01—Abstract
Summary
Summary of the 8-K filed August 13, 2010. Cited figures are marked; the original filing is the authoritative source.
Procter & Gamble (PG) announced on August 10, 2010, a significant change to its executive compensation structure by terminating its existing Business Growth Plan (BGP) one year early and adopting a new long-term incentive program called the Performance Stock Program (PSP).
This change aims to better align executive pay with the company's strategic objectives and reinforce a pay-for-performance philosophy. The new PSP will maintain focus on key performance indicators crucial for shareholder value, including organic sales growth, core earnings per share growth, pre-tax operating profit growth, and free cash flow productivity.
Key enhancements include annual grants with overlapping performance periods, elimination of interim payments, a full payout in performance-vested equity (rather than cash), and more precise performance goals benchmarked against peer companies. This move is designed to drive superior business results and is more consistent with industry best practices.
02—Key points
Key Highlights
- Termination of the Business Growth Plan (BGP) one year ahead of schedule.
- Introduction of a new Performance Stock Program (PSP) for senior executives.
- PSP focuses on four key performance categories: organic sales, core EPS growth, pre-tax operating profit growth, and free cash flow productivity.
- New plan features annual grants, overlapping three-year performance periods, and elimination of interim payments.
- Compensation under PSP will be entirely in performance-vested equity (Performance Share Units - PSUs), paid in shares of common stock.
- Performance goals are more precise and tied to peer company comparisons.
- Final payments under the terminated BGP were adjusted and will be made in RSUs in September 2011.
03—Questions
Frequently Asked Questions
Why did P&G terminate its Business Growth Plan (BGP) early?
P&G terminated the BGP early, one year ahead of schedule, to implement a new long-term incentive program, the Performance Stock Program (PSP), which the company believes better supports its current business strategies and reinforces the principle of paying for performance more effectively.
What are the key performance metrics for the new Performance Stock Program (PSP)?
The PSP continues to focus on four critical performance categories identified as most important for creating long-term shareholder value: organic sales growth, core earnings per share (EPS) growth, pre-tax operating profit growth, and free cash flow productivity.
How will executives be compensated under the new PSP, and when will they receive it?
Under the PSP, executives will be granted Performance Share Units (PSUs) based on target long-term compensation relative to peers. These PSUs will vest at the end of a three-year performance period (starting July 1, 2010) based on company performance against set goals, with payout ranging from 0-200% of the initial grant. Vested PSUs will be paid in shares of P&G's common stock following the performance period.
What was the final payout under the terminated Business Growth Plan (BGP)?
The final payout under the BGP was calculated based on a shortened performance period ending June 30, 2010. Each participant's target award was reduced by one-third, and payouts were determined based on achieved results against the BGP's sliding scale, with interim payments already made subtracted. The total payout was 42% of the reduced target, and final payments in RSUs are scheduled for September 2011.
04—Continue