8-KMaterial Agreements

PEPSICO INC 8-K Report, Material Agreement (Sep 20, 2006)

Filed September 20, 2006For Securities:PEP

Summary

PepsiCo Inc. (PEP) filed an 8-K on September 20, 2006, detailing amendments to its Director Compensation program, effective October 1, 2006. The primary change involves the structure of the annual equity grant for non-employee directors. While the total value of the annual equity award remains $100,000, it will now be split equally between restricted stock and stock options, a shift from the previous program's equal split between stock options and restricted stock units. This adjustment in the equity mix aims to align director incentives with shareholder value creation, with stock awards vesting immediately but subject to a holding period until departure from the board. Stock options, on the other hand, will typically vest after three years. The annual cash retainer of $100,000 for non-employee directors remains unchanged, with additional retainers for committee chairs and presiding directors. Employee directors will continue to receive no additional compensation for their board service. Investors should note these changes reflect a strategic approach to director compensation and alignment.

Key Highlights

  • 1PepsiCo's Board of Directors approved modifications to the Director Compensation program, effective October 1, 2006.
  • 2Non-employee directors will continue to receive an unchanged annual retainer of $100,000.
  • 3The annual equity award for non-employee directors remains valued at $100,000 but is now equally split between stock awards and stock options (previously stock options and restricted stock units).
  • 4Stock awards are immediately vested but subject to a holding period until the director leaves the Board.
  • 5Stock options have a three-year vesting period, with exceptions for death, disability, or retirement.
  • 6Committee chairs and a presiding director (not also a committee chair) receive an additional $20,000 retainer.
  • 7Employee directors do not receive additional compensation for board service.

Frequently Asked Questions

The main change is in the annual equity grant for non-employee directors. The total value remains $100,000, but it is now split equally between stock awards and stock options. Previously, it was split between stock options and restricted stock units.

The stock awards are immediately vested upon grant. However, directors must hold these shares until they leave the Board, except for shares needed to cover taxes or certain intra-family transfers. The number of shares is determined by dividing $50,000 by the fair market value of PepsiCo Common Stock on the grant date.

The stock options also have a total value of $50,000 (making up the other half of the $100,000 annual equity award). The number of options is four times the number of shares in the stock award. They have an exercise price equal to the fair market value on the grant date and normally vest after three years, with earlier vesting in cases of death, disability, or retirement.

No, the annual cash retainer for non-employee directors remains unchanged at $100,000. Additionally, committee chairs and a presiding director receive an extra $20,000 for their additional responsibilities. Directors are also reimbursed for meeting expenses.