8-KLeadership Changes

MCDONALDS CORP 8-K Report, Executive Changes (Feb 21, 2007)

Filed February 21, 2007For Securities:MCD

Summary

This 8-K filing by McDonald's Corporation, dated February 21, 2007, reports on decisions made by its Compensation Committee on February 14, 2007, primarily concerning executive compensation. The key information for investors revolves around the awarding of incentive compensation and stock units to named executive officers for both past performance and future performance cycles. This includes significant payouts for the 2004-2006 performance period under the Cash Performance Unit Plan (CPUP) and the approval of 2006 annual cash incentive awards under the Target Incentive Plan (TIP), with payouts exceeding target for several executives due to strong company performance. Furthermore, the filing details the establishment of new compensation plans for the 2007-2009 performance cycle. This includes grants under the CPUP with specific performance metrics tied to operating income growth and asset return, and restricted stock units (RSUs) with vesting conditioned on achieving a target for compounded annual earnings per share (EPS) growth. These disclosures provide insight into how McDonald's leadership is incentivized and aligned with shareholder value creation, highlighting both past achievements and future performance targets.

Key Highlights

  • 1Approval of final Cash Performance Unit Plan (CPUP) payouts for the 2004-2006 performance cycle, with top executives receiving payouts significantly exceeding their target awards (e.g., James A. Skinner receiving $5,333,195).
  • 2Approval of 2006 annual cash incentive awards under the Target Incentive Plan (TIP), where executive payouts also substantially surpassed target awards due to strong company and individual performance (e.g., James A. Skinner receiving $3,500,000 at 243% of target).
  • 3Grant of new Cash Performance Unit Plan (CPUP) awards for the 2007-2009 performance cycle to named executive officers, with target awards set for James A. Skinner ($3,600,000), Ralph Alvarez ($2,000,000), and Matthew H. Paull ($1,200,000).
  • 4The 2007-2009 CPUP performance metrics include consolidated three-year compounded annual "Brand McDonald's operating income growth" (75% weighting) and average return on total assets (25% weighting).
  • 5The maximum payout for the 2007-2009 CPUP awards is 230% of the target award.
  • 6Grant of restricted stock units (RSUs) to key executives, which cliff vest after three years and are subject to performance-based vesting tied to compounded annual diluted EPS growth, with a target of 7% for full vesting.
  • 7The CPUP payouts are further adjusted by a multiplier based on cumulative total shareholder return versus the S&P 500 Index, potentially increasing or decreasing final payouts by up to 15%.

Frequently Asked Questions

The Cash Performance Unit Plan (CPUP) for the 2007-2009 cycle will be based 75% on consolidated three-year compounded annual 'Brand McDonald’s operating income growth' and 25% on average return on total assets (ROTA). Additionally, final payouts will be adjusted by a multiplier based on McDonald's cumulative total shareholder return relative to the S&P 500 Index.

The 2006 annual cash incentive awards, paid under the Target Incentive Plan (TIP), were primarily determined based on growth in Brand McDonald’s operating income in 2006. Payouts for Messrs. Skinner, Paull, Alvarez, and Roberts were significantly above their target awards due to superior company and individual performance.

The RSUs granted to named executive officers cliff vest after three years. Vesting is contingent upon achieving a performance target for compounded annual growth in diluted earnings per share (EPS). Full vesting requires a 7% compounded annual EPS growth; no vesting occurs below 2% compounded growth.

Participants will not receive any payout under the new Cash Performance Unit Plan (CPUP) for the 2007-2009 performance cycle until after the conclusion of the performance period on December 31, 2009. The final payout is determined based on the cumulative performance over the entire three-year cycle.