DEF 14A 1 c76328_def14a.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

Filed by the Registrant  x                             Filed by a Party Other Than the Registrant  ¨

Check the Appropriate Box:


     
¨ Preliminary Proxy Statement
   
¨ Confidential, for Use of the Commission Only (as Permitted by Rule 14a-6(e)(2))
   
x Definitive Proxy Statement
   
¨ Definitive Additional Materials
   
¨ Soliciting Material Pursuant to §240.14a-12
 
Pfizer Inc.
(Name of Registrant as Specified In Its Charter)
 
 
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
 
Payment of filing fee (Check the appropriate box):
   
x No fee required
   
¨ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
     
  (1)

Title of each class of securities to which transaction applies:

     
   
 
     
  (2)

Aggregate number of securities to which transaction applies:

     
   
 
     
  (3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

     
   
 
     
  (4)

Proposed maximum aggregate value of transaction:

     
   
 
     
  (5) Total fee paid:
     
   
 
   
¨ Fee paid previously with preliminary materials.
   
¨ Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
     
  (1)

Amount Previously Paid:

     
   
 
     
  (2)

Form, Schedule or Registration Statement No.:

     
   
 
     
  (3)

Filing Party:

     
   
 
     
  (4)

Date Filed:

     
   
 



Table of Contents

 

Proxy Statement for

 

2014 Annual Meeting
of Shareholders

 

2013 Financial Report1

 

1The 2013 Financial Report is not included in this filing. The portions of the 2013 Financial Report that are incorporated by reference in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (the “2013 Form 10-K”) were filed, and the other portions of the 2013 Financial Report were furnished, solely for the information of the SEC on Exhibit 13 to the 2013 Form 10-K. The 2013 Financial Report is contained in Appendix A to the Proxy Statement being mailed to our shareholders beginning on or about March 13, 2014. The Letter to Shareholders and Corporate and Shareholder Information contained in the materials being mailed to our shareholders beginning on or about March 13, 2014 are not included in this filing.

 

VOTING

 

Shareholders will vote on the following items at the Annual Meeting:

 

£election of Directors;
  
£ratification of the selection of our independent registered public accounting firm;
  
£advisory approval of our executive compensation program;
  
£approval of the Pfizer Inc. 2014 Stock Plan; and
  
£three shareholder proposals, if presented at the Meeting.

 

Shareholders have a choice of voting on the Internet, by telephone, or by mail using a traditional proxy card. Please refer to the proxy card or other voting instructions included with these proxy materials for information on the voting method(s) available to you. If you vote by telephone or on the Internet, you do not need to return your proxy card.

 

ANNUAL MEETING ATTENDANCE

 

To be admitted to the Annual Meeting, you must present either an admission ticket or proof of ownership of Pfizer stock, along with a form of government-issued photo identification. If you are a shareholder of record, your admission ticket is attached to your proxy card or the “Notice of Internet Availability of Proxy Materials” referred to below. If your shares are held in the name of a broker, bank or other holder of record, you must bring a brokerage statement or other proof of ownership with you to the Meeting. For further details, please see “What do I need to do to attend the Annual Meeting?” on page 1.

 

NOTICE AND ACCESS; ELECTRONIC DELIVERY OF PROXY MATERIALS

 

We are distributing our proxy materials to certain shareholders via the Internet under the “Notice and Access” rules of the Securities and Exchange Commission. This approach saves natural resources and reduces printing and mailing costs while providing a timely and convenient way to access the materials and vote. On March 13, 2014, we mailed a “Notice of Internet Availability of Proxy Materials” to participating shareholders, containing instructions on how to access the proxy materials on the Internet.

 

Shareholders who receive hard copies of the Annual Meeting materials can still help us reduce costs and conserve resources by opting to receive future proxy materials electronically. Shareholders of record may enroll at any time by going to www.computershare-na.com/green.

 

Beneficial owners should contact their broker, bank or other holder of record regarding the availability of this service. We encourage all of our shareholders to consider this option to reduce costs and help to conserve natural resources.

 

PFIZER’S ANNUAL REVIEW AVAILABLE ONLINE

 

Pfizer is working hard to be a green company, therefore, the Company’s Annual Review is available online at www.pfizer.com/annual. Hard copies of the report are no longer produced. Pfizer’s 2013 Annual Review discusses many dimensions of our performance—including financial, social and environmental—in one review.

 

HOUSEHOLDING

 

If you and other Pfizer shareholders living in your household receive hard copies of your annual meeting materials, you may choose to receive only one copy of future materials. Please see “What is ‘householding’ and how does it affect me?” on page 3.

 

Proxy Statement Summary

Here are highlights of important information you will find in this Proxy Statement. As it is only a summary, please review the complete Proxy Statement before you vote.

 

PFIZER 2013 HIGHLIGHTS

 

 

BUSINESS PERFORMANCE

 

In 2013, we achieved solid results for patients, consumers, and shareholders by maintaining our focus on developing new therapies, driving growth and delivering value. Our performance in 2013 is rooted in priorities and strategies we put in place three years ago to address research and development (R&D) productivity and create greater shareholder value. The actions we take and business decisions we make across every market continue to be guided by four strategic imperatives:

 

£ Improving the performance of our innovative core;
  
£Making the right capital allocation decisions;
  
£Earning greater respect from society; and
  
£Creating a culture of ownership among our colleagues.

 

During the year we advanced each imperative. We continued to focus our research on the therapeutic areas that we believe have the greatest scientific and commercial potential: inflammation and immunology, cardiovascular and metabolic, neuroscience and pain, oncology, vaccines, rare diseases and biosimilars. Also in 2013, we met or exceeded every element of our financial guidance, yielded year-over-year operational savings in R&D and other areas through effective expense discipline, and took steps to create significant value for shareholders, including generating significant value through the separation of Zoetis, our animal health business, returning nearly $23 billion to shareholders in share repurchases and dividends and, in December 2013, announcing an 8% increase in our quarterly dividend for the first quarter of 2014. To sharpen our focus on maximizing growth, we started 2014 with a new commercial operating structure with three global, commercial businesses: the Global Innovative Pharmaceutical business, the Global Established Pharmaceutical business and the Vaccines, Oncology and Consumer Healthcare business.

 

In addition, we were recognized for a wide range of corporate responsibility programs, including our collaboration with the International Trachoma Initiative, and commitment to making our medicines widely available through a series of patient access programs and through our commitment to supply up to an additional 260 million doses of Prevenar 13 to the GAVI Alliance (formerly the Global Alliance for Vaccines and Immunization). We also advanced our imperative to create and sustain a culture of “ownership,” where all colleagues are energized and engaged in the future of the company.

 

2013 was another outstanding year for our company, our shareholders and the patients we serve. We finished the year strongly, and we are making clear progress towards achieving our mission of becoming the premier, innovative biopharmaceutical company.

 

FINANCIAL PERFORMANCE

 

The following table contains key financial data for each of the last three fiscal years, including data as of each year end.

 

Three-Year Summary(a)               
Millions (except per common share data)   2013    2012    2011 
Revenues(b)  $51,584   $54,657   $61,035 
Income from continuing operations(b)   11,410    9,021    7,860 
Total assets   172,101    185,798    188,002 
Long-term obligations(b), (c)   72,115    74,934    75,914 
Earnings per common share—basic:               
Income from continuing operations attributable to Pfizer Inc. common shareholders  $1.67   $1.21   $1.00 
Discontinued operations—net of tax(d)   1.56    0.75    0.28 
Net income attributable to Pfizer Inc. common shareholders  $3.23   $1.96   $1.28 
Earnings per common share—diluted:               
Income from continuing operations attributable to Pfizer Inc. common shareholders  $1.65   $1.20   $0.99 
Discontinued operations—net of tax(d)   1.54    0.74    0.28 
Net income attributable to Pfizer Inc. common shareholders  $3.19   $1.94   $1.27 
Cash dividends declared per common share  $0.96   $0.88   $0.80 
                

 

(a)Reflects the acquisition of King Pharmaceuticals, Inc. on January 31, 2011.
(b)All amounts reflect the June 24, 2013 disposition of Zoetis and its presentation as a discontinued operation in all periods presented.
(c)Defined as Long-term debt, Pension benefit obligations, net, Postretirement benefit obligations, net, Noncurrent deferred tax liabilities, Other taxes payable and Other noncurrent liabilities.
(d)Includes (i) the Animal Health (Zoetis) business through June 24, 2013, the date of disposal, (ii) the Nutrition business through November 30, 2012, the date of disposal and (iii) the Capsugel business through August 1, 2011, the date of disposal.

 

Detailed information on our financial and operational performance can be found in the 2013 Financial Report.


 

 

For additional information about Pfizer, please view our 2013 Financial Report (see Appendix A) and our 2013 Annual Review at www.pfizer.com/annual. Please note that neither our 2013 Financial Report nor our 2013 Annual Review is a part of our proxy solicitation materials.

 

2014 PROXY STATEMENT I
 

PROXY STATEMENT SUMMARY

 

CORPORATE GOVERNANCE

 

Pfizer seeks to maintain and enhance its record of excellence in corporate governance by continually refining its corporate governance policies, procedures and practices to align with evolving practices, issues raised by our shareholders and other stakeholders and otherwise as circumstances warrant.

 

We also place great value on shareholder outreach, and engage regularly with our investors to gain insights into the governance issues about which they care most. We aim to seek a collaborative and mutually beneficial approach to issues of importance to investors that affect our business and also to ensure that our corporate governance practices remain industry-leading from their perspectives.

 

CORPORATE GOVERNANCE FACTS

 

Board and Other Governance Information  
Majority Voting for Directors Yes
Annual Election of All Directors Yes
Diverse Board Yes
Annual Board and Committee Self-Evaluations Yes
Separate Chairman & CEO No
Lead Independent Director Yes
Independent Directors Meet Without Management Present at Every Regular Board Meeting Yes
Annual Independent Director Evaluation of Chairman and CEO, including His Interactions with Board Yes
Code of Business Conduct and Ethics for Directors Yes
Board-Level Regulatory and Compliance Committee Yes
Size of Board 12
Number of Independent Directors 11
Average Age of Directors* 63.5
Average Director Tenure (in years) 8
Annual Equity Grant to Directors Yes
Disclosure Committee for Financial Reporting Yes
Shareholder Rights and Accountability  
Annual Advisory Approval of Executive Compensation Yes
Shareholder Ability to Call Special Meetings (20% Threshold) Yes
Policy Prohibiting Use of Corporate Funds for Direct Independent Expenditures in Federal and State Elections Yes
Rigorous Process and Expanded Disclosure Related to Corporate Political Expenditures Yes

 

* As of April 24, 2014  

EXECUTIVE COMPENSATION PHILOSOPHY, GOALS AND PRINCIPLES

 

Pfizer’s compensation philosophy, which is set by the Compensation Committee of the Board, is to align each executive’s compensation with Pfizer’s short-term and long-term performance and to provide the compensation and incentives needed to attract, motivate and retain key executives who are crucial to Pfizer’s long-term success. To achieve these objectives:

 

We position total direct compensation and each compensation element at approximately the median of our peer and general industry comparator companies, with consideration of company market capitalization and complexity.

 

We align annual short-term incentive awards with annual operating, financial and strategic objectives based on our performance on total revenue, adjusted diluted earnings per share (EPS) and cash flow from operations, as well as Business Unit/Function and individual performance.

 

Our long-term incentive awards are aligned with the interests of our shareholders because they deliver value based on absolute and relative shareholder return, encourage stock ownership and promote retention of key talent.

 

A significant portion of the total compensation opportunity for each of our executives (including the Named Executive Officers, or NEOs) is directly related to Pfizer’s total shareholder return and to other performance factors that measure our progress against the goals of our strategic and operating plans, as well as our performance against that of our pharmaceutical peer group and general industry comparators because we use this comparison in setting target levels of compensation and awards granted.

 

We compensate our executives using the following elements:

 

Element Type/Description
Long-Term Incentive Compensation (100% Equity) (each of which represents 25% of the total annual grant value) Restricted Stock Units

5-Year Total Shareholder Return Units

7-Year Total Shareholder Return Units

Performance Share Awards
Salary Fixed amount of cash compensation for performing day-to-day responsibilities
Annual Short-Term
Incentive
Compensation
Provides the opportunity for competitively-based annual incentive cash awards for achieving Pfizer’s short-term financial goals and other strategic objectives measured over the current year
Retirement Pension Plan
Supplemental Pension Plan
Savings Plan
Retirement Savings Contribution
Supplemental Savings Plan
Other Perquisites


 

 

II 2014 PROXY STATEMENT
 

PROXY STATEMENT SUMMARY

 

SHAREHOLDER VOTING MATTERS

 

SUMMARY OF SHAREHOLDER VOTING MATTERS

 

Voting Matter Board Vote Recommendation See Page Number
for more information
Item 1—Election of Directors FOR each nominee 27
Item 2—Ratification of Independent Registered Public Accounting Firm FOR 34
Item 3—Advisory Approval of Executive Compensation FOR 37
Item 4—Approval of the Pfizer Inc. 2014 Stock Plan FOR 39
Shareholder Proposals:    
Item 5—Political Contributions Policy AGAINST 47
Item 6—Lobbying Activities AGAINST 50
Item 7—Action by Written Consent AGAINST 52

 

OUR DIRECTOR NOMINEES

 

You are being asked to vote on the election of the following 12 Directors. All Directors are elected annually by a majority of votes cast. Detailed information about each Director’s background, skill sets and areas of expertise can be found beginning on page 28.

 

Name Age* Director Position Principal Independent Committee Memberships Other Current
    Since   Skills   AC CC CGC RCC STC Public Boards
Dennis A. Ausiello, M.D.           68 2006 Director, Center for Assessment Technology and Continuous Health, Physician-in-Chief, Emeritus, Massachusetts General Hospital and Jackson Distinguished Professor, Harvard Medical School Academic, Medicine Yes M   M M C 1
W. Don Cornwell 66 1997 Former Chairman and CEO, Granite Broadcasting Business Leadership, Finance Yes C M   M M 2
Frances D. Fergusson, Ph.D.   69 2009 President Emeritus, Vassar College Academic, Healthcare Yes   M   C M 1
Helen H. Hobbs, M.D.     61 2011 Investigator, Howard Hughes Medical Institute and Professor, University of Texas Southwestern Medical Center Academic, Science/R&D Yes     M   M
Constance J. Horner   72 1993 Former Assistant to the President of the United States and Director of Presidential Personnel Leadership Development, Public Policy Yes     M M M 2
James M. Kilts     66 2007 Founding Partner, Centerview Capital Business Leadership, International Yes   C     M 3
George A. Lorch 72 2000 Chairman Emeritus, Armstrong Holdings Business Operations, International Lead Independent Director           4
Shantanu Narayen   50 2013 President and Chief Executive Officer, Adobe Systems Business Operations, Information Technology Yes     M   M 1
Suzanne Nora Johnson   56 2007 Retired Vice Chairman, Goldman Sachs Group Finance, Business Leadership Yes M M     M 3
Ian C. Read 60 2010 Chairman & CEO, Pfizer Pharma, Business Leadership No           1
Stephen W. Sanger 68 2009 Former Chairman & CEO, General Mills Business Operations, Development Leadership Yes M   C   M 1
Marc Tessier-Lavigne, Ph.D.   54   2011   President, Rockefeller University; former EVP and Chief Scientific Officer, Genentech Science, Business Operations   Yes       M   M   2  

 

*Age is at date of the 2014 Annual Meeting.

 

AC: Audit Committee  RCC: Regulatory and Compliance Committee  C: Chair
CC: Compensation Committee STC: Science and Technology Committee  M: Member
CGC: Corporate Governance Committee      

 

2014 PROXY STATEMENT III
 
 Pfizer Inc.
235 East 42nd Street
New York, New York 10017-5755

 

NOTICE OF 2014 ANNUAL MEETING OF SHAREHOLDERS

 

 

TIME AND DATE 8:30 a.m., Eastern Daylight Time, on Thursday, April 24, 2014

 

PLACE Hilton Short Hills Hotel, 41 John F. Kennedy Parkway, Short Hills, New Jersey 07078, +1 (973) 379-0100

 

 

WEBCAST

 

A live audio webcast of our Annual Meeting will be available on our website, www.pfizer.com, starting at 8:30 a.m., Eastern Daylight Time, on Thursday, April 24, 2014. A replay will be available on our website through the first week of May 2014.

 

ITEMS OF BUSINESS

 

To elect 12 members of the Board of Directors named in the Proxy Statement, each for a term of one year.

 

To ratify the appointment of KPMG LLP as our independent registered public accounting firm for the 2014 fiscal year.

 

To conduct an advisory vote to approve our executive compensation.

 

To approve the Pfizer Inc. 2014 Stock Plan.

 

To consider certain shareholder proposals, if presented at the Meeting; see the Table of Contents for further information.

 

To transact any other business that properly comes before the Meeting and any adjournment or postponement of the Meeting.

 

RECORD DATE

 

You can vote if you were a shareholder of record at the close of business on February 26, 2014.

 

MATERIALS TO REVIEW

 

This booklet contains our Notice of 2014 Annual Meeting and Proxy Statement. Our 2013 Financial Report is included as Appendix A to this Notice of Annual Meeting and Proxy Statement and is followed by certain Corporate and Shareholder Information. Neither Appendix A, nor the Corporate and Shareholder Information, nor the accompanying Letter to Shareholders, is a part of our proxy solicitation materials.

