report on Form 10-K, but further adjusted to exclude: (i) income generated from certain emerging brands; (ii) income tax expense |
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impact of planned or actual repatriations; (iii) investment gains or losses for equity investments measured at fair value; (iv) certain non-recurring adjustments; (v) the impact of foreign currency fluctuations; and (vi) the income tax effect of the above adjustments. The performance goal is measured from 2019 year-end results, which is the base year for measuring CAGR. |
• | Adjusted Weighted-Average Common and Diluted Potential Common Shares Outstanding represents weighted-average common and diluted potential common shares outstanding presented in Note 5 to the Audited Financial Statements, and adjusted to exclude: (i) impact on share count associated with certain share repurchases; (ii) impact on share count as a result of the Company’s global offering and secondary listing on the HKEX; (iii) impact on outstanding shares held by employees of YUM! Brands, Inc. (“YUM”); and (iv) diluted shares associated with the 2020 partner PSU awards (“2020 Partner PSU Awards”). |
Based on the Company’s 45.71%22.55% TSR performance during the three-year performance period, the Company ranked at the 72nd68.91 percentile as compared to the TSR performance of the activestill-active constituents of the MSCI International China Index at the end of the performance period, resulting in 157.43%87.82% vesting of the target PSUs and dividend equivalents vesting, or 67,686equivalents.
The table below shows the number of shares of our common stock.
2021 Chairman Grants
In February 2021, the Compensation Committee awarded the 2021 Chairman Grants to select Company executive officers and employees. Amongstock acquired by each of the NEOs Ms. Wat and Messrs. Yeung and Chan were selected as recipientsupon the vesting of the Chairman long-term equity grant. These awards are intended to provide recognition for exemplary individual leadership demonstrated by select executives and employees during 2020 in particular in resolving many novel and complex regulatory issues to execute the Company’s secondary listing on the Hong Kong Stock Exchange and navigating the Company through the COVID-19 crisis. The Company considers it important to retain the flexibility to make long-term equity awards to specifically reward demonstrated individual leadership actions and behaviors that are not factored into the corporate performance goals underlying the equity awards made to our entire management team, but which still recognize individual actions and behaviors that the Company wants to encourage and foster. While these awards were granted in recognitionAnnual PSUs (before payment of the significant individual achievements and leadership displayed by recipients during 2020, the Compensation Committee elected to deliver the 2021 Chairman Grants as RSUs that cliff-vest on the third anniversary of the grant date to incentivize retention over this three-year period. Factors considered in awarding the Chairman Awards included:applicable withholding taxes).
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Name | Number of Shares
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Ms. Wat | 52,166 | |||||
Mr. Yeung | 12,520 | |||||
Mr. Chan | 8,347 | |||||
Mr. Huang | 12,520 | |||||
Mr. Yuen | 6,782 |
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The grants to Ms. WatPlease see the “2022 Summary Compensation Table” and Messrs. Yeungthe “2022 Grants of Plan-Based Awards Table” for further information regarding the 2020 Annual PSUs that vested during the year and Chan have a grant datethe incremental fair value of $2,500,000, $1,600,000 and $1,500,000, respectively, and will cliff-vest onassociated with the three-year anniversarymodification of the grant date based on continued service through the vesting date. The Compensation Committee elected to deliver the 2021 Chairman Grants as RSUs rather than as cash bonuses in order to further incentivize the retention of these key contributors over the applicable vesting period and to further align their interests with the interests of our stockholders. While these awards are not a component of the Company’s annual executive compensation program, the Compensation Committee determined that the 2021 Chairman Grants were appropriate to recognize the listing on the Hong Kong Stock Exchange and to incentivize similar actions that required significant efforts and innovativeness by our select executives.2020 Annual PSUs.
2022 Lavazza ESOP Grants
As previously disclosed in last year’s CD&A, the Company and Lavazza Group established the Lavazza Joint Venture to explore and develop the Lavazza coffee business in China. In order to incentivize the efforts of employees of the Company, Lavazza Group and the Lavazza Joint Venture to execute on the Lavazza Joint Venture’s business plan, including the target to open 1,000 Lavazza
stores in China by 2025,in the next few years, the Lavazza Joint Venture established the JV
Equity Plans allowing for the grant of equity awards with respect to the Lavazza Joint Venture to key employees of the Lavazza Joint Venture, as well as select employees of Lavazza Group and the Company. Under the JV Equity Plans, up to 15% of the equity in the Lavazza Joint Venture may be granted as equity awards, under the JV Equity Plans, with employees and other eligible participants of the Lavazza Joint Venture, including restaurant general restaurant managers, eligible to receive up to 80% of the JV Equity Plan shares, or 12% of the equity in the Lavazza Joint Venture. The remaining JV Equity Plan shares will be allocated to the employees of the Company and Lavazza Group in accordance with their respective equity interest in the Lavazza Joint Venture, or up to 2% and 1%, respectively, of the equity in the Lavazza Joint Venture.
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The Compensation Committee has discretion to award the portion of the JV equity pool allocated to the Company to employees of the Company who have been key contributors to the efforts of the Lavazza Joint Venture and are deemed to be essential to the successful execution of the Lavazza Joint Venture’s business plan. The JV Equity Plans and related grants were adopted in order to support entrepreneurial and innovative thinking and leadership through a compensation structure linked to brand expansion and our long-term strategy.
After considering the input of the Compensation Committee’s compensation consultant with respect to form and amount of equity awards to be granted to Company employees, on February 10, 2022, the Lavazza Joint Venture and the Compensation Committee approved equity awards under the applicable JV Equity Plan to certain employees of the Company, including awards accounting for 0.9% of the continuingequity in the Lavazza Joint Venture to the NEOs, in the form of PSUs. The PSUs are subject to both performance-based vesting conditions and the occurrence of a liquidity event. The performance-based vesting conditions relate to the Lavazza Joint Venture’s performance with respect to revenue (RMB606 million), store-level profitability (to achieve restaurant profit breakeven), brand-level profitability (to achieve operating profit breakeven) and store count (net store count to reach 1,000), each equally weighted, with performance to be measured on a rolling four-consecutivelast four quarter basis over a four-year performance period. The liquidity event vesting condition, which includes the occurrence of an initial public offering of the Lavazza Joint Venture, must occur within seven years of the grant date.date for the awards to vest. Any portion of the award that does not vest, either based on the achievement of the applicable performance-based vesting conditions or the non-occurrence of
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the liquidity event, will be forfeited in their entirety. To recognize the efforts of each of the continuing NEOs with respect to the Lavazza Joint Venture and to incentivize and galvanize their continued focus on the success of the Lavazza Joint Venture, the Compensation Committee granted PSUs with the following target grant date fair values to each of the continuing NEOs: Ms. Wat, $1,000,000; Mr. Yeung, $200,000; Mr. Chan, $200,000; Mr. Huang, $200,000 and Mr. Yuen, $200,000.
As noted in the “2022 Summary Compensation Table,” as of the grant date, the achievement of the performance-based vesting conditions and the occurrence of a liquidity event with respect to the 2022 Lavazza ESOP Grants were not considered probable for accounting purposes and, therefore no associated expenses was recognized for accounting purposes that can be included for the 2022 Lavazza ESOP Grants in the 2022 Summary Compensation Table.
Other Elements of Executive Compensation Program
As with all Company employees, Company executive officers receive certain employment benefits. We believe the benefits we offer are an important part of retention and capital preservation for all levels of employees. Our benefits are designed to protect against unexpected catastrophic losses of health and earnings potential and provide a means to save and accumulate assets for retirement.
Post-Termination and Change in Control Compensation.
The Company provides certain post-termination and change in control compensation to help accomplish the Company’s compensation philosophy of attracting and retaining executive talent.
Change in Control Severance Plan.The Company maintains a change in control severance plan that covers all NEOs. Severance benefits are payable only upon a qualifying termination, which is defined as a termination by the Company without cause or by the participant due to good reason, within 24 months following the consummation of a change in control of the Company. The Compensation Committee believes change in control compensation promotes management independence and helps retain, stabilize, and focus the executive officers in the event of a change in control.
Executive Severance Plan. As noted above, in September 2021, the Compensation Committee adoptedThe Company also maintains the Executive Severance Plan, to providewhich provides severance benefits to certain key management employees of the Company and its affiliates who are selected by the Compensation Committee to participate in the plan, including each of the NEOs.
NEOs, and who experience a qualifying termination under the terms of the plan. The Executive Severance Plan aids in recruitment and retention and promotes smooth succession planning,
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while providing transitional pay for a limited period of time to executives whose employment is involuntarily terminated. Payments are conditioned upon the executive’s execution of a release of claims in favor of the Company and compliance with restrictive covenants. Severance benefits payable under the Executive Severance Plan are equal to two times the sum of annual base salary plus annual target bonus for the CEO and one time the sum of annual base salary plus target annual bonus for the other NEOs, will be in lieu of any cash severance benefits under any other arrangement with the participant and are subject to recoupment in the event the executive violates his or her restrictive covenants with the Company.
The terms of the Change in Control Severance Plan and Executive Severance Plan were determined after considering market data and the input of the compensation consultant. The award agreements with respect to the Company’s outstanding equity awards also provide for pro-rata vesting in the event of certain qualifying terminations of employment, as described below.
employment. Please see the “Potential Payments upon a Termination or a Change in Control” section below for a quantification of the amounts that would be payable to each of the continuing NEOs in connection with a termination of employment or change in control as of December 31, 2021.2022.
Retirement Plans. The Company offers certain executives working in China retirement benefits under the Bai Sheng Restaurants China Holdings Limited Retirement Scheme (“BSRCHLRS”). Under the BSRCHLRS, executives may make personal contributions, and the Company provides a company-funded contribution ranging from 5% to 10% of a participating executive’s base salary. During 2021,2022, all of our NEOs were participants in the BSRCHLRS, and each NEO received a company-funded contribution.
Medical, Dental, and Life Insurance and Disability Coverage. The Company provides benefits such as medical, dental, and life insurance and disability coverage to its executive officers through the same benefit plans that are provided to all eligible China-based employees.
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Perquisites. Certain perquisites are provided As noted earlier in the CD&A, the Company’s executive compensation program may differ from our U.S. peers to reflect the competitive market in China, the need to attract a global skillset with deep knowledge of both U.S. and Chinese regulatory regimes and the Company’s desire to incentivize an entrepreneurial mindset to encourage actions that support our long-term growth and strategy. Because the Company is designing an executive compensation program that attracts, retains and incentivizes global talent, the Company provides certain Company executive officersperquisites relating to overseas assignments.assignments as part of a competitive compensation package to attract and retain globally mobile executives. These perquisites are governed by the Company’s formal mobility policy, are offered on a case-by-case basis and reflect each executive’s particular circumstances while also generally reflecting market practices for similarly situated, globally mobile executives working in international companies based in mainland China. For example, the Company may offer perquisites such as housing cost subsidies, dependent education, and home leave payments to executives performing services in China. These perquisites are considered to be a necessary component of the Company’s executive compensation program in order to attract and retain high-performing executives from different countries who have the skill sets and experience to successfully manage and lead the Company in mainland China.
Prior to our spin-off from YUM, certain of our NEOs were offered tax equalization benefits as an element of their compensation. These tax equalization benefits represent legacy compensation arrangements entered into with our former parent. After the spin-off, the Compensation Committee began to phasephased out tax equalization benefits for the NEOs (other than certain grandfathered benefits pursuant to the legacy arrangements).
See the 20212022 All Other Compensation Table in this CD&A for details regarding the perquisites received by our NEOs during 2021.2022.
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20212022 NEO Compensation and Performance Summary
Below is a summary of our NEOs’ 20212022 compensation—which includes base salary, annual cash bonus,incentive, and equity
awards—and awards, as well as an overview of our NEOs’ 20212022 performance relative to thetheir individual annual performance goals. The specific performance summaries described below were considered in determining the Individual Performance Factor under the annual cash bonus program. As noted in the CD&A, in February 2022, the Compensation Committee approved the performance goals that would be used to determine the Individual Performance Factor for the CEO and other NEOs. These
annual performance goals generally fell within the performance categories of mitigating the impact of the COVID-19 pandemic, increasing stockholder returns, accelerating the growth of our brands, driving new business initiatives, effectively managing costs, and achieving ESG and other strategic objectives. Under each performance goal category, each NEO has a number of underlying pre-established goals against which the NEO’s performance is assessed. See “Elements of the Executive Compensation Program—Annual Performance Based Cash Bonuses—Individual Performance Factor.”
Joey Wat Chief Executive Officer
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20212022 Performance Summary. The Compensation Committee determined Ms. Wat’s performance to be significantly above target with an Individual Performance Factor of 130%140%. At the beginning of the year, the Compensation Committee set individual performance goals for Ms. Wat covering five pre-defined performance areas: (1) financial performance as measured by sales and profit growth; (2) ESG; (3) accelerating growth of leading brands; (4) growing new business initiatives and (5) building people, culture and organization.
Further, Ms. Wat was recognized for leading the Company’s crisis management team in taking timely and decisive actions in tackling the many unprecedented challenges arising out of the COVID-19 pandemic in 20212022, which was viewed as even more difficult than 2020 or 2021. Those measures included protecting employees, sustaining operations, driving sales and continuing to execute the Company’s business plan throughprotecting profitability. Despite a disciplined review process. While the COVID-19 pandemic heavily impacted the Company’s businessdecline in the second half of 2021,total revenue for the China restaurant industry due to massive lockdowns and infections in both early and late 2022, Ms. Wat led the Company to achieve profitability in delivering system salesevery quarter in 2022. The Company also delivered revenue growth (excluding foreign currency translation) which outperformed the China restaurant industry revenue growth by 7% in 2022. Ms. Wat led the effort to restructure both commodity and labor cost bases to protect margins, resulting in a full year restaurant margin of 10% and achieving delivery sales growth of 20% for KFC and 14% for Pizza Hut. Under Ms. Wat’s leadership, Pizza Hut’s revitalization program, which started in 2017, has significantly improved fundamentals, and Pizza Hut achieved remarkable growth in both sales and profit14.1%, compared to 13.7% in 2021. The Company achieved record openings of 1,806 gross new stores with diversified store models and healthy unit economics. Since Ms. Wat’s appointment as CEO in early 2018,Company’s 2022 TSR ranked 93.65 percentile against the Company’s TSR consistently outperformed thatconstituents of the MSCI China Index. The Compensation CommitteeDespite a very challenging business environment, the Company achieved net new stores of 1,159 with healthy average payback period of two and three years for KFC and Pizza Hut, respectively. Ms. Wat also attached importanceprovided strategic guidance to the emerging brands including Taco Bell and Lavazza, both making solid progress in 2022. Taco Bell doubled its store count to 91 while Lavazza reached a store count of 85, at the end of 2022. On ESG, under
Ms. Wat’s management of the Company’s talent base. Under her direction, the Company initiated the building of a digital research and development center in three cities to support the multi-year end-to-end digitalization initiative. Ms. Wat also took an active role in guiding the Company’s ESG efforts. The Company’s 2021 ESG achievements included phasing-out disposable plastic cutlery, as well as gradually replacing non-degradable plastic bags with paper or biodegradable plastic bags. Ms. Wat also assembled a
project team supported by external advisors to develop a long-termformulated its near term greenhouse gas (GHG) emissions strategy leading toreduction targets and roadmap and received SBTi’s approval in November 2022. The Company also published its first TCFD report and received the Company’s announcement of its commitment to settingindustry highest score for the Science Based Targets.third year from Dow Jones Sustainability Index.
20212022 Compensation Decisions. Effective February 1, 2021,2022, the Compensation Committee decided to bring Ms. Wat’s 20212022 target compensation levels closer in line withat slightly above the median of the Company’s compensation peer group, after taking into account Ms. Wat’s experience in and knowledge of the China consumer market and global expertise. These decisions positioned Ms. Wat’s total target direct compensation at the 42nd54th percentile of the Company’s 20212022 compensation peer group. After considering the advice of its compensation consultant, market practices,practice, and Ms. Wat’s individual performance, the Compensation Committee made the following compensation decisions.
• | Base Salary. Ms. Wat’s base salary was increased from |
• | Annual Incentive Plan Target and Payout Level. Ms. Wat’s annual cash bonus target |
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reflecting a total payout of |
• | Long-Term Incentive Award. The Compensation Committee approved an annual long-term incentive award |
of $6,500,000 to Ms. Wat in February 2022, delivered in 50% SARs, 30% PSUs and 20% RSUs, which was increased from an annual long-term incentive award of $6,000,000 in 2021. Ms. Wat also received a 2022 Lavazza ESOP Grant with a grant date fair value of $1,000,000. |
Andy Yeung Chief Financial Officer |
2022 Performance Summary. The Compensation Committee determined Mr. Yeung’s performance to be significantly above target with an Individual Performance Factor of 140%. Mr. Yeung was recognized for driving the disciplined scenario planning approach in financial planning and vigorous austerity measures, which helped maintain yearly and quarterly profitability in a highly volatile business environment in 2022 and achieved a full year restaurant margin of 14.1%, compared to 13.7% in 2021. Mr. Yeung played an instrumental role in contributing to the Company’s successful primary conversion on the Hong Kong Stock Exchange despite the challenges of lockdown and travel restrictions. Mr. Yeung was instrumental in resolving many novel issues arising from regulatory framework differences between Hong Kong and U.S. Under Mr. Yeung’s leadership, systems were set up to fulfill financial reporting requirements applicable to a dual-primary issuer on both the New York Stock Exchange and Hong Kong Stock Exchange. Mr. Yeung provided in-depth guidance to KFC, Pizza Hut and the emerging brands, resulting in improvement in their store unit economics under difficult macro and COVID conditions. Mr. Yeung also served as a core member of the Company’s Sustainability Committee and played an active role in ESG discussions, including the Company’s strategy and roadmap relating to near term Science Based Target setting, which was approved by SBTi in November 2022.
2022 Compensation Decisions. Effective February 1, 2022, the Compensation Committee set Mr. Yeung’s 2022 compensation levels after considering the advice of its compensation consultant, market practice and Mr. Yeung’s individual performance.
• | Base Salary. Mr. Yeung’s base salary was increased from $800,000 to $840,000, an increase of 5.0%. |
• | Annual Incentive Plan Target and Payout Level. Mr. Yeung’s annual cash bonus target remained at 100% of his base salary, resulting in a bonus target for the year of $840,000. Mr. Yeung’s 2022 annual cash bonus award payout was $1,411,200, reflecting a total payout of 168% of target based on the Team Performance Factor of 120% and Individual Performance Factor of 140%. |
• | Long-Term Incentive Award. The Compensation Committee approved an annual long-term incentive award of |
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Chief
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20212022 Performance Summary. The Compensation Committee determined Mr. Yeung’s performance to be above target with an Individual Performance Factor of 125%. Mr. Yeung was recognized for driving disciplined financial planning and vigorous cost management measures, achieving a year-over-year increase in Operating Profit despite the significant impact due to the resurgence of COVID-19 in the second half of 2021. He also led the development of the Company’s multi-year capital allocation strategy. With the Company becoming newly listed on the Hong Kong Stock Exchange in September 2020, he led the efforts for the Company’s compliance with the rules of the SEC and Hong Kong Stock Exchange. Mr. Yeung played an active role in ESG, including the Company’s strategy and roadmap relating to setting Science Based Targets. For new growth initiatives, Mr. Yeung was instrumental in formulating the long-term joint venture agreement with Lavazza Group. He also devised and implemented robust monthly financial reviews on all new growth initiatives, including the Lavazza Joint Venture, to complement the leadership team’s comprehensive business reviews on these growth initiatives and support disciplined, accelerated growth.
