2018 Guide to Effective Proxies

6 TH EDITION | GUIDE TO EFFECTIVE PROXIES 278 YUM! BRANDS, INC. EXECUTIVECOMPENSATION door policy. The efforts included contacting our largest 30 shareholders, representing ownership of approximately 45% of our shares, and meeting with shareholders representing approximately 13% of our shares(discussedfurtheronpage46). 2017ChangestoCompensationProgram • Long Term Incentive Equity Mix for 2017. Following the Company’s 2016 Annual Meeting of Shareholders, significant shareholder engagement was undertaken by the Company in order to receive feedback on, among other things, the Company’s equity mix for long-term incentive awards. In response to this shareholder feedback, and in alignment with our business strategy and compensation philosophy, the Committee determined that beginning in 2017, the long-term award mix for members of the Global Leadership Teamwouldbesplit50%SARsand50%PSUs. • Change in PSU Metrics. In response to shareholder feedback,andconsistentwiththeCompany’soverall businessstrategy,beginningin2017,PSUgrantsare earned based onthe Company’s TSRrelative tothat of the S&P 500 Consumer Discretionary Index and on compound annual growth of the Company’s Earnings Per Share (“EPS”), with each factor accounting for 50% of performance measurement. PSU grants were previously earned based on the Company’s TSR relative to that of the S&P 500. IncorporatingTSRandEPSsupportstheCompany’s pay-for-performance philosophy while diversifying performance criteria by using measures not used in the annual bonus plan and aligning our NEOs’ reward with the creation of shareholder value. In addition, the change to incorporate the S&P 500 Consumer Discretionary Index provides for a more direct comparison of the Company against a diverse group of consumer products companies that is smaller than the S&P 500 and reflects performance againstamorerelevantdataset. • UpdatetoExecutivePeerGroup.Thecompositionof the Executive Peer Group was updated to allow for more relevant comparisons following the separation of Yum China Holdings, Inc. in October 2016, recognizing the smaller size of the Company and the currentcomplexitiesofitsbusiness(seepage48). E. Relationship between Company Pay and Performance To focus on both the short-term and long-term success of the Company, approximately 90% of our CEO’s target compensation is “at-risk” pay, with the compensation paid based on Company results. If short-term and long-term financial and operational target goals are not achieved, then performance- related compensation will decrease. If target goals are exceeded, thenperformance-related compensationwill increase. As demonstrated below, our target pay mix for our CEO emphasizes our commitment to “at-risk” payinordertotiepaytoperformance.Forpurposesof this section, our discussion is limited to our CEO, Mr. Creed. Our other NEOs’ target compensation is subject to a substantially similar set of considerations, which are discussed in Section III, 2017 Named Executive Officer Total Direct Compensation and PerformanceSummary,foundatpages41to45ofthis CD&A. YUM!BRANDS,INC. - 2018ProxyStatement 35 ProxyStatement Total of 05 pages in section EXECUTIVECOMPENSATION B. Named Executive Officers TheCompany’sNEOsfor2017areasfollows: Name Title GregCreed ChiefExecutiveOfficer DavidW.Gibbs PresidentandChiefFinancialOfficer RogerG.Eaton ChiefExecutiveOfficerofKFCDivision BrianR.Niccol (1) FormerChiefExecutiveOfficerofTacoBellDivision TracyL.Skeans ChiefTransformationandPeopleOfficer (1) Mr.NiccolresignedfromhispositionwiththeCompanyinFebruary2018. C. Compensation Philosophy The business