 

PROXY VOTING

 

It is important that your shares be represented and voted at the Meeting. You can vote your shares by completing and returning your proxy card or by voting on the Internet or by telephone. See details under “How do I vote?” under “Annual Meeting Information—Questions and Answers about the Annual Meeting and Voting.”

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 24, 2014

 

This Notice of Annual Meeting and Proxy Statement and the 2013 Financial Report and Corporate and Shareholder Information are available on our website at www.pfizer.com/annualmeeting.

 

Except as stated otherwise, information on our website is not a part of this Proxy Statement.

 

 

Atiba D. Adams

Corporate Secretary

March 13, 2014

 

Table of Contents

 

ANNUAL MEETING INFORMATION   1
GOVERNANCE OF THE COMPANY   6
Overview   6
Governance Information   6
Criteria for Board Membership   6
Board of Directors Composition   7
Selection of Candidates   7
Director Independence   8
Board Leadership Structure   9
Lead Independent Director   11
Executive Sessions   11
The Board’s Role in Risk Oversight   11
Pfizer Policies on Business Ethics and Conduct   12
Code of Conduct for Directors   13
Communications with Directors   13
Shareholder Outreach   13
Public Policy Engagement and Political Participation   14
Board and Committee Information   16
The Corporate Governance Committee   16
The Regulatory and Compliance Committee   18
The Audit Committee   19
The Compensation Committee   20
The Science and Technology Committee   21
COMPENSATION OF NON-EMPLOYEE DIRECTORS   22
Non-Employee Director Compensation   22
Deferred Compensation   22
Legacy Warner-Lambert Equity Compensation Plan   23
Matching Gifts Program   23
2013 Director Compensation Table   23
SECURITIES OWNERSHIP   24
Beneficial Owners   25
Section 16(a) Beneficial Ownership Reporting Compliance   25
RELATED PERSON TRANSACTIONS; INDEMNIFICATION; AND LEGAL PROCEEDINGS   26
PROPOSALS REQUIRING YOUR VOTE   27
Item 1—Election of Directors   27
Nominees for Directors   28
Item 2—Ratification of Independent Registered Public Accounting Firm   34
Audit and Non-Audit Fees   35
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm   35
Audit Committee Report   36
Item 3—Advisory Approval of Executive Compensation   37
Item 4—Approval of the Pfizer Inc. 2014 Stock Plan   39
SHAREHOLDER PROPOSALS   47
Item 5—Shareholder Proposal regarding Approval of Political Contributions Policy   47
Item 6—Shareholder Proposal regarding Lobbying Activities   50
Item 7—Shareholder Proposal regarding Action by Written Consent   52
EXECUTIVE COMPENSATION (INCLUDING TABLE OF CONTENTS)   55
Executive Summary   57
Compensation Committee Report   63
Compensation Discussion and Analysis   64
Compensation Tables   89
Estimated Benefits Upon Termination   99
Equity Compensation Plan Information   101
Financial Measures   102
REQUIREMENTS FOR SUBMITTING PROXY PROPOSALS AND NOMINATING DIRECTORS   103
OTHER BUSINESS   104
ANNEX 1—CORPORATE GOVERNANCE PRINCIPLES   i
ANNEX 2—PFIZER INC. 2014 STOCK PLAN   v
     
2014 PROXY STATEMENT  
 
  Pfizer Inc.
235 East 42nd Street
New York, New York 10017-5755

 

Annual Meeting Information

 

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
AND VOTING


 

WHY DID I RECEIVE THESE PROXY MATERIALS?

 

We are providing these proxy materials in connection with the solicitation by the Board of Directors of Pfizer Inc., a Delaware corporation, of proxies to be voted at our 2014 Annual Meeting of Shareholders and at any adjournment or postponement of the Meeting. The Meeting will take place on April 24, 2014, beginning at 8:30 a.m., Eastern Daylight Time, at the Hilton Short Hills Hotel in Short Hills, New Jersey.

 

Shareholders will be admitted to the Annual Meeting beginning at 8:00 a.m., Eastern Daylight Time. Seating will be limited.

 

The Hilton Short Hills Hotel is accessible to disabled persons, and upon request we will provide wireless headsets for hearing amplification. Sign interpretation also will be provided upon request. Please mail your request to the address noted below under the question “What do I need to do to attend the Annual Meeting?” For directions, contact the Hilton Short Hills Hotel at +1 (973) 379-0100.

 

This Notice of Annual Meeting and Proxy Statement and a proxy or voting instruction card are being mailed or made available to shareholders starting on or about March 13, 2014.

 

WHAT DO I NEED TO DO TO ATTEND THE ANNUAL MEETING?

 

Admission to the Annual Meeting is limited to shareholders as of the close of business on February 26, 2014 and one immediate family member; one individual designated as a shareholder’s authorized proxy holder; or one representative designated in writing to present a shareholder proposal properly brought before the Meeting. In each case, the individual must have an admission ticket or proof of ownership of Pfizer stock, as well as a valid government-issued photo identification, to be admitted to the Meeting.

 

Admission Ticket or Proof of Ownership

 

If you hold your shares in your name as a shareholder of record, you will need an admission ticket or proof of ownership of Pfizer stock. An admission ticket is attached to your proxy card or to the Notice of Internet Availability of Proxy Materials. If you plan to attend the Meeting, please vote your shares but keep the admission ticket and bring it with you to the Meeting.

 

If you misplace your admission ticket, we will verify your ownership onsite at the Annual Meeting venue.

 

If your shares are held in the name of a broker, bank or other holder of record and you plan to attend the Annual Meeting, you must present proof of your ownership of Pfizer stock, such as a bank or brokerage account statement, to be admitted to the Meeting.

 

A shareholder may appoint a representative to attend the Annual Meeting and/or vote on his/her behalf. An admission ticket must be requested by the shareholder but will be issued in the name of the authorized representative. Any individual holding an admission ticket that is not issued in his/her name will not be admitted to the Annual Meeting. To request an admission ticket, contact Pfizer Shareholder Services, 235 East 42nd Street, New York, NY 10017-5755.

 

Proponent of Shareholder Proposal

 

The proponent of a shareholder proposal included in this Proxy Statement should notify the Company in writing of the individual authorized to present the proposal at the Annual Meeting; this notice should be received at least two weeks before the Meeting.

 

No cameras, recording equipment, electronic devices, large bags, briefcases, or packages will be permitted in the Annual Meeting.

 

WILL THE ANNUAL MEETING BE WEBCAST?

 

Yes, our Annual Meeting will be audio webcast live on April 24, 2014. You are invited to visit www.pfizer.com at 8:30 a.m., Eastern Daylight Time, on April 24, 2014, to access the webcast. Registration for the webcast is required and will be available beginning on April 21, 2014. A replay will be available on our website through the first week of May 2014.

 

WHO IS ENTITLED TO VOTE AT THE ANNUAL MEETING?

 

Holders of Pfizer common stock at the close of business on February 26, 2014 are entitled to receive the Notice of Annual Meeting and to vote their shares at the Meeting. As of that date, there were 6,393,528,966 shares of the Company’s


 

 

2014 PROXY STATEMENT 1
 

ANNUAL MEETING INFORMATION

 

common stock outstanding and entitled to vote. In addition, shares of the Company’s preferred stock having votes equivalent to 2,088,392 shares of common stock were held by one of the Company’s employee benefit plan trusts. Each share of common stock is entitled to one vote on each matter properly brought before the Meeting. Shares of common stock and shares of preferred stock vote together as a single class on the matters covered in this Proxy Statement.

 

WHAT IS THE DIFFERENCE BETWEEN HOLDING SHARES AS A SHAREHOLDER OF RECORD AND AS A BENEFICIAL OWNER?

 

If your shares are registered in your name with Pfizer’s transfer agent, Computershare, you are the “shareholder of record” of those shares. This Notice of Annual Meeting and Proxy Statement and any accompanying materials have been provided directly to you by Pfizer.

 

If your shares are held in a stock brokerage account or by a bank or other holder of record, you are considered the “beneficial owner” of those shares, and this Notice of Annual Meeting and Proxy Statement and any accompanying documents have been provided to you by your broker, bank or other holder of record. As the beneficial owner, you have the right to direct your broker, bank or other holder of record how to vote your shares by using the voting instruction card or by following their instructions for voting by telephone or on the Internet.

 

HOW DO I VOTE?

 

You may vote using any of the following methods:

 

By mail

 

Complete, sign and date the accompanying proxy or voting instruction card and return it in the prepaid envelope. If you are a shareholder of record and return your signed proxy card but do not indicate your voting preferences, the persons named in the proxy card will vote the shares represented by your proxy card as recommended by the Board of Directors.

 

If you are a shareholder of record and you do not have the prepaid envelope, please mail your completed proxy card to Pfizer Inc., c/o Proxy Services, Computershare, P.O. Box 43101, Providence, RI 02940.

 

By telephone or on the Internet

 

Pfizer has established telephone and Internet voting procedures for shareholders of record. These procedures are designed to authenticate your identity, to allow you to give your voting instructions and to confirm that those instructions have been properly recorded.

 

You can vote by calling the toll-free telephone number on your proxy card. Please have your proxy card handy when you call. Easy-to-follow voice prompts will allow you to vote your shares and confirm that your instructions have been properly recorded.

If you are located outside the United States, Puerto Rico and Canada, see your proxy card for additional instructions.

 

The website for Internet voting is www.investorvote.com/pfe. Please have your proxy card handy when you go to the website. As with telephone voting, you can confirm that your instructions have been properly recorded. If you vote on the Internet, you also can request electronic delivery of future proxy materials.

 

Telephone and Internet voting facilities for shareholders of record will be available 24 hours a day until 7:30 a.m., Eastern Daylight Time, on April 24, 2014.

 

The availability of telephone and Internet voting for beneficial owners will depend on the voting processes of your broker, bank or other holder of record. We therefore recommend that you follow the voting instructions in the materials you receive.

 

If you vote by telephone or on the Internet, you do not have to return your proxy or voting instruction card.

 

In person at the Annual Meeting

 

Shareholders who attend the Annual Meeting may vote in person at the Meeting. You may also be represented by another person at the Meeting by executing a proper proxy designating that person. If you are a beneficial owner of shares, you must obtain a legal proxy from your broker, bank or other holder of record and present it to the inspectors of election with your ballot to be able to vote at the Meeting.

 

Your vote is important. You can save us the expense of a second mailing by voting promptly.

 

WHAT CAN I DO IF I CHANGE MY MIND AFTER I VOTE?

 

If you are a shareholder of record, you can revoke your proxy before it is exercised by:

 

giving written notice to the Corporate Secretary of the Company;
   
delivering a valid, later-dated proxy, or a later-dated vote by telephone or on the Internet, in a timely manner; or
   
voting by ballot at the Annual Meeting.

 

If you are a beneficial owner of shares, you may submit new voting instructions by contacting your broker, bank or other holder of record.

 

All shares for which proxies have been properly submitted and not revoked will be voted at the Annual Meeting.

 

WHAT SHARES ARE INCLUDED ON THE PROXY CARD?

 

If you are a shareholder of record, you will receive only one proxy card for all the shares you hold of record:

 

in certificate form;
   
in book-entry form; and
   
in book-entry form in the Computershare Investment Plan.


 

 

2 2014 PROXY STATEMENT
 

ANNUAL MEETING INFORMATION

 

If you are a Pfizer employee, you will receive a proxy or voting instruction card for all the Pfizer shares you hold:

 

in a Pfizer and/or Wyeth savings plan; and/or
   
in a Grantor Trust for deferred stock received by certain legacy Wyeth employees in connection with the Wyeth acquisition.

 

Your proxy card will serve as a voting instruction card for the applicable savings plan and/or Grantor Trust.

 

If you do not vote your shares or specify your voting instructions on your proxy or voting instruction card, the administrator of the applicable savings plan, and/or the trustee of a Grantor Trust, as the case may be, will vote your shares in accordance with the terms of your plan and/or Grantor Trust. To allow sufficient time for voting by the administrator of the applicable savings plan and/or the trustee of a Grantor Trust, your voting instructions must be received by 10:00 a.m., Eastern Daylight Time, on April 22, 2014.

 

If you hold Pfizer shares through any other Company plan, you will receive voting instructions from that plan’s administrator, as applicable.

 

If you are a beneficial owner, you will receive voting instructions from your broker, bank or other holder of record.

 

WHAT IS “HOUSEHOLDING” AND HOW DOES IT AFFECT ME?

 

We have adopted a procedure, approved by the Securities and Exchange Commission (SEC), called “householding.” Under this procedure, shareholders of record who have the same address and last name and receive hard copies of the Annual Meeting materials will receive only one copy of this Notice of Annual Meeting and Proxy Statement and the 2013 Financial Report, unless we are notified that one or more of these shareholders wishes to continue receiving individual copies. If you and other Pfizer shareholders living in your household do not have the same last name, you may also request to receive only one copy of future proxy statements and financial reports.

 

Householding conserves natural resources and reduces our distribution costs. Shareholders who participate in householding will continue to receive separate proxy cards. Also, householding will not in any way affect dividend check mailings.

 

If you are eligible for householding, but you and other shareholders of record with whom you share an address currently receive multiple copies of this Notice of Annual Meeting and Proxy Statement and any accompanying documents, or if you hold Pfizer stock in more than one account, and in either case you wish to receive only a single copy of each document for your household, please contact our transfer agent, Computershare in writing: P.O. Box 30170, College Station, TX 77842-3170; or by telephone: in the U.S., Puerto Rico and Canada, + 1 (800) 733-9393, and outside the U.S., Puerto Rico and Canada, + 1 (781) 575-4591.

Alternatively, if you participate in householding and wish to receive a separate copy of this Notice of Annual Meeting and Proxy Statement and any accompanying documents or prefer to discontinue your participation in householding, please contact Computershare as indicated above and a separate copy will be sent to you promptly.

 

If you are a beneficial owner, you can request information about householding from your broker, bank or other holder of record.

 

WHY DID I RECEIVE A “NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS” BUT NO PROXY MATERIALS?

 

We distribute our proxy materials to certain shareholders via the Internet under the “Notice and Access” approach permitted by rules of the SEC. This approach conserves natural resources and reduces our distribution costs, while providing a timely and convenient method of accessing the materials and voting. On March 13, 2014, we mailed a “Notice of Internet Availability of Proxy Materials” to participating shareholders, containing instructions on how to access the proxy materials on the Internet.

 

CAN I ACCESS THE PROXY MATERIALS AND THE 2013 FINANCIAL REPORT ON THE INTERNET?

 

This Notice of Annual Meeting and Proxy Statement and the 2013 Financial Report are available on our website at www.pfizer.com/annualmeeting. Instead of receiving future proxy statements and accompanying materials by mail, most shareholders can elect to receive an e-mail that will provide electronic links to them. Opting to receive your proxy materials online will conserve natural resources and will save us the cost of producing documents and mailing them to you, and will also give you an electronic link to the proxy voting site.

 

Shareholders of Record: If you vote on the Internet at www.investorvote.com/pfe, simply follow the prompts to enroll in the electronic proxy delivery service. You also may enroll in the electronic proxy delivery service at any time in the future by going directly to www.computershare-na.com/green and following the enrollment instructions.

 

Beneficial Owners: You also may be able to receive copies of these documents electronically. Please check the information provided in the proxy materials sent to you by your broker, bank or other holder of record regarding the availability of this service.

 

IS THERE A LIST OF SHAREHOLDERS ENTITLED TO VOTE AT THE ANNUAL MEETING?

 

The names of shareholders of record entitled to vote at the Meeting will be available at the Meeting and for ten days prior to the Meeting for any purpose germane to the Meeting, between the hours of 8:45 a.m. and 4:30 p.m., at our principal executive offices at 235 East 42nd Street, New York, New York, by contacting the Corporate Secretary of the Company.


 

 

2014 PROXY STATEMENT 3
 

ANNUAL MEETING INFORMATION

 

WHAT IS A BROKER NON-VOTE?

 

If you are a beneficial owner whose shares are held of record by a broker, you must instruct the broker how to vote your shares. If you do not provide voting instructions, your shares will not be voted on any proposal on which the broker does not have discretionary authority to vote. This is called a “broker non-vote.” In these cases, the broker can register your shares as being present at the Annual Meeting for purposes of determining the presence of a quorum but will not be able to vote on those matters for which specific authorization is required under the rules of the New York Stock Exchange (NYSE).

 

If you are a beneficial owner whose shares are held of record by a broker, your broker has discretionary voting authority under NYSE rules to vote your shares on the ratification of KPMG as our independent registered public accounting firm, even if the broker does not receive voting instructions from you. However, your broker does not have discretionary authority to vote on the election of Directors, the advisory approval of executive compensation, the Pfizer Inc. 2014 Stock Plan or on any shareholder proposal without instructions from you, in which case a broker non-vote will occur and your shares will not be voted on these matters.

 

WHAT IS A QUORUM FOR THE ANNUAL MEETING?