2021 Compensation Decisions. Effective February 1, 2021, the Compensation Committee set Mr. Yeung’s 2021 compensation levels after considering the advice of its compensation consultant, market practices and Mr. Yeung’s individual performance. Specifically, the compensation adjustments for Mr. Yeung were made to bring the components of his annual target total direct compensation closer in line with that of the median of the compensation peer group.
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2021 Performance Summary. The Compensation Committee determined Mr. Chan’s performance to be aboveon target with an Individual Performance Factor of 125%80%. Mr. Chan also contributed significantly to the building and updating ofled the Company’s compliance and governance framework especially following its secondary listingsuccessful primary conversion on the Hong Kong Stock Exchange. Under Mr. Chan’s leadership, the Company’s governance, reporting and compliance policies and practices were further updated and enhanced, reflecting the requirements applicable to a dual-primary issuer on both the New York Stock Exchange and Hong Kong Stock Exchange. Mr. Chan was instrumental in September 2020.resolving many novel issues arising from regulatory framework differences between Hong Kong and the U.S. Mr. Chan also played a critical role in establishing a compliance process and system in monitoring and proactively managing risks regarding the continuing evolving areas of PRC privacy and cybersecurity laws. Mr. Chan also played an instrumental role in supporting the execution of strategic investments, including transaction structuring,structure, due diligence, definitive agreement drafting and negotiation, andas well as regulatory approvals. Mr. Chan also further enhanced the Company’s capability to manage and mitigate emerging risks such as cybersecurity and intellectual property protection. Mr. Chan was recognized for serving as a core member of the Company’s Sustainability Committee to lead and guideplayed an active role in ESG discussions, including the Company’s sustainability disclosures to follow evolving regulatory requirements and market practices. He made significant contributions in the ESG strategy and roadmap formulation, including the Company’s commitmentrelating to settingnear term Science Based Targets.Target setting, which was approved by SBTi in November 2022.
20212022 Compensation Decisions. Effective February 1, 2021,2022, the Compensation Committee set Mr. Chan’s 20212022 compensation levels after considering the advice of its compensation consultant, market practicespractice and Mr. Chan’s individual performance.
• | Base Salary. Mr. Chan’s base salary was increased from |
• | Annual Incentive Plan Target and Payout Level. Mr. Chan’s annual cash bonus target |
• | Long-Term Incentive Award. The Compensation Committee approved a long-term incentive award of |
Johnson Huang Chief Customer Officer (since May 1, 2022); General Manager, KFC (through April 30, 2022) |
20212022 Performance Summary. During 2021, Mr. Huang has served as the Company’s Chief Customer Officer since May 1, 2022, after serving as General Manager, KFC after returning from medical leave of absence during 2020.through April 30, 2022. The Compensation Committee determined that Mr. Huang’s 20212022 performance was on target with an Individual Performance Factor of 110%105%. Mr. Huang, as General Manager of KFC, was recognized for driving KFC’s prompt actions in response to address the disruptionsbusiness challenges due to the multiple waves of the COVID-19 outbreaks especially pandemic and regional lockdowns in the second halffirst quarter of 2021. The KFC Brand, under2022. He was appointed as the Company’s newly created role as Chief Customer Officer in May 2022. In this new role, Mr. Huang’s leadership, delivered an 8% increaseHuang was instrumental in systemredesigning the Compa-
ny’s membership strategy and roadmap to empower sales growth and achieved delivery sales growth of 20%, openings of 1,232 gross new stores and newenhance member acquisition of 55 million.experience. Mr. Huang made significant
progress in implementing KFC’s strategy in both expanding regionally-inspired menu items and adopting diversified store models. Healso improved marketing investments through optimizing the conversion rate. Mr. Huang also led the effortslaunch of a digital platform to improve restaurant productivity through the use of digital technologiesbetter monitor member traffic and better analyze member activities to set a foundation for marketing automation leading to labor productivity improvement and wastage reduction.future growth. Mr. Huang supportedalso revamped the Company’s ESG strategy by launchingcustomer incentive program to include the first carbon neutral product and replacing disposable plastic straws, cutlery and bags, representing savings of over 7,000 tons of plastic in 2021. He supportedCompany’s emerging brands for better cross brand marketing.
2022 Compensation Decisions. Effective February 1, 2022, the continued expansion of the KFC food bank project to 27 cities at the end of 2021.Compensation Committee set Mr. Huang’s
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2021 Compensation Decisions. Effective February 1, 2021, the Compensation Committee set Mr. Huang’s 20212022 compensation levels after considering the advice of its compensation consultant, market practices,practice, Mr. Huang’s individual performance and the strong performance of KFC.
• | Base Salary. Mr. Huang’s base salary |
• | Annual Incentive Plan Target and Payout Level. Mr. Huang’s annual cash bonus target |
payout of |
• | Long-Term Incentive Award. The Compensation Committee approved a long-term incentive award of |
Aiken Yuen Chief People Officer |
20212022 Performance Summary. The Compensation Committee determined Mr. Yuen’s performance to be above target with an Individual Performance Factor of 125%. Mr. Yuen was recognized for his instrumental rolecoordinating the Company’s Crisis Management Team in guiding and coordinatingdeveloping responsive policy to protect employees’ health and safety measures against the multiple waveswell-being, especially during lockdowns. The Company enhanced a number of the COVID-19 outbreaks especiallybenefits programs for frontline employees in the second half of 2021. In 2021, the Company upgraded the2022, including enhanced medical insurance coverage of ourfor restaurant general managers, restaurant management teams and supervisors. To build organizational capability, he contributed significantly in building the Company’s digital research and development center and the Lavazza Joint Venture team from scratch.managers. Mr. Yuen alsoplayed an instrumental role to orchestrate a smooth transition of new leadership team appointments, including General Manager KFC, Chief Customer Officer and Chief Development Officer. Mr. Yuen served as a core member of the Company’s Sustainability Committee. He provided valuable guidanceCommittee and inputplayed an active role in enhancingESG discussions, including the Company’s disclosures on human capital managementstrategy and roadmap relating to near term Science Based Target setting, which was approved by SBTi in November 2022. In 2022, Yum China was rated as one of the Company’s Annual Report and Sustainability Report. In 2021, the Company was named to the Bloomberg Gender-Equality Index and was certified as atop 20 China employers by Top Employer 2021Institute and included in China by the Top Employers Institute, bothBloomberg’s “Gender Equality Index” for the thirdfourth consecutive year.
20212022 Compensation Decisions. Effective February 1, 2021,2022, the Compensation Committee set Mr. Yuen’s 2021
2022 compensation levels after considering the advice of its
compensation consultant, market practicespractice and Mr. Yuen’s individual performance.
• | Base Salary. Mr. Yuen’s base salary was increased from |
• | Annual Incentive Plan Target and Payout Level. Mr. Yuen’s annual cash bonus target |
• | Long-Term Incentive Award. The Compensation Committee approved a long-term incentive award of |
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2021 Performance Summary. The Compensation Committee determined Mr. Tan’s performance to be on target with an Individual Performance Factor of 100%. Mr. Tan was recognized for his contribution in managing and optimizing cost of sales, leading to significant savings for raw materials and logistics cost. He also provided valuable input in planning for the expansion of the Company’s logistics center network. In 2021, the Company acquired land for three logistics centers, of which the Company started greenfield construction for two. When serving as the chairperson of the Sustainability Committee, he was instrumental in formulating the Company’s ESG strategy and roadmap, including the Company’s commitment to setting Science Based Targets, and seeking alignment from key stakeholders. Under his leadership, the Company’s ESG efforts achieved progressive improvements, as demonstrated by the assessment results from third-party agencies, including DJSI, ISS and MSCI.
2021 Compensation Decisions. Effective February 1, 2021, the Compensation Committee set Mr. Tan’s 2021 compensation levels after considering the advice of its compensation consultant, market practices and Mr. Tan’s individual performance.
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Please see the “Potential Payments upon a Termination or a Change in Control” section below for a quantification of the amounts Mr. Tan received in connection with his separation.
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How Compensation Decisions Are Made
Executive Compensation Philosophy
A unique feature of the Company is that while incorporated in Delaware and listed on the NYSE and Hong Kong Stock Exchange, substantially all of its operations are located in China. As a result, knowledge of and expertise ofin both U.S. and China regulatory regimes and business practices are required for many of the Company’s executive officers.
The Company’sCommittee annually reviews the company’s executive compensation program has been designed to attractevaluate whether the program continues to support the attraction and retain the talentretention of highly-qualified executives necessary to achieve superior stockholder results and support the long-term sustainable growth of the Company while simultaneously holding our executivesthem accountable to continuously achieve results year after year. In addition, the program has been designed to reward performance, emphasize long-term value creationbased on our high standards of ethical behavior and drive an ownership mentality.corporate governance.
Role of the Compensation Committee
The Compensation Committee reviews and approves goals and objectives relevant to the compensation of the CEO and other executive officers, sets the compensation levels of each of the executive officers, and together with the other independent directors of the Board, approves the compensation of the CEO. The Compensation Committee’s responsibilities under its charter are further described in the “Governance of the Company” section of this Proxy Statement. While not members of the Compensation Committee, the CEO, the CFO, the Chief People Officer, and the Chief Legal Officer, when necessary, also attended meetings of the Compensation Committee in 20212022 to contribute to and understand the Compensation Committee’s oversight of, and decisions relating to, executive compensation. The CEO, the CFO, the Chief People Officer, and the Chief Legal Officer did not attend portions of the meetings relating to their own compensation. The Compensation Committee regularly conducts executive sessions without management present. The Compensation Committee also engages in an ongoing dialogue with its compensation consultant, the CEO, and the Chief People Officer for the evaluation and establishment of the elements of our executive compensation program.
Role of the Independent Consultant
During 2021,2022, the Compensation Committee retained Mercer (Hong Kong) Limited (“Mercer”) as its independent consultant to advise it on executive compensation matters. Mercer attended Compensation Committee meetings in 20212022 and provided advice and guidance to the Compensation Committee on (i) the market competitiveness of the Company’s executive pay practices and levels; (ii) the Company’s 2022 annual and long-term incentive compensation plan design market practice,awards, including regulatory developments, and institutional shareholder views, and in relation to equity awards under the applicable JV Equity Plan;Lavazza ESOP Grants, as well as the modification of the 2020 Annual PSUs; (iii) executive severance plan design benchmarks; (iv) the 20222023 compensation peer group; (v)(iv) the results of equity compensation analytics and award valuations; (vi)(v) the 2021 Chairman Grants; (vii)2022 LTIP adopted upon the dual primary listing of the Company’s common stock ownership guidelineson the Hong Kong Stock Exchange; and retention policies; and (viii) pay(vi) compensation disclosures, including this CD&A.&A and the pay versus performance disclosure. The Compensation Committee has assessed the independence of Mercer pursuant to NYSE rules and conflicts of interest specifically enumerated by the SEC’s six factors, and the Company has concluded that Mercer’s work for the Compensation Committee does not raise any conflicts of interest. The Compensation Committee annually reviews its relationship with Mercer and determines whether to renew the engagement. Only the Compensation Committee has the right to approve the services to be provided by, or to terminate the services of, its compensation consultant.
Executive Compensation Peer Group
One of the key objectives of our executive compensation program is to retain and reward the right talent by providing reasonable and competitive compensation. One method that the Compensation Committee utilizes to attain this objective is by establishing a group of peer companies for comparison of executive compensation practices.
The peer group approved by the Compensation Committee based on the recommendations of Mercer consisted of companies in the restaurant, food and consumer services industries in the United States, Greater China and Europe, as these represent the sectors with which the Company
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competes for executive talent. In addition, Mercer suggested that, for purposes of benchmarking compensation levels for NEOs other than the CEO, the peer group data be supplemented with compensation survey data to provide a broader perspective on market practices. References in this CD&A to market data refer to the peer group or survey data, as appropriate.
After considering the advice of Mercer, the Compensation Committee approved a revised peer group in September 2021 for evaluating 20212022 compensation decisions for the NEOs, which consisted of the companies below. As part of these revisions, theThe Compensation Committee removed four (4) companies and added three (3) companies for reasons
of industry appropriateness and disclosed data availability. The Compensation Committee removed Beyond Meat, Inc., China Mengniu Dairy, eBay Inc., ExpediaWH Group
Inc., Kellogg Company, Marriott International, Inc., and McCormick & Company, Incorporated and removed Hyatt Hotels Corporation, Melco International Development Limited, US Foods Holding Corp., Whitbread PLC, Wm Morrison Supermarkets PLC, Wynn Macau, Limited and X5 RetailWant Want China Holdings Limited, and added DoorDash, Inc., General Mills, Inc. and Chow Tai Fook Jewellery Group N.V.Limited. These changes were made in order to further align the peer group with the Company’s size and operations. The Founder CEOs at Beyond Meat,DoorDash Inc., and Haidilao International Holdings Ltd., and Want Want China Holdings Limited were excluded from the competitive market review. Our peer group reflects a median market capitalization of $23.6$19.4 billion and median annual revenues of $11.2$10.6 billion, both as of June 30, 2021,2022, and consists of 17 U.S. and 10 nine non-U.S. companies.
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New Peer Group for 2022 |
Data from our 20212022 peer group was supplemented by data from companies included in three executive compensation surveys conducted by Mercer in China, Hong Kong, and the U.S., size adjustedsize-adjusted to reflect the Company’s revenue. During 2021,2022, the Compensation Committee reviewed a report summarizing compensation levels at the 25th, 50th25th, 50th and 75th75th percentiles of the peer group and, as applicable, of the survey data for positions comparable to our NEOs. The report compared target and actual total cash compensation (base salary and annual incentives) and total direct compensation (base salary plus annual incentives plus long-term incentives) for each of the NEOs against these benchmarks. The Compensation Committee also reviewed detailed tally sheets that captured comprehensive compensation, benefits and stock ownership details, and comparisons of the CEO’s realized
total direct compensation and realizable equity vis-à-vis that of the peer group.
In September 2021, the Compensation Committee revised the Company’s compensation peer group and decided to remove four (4) companies and add three (3) companies for reasons of industry appropriateness and disclosed data availability. The Compensation Committee removed Beyond Meat, Inc., eBay Inc., WH Group Limited and Want China Holdings Limited, and added DoorDash, Inc., General Mills, Inc. and Chow Tai Fook Jewellery Group Limited. The new compensation peer group consists of 17 U.S. and nine non-U.S. peers. These changes were made in order to further align the peer group with the Company’s size and operations. This revised peer group will be used to evaluate 2022 compensation decisions. The founder CEOs at DoorDash, Inc. and Haidilao International Holdings Ltd. are expected to be excluded from the CEO’s competitive market review.
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Competitive Positioning and Setting Compensation
At the beginning of 2021,2022, the Compensation Committee considered executive compensation peer group data as a frame of reference for establishing target compensation levels for base salary and annual and long-term incentive awards for each NEO. The Compensation Committee conducted an extensive review of market data and made the decision to position target total direct compensation close to the market median, with variation based on the marketability, performance and potential of each NEO and the criticality of the role on the organization.
YUM CHINA – 2023 Proxy Statement | 71 |
EXECUTIVE COMPENSATION |
Compensation Policies
Compensation Recovery Policy
Pursuant to the Company’s Compensation Recovery Policy, in the event of any restatement of the Company’s financial statements due to material noncompliance with any financial reporting requirement under the securities laws, the Compensation Committee will recover or cancel any performance awards that were awarded to a current or former executive officer as a result of achieving performance targets that would not have been met under the restated results. The Company’s recovery authority applies to any performance award received by a current or former executive officer during the three most-recently completed fiscal years immediately preceding the date on which the Company is required to prepare the restatement. Under the terms of the policy, a performance award means any cash or equity-based award that is made, vests or is payable based wholly or in part on the results of a financial reporting measure.
The Company will review and modify the Compensation Recovery Policy as necessary to reflect the final NYSE listing rules adopted to implement the compensation recovery requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Equity-Based Awards Grant Policy
The Company’s Equity-Based Awards Grant Policy provides for certain procedures with respect to the granting of equity awards, including specifying pre-determined dates for annual and off-cycle grants and specifying that the Company will not purposely accelerate or delay the public release of material information in consideration of pending equity grants. Generally, annual equity grants are effective as of the date that is two business days after the Company publicly discloses its results for the previous fiscal year.
Stock Ownership Guidelines and Retention Policy
To align the efforts of our executives with the long-term interests of our stockholders and to reinforce their commitment to the Company’s long-term objectives, the
Compensation Committee established a stock ownership and retention policy that applies to our Section 16 Officers and all members of our Leadership Team. Under the stock ownership and retention policy, the executives have a five-year period from July 1, 2017 or, if later, the date of appointment to a covered position to attain the required ownership level. During the five-year phase-in period, the executives must retain, until the required ownership guideline levels have been achieved, at least 50% of the after-tax shares resulting from the vesting or exercise of equity awards, including PSUs. If the guideline is not achieved after such five-year compliance period, the executive officer will be required to retain 100% of after-tax shares resulting from the vesting or exercise of equity awards until the guideline is achieved.
The chart below shows stock ownership requirements as a multiple of annual base salary for our continuing NEOs. As of the record date, each continuing NEO is in compliance with the Company’s stock ownership requirements and retention policy.
NEO | Stock Ownership as a Multiple of Annual Base Salary | |||
CEO | 6X | |||
CFO | 3X | |||
Chief Legal Officer | 2X | |||
2X | ||||
Chief People Officer | 2X | |||
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Hedging and Pledging of Company Stock
Under the Company’s Code of Conduct, no employee or director is permitted to engage in securities transactions that would allow such employee or director either to insulate himself or herself from, or profit from, a decline in the Company’s stock price. Similarly, no employee or director may enter into hedging transactions in Company stock. Such transactions include, without limitation, short sales as well as any hedging transactions in derivative securities (e.g., puts, calls, swaps or collars) or other speculative transactions related to the Company’s stock. Pledging of Company stock by executive officers and directors is also prohibited.
YUM CHINA– 2023 Proxy Statement |
EXECUTIVE COMPENSATION
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The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management.
Based on such review and discussion with management, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s definitive proxy statement relating to its Annual Meeting of Stockholders, filed on April 14, 2022this Proxy Statement and incorporated by reference in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.2022.
Compensation Committee:
Ruby Lu (Chair)
Edouard Ettedgui
William Wang
Min (Jenny) Zhang
YUM CHINA – 2023 Proxy Statement |
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EXECUTIVE COMPENSATION
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20212022 SUMMARY COMPENSATION TABLE
The following table and footnotes summarize the total compensation awarded to, earned by or paid to the NEOs for fiscal year 20212022 and, to the extent required by SEC executive compensation disclosure rules, fiscal years 20202021 and 2019.2020. The Company’s NEOs for the 20212022 fiscal year are its CEO, CFO, the three other most highly compensated executive officers serving as executive officers as of December 31, 2021, and its former Chief Supply Chain Officer.officers.