performance of the Company is of the utmost importance in how our executives are compensated. Our compensation program is designed to both support our long-term growth model and hold our executives accountable to achieve key annual results year after year. YUM’s co pensation philosophy for the NEOs is reviewed annually by the Committeeandhasthefollowingobjectives: PayElement Objective BaseSalary Annual Performance-Based CashBonuses Long-TermEquity Performance- BasedIncentives Attractandretainthebesttalenttoachievesuperior shareholderresults —Tobeconsistentlybetterthanour competitors,weneedtorecruitandretainsuperiortalentwho areabletodrivesuperiorresults.Wehavestructuredour compensationprogramstobecompetitiveandtomotivateand rewardhighperformers. ✓ ✓ ✓ Rewardperformance —ThemajorityofNEOpayis performancebasedandthereforeatrisk.Wedesignpay programsthatincorporateteamandindividualperformance goalsthatleadtoshareholderreturn. ✓ ✓ Emphasizelong-termvaluecreation —Ourbeliefissimple:if wecreatevalueforshareholders,thenweshareaportionof thatvaluewiththoseresponsiblefortheresults. ✓ Driveownershipmentality —Werequireexecutivestoinvest intheCompany’ssuccessbyowningasubstantialamountof Companystock. ✓ D. Compensation Overview 2017CompensationHighlights • In January of 2017, the Committee made the followingdecisionsandtookthefollowingactions: • TheCommitteesetourCEOtargetcompensationlevels belowthe medianof our ExecutivePeerGroup (defined atpage48)fortheCEOrole; • The Committee set the equity mix for our Global Leadership Team’s long-term incentive awards at 50% stock appreciation rights (“SARs”) and 50% performanceshareunits(“PSUs”);and • The Committee certified that our 2014 PSU awards under our Performance Share Plan paid out at 71% of target in 2017 based on the Company’s Total Shareholder Return (“TSR”) for the 2014-2016 performancecycle.(seediscussionofPSUsatpage40). • At our May 2017 Annual Meeting of Shareholders, shareholders approved our “Say on Pay” proposal in support of our executive compensation program, with89%ofvotescastinfavoroftheproposal. • We continued our shareholder outreach program to better understand our investors’ opinions on our compensation practices and respond to their questions. Committee and management team members from compensation, investor relations and legalcontinuedtobedirectlyinvolvedinengagement efforts during 2017 that served to reinforce our open 34 YUM!BRANDS,INC. -2018ProxyStatement ProxyStatement EXECUTIVECOMPENSATION I. Executive Summary A. YUM 2017 Performance In 2016 we launched a series of initiatives to transform the Company, centering on a new multi-year strategy to accelerate growth, reduce volatility and increase capital returns to shareholders. By the end of 2018, we intendtoownlessthan1,000restaurants(atleast98% franchised) and, in 2019, intend to have reduced annual capital expenditures to approximately $100 million and improved our efficiency by lowering general and administrative expenses as a percentage of system sales to 1.7%. The transformation strategy, our “Recipe for Growth”, requires that the Company be more focused, more franchised and more efficient as we strengthen and grow our KFC, Pizza Hut and Taco Bell brands around the world, creating significant long- term value for all of our stakeholders and creating a worldwithmoreYum!. Four growth drivers form the basis of the Company’s strategic plans to accelerate same-store sales growth andnet-newrestaurantdevelopmentatKFC,PizzaHut and Taco Bell around the world. The Company is focused on building the world’s most loved, trusted and fastest growing restaurant