 

The presence of the holders of stock representing a majority of the voting power of all shares of stock issued and outstanding and entitled to vote at the Annual Meeting, in person or represented by proxy, is necessary to constitute a quorum. Abstentions and broker non-votes are counted as present and entitled to vote for purposes of determining a quorum.

 

WHAT ARE THE VOTING REQUIREMENTS TO ELECT THE DIRECTORS AND TO APPROVE EACH OF THE PROPOSALS DISCUSSED IN THIS PROXY STATEMENT?

 

Proposal  Vote Required  Broker
Discretionary
Voting
Allowed
Election of Directors  Majority of   
   Votes Cast  No
Ratification of KPMG  Majority of   
   Votes Cast  Yes
Advisory Approval of Executive
Compensation
  Majority of
Votes Cast
  No
Pfizer Inc. 2014 Stock Plan  Majority of   
   Votes Cast  No
Shareholder Proposals  Majority of   
   Votes Cast  No

 

Except in the case of the proposal to approve the Pfizer Inc. 2014 Stock Plan, if you abstain from voting or there is a broker non-vote on any matter, your abstention or broker non-vote will not affect the outcome of such vote, because abstentions and broker non-votes are not considered to be votes cast under our By-laws. With respect to the proposal to approve the Pfizer Inc. 2014 Stock Plan, which is subject to New York Stock Exchange shareholder approval rules, broker non-votes will not

affect the outcome of such vote, because broker non-votes are not considered votes cast; however, abstentions are counted as votes cast and therefore will have the effect of a vote against the proposal.

 

Election of Directors; Majority Vote Policy

 

Under our By-laws and our Corporate Governance Principles, Directors must be elected by a majority of the votes cast in uncontested elections, such as the election of Directors at the Annual Meeting. This means that the number of votes cast “for” a Director nominee must exceed the number of votes cast “against” that nominee. Abstentions and broker non-votes are not counted as votes “for” or “against” a Director nominee. Any nominee who does not receive a majority of votes cast “for” his or her election would be required to tender his or her resignation promptly following the failure to receive the required vote. Within 90 days of the certification of the shareholder vote, the Corporate Governance Committee would then be required to make a recommendation to the Board as to whether the Board should accept the resignation, and the Board would be required to decide whether to accept the resignation and to disclose its decision-making process. In a contested election, the required vote would be a plurality of votes cast. Full details of this Policy are set forth in our Corporate Governance Principles (see Annex 1 to this Proxy Statement).

 

Ratification of KPMG

 

Under our By-laws, the votes cast “for” must exceed the votes cast “against” to approve the ratification of KPMG as our independent registered public accounting firm. Abstentions are not counted as votes “for” or “against” this proposal.

 

Advisory Approval of Executive Compensation

 

Under our By-laws, the votes cast “for” must exceed the votes cast “against” to approve, on an advisory basis, the compensation of our Named Executive Officers. Abstentions and broker non-votes are not counted as votes “for” or “against” this proposal.

 

Approval of the Pfizer Inc. 2014 Stock Plan

 

Under our By-laws, the votes cast “for” must exceed the votes cast “against” to approve the Pfizer Inc. 2014 Stock Plan. This proposal is also subject to New York Stock Exchange shareholder approval rules. Broker non-votes are not counted as votes “for” or “against” the Pfizer Inc. 2014 Stock Plan; however, abstentions are counted as votes cast and therefore will have the effect of a vote “against” the proposal.

 

Shareholder Proposals

 

Under our By-laws, the votes cast “for” must exceed the votes cast “against” to approve a shareholder proposal. Abstentions and broker non-votes are not counted as votes “for” or “against” the shareholder proposal.


 

 

4 2014 PROXY STATEMENT
 

ANNUAL MEETING INFORMATION

 

HOW WILL MY SHARES BE VOTED AT THE ANNUAL MEETING?

 

At the Meeting, the Proxy Committee appointed by the Board of Directors (the persons named in the proxy card or, if applicable, their substitutes) will vote your shares as you instruct. If you sign your proxy card and return it without indicating how you would like to vote your shares, your shares will be voted as the Board of Directors recommends, which is:

 

FOR the election of each of the Director nominees named in this Proxy Statement;
   
FOR the ratification of the appointment of KPMG LLP as our independent registered public accounting firm for the 2014 fiscal year;
   
FOR the approval, on an advisory basis, of the compensation of our Named Executive Officers;
   
FOR the approval of the Pfizer Inc. 2014 Stock Plan; and
   
AGAINST each shareholder proposal.

 

COULD OTHER MATTERS BE DECIDED AT THE ANNUAL MEETING?

 

At the date this Proxy Statement went to press, we did not know of any matters to be raised at the Annual Meeting other than those referred to in this Proxy Statement (see “Other Business”).

 

If you return your signed and completed proxy card or vote by telephone or on the Internet and other matters are properly presented at the Annual Meeting for consideration, the Proxy Committee appointed by the Board of Directors will have the discretion to vote for you on such matters.

 

WHO WILL PAY FOR THE COST OF THIS PROXY SOLICITATION?

 

Pfizer will pay the cost of soliciting proxies. Proxies may be solicited on our behalf by our Directors, officers or employees in person or by telephone, mail, electronic transmission and/or facsimile transmission. We have hired Morrow & Co., LLC, 470 West Avenue, Stamford, Connecticut 06902, to distribute and solicit proxies. We will pay Morrow a fee of $35,000, plus reasonable expenses, for these services.

 

WHO WILL COUNT THE VOTES?

 

Representatives of our transfer agent, Computershare, will tabulate the votes and act as inspectors of election.


 

 

2014 PROXY STATEMENT 5
 

Governance of the Company

 

OVERVIEW

 

The following sections provide an overview of Pfizer’s corporate governance structure and processes, including the independence and other criteria we use in selecting Director nominees; our Board leadership structure; and certain responsibilities and activities of the Board of Directors and its Committees. We also discuss how shareholders and other stakeholders can communicate with our Directors.

 

Our governance structure and processes are based upon a number of key governance documents, including our Corporate Governance Principles. The Principles, which are included as Annex 1 to this Proxy Statement, govern the operation of the Board of Directors and its Committees and guide the Board and our Executive Leadership Team in the execution of their responsibilities. The Principles are reviewed at least annually and are updated periodically in response to changing regulatory requirements, evolving practices, issues raised by our shareholders and other stakeholders and otherwise as circumstances warrant.

 

Our Corporate Governance Principles and the following Board policies and other materials relating to corporate governance at Pfizer are published on our website at www.pfizer.com/about/leadership_and_structure/meet_board.jsp and

www.pfizer.com/about/corporate_governance/corporate_governance.jsp:

 

Board of Directors—Background and Experience
   
Board Committees—Current Members and Charters
   
Director Qualification Standards
   
Pfizer Policies on Business Conduct and Ethics
   
Code of Business Conduct and Ethics for Members of the Board of Directors
   
Board Policy on Pension Benefits for Executives
   
Review of Related Person Transactions
   
Policy on Prohibition of Pledging of Pfizer Stock
   
Policy—Criteria for Selection of Compensation Committee Consultant
   
Contacting our Board of Directors
   
By-laws
   
Restated Certificate of Incorporation
   
Corporate Governance FAQs

 

We will provide copies of any of these items without charge upon written request to our Corporate Secretary, Pfizer Inc., 235 East 42nd Street, New York, New York 10017-5755. The information on our website is not a part of this Proxy Statement.

 

GOVERNANCE INFORMATION

 

CRITERIA FOR BOARD MEMBERSHIP

 

The Corporate Governance Committee focuses on Board succession planning on a continuous basis. In performing this function, the Committee is responsible for recruiting and recommending to the full Board of Directors nominees for election as Directors. The goal of the Committee is to achieve a Board that provides effective oversight of the Company through the appropriate balance of diversity of

 

The goal of the Corporate Governance Committee is to achieve a Board that provides effective oversight of the Company through the appropriate balance of diversity of experience, expertise, skills, specialized knowledge and other qualifications and attributes of the individual Directors.


 

 

6 2014 PROXY STATEMENT
 

GOVERNANCE OF THE COMPANY

 

experience, expertise, skills, specialized knowledge and other qualifications and attributes of the individual Directors. Important general criteria for Board membership include the following:

 

Members of the Board should be individuals of high integrity and independence, with substantial accomplishments, and should have prior or current associations with institutions noted for their excellence.
   
Members of the Board should have demonstrated leadership ability, with broad experience, diverse perspectives, and the ability to exercise sound business judgment.
   
The composition of the Board should reflect the benefits of diversity as to gender, ethnic background and experience.

 

In addition, the Committee considers on an ongoing basis the background, experience and skills of the individual Directors that are important to the Company’s current and future needs, including experience and skills in the following areas:

 

business and operations leadership;
   
finance and accounting;
   
medicine, science or research and development;
   
government and public policy;
   
healthcare and related fields (including pharmaceuticals);
   
international business;
   
academics;
   
leadership and management development; and
   
technology.

 

The satisfaction of these criteria is implemented and assessed through ongoing evaluations of Directors and nominees by the Corporate Governance Committee and the Board, as well as annual Board and Committee self-evaluations. Based upon these activities and their review of the current composition of the Board, the Committee and the Board believe that these criteria have been satisfied.

 

BOARD OF DIRECTORS COMPOSITION

 

 

 

SELECTION OF CANDIDATES

 

In recruiting and selecting Board candidates, the Corporate Governance Committee takes into account the size of the Board and considers a “skills matrix” indicating whether a particular Board member or candidate possesses one or more of the above “skill sets,” as well as whether those skills and/or other attributes qualify him or her for service on a particular Committee. The Committee also considers a wide range of additional factors, including each Director’s and candidate’s projected retirement date, to assist

 

On an ongoing basis, the Corporate Governance Committee considers potential Director candidates identified on its own initiative as well as candidates referred or recommended to it by other Directors, members of management, search firms, shareholders and other resources (including individuals seeking to join the Board).


 

 

2014 PROXY STATEMENT 7
 

GOVERNANCE OF THE COMPANY

 

in Board succession planning; other positions the Director or candidate holds, including other boards of directors on which he or she serves; and the independence of each Director and candidate, to ensure that a substantial majority of the Board is independent (see “Director Independence” below).

 

On an ongoing basis, the Committee considers potential Director candidates identified on its own initiative as well as candidates referred or recommended to it by other Directors, members of management, search firms, shareholders and other resources (including individuals seeking to join the Board). Shareholders who wish to recommend candidates may contact the Committee in the manner described in “Communications with Directors.” All candidates are required to meet the criteria outlined above, as well as those discussed under “Director Independence” below and in our Corporate Governance Principles and other governing documents, as applicable, as determined by the Committee in its sole discretion. Shareholder nominations must be made according to the procedures required under our By-laws and described in this Proxy Statement under the heading “Requirements for Submitting Proxy Proposals and Nominating Directors.” Shareholder-recommended candidates and shareholder nominees whose nominations comply with these procedures and who meet the criteria referred to above will be evaluated by the Committee in the same manner as the Committee’s nominees.

 

The Committee and the Board believe that each of the nominees for election at the Annual Meeting brings a strong and unique set of attributes, experiences and skills. We believe the Board as a whole has an optimal balance of experience, leadership, competencies, qualifications and skills in areas of importance to our Company.

 

Under “Item 1—Election of Directors—Nominees for Directors,” we provide an overview of each nominee’s principal occupation, business experience and other directorships, together with the key attributes, experience and skills viewed as particularly meaningful in providing value to the Board, our Company and our shareholders. See also “Proxy Statement Summary—Our Director Nominees” for a listing of the principal skills for our Director nominees.

 

DIRECTOR INDEPENDENCE

 

Our Board of Directors has adopted Director Qualification Standards to evaluate and determine Director independence. Our Standards meet and in some respects exceed the independence requirements of the NYSE. To qualify as independent under our Standards, a non-employee Director must be determined to have no material relationship with the Company other than as a Director. The Standards also contain strict guidelines for Directors and their immediate families regarding employment or affiliation with the Company or its independent registered public accounting firm; prohibitions against Audit Committee members having any direct or indirect financial relationship with the Company; and restrictions on both commercial and not-for-profit relationships between non-employee Directors and the Company. Directors may not receive personal loans or extensions of credit from the Company, must deal at arm’s length with the Company and its subsidiaries, and must disclose any circumstance that might be perceived as a conflict of interest. Our Director Qualification Standards can be found on our website at www.pfizer.com/about/corporate_governance/director_qualification_standards.jsp.

 

With the assistance of legal counsel to the Company, the Corporate Governance Committee has reviewed the applicable legal and NYSE standards for Board and Committee member independence, as well as our Director Qualification Standards. A summary of the answers to annual questionnaires completed by each of the Directors and a report of transactions with Director-affiliated entities are also made available to the Committee. On the basis of this review, the Committee has delivered a report to the full Board of Directors, and the Board has made its independence determinations based upon the Committee’s report and the supporting information.

 

The Board has affirmatively determined that all of our current Directors (other than Mr. Read) are independent of the Company and its management and meet the Company’s criteria for independence. The independent Directors are Drs. Dennis A. Ausiello, Frances D. Fergusson, Helen H. Hobbs and Marc Tessier-Lavigne; Ms. Constance J. Horner and Ms. Suzanne Nora Johnson; and Messrs. W. Don Cornwell, James M. Kilts, George A. Lorch, Shantanu Narayen and Stephen W. Sanger. The Board previously determined that each of Messrs. M. Anthony Burns, William H. Gray, III and John P. Mascotte, each of whom served as a Director during a portion of 2013, was independent during the time he was a

 

 

Aside from our CEO, all of our Directors are independent of the Company and its management.

 

To qualify as independent under our Standards, a non-employee Director must be determined to have no material relationship with the Company other than as a Director.


 

 

8 2014 PROXY STATEMENT
 

GOVERNANCE OF THE COMPANY

 

Director. The Board has determined that Mr. Ian C. Read is not independent because of his employment as the Company’s current CEO.

 

In making these determinations, the Board considered that in the ordinary course of business, relationships and transactions may occur between the Company and its subsidiaries on the one hand and entities with which some of our Directors are or have been affiliated on the other. Under Pfizer’s Director Qualification Standards, certain relationships and transactions are not considered to be material transactions that would impair a Director’s independence, including the following:

 

the Director is an employee, or an immediate family member of the Director is an executive officer, of another company that does business with Pfizer, and our annual sales to or purchases from the other company in each of the last three fiscal years amounted to less than 1% of the annual revenues of the other company; and
   
the Director or an immediate family member of the Director is an executive officer of another company, and our indebtedness to the other company or its indebtedness to Pfizer amounts to less than 1% of the total consolidated assets of the other company.

 

In 2013, there was no indebtedness between Pfizer and any entity of which a Director or an immediate family member of a Director was an executive officer.

 

Drs. Ausiello, Hobbs and Tessier-Lavigne are employed at medical or academic institutions with which Pfizer engages in ordinary course of business transactions, and Mr. Narayen is the chief executive officer of Adobe, a company with which Pfizer engages in ordinary business transactions. We reviewed our transactions with each of these entities and found that these transactions were made in the ordinary course of business and were below the levels set forth in our Director Qualification Standards (1% of the annual revenues of these entities in each of the last three years).

 

Under our Director Qualification Standards, contributions to not-for-profit entities in which a Director of the Company, or a Director’s spouse, serves as an executive officer, amounting to less than 2% of that organization’s latest publicly available total revenues (or $1,000,000, whichever is greater), will not serve as a bar to the Director’s independence. None of our Directors or their spouses is an executive officer of a not-for-profit organization to which Pfizer contributes. Nonetheless, a summary of charitable contributions to not-for-profit organizations with which our Directors or their spouses are affiliated was made available to the Committee. None of the contributions approached the levels set forth in our Director Qualification Standards.

 

BOARD LEADERSHIP STRUCTURE

 

The Board recognizes that one of its key responsibilities is to evaluate and determine its optimal leadership structure so as to provide independent oversight of management and a highly engaged and high-functioning Board. Based on its experience, considerable engagement with shareholders, and an assessment of research on this issue, the Board understands that there are a variety of viewpoints concerning a board’s optimal leadership structure; that available empirical data concerning the impact of board leadership on shareholder value is inconclusive; and, accordingly, that there is no single, generally accepted approach to board leadership in the U.S. Given the dynamic and competitive environment in which we operate, the Board believes that the right leadership structure may vary as circumstances warrant. Consistent with this understanding, the independent Directors do not view any particular structure as preferred and consider the Board’s leadership structure on at least an annual basis. This consideration includes the pros and cons of alternative leadership structures in light of the Company’s operating and governance environment at the time, with the goal of achieving the optimal model for Board leadership and effective oversight of management by the Board.

 

Based upon these considerations, and following thorough reviews by the Corporate Governance Committee, the independent Directors reconsidered the Board’s leadership structure and determined in December 2013 to maintain the current leadership structure, with Mr. Read as Chairman. These determinations were based on the independent Directors’ strong belief that Mr. Read has extensive experience in and knowledge of the research-based biopharmaceutical industry; continues to demonstrate the leadership and vision necessary to lead the Board and the Company in our challenging industry and

 

The independent Directors believe that Mr. Read, Pfizer’s Chairman and CEO, has extensive experience in and knowledge of the research-based biopharmaceutical industry and continues to demonstrate the leadership and vision necessary to lead the Board and the Company in our challenging industry and macroeconomic environments.