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($)(1) | Option/ Awards ($)(2) | Non-Equity Incentive Plan Compensation ($)(3) | All Other Compensation ($)(4) | Total ($)(5) | Adjusted Total Compensation Without Legacy Tax Reimbursements(6) | Year | Salary ($) | Bonus ($) | Stock Awards ($)(1) | Option/ Awards ($)(2) | Non-Equity Incentive Plan Compensation ($)(3) | All Other Compensation ($)(4) | Total ($)(5) | |||||||||||||||||||||||||||||||||||||||||||||||||||
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Joey Wat | 2021 | 1,341,667 | — | 5,703,920 | 3,000,004 | 3,607,246 | 2,902,835 | 16,555,672 | 13,993,639 | 2022 | 1,418,750 | — | 6,035,116 | 3,250,011 | 4,788,000 | 401,002 | 15,892,879 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Chief Executive Officer | 2020 | 1,151,083 | — | 14,500,084 | 2,500,003 | 2,502,664 | 517,744 | 21,171,578 | 20,995,478 | 2021 | 1,341,667 | — | 5,703,920 | 3,000,004 | 3,607,246 | 2,902,835 | 16,555,672 | |||||||||||||||||||||||||||||||||||||||||||||||||||
2019 | 1,180,667 | — | 2,500,031 | 2,500,012 | 4,355,208 | 1,634,083 | 12,170,001 | 10,900,805 | 2020 | 1,151,083 | — | 14,500,084 | 2,500,003 | 2,502,664 | 517,744 | 21,171,578 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Andy Yeung | 2021 | 791,512 | — | 2,401,075 | 750,014 | 1,032,164 | 135,769 | 5,110,534 | 5,110,534 | 2022 | 836,667 | — | 1,458,490 | 790,010 | 1,411,200 | 198,795 | 4,695,162 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Chief Financial Officer | 2020 | 643,333 | — | 2,600,068 | 600,013 | 701,865 | 149,144 | 4,694,423 | 4,694,423 | 2021 | 791,512 | — | 2,401,075 | 750,014 | 1,032,164 | 135,769 | 5,110,534 | |||||||||||||||||||||||||||||||||||||||||||||||||||
2019 | 189,895 | — | 1,000,030 | — | 322,407 | 29,638 | 1,541,970 | 1,541,970 | 2020 | 643,333 | — | 2,600,068 | 600,013 | 701,865 | 149,144 | 4,694,423 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Joseph Chan | 2021 | 595,000 | — | 2,100,748 | 562,502 | 619,967 | 177,468 | 4,055,685 | 4,055,685 | 2022 | 627,500 | — | 1,045,708 | 600,004 | 483,840 | 172,256 | 2,929,308 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Chief Legal Officer | 2021 | 595,000 | — | 2,100,748 | 562,502 | 619,967 | 177,468 | 4,055,685 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Johnson Huang | 2021 | 740,000 | — | 667,558 | 625,000 | 847,441 | 320,245 | 3,200,244 | 3,108,580 | 2022 | 760,350 | — | 1,333,522 | 665,014 | 970,896 | 305,908 | 4,035,690 | |||||||||||||||||||||||||||||||||||||||||||||||||||
General Manager, KFC | 2020 | 516,814 | — | 2,600,068 | 600,013 | 251,021 | 209,701 | 4,177,617 | 4,177,617 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Chief Customer Officer | 2021 | 740,000 | — | 667,558 | 625,000 | 847,441 | 320,245 | 3,200,244 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2019 | 695,833 | — | 440,013 | 440,007 | 1,682,635 | 386,480 | 3,644,968 | 3,466,790 | 2020 | 516,814 | — | 2,600,068 | 600,013 | 251,021 | 209,701 | 4,177,617 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Aiken Yuen | 2021 | 595,236 | — | 373,881 | 350,011 | 547,906 | 596,068 | 2,463,102 | 2,066,736 | 2022 | 621,063 | — | 737,151 | 375,004 | 661,500 | 253,560 | 2,648,278 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Chief People Officer | 2020 | 517,413 | 100,566 | 1,825,078 | 325,011 | 461,599 | 542,754 | 3,772,421 | 3,388,514 | 2021 | 595,236 | — | 373,881 | 350,011 | 547,906 | 596,068 | 2,463,102 | |||||||||||||||||||||||||||||||||||||||||||||||||||
2019 | 512,527 | 99,552 | 228,005 | 228,010 | 882,224 | 193,251 | 2,143,569 | 2,107,840 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Danny Tan | 2021 | 695,544 | — | 534,074 | 500,004 | 588,000 | 1,542,364 | 3,859,986 | 2,605,097 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2020 | 517,413 | 100,566 | 1,825,078 | 325,011 | 461,599 | 542,754 | 3,772,421 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Chief Supply Chain Officer | 2020 | 618,431 | — | 1,975,039 | 475,001 | 631,166 | 602,913 | 4,302,550 | 3,968,872 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2019 | 624,689 | — | 380,023 | 380,013 | 1,313,575 | 666,369 | 3,364,669 | 2,956,605 |
(1) | The amounts reported in this column for |
74 | YUM CHINA– 2023 Proxy Statement |
EXECUTIVE COMPENSATION |
(2) | The amounts reported in this column for |
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(3) | Amounts in this column reflect the annual incentive awards earned for the applicable fiscal year performance periods under the annual bonus program, which is described further in our CD&A under the heading “Annual Performance-Based Cash Bonuses.” |
(4) | The amounts in this column for |
(5) | Certain compensation included in the All Other Compensation column was denominated in Chinese |
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YUM CHINA – 2023 Proxy Statement |
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EXECUTIVE COMPENSATION
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20212022 ALL OTHER COMPENSATION TABLE
The following table and footnotes summarize the compensation and benefits included under the “All Other Compensation” column in the 20212022 Summary Compensation Table that were awarded to, earned by or paid to the Company’s NEOs for the fiscal year ended December 31, 2021.2022.
Name | Perquisites and ($)(1) | Tax Reimbursements ($)(2) | Retirement Scheme Contributions ($)(3) | Other ($)(4) | Total ($) | Perquisites and ($)(1) | Tax Reimbursements ($)(2) | Retirement Scheme Contributions ($)(3) | Other ($)(4) | Total ($) | ||||||||||||||||||||||||||||||
(a) | (b) | (c) | (d) | (e) | (f) | (b) | (c) | (d) | (e) | (f) | ||||||||||||||||||||||||||||||
Ms. Wat | 150,590 | 2,562,032 | 134,108 | 56,105 | 2,902,835 | 174,177 | — | 141,897 | 84,928 | 401,002 | ||||||||||||||||||||||||||||||
Mr. Yeung | 62,934 | — | 39,566 | 33,269 | 135,769 | 91,292 | — | 41,840 | 65,663 | 198,795 | ||||||||||||||||||||||||||||||
Mr. Chan | 99,963 | — | 29,737 | 47,768 | 177,468 | 97,222 | — | 31,380 | 43,654 | 172,256 | ||||||||||||||||||||||||||||||
Mr. Huang | 112,430 | 91,664 | 73,966 | 42,185 | 320,245 | 96,250 | 100,030 | 76,046 | 33,582 | 305,908 | ||||||||||||||||||||||||||||||
Mr. Yuen | 113,224 | 396,366 | 59,524 | 26,954 | 596,068 | 81,487 | 84,781 | 62,107 | 25,185 | 253,560 | ||||||||||||||||||||||||||||||
Mr. Tan | 176,881 | 1,254,888 | 69,583 | 41,012 | 1,542,364 |
(1) | Amounts in this column represent: for Ms. Wat, an education reimbursement ($ |
(2) | Amounts in this column for |
(3) | This column represents contributions to the BSRCHLRS for all of our NEOs. |
(4) | This column reports the total amount of other benefits provided. Such amounts, which are reflective of market practice for similarly situated global executives working in international companies based in mainland China, are paid directly to the NEOs or service providers, as applicable. Other than for certain benefits described below, none of the other benefits individually exceeded the greater of $25,000 or 10% of the total amount of these other benefits and the perquisites and other personal benefits shown in column (b) for the NEO. These other benefits consist of amounts paid for utilities, home leave expenses, transportation allowances, and executive physicals. In |
YUM CHINA– 2023 Proxy Statement |
EXECUTIVE COMPENSATION
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20212022 GRANTS OF PLAN-BASED AWARDS
The following table provides information on the annual incentive program that the Company’s NEOs participated in during 2021 and2022, including the SARs, 2022 Annual PSU Awards and ChairmanRSUs granted under the Company’s long term incentive plan adopted in 2016 (the “2016 LTIP”) in 2022 and the 2022 Lavazza ESOP Grants granted under the Company’s Long Term Incentive Plan in 2021JV Equity Plans to the Company’s NEOs. In addition, the table below includes the 2020 Annual PSUs due to the modification of such PSUs in 2022, as further disclosed in the CD&A.
Name | Grant | Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of Stock or Units (#)(2) | All Other Option/ SAR Awards: Number of Securities Underlying Options (#)(3) | Exercise or Base Price of Option/ SAR Awards ($/Sh)(4) | Grant Date Fair Value of Stock, Option and SAR ($)(5) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Estimated Future Payouts Under Non-Equity Incentive | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of Stock or Units (#)(2) | All Other Option/ SAR Awards: Number of Securities Underlying Options (#) (3) | Exercise or Base Price of Option/ SAR Awards ($/Sh)(4) | Grant Date Fair Value of Stock, Option and SAR ($)(5) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | (k) | (l) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | (k) | (l) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ms. Wat | — | — | 2,642,671 | 7,928,013 | — | — | — | — | — | — | — | — | — | 2,850,000 | 8,550,000 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/10/2022 | — | — | — | — | — | — | — | 208,969 | 50.16 | 3,250,011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/5/2021 | — | — | — | — | — | — | — | 171,989 | 57.39 | 3,000,004 | 2/10/2022 | — | — | — | — | — | — | 25,918 | — | — | 1,300,047 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/5/2021 | — | — | — | — | — | — | 43,562 | — | — | 2,500,023 | 2/10/2022 | (6) | — | — | — | 11,439 | 28,597 | 57,194 | — | — | — | 1,950,029 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/5/2021 | (6) | — | — | — | 10,262 | 20,523 | 41,046 | — | — | — | 1,500,026 | 2/10/2022 | (7) | — | — | — | 250,000 | 1,000,000 | 1,000,000 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
5/25/2021 | (6) | — | — | — | 13,069 | 26,137 | 52,274 | — | — | — | 1,703,871 | 12/30/2022 | (8) | — | — | — | — | 50,961 | — | — | — | — | 2,785,040 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mr. Yeung | — | — | 786,411 | 2,359,233 | — | — | — | — | — | — | — | — | — | 840,000 | 2,520,000 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/5/2021 | — | — | — | — | — | — | — | 42,998 | 57.39 | 750,014 | 2/10/2022 | — | — | — | — | — | — | — | 50,796 | 50.16 | 790,010 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/5/2021 | — | — | — | — | — | — | 27,880 | — | — | 1,600,033 | 2/10/2022 | — | — | — | — | — | — | 6,300 | — | — | 316,008 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/5/2021 | (6) | — | — | — | 2,566 | 5,131 | 10,262 | — | — | — | 375,025 | 2/10/2022 | (6) | — | — | — | 2,781 | 6,952 | 13,904 | — | — | — | 474,057 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
5/25/2021 | (6) | — | — | — | 3,268 | 6,535 | 13,070 | — | — | — | 426,017 | 2/10/2022 | (7) | — | — | — | 50,000 | 200,000 | 200,000 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
12/30/2022 | (6) | — | — | — | — | 12,231 | — | — | — | — | 668,425 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mr. Chan | — | — | 472,356 | 1,417,068 | — | — | — | — | — | — | — | — | — | 504,000 | 1,512,000 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/10/2022 | — | — | — | — | — | — | — | 38,579 | 50.16 | 600,004 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/5/2021 | — | — | — | — | — | — | — | 32,248 | 57.39 | 562,502 | 2/10/2022 | — | — | — | — | — | — | 4,785 | — | — | 240,016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/5/2021 | — | — | — | — | — | — | 26,137 | — | — | 1,500,002 | 2/10/2022 | (6) | — | — | — | 2,112 | 5,280 | 10,560 | — | — | — | 360,043 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/5/2021 | (6) | — | — | — | 1,924 | 3,848 | 7,696 | — | — | — | 281,250 | 2/10/2022 | (7) | — | — | 50,000 | 200,000 | 200,000 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
5/25/2021 | (6) | — | — | 2,451 | 4,901 | 9,802 | — | — | — | 319,496 | 12/30/2022 | (8) | — | — | — | 8,155 | — | — | — | — | 445,649 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mr. Huang | — | — | 733,715 | 2,201,145 | — | — | — | — | — | — | — | — | — | 762,200 | 2,286,600 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/5/2021 | — | — | — | — | — | — | — | 35,831 | 57.39 | 625,000 | 2/10/202 | — | — | — | — | — | — | — | 42,759 | 50.16 | 665,014 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/5/2021 | (6) | — | — | — | 2,138 | 4,276 | 8,552 | — | — | — | 312,533 | 2/10/2022 | — | — | — | — | — | — | 5,304 | — | — | 266,049 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
5/25/2021 | (6) | — | — | — | 2,723 | 5,446 | 10,892 | — | — | — | 355,025 | 2/10/2022 | (6) | — | — | — | 2,341 | 5,852 | 11,704 | — | — | — | 399,048 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/10/2022 | (7) | — | — | 50,000 | 200,000 | 200,000 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
12/30/2022 | (8) | — | — | — | 12,231 | — | — | — | — | 668,425 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mr. Yuen | — | — | 417,452 | 1,252,356 | — | — | — | — | — | — | — | — | — | 441,000 | 1,323,000 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/5/2021 | — | — | — | — | — | — | — | 20,066 | 57.39 | 350,011 | 2/10/2022 | — | — | — | — | — | — | — | 24,112 | 50.16 | 375,004 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/5/2021 | (6) | — | — | — | 1,198 | 2,395 | 4,790 | — | — | — | 175,051 | 2/10/202 | — | — | — | — | — | — | 2,991 | — | — | 150,029 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
5/25/2021 | (6) | — | — | — | 1,525 | 3,050 | 6,100 | — | — | — | 198,830 | 2/10/2022 | (6) | — | — | — | 1,320 | 3,300 | 6,600 | — | — | — | 225,027 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mr. Tan | — | — | 560,000 | 1,680,000 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/10/2022 | (7) | — | — | 50,000 | 200,000 | 200,000 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/5/2021 | — | — | — | — | — | — | — | 28,665 | 57.39 | 500,004 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
12/30/2022 | (8) | — | — | — | 6,626 | — | — | — | — | 362,095 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/5/2021 | (6) | — | — | — | 1,711 | 3,421 | 6,842 | — | — | — | 250,041 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
5/25/2021 | (6) | — | — | — | 2,179 | 4,357 | 8,714 | — | — | — | 284,033 |
(1) | Amounts in columns (c), (d) and (e) provide the minimum, target and maximum amounts payable as annual incentive compensation to each NEO based on team and individual performance during |
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YUM CHINA – 2023 Proxy Statement |
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EXECUTIVE COMPENSATION
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(2) | Amounts in column (i) represent the number of RSUs awarded to each NEO. RSUs vest in equal installments on the first, second, third and fourth anniversaries of the grant date, subject to the recipient’s continued employment through the applicable vesting date. During the vesting period, the RSUs will be adjusted to reflect the accrual of dividend equivalents, which will be distributed as additional Company shares at the same time and to the extent the underlying shares vest. |
(3) | SARs allow the grantee to receive the number of shares of the underlying common stock that is equal in value to the appreciation in the underlying common stock with respect to the number of SARs granted from the date of grant to the date of exercise. SARs become exercisable in equal installments on the first, second, third and fourth anniversaries of the grant date, subject to the recipient’s continued employment through the applicable vesting date. |
(4) | The exercise price of the SARs equals the closing price of the underlying common stock on the grant |
(5) | The amounts reported in this column for |
(6) | Amounts reported in this row and associated with columns (f), (g) and (h) provide the threshold, target and maximum numbers of shares of common stock that may be received by the grantee upon vesting of the 2022 Annual PSU Awards. The 2022 Annual PSU Awards granted to each of the NEOs on February |
(7) | Amounts reported in this row and associated with columns (f), (g) and (h) provide the number of ordinary shares of Lavazza Joint Venture that may be received by the grantee upon vesting of the 2022 Lavazza ESOP Grants granted to each of the NEOs on February 10, 2022. The 2022 Lavazza ESOP Grants granted to the NEOs are subject to both performance-based vesting conditions and the occurrence of a liquidity event, including an initial public offering of the Lavazza Joint Venture, which must occur within seven years of the grant date. |
(8) | Amounts reported in this row and associated with column (g) represent the number of shares subject to the 2020 Annual PSUs that were impacted by the modification to the underlying performance measures and the associated incremental fair value related to the modification of the 2020 Annual PSUs, computed in accordance with ASC 718, and does not reflect a new equity grant. |
YUM CHINA– 2023 Proxy Statement |
EXECUTIVE COMPENSATION
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OUTSTANDING EQUITY AWARDS AT 2021 2022 YEAR-END
The following table shows the number of Company shares covered by exercisable and unexercisable SARs, unvested RSUs and unvested PSUs held by the Company’s NEOs on December 31, 2021.2022. This table excludes any YUM shares received by the NEOs upon conversion of their outstanding YUM equity awards in connection with the spin-off. The 2022 Lavazza ESOP Grants are separately reported in Outstanding 2022 Lavazza ESOP Grants at 2022 Year-End table below.
