Item 5.02. Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of Certain
Officers.
As described in further detail in the Compensation Discussion and Analysis in
the proxy statement for the 2020 annual meeting of stockholders of Yum China
Holdings, Inc. (the "Company"), the Company's executive compensation program is
designed to (i) attract and retain the right talent to achieve superior
stockholder returns, (ii) reward performance, (iii) emphasize long-term value
creation and (iv) drive an ownership mentality. Consistent with these
objectives, the Compensation Committee (the "Committee") of the Company's Board
of Directors considered the impact of the COVID-19 pandemic on the Company's
operations and the restaurant industry in general and determined that the
motivational aspects of the Company's annual incentive plan that were
established at the beginning of the year were significantly diminished. The
Committee evaluated whether any adjustments were necessary to the 2020 annual
incentive plan design in order to continue to incentivize actions aligned with
the Company's strategic operating plan and long-term value creation and, on July
16, 2020, determined that it was in the best interests of the Company and its
stockholders to supplement the annual performance metrics with additional key
performance indicators ("KPIs") as well as a relative total shareholder return
measure. These KPIs were designed to motivate performance in this particularly
challenging environment due to the COVID-19 pandemic and to position the Company
as a strong market leader.
For each named executive officer, the 2020 annual incentive awards will continue
to be tied to the corporate performance goals established at the beginning of
the year with respect to adjusted operating profit growth, same store sales
growth, system gross new builds and system customer satisfaction, but with the
combined weighting reduced from 100% of the team factor component of the annual
incentive plan to 35% of the team factor component. The Committee did not adjust
the performance goals associated with the original metrics and, accordingly,
this component of the team factor will be earned based on performance against
the goals established at the beginning of 2020.
The remaining 65% of the team factor component will be based on performance with
respect to six KPIs, with an aggregate weight of 35%, and the Company's relative
total shareholder return, weighted 30%. The six KPIs relate to market
penetration, sales contribution from loyalty members, business-to-business
ecosystem measures, delivery sales growth of KFC, non dine-in sales contribution
of Pizza Hut, and cost management. These KPIs are viewed as supportive of the
Company's long-term strategy and the creation of shareholder value and the
Committee believes performance against these measures will reflect the extent of
the Company's success in the execution of its operating plan after the outbreak
of COVID-19. The Committee determined that it was also appropriate to
incorporate a relative total shareholder return measure as it is viewed as a
core measure of the Company's performance and shareholder value creation. In
order to provide a strong linkage with stockholder interests, if the Company's
2020 total shareholder return, as calculated in accordance with the annual
incentive plan, is negative, then the payout associated with this metric will be
capped at target. Recognizing the unprecedented nature of the COVID-19 pandemic
and the resulting volatility in the restaurant industry and the market in
general, the Committee elected to retain discretion under the annual incentive
plan design to adjust payouts based on other factors deemed relevant by the
Committee, including such other factors that support sustainable, long-term
growth and shareholder value creation.
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