 

 

2014 PROXY STATEMENT 9
 

GOVERNANCE OF THE COMPANY

 

macroeconomic environments; has a fundamentally investor-driven viewpoint; and exercises leadership that has generated strong operational performance; and that he also serves as Chairman and CEO at the pleasure of the Board. The independent Directors also believe that this unified structure provides our Company with strong and consistent leadership and that, given the significant regulatory and market environment in which we operate, having one clear leader in both roles, with deep industry expertise and Company knowledge provides decisive and effective leadership internally and externally.

 

The independent Directors have also selected George A. Lorch to serve as Lead Independent Director—a position that, at Pfizer, entails significant responsibility for independent Board leadership. Mr. Lorch served as Non-Executive Chairman of the Board from December 2010 to December 2011 and continues to exercise his strong leadership skills in his role as Lead Independent Director. In addition, in his role as Lead Independent Director, Mr. Lorch has engaged in several robust discussions with institutional investors on matters related to public policy and Pfizer’s Board leadership structure. We believe our shareholders were appreciative of the opportunity to discuss these matters with Mr. Lorch.

 

In considering its leadership structure, the independent Directors have taken a number of factors into account. The Board—which consists entirely of independent Directors other than Mr. Read—exercises a strong, independent oversight function. This oversight function is enhanced by the fact that our Audit, Compensation, Corporate Governance, Regulatory and Compliance and Science and Technology Committees are comprised entirely of independent Directors. Further, a number of Board and Committee processes and procedures provide substantial independent oversight of our Chief Executive Officer’s performance, including regular executive sessions of the independent Directors, an annual evaluation of our Chief Executive Officer’s performance against pre-determined goals, and a separate evaluation introduced in 2012 that, among other things, assesses the CEO’s interactions with the Board in his role as Chairman.

 

In addition, the independent Directors have considered shareholder feedback on the subject of Board leadership, including discussions with institutional investors who have expressed interest in the Board’s rationale for combining the roles of Chairman and CEO. In general, these investors acknowledge that the independent members of the Board are in the best position to determine the optimal Board structure, although some investors have asked about the strength of board independence under a non-independent chair structure. In circumstances where the positions of Chairman and CEO are combined, investors believe it is imperative that the Board have independent leadership by appointing a strong Lead Independent Director with a clearly defined role and responsibilities. The Company’s Corporate Governance Principles align with investor preferences and require the appointment of a Lead Independent Director if the positions of Chairman and CEO are held by the same individual. The independent Directors believe that Mr. Lorch demonstrates strong leadership in that position.

 

The independent Directors remain committed to evaluating our Board leadership structure at least annually. Under the Company’s By-laws and Corporate Governance Principles, the Board can and will change its leadership structure if it determines that doing so is appropriate and in the best interest of Pfizer and its shareholders. The Board believes that these factors provide the appropriate balance between the authority of those who oversee the Company and those who manage it on a day-to-day basis.

 

Our independent Directors have considered shareholder feedback on the subject of Board leadership, including discussions with institutional investors who have expressed interest in the Board’s rationale for combining the roles of Chairman and CEO.


 

 

10 2014 PROXY STATEMENT
 

GOVERNANCE OF THE COMPANY

 

LEAD INDEPENDENT DIRECTOR

 

The position of Lead Independent Director at Pfizer comes with a clear mandate and significant authority and responsibilities under a Board-approved Charter, which was most recently updated and enhanced in December 2013. These responsibilities and authority include the following:

 

£ presiding at executive sessions of the independent Directors and at other Board meetings at which the Chairman and CEO is not present;
   
£ while not a chair or member of any Committee given the Lead Independent Director role, attending meetings of the various Committees regularly;
   
£ calling meetings of the independent Directors;
   
£ leading the evaluation by the independent Directors of the CEO’s effectiveness as Chairman and CEO, including an annual evaluation of his/her interactions with the Directors and ability to provide leadership and direction to the full Board;
   
£ serving as liaison between the independent Directors and the Chairman;
   
£ approving information sent to the Board, including the quality, quantity and timeliness of such information;
   
£ approving meeting agendas;
   
£ facilitating the Board’s approval of the number and frequency of Board meetings and approving meeting schedules, to assure that there is sufficient time for discussion of all agenda items;
   
£ authorizing the retention of outside advisors and consultants who report directly to the Board;
   
£ being regularly apprised of inquiries from shareholders and involved in correspondence responding to these inquiries when appropriate; and
   
£ if requested by shareholders or other stakeholders, ensuring that he/she is available, when appropriate, for consultation and direct communication.

 

The Charter of the Lead Independent Director can be found on our website at www.pfizer.com/files/about/lead_independent_director.pdf.

 

EXECUTIVE SESSIONS

 

Executive sessions of the independent Directors (i.e., all Directors other than Mr. Read) generally take place at every regular Board meeting. At these executive sessions, the independent Directors review, among other things, the criteria upon which the performance of the Chief Executive Officer and other senior managers is evaluated, the performance of the Chief Executive Officer against those criteria, and the compensation of the Chief Executive Officer and other senior managers.

 

THE BOARD’S ROLE IN RISK OVERSIGHT

 

Management is responsible for assessing and managing risk, subject to oversight by the Board. The Board believes that its leadership structure, described above, supports the risk oversight function of the Board. The Board executes its oversight responsibility for risk assessment and risk management directly and through its Committees, as follows:

 

The Audit Committee has primary responsibility for overseeing the Company’s Enterprise Risk Management, or “ERM,” program. The Company’s Chief Internal Auditor, who reports to the Committee, facilitates the ERM program, in coordination with the Company’s Legal Division and

 

Our Lead Independent Director has a clear mandate, as well as significant authority and responsibilities, including leading the evaluation by the independent Directors of the CEO’s effectiveness as Chairman and CEO.


 

 

2014 PROXY STATEMENT 11
 

GOVERNANCE OF THE COMPANY

 

Compliance Division, to complement the Company’s strategic and operating planning process. The Committee’s meeting agendas throughout the year include discussions of individual risk areas, as well as an annual summary of the ERM process. For additional information, see “Board and Committee Information—The Audit Committee” and “Item 2—Ratification of Independent Registered Public Accounting Firm—Audit Committee Report” later in this Proxy Statement.

 

The Regulatory and Compliance Committee has primary responsibility for overseeing and reviewing risks associated with the Company’s healthcare law compliance programs and the status of compliance with related laws, regulations and internal procedures. The Committee, in consultation with the Compensation Committee, is responsible for discussing with management the risks associated with our compensation policies and practices for sales and marketing personnel and the alignment of compensation practices with the Company’s compliance standards. For additional information, see “Board and Committee Information—The Regulatory and Compliance Committee” later in this Proxy Statement.
   
The Board’s other Committees—Compensation, Corporate Governance, and Science and Technology—oversee risks associated with their respective areas of responsibility. For example, the Compensation Committee considers the risks associated with our compensation policies and practices, with respect to both executive compensation and compensation generally.
   
The Board of Directors is kept informed of its Committees’ risk oversight and other activities through reports of the Committee Chairmen to the full Board. These reports are presented at every regular Board meeting and include discussions of Committee agenda topics, including matters involving risk oversight.
   
The Board considers specific risk topics, including risks associated with our strategic plan, our capital structure and our research and development activities. In addition, the Board receives regular reports from the members of our Executive Leadership Team, or “ELT”—the heads of our principal business and corporate functions—that include discussions of the risks involved in their respective areas of responsibility, and the Board is routinely informed of developments that could affect our risk profile or other aspects of our business.

 

CODES OF CONDUCT AND ETHICS

 

The full texts of both the Summary of Pfizer Policies on Business Conduct and the Code of Business Conduct and Ethics for Members of the Board of Directors are posted on our website at www.pfizer.com/about/corporate_compliance/code_of_conduct.jsp and www.pfizer.com/about/corporate_governance/directors_code.jsp, respectively. We will disclose any future amendments to, or waivers from, provisions of these ethics policies and standards affecting our Chief Executive Officer, Chief Financial Officer and Controller on our website as promptly as practicable, as may be required under applicable SEC and NYSE rules.

 

PFIZER POLICIES ON BUSINESS ETHICS AND CONDUCT

 

All of our employees, including our Chief Executive Officer, Chief Financial Officer and Controller, are required to abide by Pfizer’s policies on business conduct to ensure that our business is conducted in a consistently legal and ethical manner. Pfizer’s policies form the foundation of a comprehensive process that includes compliance with corporate policies and procedures, an open relationship among colleagues to foster good business conduct, and a high level of integrity. Our policies and procedures cover all major areas of professional conduct, including employment practices, conflicts of interest, intellectual property and the protection of confidential information, and require strict adherence to laws and regulations applicable to the conduct of our business.

 

Employees are required to report any conduct that they believe in good faith to be an actual or apparent violation of Pfizer’s policies on business conduct. As required by the Sarbanes-Oxley Act of 2002, our Audit Committee has procedures to receive, retain and treat complaints received regarding accounting,

 

The Audit Committee has primary responsibility for overseeing the Company’s Enterprise Risk Management program.

 

The Regulatory and Compliance Committee has primary responsibility for overseeing and reviewing risks associated with the Company’s healthcare law compliance programs and the status of compliance with related laws, regulations and internal procedures.

 

 

 

All of our employees are required to abide by Pfizer’s policies on business conduct, which form the foundation of a comprehensive process that includes compliance with corporate policies and procedures, an open relationship among colleagues, and a high level of integrity.


 

 

12 2014 PROXY STATEMENT
 

GOVERNANCE OF THE COMPANY

 

internal accounting controls or auditing matters and to allow for the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters.

 

CODE OF CONDUCT FOR DIRECTORS

 

Our Directors are required to comply with a Code of Business Conduct and Ethics for Members of the Board of Directors. This Code is intended to focus the Board and the individual Directors on areas of ethical risk, help Directors recognize and deal with ethical issues, provide mechanisms to report unethical conduct, and foster a culture of honesty and accountability. This Code covers all areas of professional conduct relating to service on the Pfizer Board, including conflicts of interest, unfair or unethical use of corporate opportunities, strict protection of confidential information, compliance with applicable laws and regulations, and oversight of ethics and compliance by employees of the Company. Under the Corporate Integrity Agreement Pfizer entered into in 2009 (discussed under “Board and Committee Information—The Regulatory and Compliance Committee” below), our Board members also have certain obligations with respect to our Summary of Pfizer Policies on Business Conduct, including annually certifying that they have received and reviewed the Summary.

 

COMMUNICATIONS WITH DIRECTORS

 

Shareholders and other interested parties may communicate with any of our Directors, including the Lead Independent Director and the Audit Committee Chair, by writing to the Corporate Secretary, Pfizer Inc., 235 East 42nd Street, New York, New York 10017-5755 or by e-mail via Pfizer’s website at www.pfizer.com/about/corporate_governance/corporate_governance.jsp.

 

Shareholder communications are distributed to the Board, or to any individual Director or Directors, as appropriate, depending on the facts and circumstances outlined in the communication. The Board of Directors has requested that certain items that are unrelated to the duties and responsibilities of the Board be excluded or redirected, as appropriate, such as business solicitations or advertisements, junk mail and mass mailings, new product suggestions, product complaints, product inquiries, resumes and other forms of job inquiries, spam and surveys. In addition, material that is unduly hostile, threatening or similarly unsuitable will be excluded; however, any communication will be made available to any Director upon his or her request.

 

SHAREHOLDER OUTREACH

 

Shareholder outreach is a long-standing cornerstone of our governance profile. Because of this, we engage regularly with our global investors to gain valuable insights into the governance issues about which they care most. We aim to seek a collaborative and mutually beneficial approach to issues of importance to investors that affect our business, and also to ensure that our corporate governance practices remain industry-leading from their perspectives.

 

Throughout 2013, we engaged in discussions with institutional investors based in the United States and the United Kingdom representing approximately 30% of our outstanding shares. These investors expressed appreciation for our outreach efforts. The feedback received was summarized and presented to the Corporate Governance Committee and full Board.

 

Our agenda centered on board composition, executive compensation, written consent, corporate political spending and other matters. Investors were keenly interested in board composition and board succession planning, the discussions of which generally related to skill sets relative to our industry, director evaluations, refreshment policies and leadership structure. In general, investors have minimal concerns about our Board and individual directors, or with our Board policies. With respect to our Board’s leadership structure, a majority of our U.S. investors appear to have little or no concerns, with most evaluating this issue by assessing our strong counterbalancing structure of a robust Lead Independent Director in connection with the Company’s operating performance. In contrast, our investors in the U.K., where the roles of Chair and CEO are held by two separate individuals at a vast majority of companies, generally prefer that companies separate the two roles.

 

 

Our Directors are required to comply with a Code of Business Conduct and Ethics for Members of the Board of Directors.

 

 

Shareholders and other interested parties may communicate with any of our Directors, including the Lead Independent Director or the Audit Committee Chair.


 

 

2014 PROXY STATEMENT 13
 

GOVERNANCE OF THE COMPANY

 

On the topic of executive compensation, our investors continue to support our current philosophy and program, seeing it as well-structured and aligning with performance. We also discussed the usefulness of including pay ratios (comparing CEO total annual compensation to that of the company’s median employee) prior to that disclosure being required. Most shareholders consulted expressed uncertainty about the usefulness of this information in their assessment of the Compensation Committee’s compensation decisions. See “Item 3—Advisory Approval of Executive Compensation” and “Compensation Discussion and Analysis” elsewhere in this Proxy Statement.

 

In addition, we discussed the desirability of providing shareholders with the ability to act by written consent. As a matter of policy, some investors support written consent proposals under any circumstances; however, there is general consensus among Pfizer shareholders that the ability to call special meetings under our existing By-laws is sufficient and preferable in some circumstances. Moreover, the ability to call special meetings affords investors a formal and more equitable opportunity, including notice and disclosure to all shareholders, to conduct matters than enabling a limited group of shareholders to act by written consent. See “Item 7—Shareholder Proposal regarding Action by Written Consent.”

 

We also discussed the potential benefits and risks of giving shareholders the ability to nominate Directors without having to resort to a proxy contest, and the terms on which such “proxy access” might be provided. Investors continue to mostly evaluate resolutions on a case-by-case basis, and to formulate their respective internal voting policies on proxy access.

 

Investor feedback concerning our political contributions disclosures and rigorous internal approval process (involving government affairs leaders and oversight by the Corporate Governance Committee) remains positive. A minority of investors indicated an interest in viewing additional disclosures involving Pfizer’s association with trade associations, and its lobbying expenditures and priorities. See “Item 6—Shareholder Proposal regarding Lobbying Activities.”

 

In addition to speaking with our institutional investors, we also are highly responsive to our retail shareholders. In 2013, Pfizer responded to over 1,000 written communications received by our Board of Directors mailboxes on a variety of topics, including product comments and shareholder services inquiries. Shareholder sentiment from these smaller, but valuable shareholders is also regularly shared with the Board.

 

PUBLIC POLICY ENGAGEMENT AND POLITICAL PARTICIPATION

 

Engaging in Public Policy

 

In the highly regulated and competitive pharmaceutical industry, it is fundamental to our business that we engage on public policy issues such as barriers to access, counterfeit medicines, illegal drug importation and challenges to our intellectual property protection that may affect our ability to meet patient needs and enhance shareholder value. Because we have extensive knowledge about healthcare and many ideas about improving its efficiency, as well as a global perspective on public health, disease prevention and health education and wellness, we regularly work with policy makers to help create and maintain an innovative environment where we can cultivate new medicines, bring them to market and ensure that patient health and safety remain a priority.

 

To broaden our engagement efforts, we are also a member of several industry and trade groups, including the Pharmaceutical Research and Manufacturers of America, the National Association of Manufacturers, the Biotechnology Industry Association, the U.S. Chamber of Commerce and the Business Roundtable. These organizations along with the others to which we belong represent both the pharmaceutical industry and the business community at large in an effort to bring about consensus on broad policy issues that can impact our business and service to patients. Our support of these organizations is evaluated based on their expertise in healthcare policy/advocacy and issues that impact the life sciences industry. In addition, we require that these organizations support key issues of importance to Pfizer, including advancing biomedical research, healthcare innovation, advocating for protecting intellectual property rights and access to care. In addition to their positions on healthcare policy issues, these organizations may engage in activities pertaining to a myriad of issues. At times we may not share the views promoted by these industry and trade groups and/or members on certain issues, but we are able to voice our concerns, as appropriate, through our colleagues who serve on the

 

Shareholder outreach is a long-standing cornerstone of our governance profile.

 

Throughout 2013, we engaged in discussions with institutional investors based in the U.S. and the U.K. representing approximately 30% of our outstanding shares on a variety of matters of interest to both parties.

 

We also are highly responsive to our retail shareholders. In 2013, Pfizer responded to over 1,000 written communications received by our Board of Directors mailboxes. Shareholder sentiment from these retail shareholders is also regularly shared with the Board.


 

 

14 2014 PROXY STATEMENT
 

GOVERNANCE OF THE COMPANY

 

boards and committees of these groups. We also believe that our participation in an organization can provide opportunities to positively influence how they operate.