Option/SAR Awards | Stock Awards | Option/SAR Awards | Stock Awards | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Name | Grant Date | Number of (#) | Number of Securities Underlying Unexercised Options/ SARs (#) Unexercisable(1) | Option/ ($) | Option/ SAR Expiration Date | Number of Shares | Market Value of Shares or Units of Stock That Have Not Vested ($)(3) | Equity That Have | Equity That Have | Grant Date | Number of (#) | Number of Securities Underlying Unexercised Options/ SARs (#) Unexercisable(1) | Option/ ($) | Option/ SAR Expiration Date | Number of Shares | Market Value of Shares or Units of Stock That Have Not Vested ($)(3) | Equity That Have | Equity That Have | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ms. Wat | 2/6/2015 | 27,063 | — | 22.32 | 2/6/2025 | — | — | — | — | 2/6/2015 | 27,063 | — | 22.32 | 2/6/2025 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3/25/2015 | 32,309 | — | 23.90 | 3/25/2025 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3/25/2015 | 32,309 | — | 23.90 | 3/25/2025 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/5/2016 | 41,316 | — | 21.06 | 2/5/2026 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/5/2016 | 41,316 | — | 21.06 | 2/5/2026 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
11/11/2016 | 48,846 | — | 26.98 | 11/11/2026 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
11/11/2016 | 48,846 | — | 26.98 | 11/11/2026 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/10/2017 | 111,774 | — | 26.56 | 2/10/2027 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/10/2017 | 111,774 | — | 26.56 | 2/10/2027 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/9/2018 | 186,151 | — | 40.29 | 2/9/2028 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/9/2018 | 139,613 | 46,538 | (i) | 40.29 | 2/9/2028 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/7/2019 | 139,575 | 46,525 | (i) | 41.66 | 2/7/2029 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/7/2019 | 93,050 | 93,050 | (ii) | 41.66 | 2/7/2029 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/7/2020 | 93,531 | 93,532 | (ii) | 42.71 | 2/7/2030 | — | — | 156,333 | (i) | 8,543,599 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/7/2020 | 46,765 | 140,298 | (iii) | 42.71 | 2/7/2030 | — | — | 23,213 | (i) | 1,156,926 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/5/2021 | 42,997 | 128,992 | (iii) | 57.39 | 2/5/2031 | 44,380 | (i) | 2,425,373 | 10,262 | (ii) | 560,791 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/7/2020 | — | — | — | — | — | — | 312,666 | (ii) | 15,583,273 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
5/25/2021 | — | — | — | — | — | — | 13,069 | (ii) | 714,194 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/5/2021 | — | 171,989 | (iv) | 57.39 | 2/5/2031 | 43,931 | (i) | 2,189,536 | 10,262 | (iii) | 511,433 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/10/2022 | — | 208,969 | (iv) | 50.16 | 2/10/2032 | 26,183 | (ii) | 1,430,889 | 57,194 | (iii) | 3,125,652 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
5/25/2021 | — | — | — | — | 13,069 | (iii) | 651,334 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mr. Yeung | 11/1/2019 | — | — | — | — | 8,335 | (ii) | 415,440 | — | — | 2/7/2020 | 22,448 | 22,448 | (ii) | 42.71 | 2/7/2030 | — | — | 26,056 | (i) | 1,423,960 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/7/2020 | 11,224 | 33,672 | (iii) | 42.71 | 2/7/2030 | — | — | 5,571 | (i) | 277,669 | 2/5/2021 | 10,749 | 32,249 | (iii) | 57.39 | 2/5/2031 | 28,404 | (i) | 1,552,257 | 2,566 | (ii) | 140,205 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/7/2020 | — | — | — | — | — | — | 52,112 | (ii) | 2,597,262 | 5/25/2021 | — | — | — | — | — | — | 3,268 | (ii) | 178,569 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/5/2021 | — | 42,998 | (iv) | 57.39 | 2/5/2031 | 28,116 | (i) | 1,401,319 | 2,566 | (iii) | 127,865 | 2/10/2022 | — | 50,796 | (iv) | 50.16 | 2/10/2032 | 6,364 | (ii) | 347,812 | 13,904 | (iii) | 759,854 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
5/25/2021 | — | — | — | — | — | — | 3,268 | (iii) | 162,852 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mr. Chan | 9/3/2019 | — | — | — | — | 3,571 | (iv) | 177,970 | — | — | 2/7/2020 | 14,965 | 14,966 | (ii) | 42.71 | 2/7/2030 | — | — | 19,542 | (i) | 1,067,970 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/7/2020 | 7,482 | 22,449 | (iii) | 42.71 | 2/7/2030 | — | — | 3,714 | (i) | 185,126 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/5/2021 | 8,062 | 24,186 | (iii) | 57.39 | 2/5/2031 | 26,628 | (i) | 1,455,213 | 1,924 | (ii) | 105,147 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/7/2020 | — | — | — | — | — | — | 39,084 | (ii) | 1,947,947 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
5/25/2021 | — | — | — | — | — | — | 2,451 | (ii) | 133,920 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/5/2021 | — | 32,248 | (iv) | 57.39 | 2/5/2031 | 26,359 | (i) | 1,313,712 | 1,924 | (iii) | 95,892 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/10/2022 | — | 38,579 | (iv) | 50.16 | 2/10/2032 | 4,834 | (ii) | 264,172 | 10,560 | (iii) | 577,104 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
5/25/2021 | — | — | — | — | — | — | 2,451 | (iii) | 122,133 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mr. Huang | 2/6/2013 | 9,652 | — | 19.00 | 2/6/2023 | — | — | — | — | 2/5/2014 | 6,797 | — | 21.30 | 2/5/2024 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/5/2014 | 6,797 | — | 21.30 | 2/5/2024 | — | — | — | — | 2/5/2014 | 9,516 | — | 21.30 | 2/5/2024 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/5/2014 | 9,516 | — | 21.30 | 2/5/2024 | — | — | — | — | 2/6/2015 | 10,149 | — | 22.32 | 2/6/2025 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/6/2015 | 10,149 | — | 22.32 | 2/6/2025 | — | — | — | — | 2/5/2016 | 13,772 | — | 21.06 | 2/5/2026 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/5/2016 | 13,772 | — | 21.06 | 2/5/2026 | — | — | — | — | 11/11/2016 | 24,423 | — | 26.98 | 11/11/2026 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
11/11/2016 | 24,423 | — | 26.98 | 11/11/2026 | — | — | — | — | 2/10/2017 | 37,258 | — | 26.56 | 2/10/2027 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/10/2017 | 37,258 | — | 26.56 | 2/10/2027 | — | — | — | — | 2/9/2018 | 32,543 | — | 40.29 | 2/9/2028 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/9/2018 | 24,407 | 8,136 | (i) | 40.29 | 2/9/2028 | — | — | — | — | 2/7/2019 | 24,565 | 8,189 | (i) | 41.66 | 2/7/2029 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/7/2019 | 16,377 | 16,377 | (ii) | 41.66 | 2/7/2029 | 10,819 | (iii) | 539,194 | — | — | 2/7/2020 | 22,448 | 22,448 | (ii) | 42.71 | 2/7/2030 | — | — | 26,056 | (i) | 1,423,960 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/7/2020 | 11,224 | 33,672 | (iii) | 42.71 | 2/7/2030 | — | — | 5,571 | (i) | 277,669 | 2/5/2021 | 8,957 | 26,874 | (iii) | 57.39 | 2/5/2031 | — | — | 2,138 | (ii) | 116,842 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/7/2020 | — | — | — | — | — | — | 52,112 | (ii) | 2,597,262 | 5/25/2021 | — | — | — | — | — | — | 2,723 | (ii) | 148,812 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/5/2021 | — | 35,831 | (iv) | 57.39 | 2/5/2031 | — | — | 2,138 | (iii) | 106,558 | 2/10/2022 | — | 42,759 | (iv) | 50.16 | 2/10/2032 | 5,358 | (ii) | 292,825 | 11,704 | (iii) | 639,624 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
5/25/2021 | — | — | — | — | — | — | 2,723 | (iii) | 135,714 |
YUM CHINA – 2023 Proxy Statement |
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EXECUTIVE COMPENSATION
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Option/SAR Awards | Stock Awards | Option/SAR Awards | Stock Awards | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Name | Grant Date | Number of (#) | Number of Securities Underlying Unexercised Options/ SARs (#) Unexercisable(1) | Option/ ($) | Option/ SAR Expiration Date | Number of Shares | Market Value of Shares or Units of Stock That Have Not Vested ($)(3) | Equity That Have | Equity That Have | Grant Date | Number of (#) | Number of Securities Underlying Unexercised Options/ SARs (#) Unexercisable(1) | Option/ ($) | Option/ SAR Expiration Date | Number of Shares | Market Value of Shares or Units of Stock That Have Not Vested ($)(3) | Equity That Have | Equity That Have | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mr. Yuen | 2/6/2013 | 3,591 | — | 19.00 | 2/6/2023 | — | — | — | — | 2/5/2014 | 3,602 | — | 21.30 | 2/5/2024 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/5/2014 | 3,602 | — | 21.30 | 2/5/2024 | — | — | — | — | 2/6/2015 | 4,060 | — | 22.32 | 2/6/2025 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/6/2015 | 4,060 | — | 22.32 | 2/6/2025 | — | — | — | — | 2/6/2015 | 4,060 | — | 22.32 | 2/6/2025 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/6/2015 | 4,060 | — | 22.32 | 2/6/2025 | — | — | — | — | 2/5/2016 | 4,614 | — | 21.06 | 2/5/2026 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/5/2016 | 4,614 | — | 21.06 | 2/5/2026 | — | — | — | — | 2/10/2017 | 11,364 | — | 26.56 | 2/10/2027 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/10/2017 | 11,364 | — | 26.56 | 2/10/2027 | — | — | — | — | 2/9/2018 | 16,863 | — | 40.29 | 2/9/2028 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/9/2018 | 12,647 | 4,216 | (i) | 40.29 | 2/9/2028 | — | — | — | — | 2/7/2019 | 12,729 | 4,244 | (i) | 41.66 | 2/7/2029 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/7/2019 | 8,486 | 8,487 | (ii) | 41.66 | 2/7/2029 | 5,606 | (iii) | 279,398 | — | — | 2/7/2020 | 12,159 | 12,160 | (ii) | 42.71 | 2/7/2030 | — | — | 19,542 | (i) | 1,067,970 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/7/2020 | 6,079 | 18,240 | (ii) | 42.71 | 2/7/2030 | — | — | 3,018 | (i) | 150,417 | 2/5/2021 | 5,016 | 15,050 | (iii) | 57.39 | 2/5/2031 | — | — | 1,198 | (ii) | 65,443 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/7/2020 | — | — | — | — | — | — | 39,084 | (ii) | 1,947,947 | 5/25/2021 | — | — | — | — | — | — | 1,525 | (ii) | 83,341 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/5/2021 | — | 20,066 | (iv) | 57.39 | 2/5/2031 | — | — | 1,198 | (iii) | 59,683 | 2/10/2022 | — | 24,112 | (iv) | 50.16 | 2/10/2032 | 3,022 | (ii) | 165,128 | 6,600 | (iii) | 360,690 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
5/25/2021 | — | — | — | — | — | — | 1,525 | (iii) | 76,006 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mr. Tan(5) | 11/11/2016 | 24,423 | — | 26.98 | 11/11/2026 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/10/2017 | 37,258 | — | 26.56 | 2/10/2027 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/9/2018 | — | 7,027 | 40.29 | 2/9/2028 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/7/2019 | — | 14,144 | 41.66 | 2/7/2029 | 9,344 | 465,682 | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/7/2020 | — | 26,657 | 42.71 | 2/7/2030 | — | — | 4,410 | 219,814 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/7/2020 | — | — | — | — | — | — | 39,084 | 1,947,947 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/5/2021 | — | 28,665 | 57.39 | 2/5/2031 | — | — | 1,711 | 85,251 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
5/25/2021 | — | — | — | — | — | — | 2,179 | 108,576 |
(1) | The actual vesting dates for unexercisable SARs are as follows: |
(i) | Remainder of the unexercisable award vested on February |
(ii) | One-half of the unexercisable award vested or will vest on each of February 7, |
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(iv) | One-fourth of the unexercisable award vested or will vest on each of February 10, 2023, 2024, 2025 and 2026. |
(2) | The RSUs reported in this column include additional RSUs received with respect to dividend equivalents, which remain subject to the same underlying vesting conditions. The actual vesting dates for unvested RSUs are as follows: |
(i) | The RSUs will vest in full on February 5, 2024. |
(ii) |
|
|
|
|
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(3) | The market value of each award is calculated by multiplying the number of shares covered by the award by |
(4) | The awards reported in this column represent PSU awards granted to the NEOs with the following vesting terms: |
(i) | The 2020 Partner PSU |
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80 | YUM CHINA– 2023 Proxy Statement |
EXECUTIVE COMPENSATION |
(ii) | PSU awards that are scheduled to vest based on the Company’s achievement of rTSR performance goals and the Company’s |
(iii) |
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YUM CHINA – 2023 Proxy Statement |
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EXECUTIVE COMPENSATION
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2021OUTSTANDING 2022 LAVAZZA ESOP GRANTS AT 2022 YEAR-END
The following table shows the number of the shares of the Lavazza Joint Venture covered by the unvested 2022 Lavazza ESOP Grants held by the Company’s NEOs on December 31, 2022.
Name | Grant Date | Number of Lavazza Joint (#)(1) | Fair Value of Lavazza Joint ($)(2) | |||||||||||||
(a) | (b) | (c) | (d) | |||||||||||||
Ms. Wat | 2/10/2022 | 1,000,000 | $ | 1,010,000 | ||||||||||||
Mr. Yeung | 2/10/2022 | 200,000 | $ | 202,000 | ||||||||||||
Mr. Chan | 2/10/2022 | 200,000 | $ | 202,000 | ||||||||||||
Mr. Huang | 2/10/2022 | 200,000 | $ | 202,000 | ||||||||||||
Mr. Yuen | 2/10/2022 | 200,000 | $ | 202,000 |
(1) | The 2022 Lavazza ESOP Grants granted to the NEOs are subject to both performance-based vesting conditions and the occurrence of a liquidity event, including an initial public offering of the Lavazza Joint Venture which must occur within seven years of the grant date. |
(2) | The per share fair value of the 2022 Lavazza ESOP Grants are based on an external valuation of the total enterprise value of Lavazza Joint Venture as at December 31, 2022 and determined on a diluted basis, taking into account of potential shares to be issued under the Lavazza Equity Plans. |
82 | YUM CHINA– 2023 Proxy Statement |
EXECUTIVE COMPENSATION |
2022 OPTION/SAR EXERCISES AND STOCK VESTED
The table below shows the number of Company shares acquired during 20212022 upon the exercise of Company SAR awards and the vesting of Company stock awards and before payment of applicable withholding taxes and broker commissions. This table does not include any shares acquired upon the exercise or vesting of outstanding YUM equity awards.
Option/SAR Awards | Stock Awards | Option/SAR Awards | Stock Awards | |||||||||||||||||||||||||||||||||||||
Name | Number of Shares (#) | Value Realized on Exercise ($) | Number of Shares (#) | Value ($) | Number of Shares (#) | Value Realized on Exercise ($) | Number of Shares (#) | Value ($) | ||||||||||||||||||||||||||||||||
(a) | (b) | (c) | (d) | (e) | (b) | (c) | (d) | (e) | ||||||||||||||||||||||||||||||||
Ms. Wat | — | — | 145,218 | 8,064,169 | (1) | — | — | 52,166 | 2,850,872 | (1) | ||||||||||||||||||||||||||||||
Mr. Yeung | — | — | 8,069 | 469,965 | — | — | 20,922 | 1,046,027 | (1) | |||||||||||||||||||||||||||||||
Mr. Chan | — | — | 3,440 | 215,008 | — | — | 11,946 | 628,244 | (1) | |||||||||||||||||||||||||||||||
Mr. Huang | 6,342 | 418,581 | 32,143 | 1,903,658 | 6,317 | 347,472 | 23,338 | 1,182,626 | (1) | |||||||||||||||||||||||||||||||
Mr. Yuen | 1,480 | 81,570 | 5,812 | 354,909 | 2,298 | 121,376 | 12,387 | 628,900 | (1) | |||||||||||||||||||||||||||||||
Mr. Tan | 34,112 | 1,668,564 | 9,688 | 591,535 |
(1) | This amount includes the number of shares acquired upon the vesting of the |
Nonqualified Deferred Compensation
The Company offers certain executives working in China retirement benefits under the BSRCHLRS. Under this program, executives may make personal contributions and the Company provides a company-funded contribution ranging from 5% to 10% of an executive’s base salary. In 2021, Mr. Tan made a personal contribution to the BSRCHLRS equal to 5% of base salary. The Company’s contribution for 20212022 was equal to 5% of salary for Messrs. Yeung and Chan, and 10% of salary for each of Ms. Wat and Messrs. Huang Yuen and Tan.Yuen. Participants may elect a variety of mutual funds in which
to invest their
account balances under the plan. Additionally, upon termination, participants receive a lump sum equal to a percentage of the Company’s contributions, including investment returns. This percentage is based on a vesting schedule that provides participants with a vested 30% interest upon completion of a minimum of three years of service, and an additional 10% vested interest for each additional completed year, up to a maximum of 100%. In connection with Mr. Tan’s departure in February 2022, Mr. Tan received a lump sum distribution from the BSRCHLRS.
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EXECUTIVE COMPENSATION
|
20212022 NONQUALIFIED DEFERRED COMPENSATION TABLE
Name | Executive Contributions in Last Fiscal ($)(1) | Registrant Contributions in Last Fiscal ($)(2) | Aggregate Earnings in ($)(3) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last ($)(4) | Executive Contributions in Last Fiscal ($) | Registrant Contributions in Last Fiscal ($)(1) | Aggregate Earnings in Last Fiscal ($)(2) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last ($)(3) | ||||||||||||||||||||||||||||||
(a) | (b) | (c) | (d) | (e) | (a) | (b) | (c) | (d) | (e) | |||||||||||||||||||||||||||||||
Ms. Wat | — | 134,108 | — | — | 582,608 | (5) | — | 141,897 | — | — | 720,206 | (4) | ||||||||||||||||||||||||||||
Mr. Yeung | — | 39,566 | — | — | 83,893 | (5) | — | 41,840 | — | — | 125,114 | (4) | ||||||||||||||||||||||||||||
Mr. Chan | — | 29,737 | — | — | 71,240 | (5) | — | 31,380 | — | — | 102,094 | (4) | ||||||||||||||||||||||||||||
Mr. Huang | — | 73,966 | — | — | 499,617 | (5) | — | 76,046 | — | — | 571,977 | (4) | ||||||||||||||||||||||||||||
Mr. Yuen | — | 59,524 | — | — | 347,921 | (5) | — | 62,107 | — | — | 407,461 | (4) | ||||||||||||||||||||||||||||
Mr. Tan | 34,792 | 69,583 | — | — | 465,553 | (5) |
(1) |
|
Amounts in this column reflect registrant contributions to the BSRCHLRS for the NEOs and which are reflected in the |
Under the Hong Kong Data Privacy Act, the administrator of the BSRCHLRS is restricted from disclosing individual account balances under the BSRCHLRS, and accordingly, the Company is unable to compile earnings information with respect to the BSRCHLRS. Under the terms of the BSRCHLRS, participants may elect a variety of mutual funds in which to invest their account balances under the BSRCHLRS. |
The amounts reflected in this column are the estimated year-end balances for the NEOs under the BSRCHLRS. Amounts in this column include the following amounts that were previously reported in the Summary Compensation Table in 2021 and 2020: Ms. Wat, $582,608 in 2021, $444,920 in 2020; Mr. Yeung, $83,893 in 2021, $43,972 in 2020; Mr. Chan, $71,240 in 2021; Mr. Huang, $499,617 in 2021, $422,252 in 2020; and Mr. Yuen, $347,921 in 2021, $286,095 in 2020. |
This amount represents the aggregate amount of Company contributions, excluding investment returns. See note (3) to this table for further information regarding investment returns with respect to the BSRCHLRS. This amount was denominated in Hong Kong dollars and was converted to U.S. dollars using an exchange rate of |
Potential Payments upon a Termination or a Change in Control
Termination of Employment without a Change in Control. As noted in the CD&A, during 2021, the Compensation Committee adoptedCompany maintains the Executive Severance Plan, which provides severance benefits to our NEOs upon termination of employment by the Company without cause or, for participants subject to PRC law, termination for any statutory reason and subject to severance pay under PRC law (each, an “Executive Severance Plan Qualifying Termination”). In the event of an Executive Severance Plan Qualifying Termination, the NEO would receive, in lieu of any severance benefits under any other arrangement with the participant (including, without limitation, the Restrictive Covenant Letter Agreements and
Agreements and the Company’s change in control severance plan, pro-videdprovided that in the event of a qualifying termination under the change in control severance plan, the terms of the change in control severance plan will govern), the following severance benefits:
Cash severance benefits consisting of the greater of (i) the sum of statutory severance payable under PRC law and an amount equal to five times the participant’s average monthly salary in the 12 months prior to the Executive Severance Plan Qualifying Termination as consideration for compliance with certain restrictive covenants, including covenants relating to
• | Cash severance benefits consisting of the greater of (i) the sum of statutory severance payable under PRC law and an amount equal to five times the participant’s average monthly salary in the 12 months prior to the Executive Severance Plan Qualifying Termination as consideration for compliance with certain restrictive |
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EXECUTIVE COMPENSATION
|
covenants, including covenants relating to non-competition as further described below and (ii) the sum of the participant’s monthly base salary plus 1/12 of the participant’s target annual bonus, multiplied by a severance multiple of 24, in the case of the CEO, and 12 for all other participants; |
Any accrued, but unpaid as of the date of the Executive Severance Plan Qualifying Termination, annual cash bonus for any completed fiscal year preceding an Executive Severance Plan Qualifying Termination; and
• | Any accrued, but unpaid as of the date of the Executive Severance Plan Qualifying Termination, annual cash bonus for any completed fiscal year preceding an Executive Severance Plan Qualifying Termination; and |
If the Executive Severance Plan Qualifying Termination occurs on or after June 30, a pro-rated annual bonus for the year of the Executive Severance Plan Qualifying Termination based on actual performance and pro-rated for the employment period during the year.