brands by: (i) building Distinctive, Relevant and Easy Brands , by increasing investment in consumer insights, core product innovation, digital excellence and initiatives that strengthen the quality, convenience and appeal of the customer experience; (ii) developing Unmatched Franchise Operating Capability , strengthening how we equip and recruit the best restaurant operators to deliver great customer experiences, and build and protect our brands; (iii) driving Bold Restaurant Development through partnerships with growth- minded franchisees who can expand and penetrate markets with modern restaurants, strong economics and value; and (iv) growing Unrivaled Culture and Talent to strengthen the customer experience and franchise success with best-in-class people capability andculture. 2017 was an exceptional year for the Company and its progress towards the transformation initiative. YUM operating profit increased 64% during 2017 and our system restaurant count grew by 1,407 units. These results provide us with confidence that we are making meaningful progress towards our goal of building and strengthening our global KFC, Pizza Hut and Tac Bell brands. Strong brands are critical in our being able to deliversustainedgrowthandinourabilitytocreatelong- term shareholder value. The following perform nce highlightsillustratejusthowsuccessful2017was: (1) Note: All comparisons are versus the same period a year ago. System sales figures in this section exclude the impact of foreign currency translation and the 53rd week. See the Non-GAAP Items section in Item 7 of YUM’s Form 10-K for the fiscalyearendedonDecember31,2017forareconciliationofGAAPCompanysalestoSystemsales. (2) TheCompanyusesAdjustedOperatingProfitGrowthasakeyperformancemeasureofresultsofoperationsforthepurpose ofevaluatingperformanceagainsttargetssetunderourYUMLeaders’BonusProgram.RefertoAppendixA:Reconciliation ofAdjustedOperatingProfitGrowth,asshownabove,toGAAPOperatingProfitGrowth. (3) Total shareholder return is calculated as the growth in YUM share price from the beginning of 2017 until the year-end, and includesassumedreinvestmentofdividends. YUM!BRANDS,INC. - 2018ProxyStatement 33 ProxyStatement ZOETIS, INC. EXECUTIVECOMPENSATION Š Acquisitions. Weexecutedonourstrategytodeploycapitaltowardacquisitionsthatstrengthenourportfolio, includingouracquisitionofNexvet,abiologictherapeuticscompanydevelopingapipelineofmonoclonalantibody (mAb)therapiesforcompanionanimalsinpainandothertherapeuticareas.Wealsocompletedanacquisitionof NordlandSettVaksAS,acompanywithvaccinationbiodevicesandservicesfortheaquaculturemarket. Š DividendsandCapitalAllocation. In2017,wepaidoutapproximately$206milliondollarsincommonstock dividendstoshareholderstotaling$0.42pershare,andinDecemberof2017,ourBoardofDirectorsdeclaredafirst quarter2018dividendof$0.126pershare,a20%increaseoverthequarterlydividendratepaidin2017.In December2016,weannouncedthatourBoardofDirectorshadauthorizedtherepurchaseof$1.5billionofour outstandingcommonstock,andin2017weboughtbackapproximately$500millioninsharesatregularintervals. WecontinuetoprioritizeourcapitalallocationinwaysthatwilladdvaluetoZoetisthroughtargetedbusiness developmentactivitiesandbyreturningexcesscapitaltoshareholders. 