 

Corporate Political Contributions

 

Our Company complies fully with all federal, state, and local laws and reporting requirements governing corporate political contributions. We also request that trade associations receiving total payments of $100,000 or more from Pfizer annually, report the portion of Pfizer dues or payments used for expenditures or contributions that, if made directly by Pfizer, would not be deductible under section 162(e)(1)(B) of the Internal Revenue Code. All corporate political contributions are published semiannually in the Political Action Committee (PAC) and Corporate Political Contributions report in compliance with Pfizer corporate policy. Every two years, at the end of each federal election cycle, the report is audited by Bond Bebee, a certified public accounting and advisory firm.

 

To ensure its corporate governance program remains industry leading, Pfizer regularly discusses its political contributions reporting practices with investors and other stakeholders to ensure that its disclosures meet their needs. Shareholder engagement has helped the Company expand its level of disclosure and create or modify corporate policies related to political expenditures in recent years.

 

Independent Expenditures

 

Our Company does not make direct independent expenditures. We adopted a strict policy precluding Pfizer from making direct “independent expenditures” in connection with any federal or state election. This action formalized a process that was underway for many years at Pfizer and was adopted in response to shareholders’ concerns about corporate political spending in the wake of Citizens United.

 

Policies and Procedures for Approval/Oversight of Corporate and PAC Political Expenditures

 

All corporate and PAC political spending decisions undergo a rigorous review process conducted by the PAC Steering Committee comprised of colleagues from various divisions throughout the Company to ensure that each contribution we make is done to advance our business objectives, and is not based on the political preferences or views of any individual colleague within Pfizer.

 

The PAC Steering Committee evaluates candidates to whom we contribute on the basis of their views on issues that impact not only Pfizer but our patients as well. The Committee also takes note of whether Pfizer facilities or colleagues reside in a candidate’s district or state. All PAC and corporate contribution requests are shared with the Pfizer Political Contributions Policy Committee (PCPC), chaired by the Executive Vice President, Corporate Affairs and composed of senior leaders from different divisions in the organization.

 

The Corporate Governance Committee of the Board of Directors is responsible for maintaining an informed status on public policy and corporate political spending practices through periodic discussions and reviews of the Company’s PAC and Corporate Political Contributions reports.

 

Federal and State Lobbying Activity

 

We file quarterly reports of our federal lobbying activity in compliance with the Honest Leadership and Open Government Act of 2007. In addition to Pfizer’s federal lobbying activity, the amount we report also includes the amount spent on federal lobbying activity by trade associations of which Pfizer is a member. These reports are available to the public at: http://soprweb.senate.gov/index.cfm?event=selectfields.

 

With regard to Pfizer’s state lobbying activity, Pfizer complies with state registration and reporting requirements in all the states where Pfizer is currently active.

 

Our Company does not make direct independent expenditures. We adopted a strict policy precluding Pfizer from making direct “independent expenditures” in connection with any federal or state election.


 

 

2014 PROXY STATEMENT 15
 

GOVERNANCE OF THE COMPANY

 

BOARD AND COMMITTEE INFORMATION

 

During 2013, the Board of Directors met six times. Each of our incumbent Directors attended at least 80% of the meetings of the Board and the Board Committees on which he or she served that were held during the time he or she was a Director in 2013.

 

All Board members standing for re-election are expected to attend the Annual Meeting unless an emergency prevents them from doing so. All the Directors then in office attended our 2013 Annual Meeting, except Mr. Kilts (who had a family emergency) and Mr. Mascotte (who was not standing for re-election).

 

The table below provides membership and meeting information for each of the standing Board Committees for 2013.

 

Name   Audit   Compensation   Corporate
Governance
  Regulatory and
Compliance
  Science and
Technology
Dr. Ausiello   M       M   M   C
Mr. Burns(a)   M       M       M
Mr. Cornwell   C   M       M   M
Dr. Fergusson       M       C   M
Mr. Gray(b)           C       M
Dr. Hobbs           M       M
Ms. Horner           M   M   M
Mr. Kilts       C           M
Mr. Lorch(c)                    
Mr. Mascotte(d)           M   M   M
Mr. Narayen(e)           M       M
Ms. Nora Johnson   M   M           M
Mr. Read                    
Mr. Sanger(f)   M       C       M
Dr. Tessier-Lavigne               M   M
2013 Meetings   13   8   5   6   3

 

C: Chair M: Member
(a) Mr. Burns retired from the Board and as a member of the Audit Committee, the Corporate Governance Committee and the Science and Technology Committee, effective December 19, 2013.
(b) Mr. Gray served as a Director, Chair of the Corporate Governance Committee and as a member of the Science and Technology Committee until the date of his passing on July 1, 2013.
(c) Mr. Lorch, as Lead Independent Director, frequently attends meetings of Board Committees. However, he is not a member of any Committee, in order to focus on his leadership role.
(d) Mr. Mascotte retired from the Board and as a member of the Corporate Governance Committee, the Regulatory and Compliance Committee and the Science and Technology Committee effective at the 2013 Annual Meeting of Shareholders.
(e) Mr. Narayen was elected to the Board and as a member of the Corporate Governance Committee and the Science and Technology Committee, effective September 27, 2013.
(f) Mr. Sanger became Chair of the Corporate Governance Committee effective September 9, 2013.

 

THE CORPORATE GOVERNANCE COMMITTEE

 

The Corporate Governance Committee is composed entirely of independent Directors and is governed by a Board-approved Charter stating its responsibilities. Under the terms of its Charter, the Committee oversees the practices, policies and procedures of the Board and its Committees. This includes developing criteria for Board membership and recommending and recruiting Director candidates. The Committee also assesses Director and candidate independence, considers possible conflicts of interest of Board members and senior executives, reviews related person transactions, and monitors the functions of the various Committees of the Board.

 

The Committee advises on the structure of Board meetings, recommends matters for consideration by the Board and also advises on and recommends Director compensation, which is approved by the full Board. The Committee is directly responsible for overseeing the self-evaluations of the Board and its Committees, reviewing our Director Qualification Standards, and establishing Director retirement policies. The Committee also assists management by reviewing the functions and outside activities of senior executives. Finally, the Committee reviews certain public policy issues, including the Company’s political spending policies and practices, as well as its bi-annual detailed disclosures of political spending.

 

The Board of Directors has determined that each of the members of the Corporate Governance Committee is independent, as defined by the rules of the NYSE, as well as under our Director Qualification Standards.

 

The Corporate Governance Committee Charter is available on our website at www.pfizer.com/about/corporate_governance/corporate_governance_committee.jsp.

 

16 2014 PROXY STATEMENT
 

GOVERNANCE OF THE COMPANY

 

Corporate Governance Committee Report

 

The Corporate Governance Committee seeks to maintain and enhance Pfizer’s record of excellence in corporate governance by continually refining Pfizer’s corporate governance policies, procedures and practices. The following are examples of how we worked to achieve these objectives in 2013.

 

Board and Committee Matters: During 2013, the Committee assessed Director independence and qualifications to serve on various Committees; enhanced and conducted a comprehensive self-evaluation process for the Board and its Committees and implemented changes in response to the evaluation; reviewed and, where appropriate, recommended changes to other governing documents, including our By-Laws, Committee Charters and Corporate Governance Principles; and continued to review the functioning of the Board and Committees in developing areas. Changes to the Board self-evaluation process in 2013 included the implementation of the decision to conduct the evaluation in house (rather than through a third party) and the addition of several new topics to the evaluation. Among other changes to the Corporate Governance Principles, the Committee recommended that the Board consider certain refreshment mechanisms, including the rotation of Committee assignments and Committee Chairs.
   
Board Leadership Structure: The Committee conducted its robust annual review of the Board’s leadership structure, resulting in determinations to retain the current leadership structure and to enhance the Lead Independent Director Charter to further expand the authority of this important position. See “Board Leadership Structure” and “Lead Independent Director.”
   
Corporate Responsibility and Public Policy: Under its Charter, the Committee is responsible for maintaining an informed status on Company issues related to public policy, social responsibility, and philanthropy, and for monitoring emerging issues potentially affecting the reputation of the pharmaceutical industry and Pfizer specifically. The Charter also requires that the Committee stay informed of Pfizer’s public policy and corporate political spending practices, which it does through periodic discussions and reviews of the Company’s bi-annual Political Action Committee and Corporate Political Contributions Report. In 2013, the Committee reviewed Pfizer’s PAC and Corporate Political Contributions Report prior to its publication. Further, the Committee participated in discussions concerning Pfizer’s continued membership in and contributions to certain industry and trade groups. Because it is a topic of interest among certain of our shareholders and other stakeholders, a summary discussion of public policy engagement and political participation has been included in this Proxy Statement. See “Governance of the Company—Governance Information—Public Policy Engagement and Political Participation.”
   
Recruitment and Assessment of New Directors: In 2013, the Committee continued an ongoing Board succession planning process to assess candidates for election as Directors, based upon a “skills matrix.” Resulting from this process, in September 2013, the Committee recommended and the Board elected Mr. Shantanu Narayen as a Director and a member of the Corporate Governance and Science and Technology Committees. Among other qualifications, Mr. Narayen brings leadership and technology experience to the Board. The Committee considered the election of Mr. Narayen as a Director upon recommendation by a non-management Director and evaluation by a third-party search firm. The Committee also reviewed unsolicited requests to join the Board.
   
Leadership Planning: During 2013, the Committee reviewed emergency succession scenarios and approved and recommended to the Board new executive appointments for its consideration.
   
Legislative and Regulatory Developments: The Committee continued to monitor and evaluate corporate governance and executive compensation developments, including SEC rules and NYSE listing standards.
   
Shareholder Engagement: The Committee engaged in ongoing reviews of shareholder and stakeholder communications at each of its meetings, including proposals submitted by shareholders for inclusion in this Proxy Statement. In addition, the Company expanded its engagement in 2013, with corporate governance outreach extending around the U.S. and the U.K. This engagement included direct involvement by the Committee’s Chairman in discussions with shareholder proponents.

 

 

In 2013, the Corporate Governance Committee worked on numerous matters, including enhancing and conducting a comprehensive self-evaluation process for the Board and its Committees and implementing changes in response to the evaluation and recommending that the Board consider certain refreshment mechanisms, including the rotation of Committee assignments and Committee chairs.

 

 

 

In 2013, the Corporate Governance Committee recommended and the Board elected Mr. Shantanu Narayen as a Director. Among other qualifications, Mr. Narayen brings leadership and technology experience to the Board.


 

2014 PROXY STATEMENT   17
 

GOVERNANCE OF THE COMPANY

 

Other Matters: The Committee executed its responsibilities under the Company’s Related Person Transaction Approval Policy and reviewed service by Directors and senior management on other boards of directors.

 

The Committee wishes to acknowledge the hard work and dedication of its former Chairman Bill Gray, who passed away in July and is greatly missed, having made a number of significant contributions to Pfizer’s strong governance profile over the years.

 

The Corporate Governance Committee

 

     
         
Dennis A. Ausiello   Helen H. Hobbs   Constance J. Horner

 

     
     
Shantanu Narayen   Stephen W. Sanger, Chair

 

THE REGULATORY AND COMPLIANCE COMMITTEE

 

The Regulatory and Compliance Committee is composed entirely of independent Directors and is governed by a Board-approved Charter stating its responsibilities. Under its Charter, the Committee is primarily responsible for assisting the Board of Directors with overseeing and reviewing the Company’s healthcare-related regulatory and compliance issues, including its compliance programs and the status of compliance with related laws, regulations, internal procedures, and the Company’s Corporate Integrity Agreement (CIA) discussed below. Management has primary responsibility for the operation of the Company’s compliance program and for implementing the requirements of the CIA. The Committee consults with management and evaluates various information and reports on compliance-related activities and matters. The Committee is also responsible for overseeing the integration and implementation of the Company’s compliance programs in acquired entities.

 

The Committee, in consultation with the Compensation Committee, is responsible for discussing with management the alignment of compensation practices for sales and marketing personnel with the Company’s compliance standards, and is expected to make recommendations to the Compensation Committee on the extent, if any, to which incentive-based compensation of any executive, senior manager, compliance personnel and/or attorney involved in any significant misconduct resulting in certain government or regulatory action, or other person with direct supervision over such employee, should be reduced, canceled or recovered.

 

In connection with the resolution of certain U.S. government investigations concerning various products, Pfizer entered into the CIA in 2009 with the Office of the Inspector General of the U.S. Department of Health and Human Services (OIG). In the CIA, Pfizer agreed to take certain actions to promote compliance with federal healthcare program and U.S. Food and Drug Administration (FDA) requirements. The Committee, based on agreement with the OIG, has assumed the Audit Committee’s responsibilities under the CIA. The CIA obligations related to the Committee include the following (i) the Committee must meet at least quarterly to review and oversee Pfizer’s compliance program; (ii) the Committee must adopt resolutions each year summarizing its review and oversight of the Company’s compliance program and its compliance with federal healthcare program requirements, FDA requirements and the obligations of the CIA and concluding that, to the best of its knowledge, Pfizer has adopted an effective compliance program to meet those requirements and obligations; and (iii) Pfizer must promptly report any changes in the composition of the Committee or any actions or changes that would affect the Committee’s ability to perform the duties necessary to meet the obligations of the CIA. The CIA is effective through 2014.

 

The Regulatory and Compliance Committee Charter is available on our website at www.pfizer.com/about/corporate_governance/regulatory_compliance_committee.jsp.

 

 

 

The Regulatory and Compliance Committee assists the Board of Directors with the oversight of significant healthcare-related regulatory and compliance issues.


 

18 2014 PROXY STATEMENT
 

GOVERNANCE OF THE COMPANY

 

Regulatory and Compliance Committee Report

 

The Regulatory and Compliance Committee assists the Board of Directors with the oversight of significant healthcare-related regulatory and compliance issues. Under the terms of its charter, the Committee receives reports regarding Pfizer’s compliance program and oversees compliance with the requirements of the Company’s CIA. Management has primary responsibility for the operation of the Company’s compliance program and for implementing the requirements of the Company’s CIA.

 

In 2013, the Regulatory and Compliance Committee received reports and discussed with management, including the Chief Compliance and Risk Officer, healthcare-related regulatory and compliance risks and related compliance program initiatives and functions. Among the matters considered by the Committee were (i) potential healthcare-related regulatory or compliance risks in connection with the development, manufacture and marketing of Pfizer products, and efforts to mitigate those risks; (ii) government investigations and other legal proceedings involving the Company; (iii) internal investigations of potential healthcare-related compliance or regulatory matters; (iv) results of internal audits conducted in areas within the Committee’s oversight; (v) the Company’s responses to FDA Warning Letters and other regulatory communications; (vi) the integration of acquired companies into the Company’s compliance program; (vii) the Company’s anti-retaliation policies and procedures, and the retaliation claims received by the Company; (viii) the Company’s compensation practices for sales and marketing personnel; and (ix) external reviews of Pfizer policies and practices for compliance with federal healthcare laws and regulations.

 

In its activities, the Committee considered potential risks and steps the Company has taken to mitigate risk in areas within the Committee’s oversight. With respect to the CIA, the Committee monitored the status of the Company’s compliance with CIA requirements.

 

The Regulatory and Compliance Committee

 

       
         
Dennis A. Ausiello   W. Don Cornwell   Frances D. Fergusson, Chair

 

     
     
Constance J. Horner   Marc Tessier-Lavigne

 

THE AUDIT COMMITTEE

 

The Audit Committee is composed entirely of independent Directors and is governed by a Board-approved Charter stating its responsibilities. Under its Charter, the Audit Committee is responsible for reviewing, with the independent registered public accounting firm, Internal Audit and management, the adequacy and effectiveness of internal controls over financial reporting. The Committee also reviews and consults with management, Internal Audit and the independent registered public accounting firm on matters related to the annual audit, the published financial statements, earnings releases, and the accounting principles applied. In addition, the Committee reviews reports from management relating to the status of compliance with laws, regulations and internal procedures.

 

The Committee is directly responsible for the appointment, compensation, retention and oversight of the Company’s independent registered public accounting firm. To execute this responsibility, the Committee engages in a comprehensive annual evaluation of the independent registered public accounting firm’s qualifications, performance and independence and whether the independent registered public accounting firm should be rotated, and considers the advisability and potential impact of selecting a different independent registered public accounting firm.

 

In addition, the Committee is responsible for reviewing and discussing with management the Company’s policies with respect to risk assessment and risk management. Further information about the

 

The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the Company’s independent registered public accounting firm. In 2013, the Audit Committee met 13 times.


 

2014 PROXY STATEMENT 19
 

GOVERNANCE OF THE COMPANY

 

role of the Audit Committee in risk assessment and risk management is included in the section entitled “Governance Information—The Board’s Role in Risk Oversight.”

 

The Audit Committee has established policies and procedures for the pre-approval of all services provided by the independent registered public accounting firm. The Audit Committee also has established procedures for the receipt, retention and treatment, on a confidential basis, of complaints received by the Company regarding its accounting, internal controls and auditing matters. Further details of the role of the Audit Committee, as well as the Audit Committee Report, may be found in “Item 2—Ratification of Independent Registered Public Accounting Firm” later in this Proxy Statement.