• | If the Executive Severance Plan Qualifying Termination occurs on or after June 30, a pro-rated annual bonus for the year of the Executive Severance Plan Qualifying Termination based on actual performance and pro-rated for the employment period during the year. |
In the event of a participant’s material breach of a material obligation to the Company pursuant to any award or agreement between the participant and the Company, including a material breach of the restrictive covenants set forth in any offer letter, restrictive covenant or other agreement entered into by the participant with the Company or a determination that an event constituting “cause” has occurred, then the Compensation Committee may (i) terminate the participant’s right to receive payments under the Executive Severance Plan and (ii) seek the recoupment of any payments previously made to the participant under the Executive Severance Plan, including through exercising rights of set-off, forfeiture or cancellation, to the full extent permitted by law, with respect to any other awards, benefits or payments otherwise due to the participant from the Company or any of its affiliates.
The Company is party to Restrictive Covenant Letter Agreements with each NEO. The Restrictive Covenant Letter Agreements include restrictive covenants relating to non-disclosure, non-competition, non-solicitation and non-disparagement, as well as cooperation in investigations and litigation clauses. As consideration for the restrictive covenants, the Company is obligated to pay an amount equivalent to five times the NEO’s average monthly salary upon a termination of employment, other than in the case of a change-in-control-related termination or the NEO’s death. Such amount would be offset by amounts otherwise owed under any other termination-related agreement between the employee and the Company (including the Executive Severance Plan) so that there is no duplication of payments.
The Company’s equity awards provide for pro-rata vesting for terminations due to death, retirement (age 55 and ten years of service or age 65 and five years of service) or involuntary termination by the Company without cause, with PSUs determined based on actual performance. Outstanding equity awards are forfeited upon a termination for cause. If the NEOs’ employment had terminated as of December 31, 20212022 without cause or due to death or retirement, they would have been entitled to pro-rata vesting of their outstanding RSUs, SARs and PSUs as follows: Ms. Wat, $12,360,918;$18,533,042; Mr. Yeung, $ 2,550,850;$3,993,474; Mr. Chan, $1,955,632;$3,173,260; Mr. Huang, $2,677,732$2,986,041 and Mr. Yuen, $1,712,176,$2,082,191, assuming target performance for purposes of this disclosure. As of December 31, 2021,2022, Messrs. Huang and Yuen were retirement eligible.
The below table shows the maximum amount of payments and other benefits that each continuing NEO would have received upon a qualifying termination under the Executive Severance Plan on December 31, 20212022 and the Company’s equity award agreements, excluding the Lavazza ESOP Grants, assuming target performance of the PSUs for purposes of this disclosure.
| Wat $ |
| | Yeung $ |
| | Chan $ |
| | Huang $ |
| | Yuen $ |
| ||||||
Cash Severance | 8,100,000 | 1,600,000 | 1,080,000 | 1,480,000 | 1,020,000 | |||||||||||||||
Release Payment | 1,551 | 1,551 | 1,551 | 1,551 | 1,551 | |||||||||||||||
Pro-rata Vesting of SARs | 1,061,916 | 73,358 | 48,908 | 205,978 | 108,461 | |||||||||||||||
Pro-rata Vesting of RSUs | 669,025 | 497,421 | 460,735 | 524,216 | 271,637 | |||||||||||||||
Pro-rata Vesting of PSUs | 10,629,977 | 1,980,070 | 1,445,989 | 1,947,537 | 1,332,078 | |||||||||||||||
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| |||||||||||||||||||
TOTAL | 20,462,469 | 4,152,400 | 3,037,183 | 4,159,282 | 2,733,727 | |||||||||||||||
|
|
| Wat $ |
| | Yeung $ |
| | Chan $ |
| | Huang $ |
| | Yuen $ |
| ||||||
Cash Severance | 8,550,000 | 1,680,000 | 1,134,000 | 1,524,400 | 1,071,000 | |||||||||||||||
Release Payment | 1,488 | 1,488 | 1,488 | 1,488 | 1,488 | |||||||||||||||
Pro-rata Vesting of SARs | 1,280,870 | 175,114 | 121,595 | 264,351 | 141,891 | |||||||||||||||
Pro-rata Vesting of RSUs | 1,877,460 | 1,071,440 | 990,280 | 67,088 | 37,850 | |||||||||||||||
Pro-rata Vesting of PSUs | 15,374,712 | 2,746,920 | 2,061,386 | 2,654,602 | 1,902,449 | |||||||||||||||
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| |||||||||||||||||||
TOTAL | 27,084,530 | 5,674,962 | 4,308,749 | 4,511,929 | 3,154,678 | |||||||||||||||
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|
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EXECUTIVE COMPENSATION
|
Termination of Employment Following a Change in Control. As noted in the CD&A, the Company maintains a change in control severance plan, which provides severance benefits to our NEOs in the event of a termination of employment by the Company without “cause” or by the NEO due to “good reason,” in each case within 24 months following a change in control (a “CIC Qualifying Termination”). Each NEO has executed a participation and restrictive covenant agreement to participate in the Change in Control Severance Plan, which contains restrictive covenants in favor of the Company relating to non-competition, non-solicitation, non-disclosure, and non-disparagement. In the event of a CIC Qualifying Termination under the Change in Control Severance Plan, the NEO would receive, in lieu of any severance benefits under any other arrangement with the participant, the following severance benefits:
• | An amount equal to the “Severance Multiple” multiplied by the sum of (x) such NEO’s monthly base salary in effect immediately prior to a CIC Qualifying Termination (or prior to any reduction for purposes of good reason) and (y) 1/12 of the greater of such NEO’s annual target cash bonus for the calendar year in which the CIC Qualifying Termination occurs and the most recent annual cash bonus paid to the NEO, with such amounts payable over the 12-month period following the NEO’s termination of employment. The Severance Multiple is 30 for the CEO and 24 for each of the other participating NEOs. |
Any accrued, but unpaid as of the date of the CIC Qualifying Termination, annual cash bonus for any completed fiscal year preceding a CIC Qualifying Termination, to be paid within 60 days of the CIC Qualifying Termination.
• | Any accrued, but unpaid as of the date of the CIC Qualifying Termination, annual cash bonus for any completed fiscal year preceding a CIC Qualifying Termination, to be paid within 60 days of the CIC Qualifying Termination. |
Accrued benefits under any retirement plan or health or welfare plan.
• | Accrued benefits under any retirement plan or health or welfare plan. |
If permitted by the terms of the Company’s health plan and applicable law, continued health insurance coverage, subsidized by the Company at active employee
• | If permitted by the terms of the Company’s health plan and applicable law, continued health insurance cover- |
age, subsidized by the Company at active employee rates, through the earlier of the one-year anniversary of the participant’s termination of employment and the participant becoming eligible for health insurance coverage under another employer’s plan. |
Outplacement services, in an aggregate cost to the Company not to exceed $25,000, for a one-year period (or, if earlier, until the NEO accepts an offer of employment).
• | Outplacement services, in an aggregate cost to the Company not to exceed $25,000, for a one-year period (or, if earlier, until the NEO accepts an offer of employment). |
Under the terms of our equity agreements, all outstanding SARs and RSUs would fully and immediately vest following a change in control of the Company if the NEO is employed on the date of the change in control and is involuntarily terminated (other than for cause) on or within two years following the change in control. Under the terms of Annualthe outstanding PSU Awards starting from 2020 and the 2020 Partner PSU Awards,awards, if the NEO is employed on the date of the change in control and resigns for good reason or is involuntarily terminated other than for cause within two years following a change in control, then vesting shall be measured based on the greater of (i) actual performance for the performance period through the date of termination of employment and (ii) target performance (provided, however, that if the change in control and termination of employment occur during the first year of the performance period, then performance will be measured based on target performance). In addition, beginning with the 2020 equity awards, if awards are not effectively assumed in a change in control of the Company, then the awards will vest in full upon such change in control with any stock price performance goal vesting based on the per share transaction price in such change in control and the other performance goals vesting at the greater of actual performance through the date of the change in control and target performance (provided, however, if the change in control occurs during the first year of the performance period, then performance will be measured based on target performance).
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EXECUTIVE COMPENSATION
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The below table shows the maximum amount of payments and other benefits that each continuing NEO would have received upon a change in control and qualifying termination on December 31, 20212022 under the terms of the change in control severance plan and the Company’s equity award agreements, excluding the Lavazza ESOP Grants, assuming target performance of the PSUs for purposes of this disclosure.
| Wat $ |
| | Yeung $ |
| | Chan $ |
| | Huang $ |
| | Yuen $ |
| | Wat $ |
| | Yeung $ |
| | Chan $ |
| | Huang $ |
| | Yuen $ |
| |||||||||||
Cash Severance | 10,125,000 | 3,200,000 | 2,160,000 | 2,960,000 | 2,123,198 | 12,580,615 | 3,744,328 | 2,499,934 | 3,219,282 | 2,355,812 | ||||||||||||||||||||||||||||||
Continued Health Insurance Coverage | 18,885 | 11,517 | 17,770 | 11,517 | 13,487 | 18,123 | 11,053 | 17,053 | 11,053 | 12,943 | ||||||||||||||||||||||||||||||
Outplacement Services | 25,000 | 25,000 | 25,000 | 25,000 | 25,000 | 25,000 | 25,000 | 25,000 | 25,000 | 25,000 | ||||||||||||||||||||||||||||||
Accelerated Vesting of SARs | 2,205,912 | 240,081 | 160,061 | 451,744 | 239,738 | 2,659,403 | 496,103 | 351,914 | 566,392 | 308,583 | ||||||||||||||||||||||||||||||
Accelerated Vesting of RSUs | 2,189,536 | 1,816,760 | 1,491,682 | 539,194 | 279,398 | 3,856,262 | 1,900,069 | 1,719,385 | 292,825 | 165,128 | ||||||||||||||||||||||||||||||
Accelerated Vesting of PSUs | 21,063,899 | 3,920,908 | 2,882,072 | 3,823,308 | 2,628,266 | 21,665,049 | 3,947,875 | 2,964,522 | 3,779,033 | 2,671,460 | ||||||||||||||||||||||||||||||
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TOTAL | 35,628,232 | 9,214,266 | 6,736,585 | 7,810,763 | 5,309,087 | 40,804,452 | 10,124,428 | 7,577,808 | 7,893,585 | 5,538,926 | ||||||||||||||||||||||||||||||
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Arrangement with Mr. TanLavazza ESOP Grants
In connection with Mr. Tan’s departure, the Company entered into a post-termination agreement with Mr. Tan (the “Tan Termination Agreement”). Under the Tan Termination Agreement, the Company agreed to pay Mr. Tan’s 2021 annual cash bonus based on actual performance, which was paid at the same time that the 2021 annual cash bonuses were paid to the other NEOs, a payment of HK$2,260,415 ($290,236, based on the exchange rate of 7.7882 Hong Kong dollars to U.S. dollars), representing five times Mr. Tan’s average gross monthly salaryAs noted in the past 12 months pursuant toCD&A, during 2022, the terms of his prior Restrictive Covenant Letter Agreement, as well as a release payment of RMB10,000 ($1,564, based onNEOs received one-time PSUs under the
exchange rate of 6.3949 RMB to U.S. dollars) and a long-service payment of HK$375,000 ($48,150, based on the exchange rate of 7.7882 Hong Kong dollars to U.S. dollars) in accordance with applicable local requirements. If Mr. Tan receives a tax rebate with respect to the long-service payment, Mr. Tan is required to return such rebate to the Company. In accordance with Lavazza JV Equity Plan. Under the terms of the award agreements, Mr. Tan has 90 days fromin the last date ofevent the NEO’s employment to exercise his vested SARs, and all of his unvested equity awards were forfeited upon his departure. The Tan Termination Agreement provides for restrictive covenants in favoris terminated following the achievement of the Company relatingunderlying performance goals but prior to non-competition, non-solicitation, non-disparagement,the occurrence of a liquidity event, which includes the occurrence of an initial public offering, with respect to the Lavazza Joint Venture by reason of death, disability, retirement, or termination without cause, then the portion of the award
associated with the achieved performance goals would remain outstanding and non-disclosure.would vest in the event a liquidity event, which includes the occurrence of an initial public offering, with respect to the Lavazza Joint Venture occurs within seven years of the grant date. Assuming that the underlying performance goals and a liquidity event with respect to the Lavazza Joint Venture occurred as of December 31, 2022, the estimated value of the Lavazza ESOP Grants was as follows: Ms. Wat, $1,010,000; Mr. Yeung, $202,000; Mr. Chan, $202,000; Mr. Huang, $202,000; and Mr. Yuen, $202,000.
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Company is providing the following disclosure about the relationship of the annual total compensation of our employees to the annual total compensation of Ms. Wat.
Identification of Median Pay Employee
The Company employed over 450,000 personshad more than 400,000 employees as of year-end 2021, 2022, and substantially all of them are based in China. Given the nature of its operations, approximately 90%89% of the Company’s employees were restaurant crewmembers. Approximately 75%72% of the 405,000364,000 crewmembers worked part-time, approximately 41%37% of whom
attended university at the same time, and were paid on an hourly basis. Our wage rates for crewmembers are determined based on a number of factors, including but not limited to cost of living, labor supply and demand, and
competitive market pay rates in the city in which the crewmember works.
We selected December 31, 2021,2022, as the date on which to determine our median employee. For purposes of identifying the median employee from the employee population base (excluding Ms. Wat), we considered the total compensation of all of our employees, as compiled from our payroll records. In addition, we measured compensation for purposes of determining the median employee using
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|
December 20212022 payroll records. Compensation paid in foreign currencies was converted to U.S. dollars based on a weighted average exchange rate for the relevant period.
Using this methodology, our median employee was identified as a part-time crewmember located in a second-tier city in China.
Ratio
YUM CHINA – 2023 Proxy Statement | 87 |
For 2021:
EXECUTIVE COMPENSATION |
The annual total compensation of the median employee, as identified above, was $6,738.Ratio
For 2022:
Ms. Wat’s annual total compensation, as reported in the Total column of the 2021 Summary Compensation Table, was $16,555,672.
• | The annual total compensation of the median employee, as identified above, was $6,359. |
• | Ms. Wat’s annual total compensation, as reported in the Total column of the 2022 Summary Compensation Table, was $15,892,879. |
Based on this information, the ratio of the annual total compensation of Ms. Wat to the median of the annual total compensation of all employees is approximately 2,457 to 1.
• | Based on this information, the ratio of the annual total compensation of Ms. Wat to the median of the annual total compensation of all employees is approximately 2,499 to 1. |
OurIn fact, our pay ratio is significantly impacted by the fact that substantially all of our employees are based in China, approximately 75%72% of our 405,000364,000 crewmembers are employed on a part-time and hourly basis, and typical hourly wages vary between the cities in which our restaurants are located.
The above ratio and annual total compensation amount of the median employee are reasonable estimates that have been calculated using methodologies and assumptions permitted by SEC rules. The ratio and annual total compensation amount may not be directly comparable to those of other companies because the methodologies and assumptions used to identify the median employee may vary significantly among companies.
To provide supplemental disclosure and not as a substitute for the pay ratio calculated in accordance with SEC executive compensation disclosure rules, we also reviewed the CEO pay ratio excluding the incremental fair value associated with the modification of the one-time Chairman Awards granted in February 2021.2020 Annual PSUs. Excluding such awards and modification, the CEO’s 20212022 annual total compensation would have been $14,055,649$13,107,839 and the CEO pay ratio for fiscal 20212022 would have been 2,0862,061 to 1.
