What are Restricted Stock Units (RSUs) and why are they being awarded?

Restricted Stock Units (RSUs) are a form of equity compensation. McDonald's is awarding RSUs to its named executive officers as a way to incentivize and reward them for achieving specific performance targets, particularly in earnings per share (EPS) growth. This aligns the executive team's interests with those of the shareholders.

What performance metric is used to determine if these RSUs vest?

The primary performance metric is the compounded annual growth in diluted earnings per share (EPS) over a three-year period. The target set by the Compensation Committee is a cumulative 6% annual EPS growth. The RSUs will only vest if this performance target is met, or partially vest if the growth is positive but less than the target.

How is EPS calculated for the purpose of RSU vesting?

For the purpose of calculating EPS for these RSU awards, McDonald's adjusts the reported EPS. The calculation is done in 'constant currencies,' meaning the impact of foreign currency fluctuations is removed to better reflect the underlying operational performance. Additionally, the Compensation Committee has the discretion to exclude certain income or expense items that are not considered representative of ongoing business results.

When will these RSUs fully vest, and what happens if performance targets are not met?

The RSUs have a 'cliff vesting' schedule, meaning they will vest entirely after three years from the grant date. However, vesting is conditional on achieving the performance target. If the company achieves a cumulative 6% compounded annual EPS growth, the RSUs will vest. If there is no EPS growth at all, none of the RSUs will vest. If growth is positive but below 6%, a proportional amount of the RSUs will vest.

MCD 8-K: Leadership Changes

Summary

McDonald's Corporation (MCD) announced on February 14, 2011, through an 8-K filing, key details regarding restricted stock unit (RSU) grants awarded to its named executive officers. The grants, approved by the Compensation Committee on February 9, 2011, are subject to a three-year cliff vesting period and a performance-based condition tied to compounded annual growth in diluted earnings per share (EPS). Specifically, the target for RSU vesting is a cumulative 6% compounded annual EPS growth over the three-year period. The company has clarified that EPS for compensation purposes will be adjusted to constant currencies, excluding foreign currency translation effects, to better reflect underlying business trends. Certain non-recurring income or expense items may also be excluded at the Committee's discretion, providing flexibility in assessing performance.

Key Highlights

1McDonald's Compensation Committee approved RSU grants for named executive officers on February 9, 2011.
2RSUs are subject to a three-year cliff vesting period.
3Vesting is contingent upon achieving a cumulative 6% compounded annual growth in diluted EPS over the three-year period.
4Partial vesting may occur if EPS growth is positive but below the 6% target.
5No vesting occurs if there is no EPS growth.
6For compensation purposes, EPS is calculated in constant currencies, excluding foreign currency translation impacts.
7The Compensation Committee has discretion to exclude certain income/expense items not indicative of ongoing results from EPS calculations.

MCDONALDS CORP 8-K Report, Executive Changes (Feb 14, 2011)

Summary

Key Highlights

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