 

The Board of Directors has determined that each member of the Audit Committee is financially literate and independent, as defined by the rules of the SEC and the NYSE, as well as independent under our Director Qualification Standards. The Board of Directors also has determined that each of Ms. Nora Johnson and Messrs. Cornwell and Sanger is an “audit committee financial expert” for purposes of the SEC’s rules.

 

The Audit Committee Charter is available on our website at www.pfizer.com/about/corporate_governance/audit_committee.jsp.

 

THE COMPENSATION COMMITTEE

 

The Compensation Committee is composed entirely of independent Directors and is governed by a Board-approved Charter stating its responsibilities. The Committee determines and oversees the execution of the Company’s executive compensation philosophy and oversees the administration of the Company’s executive compensation programs. Its responsibilities also include overseeing Pfizer’s compensation and benefit plans and policies, administering its stock plans (including reviewing and approving equity grants) and reviewing and approving annually all compensation decisions for the Company’s executive officers, including the Named Executive Officers identified in the 2013 Summary Compensation Table. See “Compensation Discussion and Analysis” later in this Proxy Statement for information concerning the Committee’s role, processes and activities in overseeing executive compensation. See also “Compensation Committee Report” later in this Proxy Statement.

 

The Board of Directors has determined that each of the members of the Compensation Committee is independent, as defined by SEC rules, NYSE listing standards and Pfizer’s Director Qualification Standards. In addition, each Committee member is a “non-employee director” as defined in Rule 16b-3 under the Securities Exchange Act of 1934 and an “outside director” as defined in Section 162(m) of the Internal Revenue Code.

 

The Compensation Committee Charter is available on our website at www.pfizer.com/about/corporate_governance/compensation_committee.jsp. The Compensation Committee Report appears under “Executive Compensation” later in this Proxy Statement.

 

Compensation Committee Interlocks and Insider Participation. During 2013 and as of the date of this Proxy Statement, none of the members of the Compensation Committee was or is an officer or employee of the Company, and no executive officer of the Company served or serves on the compensation committee or board of any company that employed or employs any member of the Company’s Compensation Committee or Board of Directors.

 

The Compensation Committee determines and oversees the execution of the Company’s executive compensation philosophy and oversees the administration of our executive compensation programs.


 

20 2014 PROXY STATEMENT
 

GOVERNANCE OF THE COMPANY

 

THE SCIENCE AND TECHNOLOGY COMMITTEE

 

The Science and Technology Committee is composed entirely of independent Directors and is governed by a Board-approved Charter stating its responsibilities. Under its Charter, the Science and Technology Committee is responsible for periodically examining management’s strategic direction of and investment in the Company’s pharmaceutical research and development (R&D) and technology initiatives. This includes monitoring progress of the Company’s R&D pipeline, and evaluating the quality and direction of the Company’s R&D programs and the Company’s approach to acquiring and maintaining key scientific technologies. The Committee also identifies emerging issues, assesses the performance of R&D leaders, and evaluates the sufficiency of review by external scientific experts. The Science and Technology Committee Charter is available on our website at www.pfizer.com/about/corporate_governance/science_technology_committee.jsp.

 

The Science and Technology Committee is responsible for periodically examining management’s strategic direction of and investment in our pharmaceutical research and development and technology initiatives.


 

2014 PROXY STATEMENT 21
 

Compensation of Non-Employee Directors

 

Except as described below, our non-employee Directors receive cash compensation, as well as equity compensation in the form of Pfizer stock units. Each of these components is described below. The 2013 compensation of our non-employee Directors is shown in the 2013 Director Compensation Table below. Mr. Read does not receive any compensation for his service as a Director or as Chairman.

 

NON-EMPLOYEE DIRECTOR COMPENSATION

 

In 2013, compensation for our non-employee Directors (other than Dr. Ausiello discussed below) consisted of the following:

 

Position   Cash Retainers   Pfizer Stock Units*
Board Member   $137,500   $137,500
Chair of each Board Committee   $ 30,000    
Lead Independent Director   $ 50,000    

 

* Under the Pfizer Inc. Nonfunded Deferred Compensation and Unit Award Plan for Non-Employee Directors (Unit Award Plan), each Director receives Pfizer stock units with a value of $137,500 upon election at each Annual Meeting of Shareholders, provided the Director continues to serve as a Director following the Meeting. Units are not payable until the Director ceases to be a member of the Board, at or after which time they are paid in cash or in shares of Pfizer stock at the Director’s election. A new Director also receives Pfizer stock units in that amount when first elected to the Board.

 

The Board, on the recommendation of the Corporate Governance Committee, has adopted stock ownership guidelines requiring each non-employee Director to own $550,000 worth of Pfizer stock. For purposes of satisfying this requirement, a Director’s holdings include, in addition to shares held outright, units granted to the Director as compensation for Board service and shares or units held under a deferral or similar plan. A Director has five years from the date of (a) his or her first election as a Director; or (b) if later, an increase in the amount of Pfizer stock required to be held, to satisfy this ownership requirement. None of our Directors has pledged Pfizer stock as collateral for personal loans or other obligations. In addition, in early 2013 the Board of Directors adopted a policy prohibiting Directors from pledging Pfizer stock, and we also maintain a policy that prohibits Directors from engaging in activities considered hedging of our common stock.

 

Under his employer’s policy applicable to his previous position as the Chief of Medicine, Dr. Ausiello was subject to limitations on the amount of compensation he could receive from the Company; however, during 2013 he stepped down from that position and as such those limitations ceased to apply. In addition, pursuant to that policy, Dr. Ausiello was not permitted to receive any equity compensation for serving as a Director. As a result, in 2013, Dr. Ausiello received the customary cash fees for his Board and Committee service, but the dollar value of his annual equity award was credited to a deferred cash account to be paid (with an interest equivalent) following his termination of service as a Director. Commencing in 2014, Dr. Ausiello is no longer subject to these limitations on receipt of equity compensation.

 

Messrs. Gray, Mascotte and Narayen were paid a prorated portion of the cash retainer for the period they served as Directors in 2013.

 

DEFERRED COMPENSATION

 

Non-employee Directors may defer all or a part of their annual cash retainers under the Unit Award Plan until they cease to be members of the Board. At a Director’s election, the fees held in the Director’s account may be credited either with Pfizer stock units or with interest at the rate of return of an intermediate treasury index. The numbers of Pfizer stock units are calculated by dividing the amount of the deferred fee by the closing price of our common stock on the last business day of the fiscal quarter in which the fee is earned. If fees are deferred as Pfizer stock units, the number of stock units in a Director’s account is increased by crediting additional stock units based on the value of any dividends on the common stock. When a Director ceases to be a member of the Board, the amount attributable to stock units held in his or her account is paid in cash or in Pfizer stock, at the Director’s election. The amount of any cash payment is determined by multiplying the number of Pfizer stock units in the account by the closing price of our common stock on the last business day before the payment date.

 

The Board, on the recommendation of the Corporate Governance Committee, has adopted stock ownership guidelines requiring each non-employee Director to own $550,000 worth of Pfizer stock.


 

22 2014 PROXY STATEMENT
 

COMPENSATION OF NON-EMPLOYEE DIRECTORS

 

LEGACY WARNER-LAMBERT EQUITY COMPENSATION PLAN

 

As a result of our merger with Warner-Lambert, all stock options and restricted stock awards under the Warner-Lambert Company 1996 Stock Plan outstanding as of June 19, 2000 became immediately exercisable or vested. Under this plan, the directors of Warner-Lambert could elect to defer any or all of the compensation they received for their services. These deferred amounts could have been credited to a Warner-Lambert common stock equivalent account (the Equivalent Account). The Equivalent Account was credited, as of the day the fees would have been payable, with stock credits equal to the number of shares of Warner-Lambert common stock that could have been purchased with the dollar amount of such deferred fees. The former Warner-Lambert directors who joined our Board after the merger and who were Pfizer Directors during 2013—Messrs. Gray and Lorch—had deferred compensation and were entitled to Warner-Lambert stock credits in the Equivalent Account under this plan. Dividend equivalents received under this plan are reinvested. Upon the closing of the merger, these Warner-Lambert stock credits were converted into Pfizer stock equivalent units. The entire balance of Mr. Gray’s units deferred under this plan were paid out in accordance with his elections in 2013. Mr. Lorch’s units will be payable in Pfizer common stock in accordance with his election. These units are described in footnote 2 to the table under “Securities Ownership.”

 

MATCHING GIFT PROGRAMS

 

Our non-employee Directors may participate in Pfizer’s matching gift programs, which are available to all employees. Under these programs, the Pfizer Foundation (Pfizer’s philanthropic affiliate) will match contributions to eligible non-profit organizations, up to a maximum of $15,000 per year; contributions to religious and certain other types of non-profit organizations, as well as to individuals and others in need, are not eligible and are not matched. In addition, the Pfizer Foundation will match contributions made to the United Way Campaign, up to a maximum of $15,000 per year. The matching contributions made by the Pfizer Foundation with respect to our non-employee Directors are included in the 2013 Director Compensation Table below and described in footnote 2 to the Table. As indicated above, these matching contributions do not reflect all of the charitable contributions made by our Directors.

 

2013 DIRECTOR COMPENSATION TABLE

 

The following table shows 2013 compensation for our non-employee Directors.

 

Name   Fees Earned
Or Paid In Cash
($)
Equity/
Stock Awards(1)
($)
All Other
Compensation(2)
($)
Total
($)
Dr. Ausiello(3)   305,000 - 8,900 313,900
Mr. Burns(4)   137,500 137,500 15,000 290,000
Mr. Cornwell   167,500 137,500 15,000 320,000
Dr. Fergusson   167,500 137,500 14,950 319,950
Mr. Gray(4)   83,750 137,500 64,385 285,635
Dr. Hobbs   137,500 137,500 2,905 277,905
Ms. Horner   137,500 137,500 6,200 281,200
Mr. Kilts   167,500 137,500 2,500 307,500
Mr. Lorch   187,500 137,500 1,250 326,250
Mr. Mascotte(4)   34,375 - 15,000 49,375
Mr. Narayen(4)   34,375 137,500 - 171,875
Ms. Nora Johnson   137,500 137,500 15,000 290,000
Mr. Sanger   147,500 137,500 15,000 300,000
Dr. Tessier-Lavigne   137,500 137,500 - 275,000

 

(1) Represents stock units awarded in 2013 to Directors who were re-elected at the 2013 Annual Meeting of Shareholders (other than Dr. Ausiello, as discussed below). The number of units granted was determined by dividing the grant date value of the award, $137,500, by $30.26, the closing price of the Company’s common stock on April 25, 2013. In the case of Mr. Narayen, represents stock units awarded on September 27, 2013 upon his election as a Director, determined by dividing the grant date value of the award, $137,500, by $28.88, the closing price of the Company’s common stock on September 27, 2013. At the end of 2013, the aggregate number of stock units (including dividend equivalents) held by each current non-employee Director was as follows: Dr. Ausiello, 21,000; Mr. Cornwell, 93,294; Dr. Fergusson, 29,910; Dr. Hobbs, 23,016; Ms. Horner, 128,819; Mr. Kilts, 87,587; Mr. Lorch, 91,347; Mr. Narayen, 5,920; Ms. Nora Johnson, 37,507; Mr. Sanger, 70,073; and Dr. Tessier-Lavigne, 18,228. See Note 3.
   
(2) The amounts in this column represent: (a) charitable contributions made in 2013 under our matching gift programs (see “Matching Gift Programs” above), as follows: Dr. Ausiello, $8,900; Mr. Burns, $15,000; Mr. Cornwell, $15,000; Dr. Fergusson, $14,950; Mr. Gray, $15,000; Dr. Hobbs, $2,905; Ms. Horner, $6,200; Mr. Kilts, $2,500; Mr. Lorch, $1,250; Mr. Mascotte, $15,000; Ms. Nora Johnson, $15,000; and Mr. Sanger, $15,000; and (b) for Mr. Gray, above-market interest of $769 on the deferred cash balance under a legacy Warner-Lambert equity compensation plan, paid at the prime rate plus 2%, and the incremental cost to the Company of personal use of the Company aircraft by Mr. Gray’s family upon his passing, in the amount of $48,616. As indicated above under “Matching Gift Programs,” certain charitable contributions by our Directors are not eligible for matching contributions under the programs, and the amounts in the above table therefore may not reflect all such contributions made by our Directors.
   
(3) In 2013, Dr. Ausiello’s employer prohibited him from receiving any equity compensation for serving as a Director. For 2013, he received $167,500 in cash compensation, and an additional $137,500 was credited to a deferred cash account to be paid (with an interest equivalent) following his termination of service as a Director. See “Non-Employee Director Compensation.”
   
(4) Mr. Burns retired as a Director effective on December 19, 2013, Mr. Gray passed away on July 1, 2013, Mr. Mascotte retired as a Director effective at the 2013 Annual Meeting of Shareholders and Mr. Narayen was elected as a Director effective on September 27, 2013.

 

2014 PROXY STATEMENT 23
 

Securities Ownership

 

The table below shows the number of shares of our common stock beneficially owned as of the close of business on January 31, 2014 by each of our Directors and each Named Executive Officer listed in the 2013 Summary Compensation Table, as well as the number of shares beneficially owned by all of our current Directors and executive officers as a group. Together, these individuals beneficially own less than one percent (1%) of our common stock outstanding. The table and footnotes also include information about stock options, stock appreciation rights in the form of total shareholder return units (TSRUs), stock units, restricted stock, restricted stock units and deferred performance-related share awards credited to the accounts of our Directors and executive officers under various compensation and benefit plans.

 

   Number of Shares or Units Options Exercisable
Beneficial Owners  Common Stock   Stock Units   Within 60 Days
Dennis A. Ausiello  2,362(1)   21,000(2)    
Olivier Brandicourt+  142,634(3)   119,167(4)   278,000
W. Don Cornwell  1,759(1)   93,294(2)    
Frank A. D’Amelio  167,540(3)   196,607(4)   292,000
Mikael Dolsten  160,486(3)   160,419(4)    
Frances D. Fergusson       29,910(2)    
Geno J. Germano  130,664(1)(3)   113,122(4)    
Helen H. Hobbs       23,016(2)    
Constance J. Horner  16,997    128,819(2)    
James M. Kilts  2,259(1)   87,587(2)    
George A. Lorch  24,126    91,347(2)    
Shantanu Narayen       5,920(2)    
Suzanne Nora Johnson  10,000    37,507(2)    
Ian C. Read  700,262(3)(5)   609,139(4)   415,000
Stephen W. Sanger  1,085(1)   70,073(2)    
Amy W. Schulman  106,868(1)(3)   128,807(4)    
Marc Tessier-Lavigne  104    18,228(2)    
John Young  16,192(3)   46,938(4)   124,100
All Directors and Executive Officers as a group (24)  1,514,976    2,245,636    1,217,875

 

+ Ownership is as of October 31, 2013 for Dr. Brandicourt.

 

(1) Includes the following shares held in the names of family members: Dr. Ausiello, 2,362 shares; Mr. Cornwell, 300 shares; Mr. Germano, 1,587 shares; Mr. Kilts, 2,259 shares; Mr. Sanger, 1,085 shares; and Ms. Schulman, 300 shares. Dr. Ausiello, Messrs. Cornwell, Germano, and Kilts and Ms. Schulman disclaim beneficial ownership of such shares.
   
(2) Represents units (each equivalent to a share of Pfizer common stock) awarded under our Director compensation program (see “Compensation of Non-Employee Directors” above). This number also includes the following units resulting from the conversion into Pfizer units of previously deferred Warner-Lambert director compensation under the Warner-Lambert 1996 Stock Plan: Mr. Lorch, 16,335 units. See “Compensation of Non-Employee Directors—Legacy Warner-Lambert Equity Compensation Plan” above.
   
(3) Includes shares credited under the Pfizer Savings Plan and/or deferred shares relating to previously vested awards under the Company’s share award programs. These plans are described later in this Proxy Statement. Also includes 1,279 shares in the Pfizer Share Ownership Plan for Mr. Young.
   
(4) In the case of Messrs. D’Amelio, Germano, Read and Young and Dr. Dolsten, includes units (each equivalent to a share of Pfizer common stock) to be settled in cash following the officer’s separation from service, held under the Pfizer Supplemental Savings Plan, and for Mr. Germano also includes 4,146 units held under the Wyeth Supplemental Employee Savings Plan. The Pfizer Supplemental Savings Plan is described later in this Proxy Statement. Also includes the following restricted stock units (each equivalent to a share of Pfizer common stock): Dr. Brandicourt, 102,001; Mr. D’Amelio, 164,823; Dr. Dolsten, 155,004; Mr. Germano, 104,691; Mr. Read, 452,570; Ms. Schulman, 120,807; and Mr. Young, 44,815. These units are unvested, except that in the case of Mr. Read, in view of his age and years of service with Pfizer, a prorated portion of the units would vest upon retirement and, in the case of Dr. Brandicourt, a pro rata portion was forfeited in connection with his separation from employment and the remainder either vested or continues to vest. See “2013 Outstanding Equity Award at Fiscal Year-End Table.” This column does not include the following stock appreciation rights in the form of TSRUs: Dr. Brandicourt, 1,123,929 (a portion of which was forfeited in connection with his separation from employment and the remainder of which vested and will settle on the original settlement dates); Mr. D’Amelio, 1,657,374; Dr. Dolsten, 1,297,161; Mr. Germano, 998,527; Mr. Read, 4,609,853; Ms. Schulman, 1,132,947; and Mr. Young, 528,893. See “2013 Outstanding Equity Awards at Fiscal Year-End” and “Estimated Benefits upon Termination” for a discussion of the vesting of restricted stock units and TSRUs.
   