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PAY VERSUS PERFORMANCE |
Year (1) | Summary Compensation Table Total for PEO ($) (2) | Compensation Actually Paid (CAP) to PEO ($) (3) | Average Summary Compensation Table Total for Non-PEO NEOs ($) (2) | Average Compensation Actually (CAP) Paid to Non-PEO NEOs ($) (3) | Value of Initial Fixed $100 Investment Based on: (4) | Net Income ($ in millions) | R-TSR against Constituents of MSCI China Index (%) (6) | |||||||||||||||||||||||||
Total Shareholder Return ($) | MSCI China Consumer Discretionary Index Total Shareholder Return ($) (5) | |||||||||||||||||||||||||||||||
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | ||||||||||||||||||||||||
2022 | 15,892,879 | 18,178,125 | 3,577,110 | 3,947,038 | 116.42 | 74.02 | 442 | 93.65 | % | |||||||||||||||||||||||
2021 | 16,555,672 | 6,689,317 | 3,737,910 | 2,243,769 | 105.25 | 96.60 | 990 | 33.06 | % | |||||||||||||||||||||||
2020 | 21,171,578 | 36,083,539 | 4,236,753 | 6,197,764 | 119.41 | 150.25 | 784 | 57.03 | % |
(1) | As required by Section 953 (a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402 (v) of RegulationS-K, we are providing the following information about the relationship between executive compensation actually paid and certain financial performance of the Company. For further information concerningthe Company’s variablepay-for-performance fficer (“ PEO ”) for the entirety of 202 0, 2021 and 2022 and the Company’s other NEOs for the applicable years were as follows: |
– | 2022: Andy Yeung, Joseph Chan, Johnson Huang and Aiken Yuen. |
– | 2021: Andy Yeung, Johnson Huang, Joseph Chan, Aiken Yuen and Danny Tan. |
– | 2020: Andy Yeung, Johnson Huang, Danny Tan and Aiken Yuen. |
(2) | Amounts reported in this column represent (i) the total compensation reported in the Summary Compensation Table for the applicable year in the case of Ms. Wat and (ii) the average of the total compensation reported in the Summary Compensation Table for the applicable year for the Company’s NEOs reported for the applicable year other than Ms. Wat. |
(3) | To calculate compensation actually paid, adjustments were made to the amounts reported in the Summary Compensation Table for the applicable year. The dollar amounts do not reflect the actual amount of compensation earned by or paid to Ms. Wat during the applicable year, nor the actual average amount of compensation earned by or paid to the NEOs as a group (excluding Ms. Wat) during the applicable year. A reconciliation of the adjustments for Ms. Wat and for the average of the other NEOs is set forth following the footnotes to this table. |
(4) | For each fiscal year, the amount included in the table is the cumulative total shareholder return as of the end of that year, assuming that the value of the investment in our common stock and peer group was $100 on December 31, 2019 and that all dividends were reinvested. Historic stock price performance is not necessarily indicative of future stock price performance. |
(5) | The TSR Peer Group consists of the MSCI China Consumer Discretionary Index, which is a free-float adjusted market cap weighted gross total return index, based on MSCI’s Global Investable Market Indexes Methodology, which is the same industry index used for purposes of our Annual Report on Form 10-K. |
(6) | As noted in the CD&A, for 2022, our r-TSR percentile ranking against the constituents of the MSCI China Index was utilized as a component in both the 2022 annual performance-based cash bonus plan and the 2022 Annual PSU Awards, and is viewed as the most important measure by the Company to link pay and performance. |
YUM CHINA – 2023 Proxy Statement | 8 9 |
EXECUTIVE COMPENSATION |
Compensation Actually Paid Adjustments (a) | ||||||||||||||||||||||||||||||||
Year | Summary Compensation Table (SCT) Total ($) (b) | Minus Value of Stock Option/ SAR and Stock Awards Reported in SCT ($) (c) | Plus Fair Value at Fiscal Year-End of Outstanding and Unvested Stock Option/SAR and Stock Awards Granted in Fiscal Year ($) (d) | Plus/(Minus) Change in Fair Value of Outstanding and Unvested Stock Option/SAR and Stock Awards Granted in Prior Fiscal Years ($) (e) | Plus Fair Value at Vesting of Stock Option/ SAR and Stock Awards Granted in Fiscal Year that Vested During Fiscal Year ($) (f) | Plus/(Minus) Change in Fair Value as of Vesting Date of Stock Option/SAR and Stock Awards Granted in Prior Fiscal Years for which Applicable Vesting Conditions Were Satisfied During Fiscal Year ($) (g) | Minus Fair Value as of Prior Fiscal Year-End of Stock Option/ SAR and Stock Awards Granted in Prior Fiscal Years that Failed to Meet Applicable Vesting Conditions During Fiscal Year ($) (h) | Equals Compensation Actually Paid ($) | ||||||||||||||||||||||||
Joey Wat | ||||||||||||||||||||||||||||||||
2022 | 15,892,879 | 9,285,127 | 8,595,753 | 2,864,570 | — | 110,050 | — | 18,178,125 | ||||||||||||||||||||||||
2021 | 16,555,672 | 8,703,924 | 6,661,504 | (7,555,976 | ) | — | (267,959 | ) | — | 6,689,317 | ||||||||||||||||||||||
2020 | 21,171,578 | 17,000,087 | 27,272,183 | 3,144,165 | — | 1,495,700 | — | 36,083,539 | ||||||||||||||||||||||||
Other NEOs (i) | ||||||||||||||||||||||||||||||||
2022 | 3,577,110 | 1,751,225 | 1,606,822 | 500,217 | — | 14,114 | — | 3,947,038 | ||||||||||||||||||||||||
2021 | 3,737,910 | 1,772,973 | 1,374,102 | (1,160,113 | ) | — | 64,843 | — | 2,243,769 | |||||||||||||||||||||||
2020 | 4,236,753 | 2,750,073 | 4,376,554 | 366,674 | — | (32,144 | ) | — | 6,197,764 |
(a) | This table excludes any YUM shares received by the NEOs upon conversion of their outstanding YUM equity awards in connection with the spin-off. |
(b) | Represents Total Compensation as reported in the Summary Compensation Table for the indicated fiscal year. With respect to the other NEOs, amounts shown represent averages. |
(c) | Represents the grant date fair value of the stock option/SAR awards and stock awards granted during the indicated fiscal year, computed in accordance with ASC 718. See Note 15 to the Company’s Audited Financial Statements for further discussion of the relevant assumptions used in calculating these amounts. For 2022, the amount also includes the fair value of the 2020 Annual PSUs as of the date of its modifications by the Compensation Committee in December 2022. |
(d) | Represents the fair value as of the indicated fiscal year-end of the outstanding and unvested stock option/SAR awards and stock awards granted during such fiscal year, computed in accordance with ASC 718 and, for awards subject to performance-based vesting conditions, based on the probable outcome of such performance-based vesting conditions as of the last day of the fiscal year. Methodology adopted in calculating the fair value as of the indicated fiscal year-end is consistent with those used in calculating the grant date fair value and the relevant assumptions reflect the Company’s estimates based on historical data existing on each valuation date. |
(e) | Represents the change in fair value during the indicated fiscal year of each stock option/SAR award and stock award that was granted in prior fiscal years and that remained outstanding and unvested as of the last day of the indicated fiscal year, computed in accordance with ASC 718 and, for awards subject to performance-based vesting conditions, based on the probable outcome of such performance-based vesting conditions as of the last day of the fiscal year. Methodology adopted in calculating the fair value as of the indicated fiscal year-end is consistent with those used in calculating the grant date fair value and the relevant assumptions reflect the Company’s estimates based on historical data existing on each valuation date. |
9 0 | YUM CHINA – 2023 Proxy Statement |
EXECUTIVE COMPENSATION |
(f) | Represents the fair value at vesting of the stock option/SAR awards and stock awards that were granted and vested during the indicated fiscal year, computed in accordance with ASC 718. See Note 15 to the Company’s Audited Financial Statements for further discussion of the relevant assumptions used in calculating these amounts. |
(g) | Represents the change in fair value, measured from the prior fiscal year-end to the vesting date, of each stock option/SAR award and stock award that was granted in prior fiscal years and which vested during the indicated fiscal year, computed in accordance with ASC 718. For 2022, the amount also includes the fair value of the 2020 Annual PSUs as of the date of its modifications by the Compensation Committee in December 2022. |
(h) | Represents the fair value as of the last day of the prior fiscal year of the stock option/SAR awards and stock awards that were granted in prior fiscal years which failed to meet the applicable vesting conditions in the indicated fiscal year, computed in accordance with ASC 718. |
(i) | See footnote 1 above for the non-PEO NEOs included in the average for each fiscal year. |
YUM CHINA – 2023 Proxy Statement | 9 1 |
EXECUTIVE COMPENSATION |
9 2 | YUM CHINA – 2023 Proxy Statement |
EXECUTIVE COMPENSATION |
Most Important Financial Performance Measures | ||
● | R-TSR against the constituents of the MSCI China Index | |
● | Same Store Sales Growth | |
● | Adjusted Operating Profit Growth | |
● | System Net New Builds |
YUM CHINA – 2023 Proxy Statement | 9 3 |
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The Company primarily uses stock-based compensation to attract and retain qualified candidates to serve on the Board. In setting director compensation, the Board considers the significant amount of time that directors expend in fulfilling their duties to the Company as well as the skill level required by the Company of members of the Board. The Nominating and Governance Committee of the Board considers advice from the compensation consultant and reviews and makes recommendations to the Board with respect to the compensation and benefits of directors on an annual basis.directors. No changes have been made to our director compensation program since it was approved by the Board in December 2017 and became effective in June 2018. The Company’s director compensation structure for 20212022 is discussed below.
Employee Directors. Employee directors do not receive additional compensation for serving on the Board of Directors. Please see the 20212022 Summary Compensation Table for the compensation received by Ms. Wat during 20212022 for her role as CEO of the Company.
Non-Employee Directors Retainer. Our non-employee directors were each compensated with an annual retainer
equal to $275,000, payable in Company common stock or, if requested by a director, up to one-half in cash. The annual retainers were paid in June 20212022 to compensate the directors for their services from June 1, 20212022 to May 31, 2022.2023.
Chairman and Committee Chairperson Retainer. In addition to the annual retainer paid to all non-employee directors, the Chairman of the Board (Dr. Hu) received an additional annual cash retainer of $225,000. The Chairperson of the Audit Committee (Mr. Bassi) received an additional $30,000 stock retainer, the Chairperson of the Compensation Committee (Ms. Lu) received an additional $20,000 stock retainer, the Chairperson of the Nominating and Governance Committee (Dr. Hu) received an additional $15,000 stock retainer, and the Chairperson of the Food Safety and Sustainability Committee (Mr. Shao) received an additional $15,000 stock retainer. All such retainers were paid in June 20212022 to compensate the directors for their services from June 1, 20212022 to May 31, 2022.2023.
The table below summarizes cash compensation earned by and stock retainers granted to each non-employee director during 2021.2022.
Name | Fees Earned or Paid in Cash($) | Stock Awards ($)(5) | All Other ($) | Total ($) | Fees Earned or Paid in Cash($) | Stock Awards ($)(3) | All Other Compensation ($) | Total ($) | ||||||||||||||||||||||||
(a) | (b) | (c) | (d) | (e) | (b) | (c) | (d) | (e) | ||||||||||||||||||||||||
Peter A. Bassi | 137,500 | (1) | 167,500 | — | 305,000 | 137,500 | (1) | 167,500 | 25,000 | (4) | 330,000 | |||||||||||||||||||||
Edouard Ettedgui | — | 275,000 | — | 275,000 | — | 275,000 | — | 275,000 | ||||||||||||||||||||||||
Cyril Han | — | 275,000 | — | 275,000 | — | 275,000 | — | 275,000 | ||||||||||||||||||||||||
Louis T. Hsieh | 137,500 | (1) | 137,500 | — | 275,000 | 137,500 | (1) | 137,500 | — | 275,000 | ||||||||||||||||||||||
Fred Hu | 225,000 | (2) | 290,000 | — | 515,000 | 225,000 | (2) | 290,000 | — | 515,000 | ||||||||||||||||||||||
Ruby Lu | — | 295,000 | — | 295,000 | — | 295,000 | — | 295,000 | ||||||||||||||||||||||||
Zili Shao | — | 290,000 | — | 290,000 | — | 290,000 | — | 290,000 | ||||||||||||||||||||||||
William Wang | — | 275,000 | — | 275,000 | — | 275,000 | — | 275,000 | ||||||||||||||||||||||||
Min (Jenny) Zhang | 137,500 | (3) | 137,500 | — | 275,000 | 137,500 | (1) | 137,500 | — | 275,000 | ||||||||||||||||||||||
Christian L. Campbell | — | — | 127,500 | (6) | 127,500 | |||||||||||||||||||||||||||
Ed Yiu-Cheong Chan | — | (4) | — | — | — |
(1) | Represents the portion of the annual retainer that Messrs. Bassi and Hsieh and Ms. Zhang elected to receive in cash rather than equity. |
(2) | Represents the annual cash retainer paid to Dr. Hu as Chairman of the Board. |
YUM CHINA– 2023 Proxy Statement |
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(3) |
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Represents the grant date fair value for annual stock retainer awards granted in |
Represents an award in the amount of $25,000 for Mr. |
Stock Ownership Requirements. Although our directors are not subject to the Stock Ownership Guidelines, we nevertheless expect our directors to own a meaningful number of shares of Company common stock, and we have a share retention policy in place for directors. Pursu-
ant to the share retention policy, no director may sell any shares received as director compensation until at least 12 months following the director’s retirement or departure from the Board.
YUM CHINA – 2023 Proxy Statement |
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EQUITY COMPENSATION
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The following table summarizes, as of December 31, 2021,2022, the equity compensation we may issue to our directors, officers, employees and other persons under (i) the Company’s 2016 LTIP, which was approved by YUM as the Company’s sole stockholder prior to the Company’s spin-off from YUM.YUM; and (ii) the Company’s 2022 Long Term Incentive Plan approved by its stockholders in 2022 (the “2022 LTIP”).
Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted- Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available For Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted- Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available For Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) | ||||||||||||||||||
(a) | (b) | (c) | (a) | (b) | (c) | |||||||||||||||||||
Equity compensation plans approved by security holders | 12,811,477 | (1) | 31.65 | (2) | 10,060,206 | (3) | 11,730,923 | (1) | 34.71 | (2) | 30,706,464 | (3) | ||||||||||||
Equity compensation plans not approved by security holders | — | — | — | — | — | — | ||||||||||||||||||
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TOTAL | 12,811,477 | 31,65 | 10,060,206 | 11,730,923 | 30,706,464 | |||||||||||||||||||
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(1) | Includes |
(2) | RSUs and PSUs do not have an exercise price. Accordingly, this amount represents the weighted-average exercise price of outstanding SARs and stock options. |
(3) |
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YUM CHINA– 2023 Proxy Statement |
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Who serves on the Audit Committee of the Board of Directors?
The members of the Audit Committee are Peter A. Bassi (Chair), Cyril Han, Louis T. Hsieh, Zili Shao and Min (Jenny) Zhang, each of whom are independent within the meaning of applicable SEC regulations, the listing stan-
dards of the NYSE and the Hong Kong Listing Rules. For additional information about the members of the Audit Committee, see “Governance of the Company—What are the Committees of the Board?”
What document governs the activities of the Audit Committee?
The Audit Committee operates under a written charter adopted by the Board of Directors. The Audit Committee’s responsibilities are set forth in the charter. The Audit Committee annually reviews and reassesses the adequacy
of its charter and recommends any proposed changes to the Board for approval. The charter is available on our website at ir.yumchina.com.
What are the responsibilities of the Audit Committee?
The Audit Committee assists the Board in fulfilling its responsibilities for general oversight of the integrity of the Company’s financial statements, the adequacy of the Company’s system of internal controls and procedures and disclosure controls and procedures, the Company’s risk management, the Company’s compliance with legal and regulatory requirements, the independent auditors’ qualifications and independence and the performance of the Company’s internal audit function and independent auditors. The Audit Committee has the authority to obtain advice and assistance from independent legal, accounting or other advisors as the Audit Committee deems necessary or appropriate to carry out its duties and receive appropriate funding, as determined by the Audit Committee, from the Company for such advice and assistance.
The Audit Committee has sole authority to appoint and replace the independent auditors, and is directly responsible for the compensation of the independent auditors, subject to stockholder approval. The Audit Committee manages the Company’s relationship with its independent auditors, which reports directly to the Audit Committee.
Each year, the Audit Committee evaluates the performance, qualifications and independence of the independent auditors. In doing so, the Audit Committee considers whether the independent auditors’ quality controls are adequate and the provision of permitted non-audit services is compatible with maintaining the auditor’s independence, taking into account the opinions of management and internal auditor.
The members of the Audit Committee meet periodically in separate executive sessions with management (including the Company’s Chief Financial Officer, Chief Legal Officer and Principal Accounting Officer), the internal auditors and the independent auditors, and have such other direct and independent interaction with such persons from time to time as the members of the Audit Committee deem appropriate. The Audit Committee may request any officer or employee of the Company or the Company’s outside counsel or independent auditors to attend a meeting of the Audit Committee or to meet with any members of, or consultants to, the Audit Committee.
YUM CHINA – 2023 Proxy Statement | 97 |
AUDIT COMMITTEE REPORT |
What matters have members of the Audit Committee discussed with management and the independent auditors?
As part of its oversight of the Company’s financial statements, the Audit Committee reviews and discusses with both management and the Company’s independent auditors all annual and quarterly financial statements prior to their issuance. During 2022, management advised the Audit Committee that each set of financial statements reviewed had been prepared in accordance with accounting principles generally accepted in the U.S. and reviewed significant accounting and disclosure issues with the Audit Committee. These reviews included discussions with the independent auditors of matters required to be discussed pursuant to applicable requirements of the PCAOB and the SEC, including the quality (not merely the acceptability) of the Company’s accounting principles, the reasonableness of significant judgments, the clarity of disclosures in the financial statements, disclosures related to critical accounting practices, and critical audit matters during the course of the audit. The Audit Committee has also discussed with KPMG matters relating to their independence, including a review of audit and non-audit fees and the written disclosures and letter received from KPMG required by applicable require-
ments of the PCAOB regarding KPMG’s communications with the Audit Committee concerning independence. The Audit Committee also considered whether non-audit services provided by the independent auditors are compatible with the independent auditors’ independence. The Audit Committee also received regular updates, and written summaries as required by the PCAOB rules (for tax and other services), on the amount of fees and scope of audit, audit-related, tax and other services provided.
In addition, the Audit Committee reviewed key initiatives and programs aimed at strengthening the effectiveness of the Company’s internal and disclosure control structure. As part of this process, the Audit Committee monitored the scope and adequacy of the Company’s internal auditing program, reviewing staffing levels and steps taken to implement recommended improvements in internal procedures and controls. The Audit Committee also reviewed and discussed legal and compliance matters with management, and, as necessary or advisable, the Company’s independent auditor.
Has the Audit Committee made a recommendation regarding the audited financial statements for fiscal 2022?
Based on the Audit Committee’s discussions with management and the independent auditors and the Audit Committee’s review of the representations of management and the report of the independent auditors to the Board of Directors, and subject to the limitations on the Audit Committee’s role and responsibilities referred to above and in the Audit Committee Charter, the Audit
Committee recommended to the Board of Directors that it include the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 for filing with the SEC and the Company’s Annual Report for the year ended December 31, 2022 to be filed with the HKEX.
98 | YUM CHINA– 2023 Proxy Statement |
AUDIT COMMITTEE REPORT |
Who prepared this report?
This report has been furnished by the members of the Audit Committee:
Peter A. Bassi, Chair
Cyril Han
Louis T. Hsieh
Zili Shao
Min (Jenny) Zhang
YUM CHINA – 2023 Proxy Statement | 99 |
ADDITIONAL INFORMATION |
Who pays the expenses incurred in connection with the solicitation of proxies?
Expenses in connection with the solicitation of proxies will be paid by us. Proxies are being solicited principally by mail, by telephone and through the Internet. We have retained Georgeson LLCInc. to act as a proxy solicitor for a fee estimated to be $25,000,$10,000, plus reimbursement of out-of-pocket expenses. In addition, our directors, officers
officers and regular employees, without additional compensation, may solicit proxies personally, by e-mail, telephone, fax or special letter. We will reimburse brokerage firms and others for their expenses in forwarding proxy materials to the beneficial owners of shares of Company common stock.
How may I elect to receive stockholder materials?
1290 Avenue
For stockholders of our common stock registered on our U.S. register
Stockholders with shares registered directly in their name who received stockholder materials in the mail may elect to receive future annual reports and proxy statements from us and to vote their shares through the Internet instead of receiving copies through the mail. We are offering this service to provide stockholders with added convenience, to reduce our environmental impact and to reduce annual report printing and mailing costs.
To elect this option, go to www.computershare.com, click on Login to Investor Center, log in and locate the option to receive Company mailings via e-mail. Stockholders who elect this option will be notified by mail how to access the proxy materials and how to vote their shares on the Internet or by phone.
If you consent to receive future proxy materials electronically, your consent will remain in effect unless it is withdrawn by writing our transfer agent, Computershare Trust Company, N.A., P.O. Box 43078, Providence, RI 02940-3078, or by logging onto www.computershare.com and following the applicable instructions. Also, while this consent is in effect, if you decide you would like to receive a hard copy of the Americas, 9th Floorproxy materials, you may call, write or e-mail Computershare Trust Company, N.A.
New York, NY 10104For stockholders of our common stock registered on our Hong Kong register
Shareholders, BanksWe publish annual reports and Brokersproxy statements on our website and on HKEX’s website in English and Chinese. We will provide printed copies of proxy materials in English and Chinese.
100 | YUM CHINA– 2023 Proxy Statement |
ADDITIONAL INFORMATION |
Call Toll Free:
866-316-3922
International Number:
781-575-2137
I share an address with another stockholder, and we received only one paper copy of the proxy materials. How may I obtain an additional copy of the proxy materials?
The Company has adopted a procedure called “householding,” which has been approved by the SEC. The Company and some brokers household proxy materials, delivering a single Notice and, if applicable, this proxy statement and the annual report, to multiple stockholders sharing an address unless contrary instructions have been received from the affected stockholders or they participate in electronic delivery of proxy materials.