2017COMPENSATIONHIGHLIGHTS AmongtheCommittee’scompensation-relatedactionsin2017,theCommitteerevisedthecash-basedmetricunderour AnnualIncentivePlan(“AIP”).TheCommitteereviewedthecash-basedmetric(weighted20%,withrevenueand adjusteddilutedEPSeachcomprising40%)usedtodetermine2016AIPpayoutsandapprovedachangetotheuseof freecashflowbeginningin2017.In2016,thecash-basedmetricwasdefinedasouradjustednetincomeplus depreciation,amortizationandstock-basedcompensationwithinadjustedincome,minuscapitalexpendituresand certainone-timecashcosts(aftertaxes),plusorminusforeignexchangeimpactsandchangesinaccountsreceivable, inventoriesandaccountspayable.FreecashflowisdefinedasU.S.GAAPoperatingcashflow,minuscapital expenditures(adjustedtoexcludetheimpactofextraordinary,one-timeevents,ifany).Asfreecashflowisawidely usedcapitalmanagementmetric,thisupdatewasmadetobringgreaterconsistencytofinancialperformance evaluationandfosterincreasedtransparencyforemployeesandshareholders. CEOCOMPENSATION:ATAGLANCE ComponentsofCEOTargetTotalDirectCompensation Mr.Alaix’targettotaldirectcompensationiscomprisedofbasesalary,targetannualincentivecompensation opportunityandtargetlong-termincentivecompensationopportunity. BaseSalaryandAnnualIncentive Mr.Alaix’basesalaryforthefirstthreemonthsof2017was$1,160,000andhistargetannualincentiveopportunityfor thatthree-monthperiodwas115%ofhisbasesalary,providingforannualizedtargettotalcashcompensationof $2,494,000. OnFebruary14,2017,theCommitteerecommendedincreasingMr.Alaix’basesalaryto$1,200,000,andincreasinghis targetannualincentiveopportunityfrom115%to125%ofhisbasesalary,providingforannualizedtargettotalcash compensationof$2,700,000. UpontheCommittee’srecommendation,theBoardofDirectorsapprovedthisincreaseeffectiveApril1,2017,the effectivedateofannualsalaryincreasesgenerallyapplicabletootheremployees.Becausethisincreasewasnotapplied retroactively,Mr.Alaix’fullyeartargettotalcashcompensationfor2017was$2,648,500(basesalaryof$1,190,000and annualincentivetargetof$1,458,500). 2017 January1–March31 April1–December31 FullYear BasePay $1,160,000 $1,200,000 $1,190,000 TargetAnnualIncentive $1,334,000 $1,500,000 $1,458,500 TotalTargetCashCompensation $2,494,000 $2,700,000 $2,648,500 24 ZOETIS2018PROXYSTATEMENT Total of 05 pages in section EXECUTIVECOMPENSATION O Revenues .Forfullyear2017,reportedrevenuewas$5,307million,withrevenuegrowthof8%onan operational 3 basis;thisgrowthisgreaterthantheexpectedglobalanimalhealthgrowthfortheyearandinline withourvalueproposition.Wegeneratedstrongoperationalrevenuegrowthbasedonthediversityofour productportfolio,aswellassolid,balancedperformanceacrosstheU.S.andallourmajorinternationalmarkets. Ourcompanionanimalproductsrevenuegrew14%operationally 3 ,withparticularstrengthindermatology,as wellasothernewproductslikeSimparica ® .Wedelivered5%operationalrevenuegrowth 3 inourlivestock business. O AdjustedNetIncome. Netincomefor2017was$864millionandadjustednetincome 4 for2017was $1,185million.Adjustednetincomeincreased22%over2016.Inlinewithourlong-termvalueproposition,we grewadjustednetincomefasterthanrevenue,demonstratingourfocusonlong-termprofitablegrowth. O EarningsPerShare(“EPS”). ReporteddilutedEPSfor2017was$1.75perdilutedshare,comparedto$1.65per dilutedsharereportedin2016.AdjusteddilutedEPS 4 for2017was$2.40perdilutedshare,comparedtothe 2016amountof$1.96perdilutedshare. Our2017financialperformanceascomparedto2016isreflectedinthechartbelow. Financial Highlights $975 $1,185 Adjusted Net Income 4 ($ inmillions) 2016 2017 $1.96 $2.40 2016 2017 Adjusted Diluted EPS 4 $4,888 $5,307 Revenues ($ inmillions) 2016 2017 Š Value-AddedInvestmentOpportunities. OurResearch&Development(“R&D”)teamcontinuedtoincreasethe valueofZoetis’long-termportfolioin2017.Wereceivedapprovalformorethan200newandenhancedproducts worldwideandcompletedanumberofmajorresearchalliancedeals,includingaresearchcollaborationwith CelgeneGlobalHealthtodevelopnovelsolutionstohelpcontrolparasiticinfestationsinanimalsandpeople.We wereproudtobethefirstcompanytoreceiveapprovalintheEuropeanUnionforaveterinaryusemonoclonal antibody(mAb)therapywithmarketingauthorizationforCytopoint ® ,amAbthathelpsreducetheclinicalsigns associatedwithatopicdermatitis,suchasitching,indogs.WealsoreceivedapprovalofSuvaxyn ® PRRSMLVinthe EuropeanUnion,avaccinetoprotectpigsagainstporcinerespiratoryandreproductivesyndrome. 