(5) Includes 61,609 shares held in a Grantor Retained Annuity Trust.

 

24 2014 PROXY STATEMENT
 

SECURITIES OWNERSHIP

 

BENEFICIAL OWNERS

 

Based on filings made under Sections 13(d) and 13(g) of the Securities Exchange Act of 1934, as amended, as of December 31, 2013, the only person known by us to be the beneficial owner of more than 5% of our common stock was as follows:

 

Name and Address of Beneficial Owner(1)   Shares of Pfizer
 Common Stock(1)
   Percent of Class
BlackRock, Inc.   421,857,070   6.5%
40 East 52nd Street        
New York, NY 10022        

 

(1) This information is based solely on a Schedule 13G/A filed by BlackRock, Inc. with the SEC on February 10, 2014.

 

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our Directors and certain of our officers to file reports of holdings and transactions in Pfizer equity with the SEC and the NYSE. Based on our records and other information, we believe that in 2013 our Directors and our officers who were subject to Section 16(a) met all applicable filing requirements, except as follows: Upon becoming subject to Section 16 in December 2010, Olivier Brandicourt, who was then President and General Manager of Pfizer Primary Care, filed a Form 3 with the SEC on a timely basis that inadvertently failed to include 37,623 shares of Pfizer common stock held in a brokerage account. Promptly after being informed of the omission, Dr. Brandicourt filed an amendment to the Form 3 reporting the correct number of shares directly owned.

 

2014 PROXY STATEMENT   25
 

Related Person Transactions; Indemnification; and Legal Proceedings

 

RELATED PERSON TRANSACTION APPROVAL POLICY

 

The Company has adopted a Related Person Transaction Approval Policy that is administered by the Corporate Governance Committee. The Policy applies to any transaction or series of transactions in which the Company or a subsidiary is a participant, the amount involved exceeds $120,000, and a related person has a direct or indirect material interest. Under the Policy, Company management determines whether a transaction requires review by the Committee, and transactions requiring review are referred to the Committee for approval, ratification or other action. Based on its consideration of all of the relevant facts and circumstances, the Committee decides whether or not to approve such transactions and approves only those transactions that are deemed to be in the best interests of the Company. If the Company becomes aware of an existing transaction with a related person that has not been approved under this Policy, the matter is referred to the Committee. The Committee then evaluates all options available, including ratification, revision or termination of such transaction.

 

TRANSACTIONS WITH RELATED PERSONS

 

We have no related person transactions to report.

 

INDEMNIFICATION

 

We indemnify our Directors and our elected officers to the fullest extent permitted by law so that they will be free from undue concern about personal liability in connection with their service to the Company. This is required under our By-laws, and we have also entered into agreements with those individuals contractually obligating us to provide this indemnification to them.

 

LEGAL PROCEEDINGS

 

In February 2013, a shareholder derivative action was filed in the Supreme Court of the State of New York, County of New York, against certain current and former officers and directors of Pfizer. Pfizer is named as a nominal defendant. The complaint alleges that the individual defendants breached their fiduciary duties to the Company as the result of, among other things, inadequate oversight of compliance by Pfizer subsidiaries in various countries outside the U.S. with the U.S. Foreign Corrupt Practices Act. The plaintiff seeks damages in unspecified amounts and other unspecified relief on behalf of Pfizer.

 

 

The Company has adopted a Related Person Transaction Approval Policy that is administered by the Corporate Governance Committee. The Policy applies to any transaction or series of transactions in which the Company or a subsidiary is a participant, the amount involved exceeds $120,000, and a related person has a direct or indirect material interest.


 

 

26 2014 PROXY STATEMENT
 

Proposals Requiring Your Vote

 

ITEM 1 – ELECTION OF DIRECTORS

 

Twelve members of our Board are standing for re-election, to hold office until the next Annual Meeting of Shareholders. A majority of the votes cast is required for the election of Directors in an uncontested election (which is the case for the election of Directors at the 2014 Annual Meeting). A majority of the votes cast means that the number of votes cast “for” a Director nominee must exceed the number of votes cast “against” that nominee. Our Corporate Governance Principles contain detailed procedures to be followed in the event that one or more Directors do not receive a majority of the votes cast “for” his or her election at the Annual Meeting.

 

Each nominee elected as a Director will continue in office until his or her successor has been elected and qualified, or until his or her earlier death, resignation or retirement.

 

Under Pfizer’s Corporate Governance Principles, a Director is generally required to retire when he or she reaches age 73 or at the first Annual Meeting of Shareholders following his or her 73rd birthday. On the recommendation of the Corporate Governance Committee, the Board may waive this requirement as to any Director if it deems a waiver to be in the best interests of the Company.

 

We expect each nominee for election as a Director to be able to serve if elected. If any nominee is not able to serve, proxies may be voted by the Proxy Committee for substitute nominees, unless the Board chooses to reduce the number of Directors serving on the Board.

 

The Proxy Committee appointed by the Board of Directors intends to vote for the election of each of these nominees, unless you indicate otherwise when you vote.

 

The following pages contain biographical and other information about the nominees, including each nominee’s age at the date of the Annual Meeting. Each nominee’s other current public company directorships, if any, are shown beneath the nominee’s photograph as well as in the biographical information; former and non-public company directorships, if any, are noted only in the nominee’s biographical information. Following each nominee’s biographical information, we have provided information concerning the particular experience, qualifications, attributes and/or skills that led the Corporate Governance Committee and the Board to determine that each nominee should serve as a Director. In addition, most of our Directors serve or have served on boards and board committees (including, in many cases, as committee chairs) of other public companies, which we believe provides them with additional board leadership and governance experience, exposure to best practices, and substantial knowledge and skills that further enhance the functioning of our Board.

 

Your Board of Directors recommends a vote FOR the election of each of these nominees as Directors.

 

2014 PROXY STATEMENT 27
 

 

 

 

Director Since: 2006

 

Board Committees:

Audit, Corporate Governance, Regulatory and Compliance, and Science and Technology (Chair)

 

Other Current Public Boards:

Alnylam Pharmaceuticals, Inc.

Nominees for Directors

 

Dennis A. Ausiello, 68

 

POSITION, PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE:

 

Director, Center for Assessment Technology and Continuous Health (CATCH). Physician-in-Chief, Emeritus at Massachusetts General Hospital and Chief of Medicine at Massachusetts General Hospital from 1996 until April 2013. Jackson Distinguished Professor of Clinical Medicine at Harvard Medical School. President of the Association of American Physicians in 2006. Member of the Institute of Medicine of the National Academies of Science and a Fellow of the American Academy of Arts and Sciences. Director of Alnylam Pharmaceuticals, TARIS BioMedical, Inc. and several non-profit organizations. Member of scientific advisory boards of Bind Therapeutics and Blend Therapeutics. Our Director since 2006. Chair of our Science and Technology Committee and member of our Audit Committee, our Corporate Governance Committee, and our Regulatory and Compliance Committee.

 

KEY ATTRIBUTES, EXPERIENCE AND SKILLS:

 

Dr. Ausiello’s experience and training as a practicing physician (Board certified in nephrology), a scientist and a nationally recognized leader in academic medicine enable him to bring valuable insights to the Board, including through his understanding of the scientific nature of our business and the ability to assist us in prioritizing opportunities for drug development. In addition, Dr. Ausiello oversaw a large research portfolio and an extensive research and education budget at Massachusetts General Hospital, giving him a critical perspective on drug discovery and development and providing a fundamental understanding of the potential pathways contributing to disease. Through his past experience as the Chief of Medicine at Massachusetts General Hospital, Dr. Ausiello also brings leadership, oversight and finance experience to the Board.


 

 

 

Director Since: 1997

 

Board Committees:

Audit (Chair), Compensation, Regulatory and Compliance, and Science and Technology

 

Other Current Public Boards:

American International Group, Inc. and Avon Products, Inc.

W. Don Cornwell, 66

 

POSITION, PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE:

 

Chairman of the Board and Chief Executive Officer of Granite Broadcasting Corporation from 1988 until his retirement in August 2009 and Vice Chairman until December 2009. Granite Broadcasting Corporation filed for voluntary reorganization under Chapter 11 of the U.S. Bankruptcy Code in December 2006 and emerged from its restructuring in June 2007. Director of American International Group, Inc. and Avon Products, Inc. Director of the Wallace Foundation from 2002 until 2012. Trustee of Big Brothers/Sisters of New York. Our Director since 1997. Chair of our Audit Committee and member of our Compensation Committee, our Regulatory and Compliance Committee and our Science and Technology Committee.

 

KEY ATTRIBUTES, EXPERIENCE AND SKILLS:

 

Through Mr. Cornwell’s 38-year career as an entrepreneur driving the growth of a consumer-focused media company, an executive in the investment banking industry and a director of several significant consumer product and healthcare companies, he has valuable business, leadership and management experience and brings important perspectives on the issues facing our Company. Mr. Cornwell founded and built Granite, a consumer-focused media company, through acquisitions and operating growth, enabling him to provide insight and guidance on strategic direction and growth. Mr. Cornwell’s strong financial background, including his work at Goldman Sachs prior to co-founding Granite and his service and leadership on the audit, finance and investment committees of other companies, also provides financial expertise to the Board, including an understanding of financial statements, corporate finance, accounting and capital markets.


 

28 2014 PROXY STATEMENT
 

NOMINEES FOR DIRECTORS

 

Frances D. Fergusson, 69

 

POSITION, PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE:

 

President Emeritus of Vassar College since 2006 and President from 1986 to 2006. Served on the Mayo Clinic Board for 14 years, the last four years as its Chairman, and as President of the Board of Overseers of Harvard University from 2007 through 2008. Director of Wyeth from 2005 until 2009. Director of Mattel, Inc. She serves as a Trustee on the executive committees of the Getty Trust, The School of American Ballet and Second Stage Theatre and as a director of The John and Mable Ringling Museum of Art Foundation, Inc. Our Director since 2009. Chair of our Regulatory and Compliance Committee and a member of our Compensation Committee and our Science and Technology Committee.

 

KEY ATTRIBUTES, EXPERIENCE AND SKILLS:

 

Dr. Fergusson has strong leadership skills, having served as President of Vassar College for 20 years and, during her tenure, developing a long-term financial plan and strengthening the College’s financial position. She has also headed strategic planning projects at Vassar and other organizations. Dr. Fergusson’s service on the boards of not-for-profit organizations, including the Mayo Clinic (which she chaired from 1988 to 2002), enables her to bring to the Board experience and knowledge of healthcare from alternate perspectives.

 

Director Since: 2009

 

Board Committees:

Compensation, Regulatory and Compliance (Chair), and Science and Technology

 

Other Current Public Boards:

Mattel, Inc.


 

Helen H. Hobbs, 61

 

POSITION, PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE:

 

Investigator of the Howard Hughes Medical Institute since 2002, a Professor of Internal Medicine and Molecular Genetics and Director of the McDermott Center for Human Growth and Development at the University of Texas Southwestern Medical Center. In 2007, Dr. Hobbs was elected to the National Academy of Sciences and received the Distinguished Scientist Award from the American Heart Association. Dr. Hobbs was elected to the Institute of Medicine in 2004 and the American Academy of Arts and Sciences in 2006. She is a member of the American Society of Clinical Investigation and the Association of American Physicians. Director of the Dallas Heart Study. She received the International Society of Atherosclerosis Prize in 2012. In 2005 she became the first recipient of the Clinical Scientist Award from the American Heart Association and was awarded Germany’s Heinrich Wieland Prize. Our Director since 2011. Member of our Corporate Governance Committee and our Science and Technology Committee.

 

KEY ATTRIBUTES, EXPERIENCE AND SKILLS:

 

Dr. Hobbs’ background reflects significant achievements in academia and medicine. She has served as a faculty member at the University of Texas Southwestern Medical Center for more than 20 years, and is a leading geneticist in the arena of metabolism and heart disease, areas in which Pfizer has significant investments and experience. Pfizer benefits from her experience, expertise and achievements in both medicine and science.

 

Director Since: 2011

 

Board Committees:

Corporate Governance and Science and Technology

 

Other Current Public Boards:

None


 

2014 PROXY STATEMENT 29
 

NOMINEES FOR DIRECTORS

 

 

Director Since: 1993

 

Board Committees:

Corporate Governance, Regulatory and Compliance, and Science and Technology

 

Other Current Public Boards:

Ingersoll-Rand plc and Prudential Financial, Inc.

Constance J. Horner, 72

 

POSITION, PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE:

 

Guest Scholar from 1993 until 2005 at The Brookings Institution, an organization devoted to nonpartisan research, education and publication in economics, government, foreign policy and the social sciences. Commissioner of the U.S. Commission on Civil Rights from 1993 to 1998. Served at the White House as Assistant to President George H. W. Bush and as Director of Presidential Personnel from 1991 to 1993. Deputy Secretary, U.S. Department of Health and Human Services, from 1989 to 1991. Director of the U.S. Office of Personnel Management from 1985 to 1989. Director of Ingersoll-Rand plc and Prudential Financial, Inc.; Fellow, National Academy of Public Administration; and Member of the Board of Trustees of the Prudential Foundation. Our Director since 1993 and Lead Independent Director from 2007 until December 2010. Member of our Corporate Governance Committee, our Regulatory and Compliance Committee and our Science and Technology Committee.

 

KEY ATTRIBUTES, EXPERIENCE AND SKILLS:

 

Ms. Horner is well-versed in federal health and health financing policy as well as talent management as a result of her service as the head of the U.S. Office of Personnel Management, which, among other responsibilities, designs and administers the health insurance program for federal employees and retirees and manages policies and programs for the recruitment, training and compensation of the federal workforce; her chairmanship of a White House Competitiveness Council task force making recommendations to improve the drug approval process; and her service as Deputy Secretary of the U.S. Department of Health and Human Services, where she had responsibility for the Food and Drug Administration, the National Institutes of Health, the Public Health Service and the Health Care Financing Administration (now the Center for Medicare and Medicaid Services), lending insight into how the federal government makes health policies that affect Pfizer’s ability to create products and get them to the people who need them. In addition, Ms. Horner’s government experience positions her to provide oversight to our Company in government relations, including regulatory areas.


 

 

 

Director Since: 2007

 

Board Committees:

Compensation (Chair), and Science and Technology

 

Other Current Public Boards:

Meadwestvaco Corporation, MetLife, Inc. and Nielsen Holdings N.V.

James M. Kilts, 66

 

POSITION, PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE:

 

Founding Partner, Centerview Capital, a private equity firm, since 2006. Vice Chairman, The Procter & Gamble Company, from 2005 to 2006. Chairman and Chief Executive Officer, The Gillette Company, from 2001 to 2005 and President, The Gillette Company, from 2003 to 2005. President and Chief Executive Officer, Nabisco Group Holdings Corporation, from 1998 until its acquisition in 2000. Chairman of the Nielsen Company B.V. Supervisory Board and Non-Executive Director and Chairman (until December 31, 2013) of the Board of Nielsen Holdings N.V., Director of Meadwestvaco Corporation and MetLife, Inc., Trustee of Knox College and the University of Chicago, and a member of the Board of Overseers of Weill Cornell Medical College. Our Director since 2007. Chair of our Compensation Committee and member of our Science and Technology Committee.

 

KEY ATTRIBUTES, EXPERIENCE AND SKILLS:

 

Mr. Kilts’ tenure as CEO of Gillette and Nabisco and as Vice Chairman of Procter & Gamble provides valuable business, leadership and management experience, including expertise in cost management, creating value and resource allocation. In addition, Mr. Kilts’ knowledge of consumer businesses has given him insights on reaching consumers and on the importance of innovation—both important aspects of Pfizer’s business. Through his service on the board of MetLife, an insurance company, Mr. Kilts can offer a view of healthcare from another perspective, and through Mr. Kilts’ service on various compensation committees, including ours, he has a strong understanding of executive compensation and related areas.


 

30 2014 PROXY STATEMENT
 

NOMINEES FOR DIRECTORS

 

George A. Lorch, 72

 

POSITION, PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE:

 

Chairman Emeritus of Armstrong Holdings, Inc., a global manufacturer of flooring and ceiling materials, since 2000, having served as Chairman and Chief Executive Officer and in other executive capacities with Armstrong Holdings, Inc. and its predecessor, Armstrong World Industries, Inc., from 1993 to 2000. Director of Autoliv, Inc., Masonite International, Inc., and WPX Energy, Inc., and also a Director of HSBC Finance Corporation and HSBC North America Holding Company, wholly owned subsidiaries of HSBC LLC (Mr. Lorch announced his intention to retire in April 2014). Director of Williams Companies, Inc. from 2001 until 2011. Our Director since 2000 and Chairman of the Board from December 2010 to December 2011. Lead Independent Director since December 2011.