Stockholders who participate in householding will continue to access and receive separate proxy cards. This process will help reduce our printing and postage fees, as well
as save natural resources. If at any time you no longer
wish to participate in householding and would prefer to receive a separate proxy statement, or if you are receiving multiple copies of the proxy statement and wish to receive only one, please notify your broker if your shares are held in a brokerage account or us if you hold registered shares. You can notify us by sending a written request to Yum China Holdings, Inc., 7100 Corporate Drive,101 East Park Boulevard, Suite 805, Plano, Texas 75024,75074, or to Yum China Holdings, Inc., Yum China Building, 20 Tian Yao Qiao Road, Shanghai 200030 People’s Republic of China, Attention: Investor Relations, or by calling +86 21 2407 7556 / +852 2267 5801.Relations.
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May I propose actions for consideration at next year’s Annual Meetingannual meeting of the Company’s stockholders or nominate individuals to serve as directors?
Under the rules of the SEC, if a stockholder wants us to include a proposal in our proxy statement and proxy card for presentation at the 20232024 annual meeting of the Company’s stockholders, the proposal must be received by our Corporate Secretary at our principal executive offices, Yum China Holdings, Inc., 7100 Corporate Drive,101 East Park Boulevard, Suite 805, Plano, Texas 75024,75074, or Yum China Holdings, Inc., Yum China Building, 20 Tian Yao Qiao Road, Shanghai 200030, People’s Republic of China, by December 16, 2022.14, 2023. We strongly encourage any stockholder interested in submitting a proposal to contact our Chief Legal Officer in advance of this deadline to discuss the proposal. Stockholders may want to consult knowledgeable counsel with regard to the detailed requirements of applicable securities laws. Submitting a proposal does not guarantee that we will include it in our proxy statement.
In addition, our Bylaws include provisions permitting, subject to certain terms and conditions, stockholders owning at least 3% of the outstanding shares of Company
common stock for at least three consecutive years to use our annual meeting proxy statement to nominate a number of director candidates not to exceed 20% of the number of directors in office, subject to reduction in certain circumstances (the “Proxy Access”Access”). Pursuant to our Proxy Access bylaw, stockholder nomination of directors to be included in our proxy statement and proxy card for the 20232024 annual meeting of the Company’s stockholders must be received by our Corporate Secretary no earlier than November 15, 202214, 2023 and no later than December 15, 2022.14, 2023. Stockholders must also satisfy the other requirements specified in our Bylaws. You may contact the Company’s Corporate Secretary at the addresses mentioned above for a copy of the relevant bylaw provisions regarding the requirements for nominating director candidates pursuant to Proxy Access.
Under our Bylaws, stockholders may also nominate persons for election as directors at an annual meeting or introduce an item of business that is not included in our proxy statement. These procedures provide that nominationsnomina-
YUM CHINA – 2023 Proxy Statement | 101 |
ADDITIONAL INFORMATION |
tions for director nominees and/or an item of business to be introduced at an annual meeting must be submitted in writing to our Corporate Secretary at our principal executive offices, and the stockholder submitting any such nomination or item of business must include information set forth in our Bylaws. For the 20232024 annual meeting of the Company’s stockholders, we must receive the notice of your intention to introduce a nomination or to propose an item of business no earlier than January 27, 202326, 2024 and no later than February 26, 2023,25, 2024, unless we hold the 20232024 annual meeting before April 27, 202325, 2024 or after June 26, 2023,25, 2024, in which case notice must be received no later than 10 days after notice of the date of the annual meeting is mailed or public disclosure of the date of the annual meeting is made, whichever first occurs. Stockholders must
also satisfy the other requirements specified in our Bylaws. You may contact the Company’s Corporate Secretary at the addresses mentioned above for a copy of the relevant bylaw provisions regarding the requirements for making stockholder proposals and nominating director candidates.
In addition to satisfying the foregoing requirements under our Bylaws, to comply with the universal proxy rules, (once effective), stockholders who intend to solicit proxies in support of director nominees other than our nominees must provide notice that sets forth the information required by Rule 14a-19 under the Securities Exchange Act of 1934, as amended, no later than March 28, 2023.26, 2024.
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Is any other business expected to be conducted at the SpecialAnnual Meeting?
The Board is not aware of any matters that are expected to come before the SpecialAnnual Meeting other than those referred to in this proxy statement. If any other matter should come before the SpecialAnnual Meeting, the individuals named on the form of proxy intend to vote the proxies in accordance with their best judgment.
The chairman of the SpecialAnnual Meeting may refuse to allow the transaction of any business, or to acknowledge the nomination of any person, not made in compliance with the foregoing procedures.
Forward-Looking Statements
This proxy statement contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act including, without limitation, statements regarding the timeline and completion of the Proposed Primary Conversion and statements regarding our future compensation arrangements, including pursuant to the 2022 LTIP.1934. We intend all forward-looking statements to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the fact that they do not relate strictly to historical or current facts and by the use of forward-looking words such as “expect,” “expectation,” “believe,” “anticipate,” “may,” “could,” “intend,” “belief,” “plan,” “estimate,” “target,” “predict,” “project,” “likely,” “will,” “continue,” “should,” “forecast,” “outlook”“outlook,” “commit” or similar terminology. These statements are based on current estimates and assumptions made by us in light of our
experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we believe are appropriate and reasonable under the circumstances, but there can be no assurance that such estimates and assumptions will prove to be correct. Forward-looking statements include, without limitation, statements regarding the future strategies, growth and business plans of Yum China, including Yum China’s sustainability goals. Forward-looking statements are not guarantees of performance and are inherently subject to known
and unknown risks and uncertainties that are difficult to predict and could cause our actual results or events to differ materially from those indicated by those statements. We cannot assure you that any of our expectations, estimates or assumptions will be achieved. The
102 | YUM CHINA– 2023 Proxy Statement |
ADDITIONAL INFORMATION |
forward-looking statements included in this proxy statement are only made as of the date of this proxy statement, and we disclaim any obligation to publicly update any forward-looking statement to reflect subsequent events or circumstances, except as required by law. Numerous factors could cause our actual results or events to differ materially from those expressed or implied by forward-looking statements.statements, including, without limitation: whether we are able to achieve development goals at the times and in the amounts currently anticipated, if at all, the success of our marketing campaigns and product innovation, our ability to maintain food safety and quality control systems, changes in public health conditions, including the COVID-19 pandemic and regional outbreaks caused by existing or new COVID-19 variants, our ability to control
costs and expenses, including tax costs, as well as changes in political, economic and regulatory conditions in China. In addition, other risks and uncertainties not presently known to us or that we currently believe to be immaterial could affect the accuracy of any such forward-looking statements. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. You should consult our filings with the SEC (including the information set forth under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q) for the year ended December 31, 2022) for additional detail about factors that could affect our financial and other results.
YUM CHINA – 2023 Proxy Statement |
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PRELIMINARY PROXY CARD (DATED MARCH 24, 2023 SUBJECT TO COMPLETION)
SCAN TO YUM CHINA HOLDINGS, INC. |
YUM CHINA HOLDINGS, INC.
2022 LONG TERM INCENTIVE PLAN
SECTION 1.
General
1.1 Purpose. This Yum China Holdings, Inc. 2022 Long Term Incentive Plan (the “Plan”) has been established by Yum China Holdings, Inc. (the “Company”) to (i) attract and retain persons eligible to participate in the Plan; (ii) motivate Participants, by means of appropriate incentives, to achieve long-range goals; (iii) provide incentive compensation opportunities that are competitive with those of other similar companies; and (iv) align the interests of Participants with those of the Company’s shareholders. The Plan replaces the Yum China Holdings, Inc. Long Term Incentive Plan (the “2016 Plan”) and the 2016 Plan shall continue to govern awards granted prior to the Effective Date (as defined below) but no new awards shall be granted under the 2016 Plan following the Effective Date.
1.2 Participation. Subject to the terms and conditions of the Plan, the Committee shall determine and designate, from time to time, from among the Eligible Individuals on the basis of their contributions to the development and growth of the Group, as determined by the Company, those persons who will be granted one or more Awards under the Plan, and thereby become a “Participant” in the Plan.
1.3 Operation, Administration, and Definitions. The operation and administration of the Plan shall be vested in the Committee, as described in Section 7. Capitalized terms in the Plan shall be defined as set forth in the Plan (including the definition provisions of Section 9 hereof).
SECTION 2.
Options and SARS
2.1 Definitions.
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2.2 Eligibility. The Committee shall designate the Participants to whom Options or SARs are to be granted under this Section 2 and shall determine the number of shares of Stock subject to each such Option or SAR and the other terms and conditions thereof, not inconsistent with the Plan. Without limiting the generality of the foregoing, the Committee may not grant dividends or dividend equivalents (current or deferred) with respect to any Option or SAR granted under the Plan. ISOs may only be granted to employees of the Company or a Subsidiary.
2.3 Limits on ISOs. If the Committee grants ISOs, then to the extent that the aggregate fair market value of shares of Stock with respect to which ISOs are exercisable for the first time by any individual during any calendar year (under all plans of the Company, any parent and all Subsidiaries) exceeds the amount (currently $100,000) established by the Code, such Options shall be treated as NQOs to the extent required by Code Section 422. Any Option that is intended to constitute an ISO shall satisfy any other requirements of Code Section 422 and, to the extent such Option does not satisfy such requirements, the Option shall be treated as an NQO.
2.4 Exercise Price. The “Exercise Price” of each Option or SAR granted under this Section 2 shall be established by the Committee or shall be determined by a method established by the Committee at the time the Option or SAR is granted; provided, however, that the Exercise Price shall not be less than the higher of (i) the Fair Market Value of a share of Stock on the date of grant (which must be a NYSE trading day) and (ii) the average Fair Market Value of a Share of common stock for the five NYSE trading days immediately preceding the date of grant (or, if greater, the par value of a share of Stock on such date(s)). Notwithstanding the foregoing and subject to approval, waiver, confirmation or otherwise as applicable from the HKEx, Options and SARs granted under the Plan in replacement for awards under plans and arrangements of the Company or a Subsidiary that are assumed in business combinations or similar corporate transactions may provide for Exercise Prices that are less than the Fair Market Value of the Stock at the time of the replacement grants, if the Committee determines that such Exercise Price is appropriate to preserve the economic benefit of the award.
2.5 Exercise/Vesting. Except as otherwise expressly provided in the Plan, an Option or SAR granted under the Plan shall be exercisable in accordance with the following:
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2.6 Payment of Option Exercise Price. The payment of the Exercise Price of an Option granted under this Section 2 shall be subject to the following:
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2.7 Post-Exercise Limitations. The Committee, in its discretion, may impose such restrictions on shares of Stock acquired pursuant to the exercise of an Option or SAR as it determines to be desirable, including, without limitation, restrictions relating to disposition of the shares and forfeiture restrictions based on service, performance, Stock ownership by the Participant, conformity with the Company’s recoupment or clawback policies and such other factors as the Committee determines to be appropriate.
2.8 Tandem Grants of Options and SARS. An Option may but need not be in tandem with an SAR, and an SAR may but need not be in tandem with an Option (in either case, regardless of whether the original award was granted under this Plan or another plan or arrangement). If an Option is in tandem with an SAR, the Exercise Price of both the Option and SAR shall be the same, and the exercise of the corresponding tandem SAR or Option shall cancel the corresponding tandem SAR or Option with respect to such share. If an SAR is in tandem with an Option but is granted after the grant of the Option, or if an Option is in tandem with an SAR but is granted after the grant of the SAR, the later granted tandem Award shall have the same Exercise Price as the earlier granted Award, but in any event subject to subsection 2.4.
2.9 No Repricing. Except for either adjustments pursuant to subsection 4.2 (relating to the adjustment of shares) or reductions of the Exercise Price approved by the Company’s shareholders, the Exercise Price for any outstanding Option or SAR may not be decreased after the date of grant nor may an outstanding Option or SAR granted under the Plan be surrendered to the Company as consideration for the grant of a replacement Option or SAR with a lower Exercise Price or a Full Value Award. Except as approved by the Company’s shareholders, in no event shall any Option or SAR granted under the Plan be surrendered to the Company in consideration for a cash payment if, at the time of such surrender, the Exercise Price of the Option or SAR is greater than the then current Fair Market Value of a share of Stock. In the event of a repricing, the Exercise Price shall still be subject to any other requirements imposed or waivers granted under applicable laws or applicable rules of any stock exchange on which the Stock is listed.
SECTION 3.
Full Value Awards and Cash Incentive Awards
3.1 Definitions.
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3.2 Restrictions on Full Value Awards. Each Full Value Award shall be subject to such conditions, restrictions and contingencies set forth in this Plan and as the Committee shall determine and which are consistent with this Plan.
3.3 No Purchase Price. Grants of Full Value Awards shall be made based on the basis of their contributions to the development and growth of the Group, as determined by the Company, and the Participant is not required to pay any purchase price of shares of Stock awarded under the Full Value Award and the Cash Incentive Award.
SECTION 4.
Stock Reserved and Limitations
4.1 Shares Reserved and Other Amounts Subject to the Plan/Limitations. The shares of Stock for which Awards (which, for the avoidance of doubt, includes Options, SARs and Full Value Awards) may be granted under the Plan shall be subject to the following:
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4.2 Adjustments to Shares of Stock and Stock Awards. In the event of a capitalization issue, rights issue, subdivision or consolidation of shares or reduction of capital, the number and class of securities available under this Plan, the terms of each outstanding Option and SAR (including the number and class of securities subject to each outstanding Option or SAR and the Exercise Price or base price per share) and the terms of each outstanding Full Value Award (including the number and class of securities subject thereto), shall be appropriately adjusted by the Committee, such adjustments to be made in the case of outstanding Options and SARs in accordance with Section 409A of the Code and Rule 17.03(13) of the HKEx Listing Rules to the extent applicable. Only where approval, waiver, confirmation or otherwise as applicable from the HKEx is obtained, in the event of any other equity restructuring event as defined under Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock Compensation or any successor or replacement accounting standard, or any other change in corporate capitalization, including a merger, consolidation, reorganization, or partial or complete liquidation of the Company, such equitable adjustments described in the foregoing sentence may be made as determined to be appropriate and equitable by the Committee to the extent necessary to prevent dilution or enlargement of rights of participants. In case of an adjustment pursuant to this Section 4.2, the decision of the Committee regarding any such adjustment shall be final, binding and conclusive.
4.3 Grant of Awards to Directors, Chief Executive Officer or Substantial Shareholders. Where an Award is to be granted to a Director, chief executive officer or substantial shareholder of the Company or any of their associates (as determined in accordance with the HKEx Listing Rules) or any other connected persons of the Company (as defined under the HKEx Listing Rules), the grant shall be subject to approval requirements under applicable laws or applicable rules of any stock exchange on which the Stock is listed.
4.4 Refreshment of the Scheme Mandate Limit. Subject to the requirements of the HKEx Listing Rules in force from time to time, the Scheme Mandate Limit may be refreshed by the shareholders in a general meeting after three years from the date of the Company’s shareholders’ approval for the last refreshment (or the adoption of this Plan). Additional “refreshment” within any three year period must be approved by independent shareholders of the Company in a manner compliant with Chapter 17 of the Listing Rules in force from time to time. The Scheme Mandate Limit so refreshed shall not exceed 10% of the total number of issued shares of Stock as at the date of the shareholders’ approval of the refreshing of the Scheme Mandate Limit.
4.5 Grants beyond the Scheme Mandate Limit. The Company may seek separate approvals from the shareholders for granting Awards beyond the Scheme Mandate Limit in a manner as allowed under the HKEx Listing Rules.
4.6 Minimum Vesting Requirements. Notwithstanding any other provision of the Plan to the contrary, Awards granted under the Plan (other than cash-based awards) shall vest no earlier than the first anniversary of the date on which the Award is granted; provided, that the following Awards granted to Employee Participants shall not be subject to the foregoing minimum vesting requirement: any (i) Substitute Awards granted in connection with awards that are assumed, converted or substituted pursuant to a merger, acquisition or similar transaction entered into by the Company or any of its Subsidiaries, (ii) shares of Stock subject to a minimum holding period of 12 months which are delivered to an Employee Participant under his/her compensation arrangements with the Company, including shares of stock delivered to a Non-employee Director in respect of such Non-employee Director’s annual retainer, (iii) Awards to Non-employee Directors that vest on earlier of the one-year anniversary of the date of grant and the next annual meeting of shareholders which is at least 50 weeks after the immediately preceding year’s annual meeting, and (iv) any additional Awards the Committee may grant, up to a maximum of five percent (5%) of the Scheme Mandate Limit pursuant to Section 4.1(b) (subject to adjustment under Section 4.2) in respect of (A) sign-on or make-whole grants to new Employee Participants, (B) grants of Awards with performance-based vesting conditions, (C) grants of Awards that are made in batches for administrative or compliance reasons, (D) grants of Awards that vest evenly over a period of 12 months or more, and
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(E) grants of Awards with a total vesting and holding period of more than 12 months; and, provided, further, that the foregoing restriction does not apply to the Committee’s discretion to provide for accelerated exercisability or vesting of any award in cases of retirement, separation, retention arrangements, death, disability or a Change in Control, in the terms of the Award Agreement or otherwise. The Committee shall when determining the vesting period of each grant of Award consider the purpose of the Plan, including but not limited to attraction and retention of individuals to the Company, motivation of performance and provision of competitive incentive opportunities.
4.7 Lapse of Awards. Unless otherwise set forth in the Award Agreement or determined by the Committee, Awards shall cease to vest upon a termination of the Participant’s employment or service with the Company or the Participant ceasing to be an Eligible Individual. In the event an Option or SAR expires without being exercised during the period prescribed under section 2.5(b) or an Award do not vest, such Award shall lapse, automatically forfeited and cancelled by the Company without action on the part of the Participant and for no consideration. The Company shall owe no liability to any participant for the lapse of any Award under this paragraph.
SECTION 5.
Change in Control
Subject to the provisions of subsection 4.2 (relating to the adjustment of shares), and except as otherwise provided in the Plan or the Award Agreement reflecting the applicable Award, if a Change in Control occurs prior to the date on which an Award is vested and prior to the Participant’s separation from service and if the Participant’s employment is involuntarily terminated by the Company (other than for cause) on or within two years following the Change in Control, then:
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In no event shall the application of this Section 5 cause the vesting period of any Award of any Participant who is not an Employee Participant to be less than 12 months.
Notwithstanding anything in this Plan or any Award agreement to the contrary, to the extent any provision of this Plan or an Award agreement would cause a payment of deferred compensation that is subject to Code Section 409A to be made upon the occurrence of a Change in Control, then such payment shall not be made unless such Change in Control also constitutes a “change in ownership”, “change in effective control” or “change in ownership of a substantial portion of the Company’s assets” within the meaning of Code Section 409A.
SECTION 6.
Miscellaneous
6.1 Effective Date; Duration. Subject to its prior approval by the Company’s shareholders, this Plan shall become effective as of the effective date of the dual primary listing of the Stock on the Main Board of HKEx (the “Effective Date”). This Plan shall terminate as of the tenth anniversary of the date on which it was approved by the Company’s shareholders, unless terminated earlier by the Board. Upon termination of the Plan, no further Award will be offered but the provisions of this Plan shall remain in full force and effect in all other respects. Termination of this Plan
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shall not affect the terms or conditions of any Award granted prior to termination. Awards granted but not yet exercised or vested shall continue to be valid and exercisable in accordance with this Plan.