3 Operationalrevenuegrowth(anon-GAAPfinancialmeasure)isdefinedasrevenuegrowthexcludingtheimpactofforeignexchange.Page43of our2017AnnualReportonForm10-K,filedwiththeSEConFebruary15,2018,containsareconciliationofthisnon-GAAPfinancialmeasureto reportedresultsunderGAAPfor2017. 4 AdjustednetincomeandadjusteddilutedEPS(non-GAAPfinancialmeasures)aredefinedasreportednetincomeattributabletoZoetisand reporteddilutedEPS,excludingpurchaseaccountingadjustments,acquisition-relatedcostsandcertainsignificantitemssuchaschargesdueto U.S.taxreformandcostsassociatedwithimplementingorganizationalchangesresultingfromourBusinessReview.Pages45to50ofour2017 AnnualReportonForm10-K,filedwiththeSEConFebruary15,2018,containareconciliationofthesenon-GAAPfinancialmeasurestoreported resultsunderGAAPfor2017. ZOETIS2018PROXYSTATEMENT 23 EXECUTIVECOMPENSATION COMPENSATION DISCUSSION AND ANALYSIS EXECUTIVESUMMARY InthisCompensationDiscussionandAnalysis(“CD&A”)wedescribeourexecutivecompensationphilosophyand programsandthecompensationdecisionsmadebytheCompensationCommitteeoftheBoardofDirectors fZoetis Inc.(the“Committee”)regardingthe2017compensationofournamedexecutiveofficers(“NEOs”). Zoetis’executivecompensationprogramisdesignedtoincentandrewardourleadershipforincreasingshareholder valueandaligntheinterestsofleadershipwiththoseofourshareholdersonanannualandlong-termbasis. OurNEOsfor2017,whosecompensationisdiscussedinthisCD&AandshownintheExecutiveCompensationTables below,are: NEO Title JuanRamónAlaix ChiefExecutiveOfficer(“CEO”) GlennC.David ExecutiveVicePresidentandChiefFinancialOfficer(“CFO”) KristinC.Peck ExecutiveVicePresidentandPresidentofU.S.Operations* ClintonA.Lewis,Jr. ExecutiveVicePresidentandPresidentofInternationalOperations* CatherineA.Knupp ExecutiveVicePresidentandPresidentofResearchandDevelopment * EffectiveMarch1,2018,Ms.PeckassumedtheroleofExecutiveVicePresidentandGroupPresident,U.S.Operations,Business DevelopmentandStrategy,andMr.LewisassumedtheroleofExecutiveVicePresidentandGroupPresident,InternationalOperations, CommercialDevelopment,GlobalGeneticsandAquaticHealth. 2017 BUSINESS HIGHLIGHTS In2017,ourleadershipteamonceagaindrovestrongoperatingperformancebasedonthethreeinterconnected capabilitiesthathavebeencriticaltooursuccesssincebecomingapubliccompany:directcustomerrelationships, innovativeresearchanddevelopment,andhigh-qualitymanufacturingandsupply.Wecontinuedtodeliveronourvalue propositionofgrowingrevenuefasterthanthemarketandgrowingouradjustednetincomefasterthanrevenue; targetingkeyinvestmentopportunitiesforgrowth;andreturningexcesscapitaltoourshareholders . Š BusinessReview .Wecompletedtheoperationalefficiencyinitiativethatwaslaunchedin2015,referredtoasour “BusinessReview”,andin2017fullyrealizedourBusinessReview’sgoalsof:(1)reducingcomplexitythatdoesnot addvalueforourcustomersorourbusiness;(2)optimizingresourceallocationandefficiency;and(3)better positioningZoetisforlong-termprofitablegrowth.Bytheendof2017,weexceededourgoalofachievingannual costsavingsof$300million. Š FinancialHighlights .Wedeliveredourfifthconsecutiveyearofoperationalrevenuegrowthandincreased profitabilityconsistentwithourvalueproposition,ashighlightedbelow. (Formoreinformationpleasereviewthecompany’sAnnualReportonForm10-Kforfiscalyear2017andthisproxy statement.) 22 ZOETIS2018PROXYSTATEMENT