6.2 General Restrictions. Distribution of shares of Stock or other amounts under the Plan shall be subject to the following:
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6.3 Tax Withholding. All distributions under the Plan are subject to withholding of all applicable taxes, and the Committee may condition the delivery of any shares or other benefits under the Plan on satisfaction of the applicable withholding obligations. The Committee, in its discretion, and subject to such requirements as the Committee may impose prior to the occurrence of such withholding, may permit such withholding obligations to be satisfied through (i) cash payment by the Participant, (ii) net settlement by authorizing the Company to withhold whole shares of Stock which would otherwise be delivered having an aggregate Fair Market Value, determined as of the date of settlement, equal to the amount necessary to satisfy such withholding obligation, (iii) the Participant irrevocably authorizing a third party to sell shares of Stock (or a sufficient portion of the shares) acquired upon settlement of the Award and remit to the Company a sufficient portion of the sale proceeds to pay the tax withholding resulting from such settlement, or (iv) any other means approved by the Committee and permitted under applicable law; provided, however, previously-owned Stock that has been held by the Participant or Stock to which the Participant is entitled under the Plan may only be used to satisfy the minimum tax withholding required by applicable law (or, if permitted by the Company, such other rate as shall not cause adverse accounting consequences under the accounting rules then in effect).
6.4 Grant and Use of Awards. Subject to subsection 4.1, in the discretion of the Committee, a Participant may be granted any Award permitted under the provisions of the Plan, and more than one Award may be granted to a Participant. Except as required by applicable law, a Participant is not required to pay any amount in order to apply or accept an Award. Subject to subsection 2.9, Awards may be granted as alternatives to or replacement of awards granted or outstanding under the Plan, or any other plan or arrangement of the Company or a Subsidiary (including a plan or arrangement of a business or entity, all or a portion of which is acquired by the Company or a Subsidiary). Subject to applicable laws and applicable rules of any stock exchange on which the Stock is listed and the overall limitation on the number of shares of Stock that may be delivered under the Plan, the Committee may use available shares of Stock as the form of payment for compensation, grants or rights earned or due under any other compensation plans or arrangements of the Company or a Subsidiary, including the plans and arrangements of the Company or a Subsidiary assumed in business combinations.
6.5 Timing on the grant of Awards. No Awards shall be granted in the periods prohibited under applicable law or the applicable rules of any stock exchange on which the Stock is listed.
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6.6 Settlement and Payments. Awards may be settled through cash payments, the delivery of shares of Stock, the granting of replacement Awards, or combination thereof as the Committee shall determine. Any Award settlement, including payment deferrals, may be subject to such conditions, restrictions and contingencies as the Committee shall determine. The Committee may permit or require the deferral of any Award payment (other than Option or SAR other than to the extent permitted by Code Section 409A), subject to such rules and procedures as it may establish, which may include provisions for the payment or crediting of interest, or dividend equivalents, including converting such credits into deferred Stock equivalents. Each Subsidiary shall be liable for payment of cash due under the Plan with respect to any Participant to the extent that such benefits are attributable to the services rendered for that Subsidiary by the Participant. Any disputes relating to liability of a Subsidiary for cash payments shall be resolved by the Committee.
6.7 Transferability. Awards under the Plan are not transferable except as designated by the Participant by will or by the laws of descent and distribution, or, if provided by the Committee, pursuant to a qualified domestic relations order (within the meaning of the Code and applicable rules thereunder), in each case, to the extent permitted by applicable law. To the extent that Participant who receives an Award under the Plan has the right to exercise such Award, the Award may be exercised during the lifetime of the Participant only by the Participant. Notwithstanding the foregoing provisions of this subsection 6.7, if provided by the Committee and subject to approval, waiver, confirmation or otherwise (as applicable) from the HKEx, Awards may be transferred to or for the benefit of the Participant’s family (including, without limitation, to a trust or partnership for the benefit of a Participant’s family), subject to such procedures as the Committee may establish. In no event shall an ISO be transferable to the extent that such transferability would violate the requirements applicable to such option under Code Section 422.
6.8 Rights as Shareholder. No Participant shall have any right as a shareholder of the Company with respect to any shares of Stock unless and until such Participant becomes a shareholder of record with respect to such shares of Stock. Once a Participant becomes a shareholder of record with respect to the shares of Stock subject to the Award, the Participant shall have all rights as a shareholder of the Company, including, but not limited to, voting rights, the right to receive dividends and the right to participate in any capital adjustment applicable to all holders of Common Stock; provided, however, that a distribution or dividend with respect to shares of Stock subject to vesting conditions, including a regular cash dividend, shall be deposited with the Company and shall be subject to the same restrictions as the shares of Stock with respect to which such distribution was made.
6.9 Form and Time of Elections. Unless otherwise specified herein, each election required or permitted to be made by any Participant or other person entitled to benefits under the Plan, and any permitted modification, or revocation thereof, shall be in writing filed with the Committee at such times, in such form, and subject to such restrictions and limitations, not inconsistent with the terms of the Plan, as the Committee shall require.
6.10 Agreement with Company. An Award under the Plan shall be subject to such terms and conditions, not inconsistent with the Plan, as the Committee shall, in its sole discretion, prescribe. The terms and conditions of any Award to any Participant shall be reflected in such form of written document as is determined by the Committee. A copy of such document shall be provided to the Participant, and the Committee may, but need not require that the Participant sign a copy of such document. Such document is referred to in the Plan as an “Award Agreement” regardless of whether any Participant signature is required.
6.11 Notices. Any notice or document required to be filed with the Committee under the Plan shall be properly filed if delivered or mailed by registered mail, postage prepaid, to the Committee, in care of the Company or the Subsidiary, as applicable, at its principal executive offices. The Committee may, by advance written notice to affected persons, revise such notice procedure from time to time. Any notice required under the Plan (other than a notice of election) may be waived by the person entitled to notice.
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6.12 Action by Company or Subsidiary. Any action required or permitted to be taken under the Plan by the Company or any Subsidiary shall be by resolution of its board of directors, or by action of one or more non-employee members of the board (including a committee of the board) who are duly authorized to act for the board, or (except to the extent prohibited by applicable law or applicable rules of any stock exchange) by a duly authorized officer of such company, or by any employee of the Company or a Subsidiary who is delegated by the board of directors authority to take such action.
6.13 Gender and Number. Where the context admits, words in any gender shall include any other gender, words in the singular shall include the plural and the plural shall include the singular.
6.14 Limitation of Implied Rights.
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6.15 Evidence. Evidence required of anyone under the Plan may be by certificate, affidavit, document or other information which the person acting on it considers pertinent and reliable, and signed, made or presented by the proper party or parties.
6.16 Misconduct. If the Committee determines that a present or former employee has (a) used for profit or disclosed to unauthorized persons, confidential or trade secrets of the Company or any Subsidiary; (b) breached any contract with or violated any fiduciary obligation to the Company or any Subsidiary; or (c) engaged in any conduct which the Committee determines is injurious to the Company or its Subsidiaries, the Committee may cause that employee to forfeit his or her outstanding awards under the Plan, provided, however, that during the pendency of a Potential Change in Control and as of and following the occurrence a Change in Control, no outstanding awards under the Plan shall be subject to forfeiture pursuant to this subsection 6.16. Nothing in this Plan or otherwise is intended to, or does, prohibit an Eligible Individual from (i) filing a charge or complaint with, providing truthful information to, or cooperating with an investigation being conducted by a governmental agency (such as the U.S. Equal Employment Opportunity Commission, another other fair employment practices agency, the U.S. National Labor Relations Board, the U.S. Department of Labor, or the U.S. Securities and Exchange Commission (the “SEC”)); (ii) engaging in other legally-protected activities; (iii) giving truthful testimony or making statements under oath in response to a subpoena or other valid legal process or in any legal proceeding; (iv) otherwise making truthful statements as required by law or valid legal process; or (v) disclosing a trade secret in confidence to a governmental official, directly or indirectly, or to an attorney, if the disclosure is made solely for the purpose of reporting or investigating a suspected violation of law. Accordingly, an Eligible Individual shall not be
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held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that (i) is made (A) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, and (B) solely for the purpose of reporting or investigating a suspected violation of law; or (ii) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. In the event an Eligible Individual files a lawsuit for retaliation by the Company for reporting a suspected violation of law, the Eligible Individual may disclose the trade secret(s) of the Company to his attorney and use the trade secret information in the court proceeding, if the Eligible Individual (i) files any document containing the trade secret under seal; and (ii) does not disclose the trade secret, except pursuant to court order. In accordance with applicable law, and notwithstanding any other provision of this Plan, nothing in this Plan or any of any policies or agreements of the Company or any affiliate applicable to the Eligible Individual (i) impedes an Eligible Individual’s right to communicate with the SEC or any other governmental agency about possible violations of federal securities or other laws or regulations or (ii) requires an Eligible Individual to provide any prior notice to the Company or its affiliates or obtain their prior approval before engaging in any such communications.
6.17 Restrictions on Shares and Awards. The Committee, in its discretion, may impose such restrictions on shares of Stock acquired pursuant to the Plan, whether pursuant to the exercise of an Option or SAR, settlement of a Full Value Award or Cash Incentive Award or otherwise, as it determines to be desirable, including, without limitation, restrictions relating to disposition of the shares and forfeiture restrictions based on service, performance, Stock ownership by the Participant, conformity with the Company’s recoupment, compensation recovery, or clawback policies and such other factors as the Committee determines to be appropriate. Without limiting the generality of the foregoing, unless otherwise specified by the Committee, any awards under the Plan and any shares of Stock issued pursuant to the Plan shall be subject to the Company’s compensation recovery, clawback, and recoupment policies as in effect from time to time.
6.18 Applicable Law. The provisions of the Plan shall be construed in accordance with the laws of the State of Delaware, without giving effect to choice of law principles. In the event any term of this Plan shall be inconsistent with or not in compliance with the applicable rules of the NYSE or the HKEx, the applicable rules of the NYSE or the HKEx shall prevail.
6.19 Foreign Individuals. Notwithstanding any other provision of the Plan to the contrary, the Committee may grant Awards to eligible persons who are foreign nationals on such terms and conditions different from those specified in the Plan as may, in the judgment of the Committee, be necessary or desirable to foster and promote achievement of the purposes of the Plan. In furtherance of such purposes, the Committee may make such modifications, amendments, procedures and subplans as may be necessary or advisable to comply with provisions of laws in other countries or jurisdictions in which the Company or any of the Subsidiaries operates or has employees. The foregoing provisions of this subsection 6.19 shall not be applied to increase the share limitations of Section 4 or to otherwise change any provision of the Plan that would otherwise require the approval of the Company’s shareholders.
6.20 Liability for Cash Payments. Subject to the provisions of this Section 6, each Subsidiary shall be liable for payment of cash due under the Plan with respect to any Participant to the extent that such payment is attributable to the services rendered for that Subsidiary by the Participant. Any disputes relating to liability of a Subsidiary for cash payments shall be resolved by the Committee.
SECTION 7.
Committee
7.1 Administration. The authority to control and manage the operation and administration of the Plan shall be vested in a committee of the Board (the “Committee”) in accordance with this Section 7. The Committee shall be
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selected by the Board, and shall consist solely of two or more non-employee members of the Board, each of whom is intended to be (i) a “Non-Employee Director” within the meaning of Rule 16b-3 under the Exchange Act and (ii) “independent” within the meaning of the rules of the principal stock exchange on which the Stock is then traded. If the Committee does not exist, or for any other reason determined by the Board, the Board may take any action under the Plan that would otherwise be the responsibility of the Committee. As of the Effective Date, the Committee shall mean the Compensation Committee of the Board.
7.2 Powers of Committee. The Committee’s administration of the Plan shall be subject to the following:
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7.3 Delegation by Committee. Except to the extent prohibited by applicable law or the applicable rules of a stock exchange on which the Stock is listed, the Committee may allocate all or any portion of its responsibilities and powers to any one or more of its members and may delegate all or any part of its responsibilities and powers to any person or persons selected by it. Any such allocation or delegation may be revoked by the Committee at any time.
7.4 Information to be Furnished to Committee. The Company and the Subsidiaries shall furnish the Committee with such data and information as it determines may be required for it to discharge its duties. The records of the Company and the Subsidiaries as to an individual’s or Participant’s employment (or other provision of services), termination of employment (or cessation of the provision of services), leave of absence, reemployment and compensation shall be conclusive on all persons unless determined to be incorrect. Participants and other persons entitled to benefits under the Plan must furnish the Committee such evidence, data or information as the Committee considers desirable to carry out the terms of the Plan.
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7.5 Limitation on Liability and Indemnification of Committee. No member or authorized delegate of the Committee shall be liable to any person for any action taken or omitted in connection with the administration of the Plan unless attributable to his own fraud or willful misconduct; nor shall the Company or any Subsidiary be liable to any person for any such action unless attributable to fraud or willful misconduct on the part of a director or employee of the Company or Subsidiary. The Committee, the individual members thereof, and persons acting as the authorized delegates of the Committee under the Plan, shall be indemnified by the Company against any and all liabilities, losses, costs and expenses (including legal fees and expenses) of whatsoever kind and nature which may be imposed on, incurred by or asserted against the Committee or its members or authorized delegates by reason of the performance of a Committee function if the Committee or its members or authorized delegates did not act dishonestly or in willful violation of the law or regulation under which such liability, loss, cost or expense arises. This indemnification shall not duplicate but may supplement any coverage available under any applicable insurance.
SECTION 8.
Amendment and Termination
The Board may, at any time, amend or terminate the Plan (and the Committee may amend any Award Agreement); provided, however, that:
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SECTION 9.
Defined Terms
In addition to the other definitions contained herein, the following definitions shall apply:
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Notwithstanding the foregoing, a “Change in Control” shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of the Company immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions. Notwithstanding the foregoing definition or any other provision of this Plan, the term Change in Control shall not include a sale of assets, merger or other transaction effected exclusively for the purpose of changing the domicile of the Company. For purposes of this definition, the following terms shall have the meaning specified:
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PRELIMINARY PROXY CARD DATED AUGUST 15, 2022
SUBJECT TO COMPLETION
w SCAN TO VIEW MATERIALS & VOTE YUM CHINA HOLDINGS, INC. 7100 CORPORATE DRIVEw 101 EAST PARK BOULEVARD, SUITE 805 PLANO, TX 7502475074 VOTE BY INTERNET Before The Meeting—Go to www.proxyvote.com or scan the QR Barcode above Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 a.m. on May 26, 202224, 2023 Beijing/Hong Kong time / 11:59 p.m. on May 25, 202223, 2023 U.S. Eastern time. Have your proxy card in hand when you access the website and follow the instructions to obtain your records and to create an electronic voting instruction form. During The Meeting—Go to www.virtualshareholdermeeting.com/YUMC2022 You may attend the meeting via the Internet and vote during the meeting. Have the information that is printed in the box marked by the arrow available and follow the instructions. VOTE BY PHONE—PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 a.m. on May 26, 202224, 2023 Beijing/Hong Kong time / 11:59 p.m. on May 25, 202223, 2023 U.S. Eastern time. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. D74754-P70528TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: V05307-P91490 THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY YUM CHINA HOLDINGS, INC. The Board of Directors recommends you vote FOR the following: 1. Election of Directors For Against Abstain Nominees: 1a. Fred Hu For Abstain Against 1b. Joey Wat 1c. Peter A. Bassi 1d. Edouard Ettedgui 1e. Ruby Lu 1f. Zili Shao 1g. William Wang 1h. Min (Jenny) Zhang 1i. Christina Xiaojing Zhu you vote FOR For Against Abstain ! ! ! The Board of Directors recommends you vote FOR For Against Abstain proposals 2 and 3. 1c. Peter A. Bassi! ! ! 2. Approval and Ratification of the Appointment of ! ! ! KPMG Huazhen LLP and KPMG as the Company’s Independent AuditorAuditors for 2022 1d. Edouard Ettedgui2023 ! ! ! 3. Advisory Vote to Approve Executive Compensation ! ! ! ! ! ! The Board of Directors recommends you vote 1 Year 2 Years 3 Years Abstain 1 YEAR on the following proposal: ! ! ! 4. Advisory Vote on Executive Vote on the Compensation Frequency of the Advisory ! ! ! ! ! ! ! The Board of Directors recommends you vote FOR For Against Abstain proposals 5 and 6. ! ! ! 5. Vote to Authorize the Board of Directors to Issue Shares ! ! ! up to 20% of Outstanding Shares ! ! ! 6. Vote to Authorize the Board of Directors to Repurchase ! ! ! Shares up to 10% of Outstanding Shares ! ! ! NOTE: The proxies are authorized to vote in their discretion upon such other business as may properly come before the meeting or any adjournment or postponement thereof. 1e. Cyril Han 1f. Louis T. Hsieh 1g. Ruby Lu 1h. Zili Shao 1i. William Wang 1j. Min (Jfcenny) Zhang Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. October 10 www.virtualshareholdermeeting.com/YUMC2022SM October 9 1. To approve the Board of Director’s continuing authority to approve issuances of shares of common stock or convertible securities in an amount not to exceed 20% of Yum China’s total number of outstanding shares of common stock as of the date of the Special Meeting, effective from the effective date of the conversion of the Yum China’s listing status on the Hong Kong Stock Exchange to primary listing until the earlier of the date the next annual meeting is held or June 26, 2023. 2. To approve the Board of Director’s continuing authority to approve the repurchases of shares of common stock in an amount not to exceed 20% of Yum China’s total number of outstanding shares of common stock as of the date of the Special Meeting, effective from the effective date of the conversion of the Yum China’s listing status on the Hong Kong Stock Exchange to primary listing until the earlier of the date the next annual meeting is held or June 26, 2023. 3. To approve the Yum China Holdings, Inc. 2022 Long Term Incentive Plan. NOTE: The proxies are authorized to vote in their discretion upon such other business as may properly come before the meeting or any adjournment or postponement thereof.Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
D74755-P70528 Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Notice and Proxy Statement and Form 10-K are available at www.proxyvote.com. V05308-P91490 YUM CHINA HOLDINGS, INC. Annual Meeting of Stockholders May 25, 2023 8:00 a.m. on May 27, 2022 Beijing/Hong Kong Time / 8:00 p.m. on May 26, 2022 U.S. Eastern Time(local time) This proxy is solicited by the Board of Directors The undersigned stockholder(s) hereby appoint(s) Andy Yeung and Joseph Chan, or either of them, as proxies, each with the power to appoint his substitute, revoking all proxies previously given, and hereby authorize(s) them to represent and to vote, as designated on the reverse side of this proxy, all of the shares of common stock of Yum China Holdings, Inc. that the stockholder(s) is/are entitled to vote at the Annual Meeting of Stockholders to be held via a live webcast at www.virtualshareholdermeeting.com/YUMC2022 at 8:00 a.m. local time, on May 27, 2022 Beijing/25, 2023, at Mandarin Oriental Hong Kong, Time / 8:00 p.m. on May 26, 2022 U.S. Eastern Time,5 Connaught Road, Central, Hong Kong, and any adjournment or postponement thereof. This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in accordance with the Board of Directors’ recommendations. Continued and to be signed on reverse side Special Special October 11 October 10 Special October 11 www.virtualshareholdermeeting.com/YUMC2022SM October 10