 

KEY ATTRIBUTES, EXPERIENCE AND SKILLS:

 

Mr. Lorch’s service as CEO of Armstrong Holdings provides valuable business, leadership and management experience, including expertise leading a large organization with global operations, giving him a keen understanding of the issues facing a multinational business such as Pfizer’s. In addition, Mr. Lorch has significant experience with manufacturing, marketing and branding, all important areas for Pfizer. Mr. Lorch’s experience on the board of directors of Autoliv, a non-U.S.-based public company, enables him to bring global perspectives and experience to the Board, including best practices gained from other countries. Moreover, his service on various compensation committees (including ours, until December 2010) has given him a strong understanding of executive compensation and related areas. Mr. Lorch is currently chair of the nominating/governance committee of other public companies.

 

Director Since: 2000

 

Lead Independent Director

 

Other Current Public Boards:

Autoliv, Inc., HSBC Finance Corporation (retiring April 2014), Masonite International, Inc. and WPX Energy, Inc.


 

Shantanu Narayen, 50

 

POSITION, PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE:

 

President and Chief Executive Officer and Director of Adobe Systems Incorporated, a producer of creative and digital marketing software. Prior to his appointment as CEO in December of 2007, Mr. Narayen held various leadership roles at Adobe, including President and Chief Operating Officer, Executive Vice President of Worldwide Products, and Senior Vice President of Worldwide Product Development. Director of Dell Inc. from 2009 until October 2013 and Director of Metavante Technologies Inc. from 2007 until 2009. He serves as President of the Board of Adobe Foundation, which funds philanthropic initiatives around the world. He is a member of the U.S. President’s Management Advisory Board, established in 2010 to provide advice on how to implement best business practices. Our Director since 2013. Member of our Corporate Governance Committee and our Science and Technology Committee.

 

KEY ATTRIBUTES, EXPERIENCE AND SKILLS:

 

Mr. Narayen’s experience as President and CEO of Adobe Systems brings strong leadership and management skills and his past roles in worldwide product development provide valuable global operations experience. His past experience as a director on other public boards provides a broad perspective on issues facing public companies and governance matters. Mr. Narayen also brings a strong technology background to Pfizer’s Board as well as a diversity of experience that benefits Pfizer.

 

Director Since: 2013

 

Board Committees:

Corporate Governance and Science and Technology

 

Other Current Public Boards:

Adobe Systems Incorporated


 

2014 PROXY STATEMENT 31
 

NOMINEES FOR DIRECTORS

 

 

 

Director Since: 2007

 

Board Committees:

Audit, Compensation, and Science and Technology

 

Other Current Public Boards:

American International Group, Inc., Intuit Inc. and VISA Inc.

Suzanne Nora Johnson, 56

 

POSITION, PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE:

 

Retired Vice Chairman, Goldman Sachs Group, Inc., since 2007. During her 21-year tenure with Goldman Sachs, she served in various leadership roles, including Chair of the Global Markets Institute, Head of Global Research, and Head of Global Health Care. Director of American International Group, Inc., Intuit Inc. and VISA Inc. Member of the Board of Governors of the American Red Cross, Vice Chair, Board of Trustees of The Brookings Institution, Co-Chairman of the Board of Trustees of the Carnegie Institution of Washington and member of the Board of Trustees of the University of Southern California. Our Director since 2007. Member of our Audit Committee, our Compensation Committee and our Science and Technology Committee.

 

KEY ATTRIBUTES, EXPERIENCE AND SKILLS:

 

Ms. Nora Johnson’s careers in law and investment banking, including serving in various leadership roles at Goldman Sachs, provide valuable business experience and critical insights on the roles of the law, finance and strategic transactions to our business. In addition, Ms. Nora Johnson’s extensive knowledge of healthcare through her role in healthcare investment banking and her involvement with not-for-profit organizations, such as in scientific research (The Carnegie Institution), healthcare policy (RAND Corporation and The Brookings Institution), and healthcare services (the American Red Cross), provide touchstones of public opinion and exposure to diverse, global points of view. Ms. Nora Johnson also brings financial expertise to the Board, providing an understanding of financial statements, corporate finance, accounting and capital markets.


 

 

Director Since: 2010

 

Other Current Public Boards:

Kimberly-Clark Corporation

Ian C. Read, 60

 

POSITION, PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE:

 

Chairman of the Board and Chief Executive Officer of Pfizer since December 2011. President and Chief Executive Officer from December 2010. Previously, he served as Senior Vice President and Group President of the Worldwide Biopharmaceutical Businesses, which he led from 2006 through December 2010. In that role, he oversaw five global business units—Primary Care, Specialty Care, Oncology, Established Products and Emerging Markets. Mr. Read began his career with Pfizer in 1978 as an operational auditor. He worked in Latin America through 1995, holding positions including Chief Financial Officer, Pfizer Mexico, and Country Manager, Pfizer Brazil. In 1996, he was appointed President of Pfizer’s International Pharmaceuticals Group, with responsibility for Latin America and Canada. He became Executive Vice President, Europe, in 2000, was named a Corporate Vice President in 2001, and assumed responsibility for Canada, in addition to Europe, in 2002. Mr. Read later became accountable for operations in both the Africa/Middle East region and Latin America as well. Director of Kimberly-Clark Corporation. Mr. Read serves on the Boards of Pharmaceutical Research and Manufacturers of America (PhRMA) and the Partnership of New York City. Member of the President’s Export Council and U.S.-China Business Council. Our Director since December 2010.

 

KEY ATTRIBUTES, EXPERIENCE AND SKILLS:

 

Mr. Read brings over 30 years of business, operating and leadership experience to the Board. His extensive knowledge of the biopharmaceutical industry in general, and Pfizer’s worldwide biopharmaceutical business in particular, provides crucial insight to our Board on the Company’s strategic planning and operations. Mr. Read provides an essential link between management and the Board on management’s business perspectives, and the combination of his knowledge of the business and his leadership skills make his role as Chairman and CEO optimal at this time. Further, his experience as a member of another public company board provides him with an enhanced perspective on issues applicable to public companies.


 

32 2014 PROXY STATEMENT
 

NOMINEES FOR DIRECTORS

 

Stephen W. Sanger, 68

 

POSITION, PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE:

 

Chairman of General Mills, Inc., a packaged food producer and distributor, from 1995 until his retirement in 2008 and its Chief Executive Officer from 1995 to 2007. Former Chairman of the Grocery Manufacturers of America. Recipient of the Woodrow Wilson Award for Public Service in 2009. Chaired the Fiscal Policy Committee of the Business Roundtable and served as a director of Catalyst. Director of Wells Fargo & Company. Director of Target Corporation from 1996 until 2013. Our Director since 2009. Chair of our Corporate Governance Committee and a member of our Audit Committee and our Science and Technology Committee.

 

KEY ATTRIBUTES, EXPERIENCE AND SKILLS:

 

With more than 12 years’ experience as Chairman and CEO of General Mills, Mr. Sanger has valuable business, leadership and management experience, including experience in acquisitions through the purchase of Pillsbury, creating one of the world’s largest food companies. As CEO of General Mills, Mr. Sanger improved sales and market position, developed innovative ideas and streamlined operations, expertise which benefits Pfizer. In addition, Mr. Sanger has experience leading a company whose products are subject to FDA regulation, lending insight into the regulated nature of our consumer business.

 

Director Since: 2009

 

Board Committees:

Audit, Corporate Governance (Chair), and Science and Technology

 

Other Current Public Boards:

Wells Fargo & Company


 

Marc Tessier-Lavigne, 54

 

POSITION, PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE:

 

President of The Rockefeller University since March 2011, Carson Family Professor and head of the Laboratory of Brain Development at The Rockefeller University. Between 2003 and 2011, held positions of increasing responsibility at Genentech, a leading biopharmaceutical company, where he became Executive Vice President, Research, and Chief Scientific Officer. Susan B. Ford Professor in the School of Humanities and Sciences, and Professor of Biological Sciences and of Neurology and Neurological Sciences at Stanford University from 2001 to 2003, and a faculty member at the University of California, San Francisco from 1991 to 2001. In addition, Dr. Tessier-Lavigne was a Howard Hughes Medical Institute Investigator from 1994 to 2003. Director of Regeneron Pharmaceuticals, Inc., Agios Pharmaceuticals Inc. and Juno Therapeutics, Inc. Member of the National Academy of Sciences and its Institute of Medicine, and a Fellow of the Royal Society (U.K.), the Royal Society of Canada, the Academy of Medical Sciences (U.K.) and the American Association for the Advancement of Science. Director of the Rockefeller Archive Center and Federal Reserve Bank of New York and also serves on various scientific boards. Our Director since 2011. Member of our Regulatory and Compliance Committee and our Science and Technology Committee.

 

KEY ATTRIBUTES, EXPERIENCE AND SKILLS:

 

Dr. Tessier-Lavigne’s background reflects significant achievements in a wide variety of disciplines. His business experience includes a senior management role at Genentech, demonstrating his understanding of the role of science in business; his achievements and credentials in science and medicine reflect significant medical and scientific knowledge; and his previous and current roles in academia provide an understanding of the role of research in the pharmaceutical industry. Pfizer benefits from his experience and expertise in these and other areas.

 

Director Since: 2011

 

Board Committees:

Regulatory and Compliance and Science and Technology

 

Other Current Public Boards:

Agios Pharmaceuticals Inc., and Regeneron Pharmaceuticals, Inc.


 

 

2014 PROXY STATEMENT 33
 

ITEM 2 – RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the Company’s independent registered public accounting firm. To execute this responsibility, the Committee engages in a comprehensive annual evaluation of the independent auditor’s qualifications, performance and independence and whether the independent registered public accounting firm should be rotated, and considers the advisability and potential impact of selecting a different independent registered public accounting firm.

 

The Audit Committee has selected, and the Board of Directors has ratified the selection of, KPMG LLP (KPMG) to serve as our independent registered public accounting firm for 2014. Pfizer’s auditors have been KPMG and its predecessor firm, Peat, Marwick, Mitchell & Co., since 1987. Prior to that, Pfizer’s auditors were Main Hurdman (until its acquisition by Peat, Marwick, Mitchell & Co. in 1987) and its predecessors. In accordance with SEC rules and KPMG policies, audit partners are subject to rotation requirements to limit the number of consecutive years an individual partner may provide service to our Company. For lead and concurring audit partners, the maximum number of consecutive years of service in that capacity is five years. The process for selection of the Company’s lead audit partner pursuant to this rotation policy involves a meeting between the Chair of the Audit Committee and the candidate for the role, as well as discussion by the full Committee and with management.

 

The Audit Committee and the Board of Directors believe that the continued retention of KPMG as our independent registered public accounting firm is in the best interest of the Company and our shareholders, and we are asking our shareholders to ratify the selection of KPMG as our independent registered public accounting firm for 2014. Although ratification is not required by our By-laws or otherwise, the Board is submitting the selection of KPMG to our shareholders for ratification because we value our shareholders’ views on the Company’s independent registered public accounting firm and as a matter of good corporate practice. In the event that our shareholders fail to ratify the selection, it will be considered a recommendation to the Board of Directors and the Audit Committee to consider the selection of a different firm. Even if the selection is ratified, the Audit Committee may in its discretion select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and our shareholders. See “Governance of the Company—Board and Committee Information—The Audit Committee” for additional information on the selection of the independent registered public accounting firm. The Proxy Committee appointed by the Board of Directors intends to vote for the ratification of KPMG as our independent registered public accounting firm for 2014 unless you indicate otherwise when you vote.

 

Representatives of KPMG will be present at the Annual Meeting to answer questions. They also will have the opportunity to make a statement if they desire to do so.

 

Your Board of Directors recommends a vote FOR the ratification of KPMG LLP as our independent registered public accounting firm for 2014.

 

34 2014 PROXY STATEMENT
 

RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

AUDIT AND NON-AUDIT FEES

 

The following table shows the fees for professional services rendered by KPMG for the audit of the Company’s annual financial statements for the years ended December 31, 2013 and December 31, 2012, and fees billed for other services rendered by KPMG during those periods.

 

   2013  2012
Audit fees:(1)  $27,391,000  $44,005,000
Audit-related fees:(2)  1,356,000  1,181,000
Tax fees:(3)  3,267,200  5,081,000
All other fees:(4)  0  0
Total  $32,014,200  $50,267,000

 

(1) Audit fees were principally for audit work performed on the consolidated financial statements and internal control over financial reporting, as well as statutory audits. The decrease in audit fees in 2013 versus 2012 relates primarily to additional audit fees incurred in connection with the strategic reviews of our Nutrition and Animal Health businesses in 2012.
   
(2) Audit-related fees were principally for the audits of employee benefit plans.
   
(3) Tax fees were principally for services related to tax compliance and reporting and analysis services.
   
(4) KPMG did not provide any “other services” during the period.

 

POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT SERVICES OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Consistent with requirements of the SEC and the Public Company Accounting Oversight Board (PCAOB) regarding auditor independence, the Audit Committee has responsibility for appointing, setting the compensation of and overseeing the work of the independent registered public accounting firm. In recognition of this responsibility, the Audit Committee has established a policy to pre-approve all audit and permissible non-audit services provided by the independent registered public accounting firm.

 

Prior to engagement of the independent registered public accounting firm for the next year’s audit, management submits for Audit Committee approval a list of services and related fees expected to be rendered during that year within each of four categories of services:

 

1. Audit services include audit work performed on the financial statements and internal control over financial reporting, as well as work that generally only the independent registered public accounting firm can reasonably be expected to provide, including comfort letters, statutory audits, and discussions surrounding the proper application of financial accounting and/or reporting standards.
   
2. Audit-related services are for assurance and related services that are traditionally performed by the independent registered public accounting firm, including due diligence related to mergers and acquisitions, employee benefit plan audits, and special procedures required to meet certain regulatory requirements.
   
3. Tax services include all services, except those services specifically related to the audit of the financial statements, performed by the independent registered public accounting firm’s tax personnel, including tax analysis; assisting with coordination of execution of tax-related activities, primarily in the area of corporate development; supporting other tax-related regulatory requirements; and tax compliance and reporting.
   
4. All other services are those services not captured in the audit, audit-related or tax categories. The Company generally does not request such services from the independent registered public accounting firm.

 

Prior to engagement, the Audit Committee pre-approves independent registered public accounting firm services within each category, and the fees for each category are budgeted. The Audit Committee requires the independent registered public accounting firm and management to report actual fees versus the budget periodically throughout the year by category of service. During the year, circumstances may arise when it may become necessary to engage the independent registered public accounting firm for additional services not contemplated in the original pre-approval categories. In those instances, the Audit Committee requires specific pre-approval before engaging the independent registered public accounting firm.

 

The Audit Committee may delegate pre-approval authority to one or more of its members. The member to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next scheduled meeting.

 

2014 PROXY STATEMENT 35
 

RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

AUDIT COMMITTEE REPORT

 

The Audit Committee reviews the Company’s financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for the financial statements and the reporting process, including the system of internal controls.

 

In this context, the Committee has met and held discussions with management and the independent registered public accounting firm regarding the fair and complete presentation of the Company’s results and the assessment of the Company’s internal control over financial reporting. The Committee has discussed significant accounting policies applied by the Company in its financial statements, as well as, when applicable, alternative accounting treatments. Management has represented to the Committee that the Company’s consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America, and the Committee has reviewed and discussed the consolidated financial statements with management and the independent registered public accounting firm. The Committee has discussed with the independent registered public accounting firm matters required to be discussed under applicable PCAOB standards.

 

In addition, the Committee has reviewed and discussed with the independent registered public accounting firm the auditor’s independence from the Company and its management. As part of that review, the Committee has received the written disclosures and the letter required by applicable requirements of the PCAOB regarding the independent accountant’s communications with the Audit Committee concerning independence, and the Committee has discussed the independent registered public accounting firm’s independence from the Company.

 

The Committee also has considered whether the independent registered public accounting firm’s provision of non-audit services to the Company is compatible with the auditor’s independence. The Committee has concluded that the independent registered public accounting firm is independent from the Company and its management.

 

As part of its responsibilities for oversight of the Company’s Enterprise Risk Management process, the Committee has reviewed and discussed Company policies with respect to risk assessment and risk management, including discussions of individual risk areas, as well as an annual summary of the overall process.

 

The Committee has discussed with the Company’s Internal Audit Department and independent registered public accounting firm the overall scope of and plans for their respective audits. The Committee meets with the Chief Internal Auditor, Chief Compliance and Risk Officer, and representatives of the independent registered public accounting firm, in regular and executive sessions, to discuss the results of their examinations, the evaluations of the Company’s internal controls, and the overall quality of the Company’s financial reporting and compliance programs.

 

In reliance on the reviews and discussions referred to above, the Committee has recommended to the Board of Directors, and the Board has approved, that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, for filing with the SEC. The Committee has selected, and the Board of Directors has ratified, the selection of the Company’s independent registered public accounting firm for 2014.

 

The Audit Committee

 

 
     
Dennis A. Ausiello   W. Don Cornwell, Chair
     
   
Suzanne Nora Johnson   Stephen W. Sanger

 

The Audit Committee Report does not constitute soliciting material, and shall not be deemed to be filed or incorporated by reference into any other Company filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates the Audit Committee Report by reference therein.

 

36 2014 PROXY STATEMENT
 

ITEM 3 – ADVISORY APPROVAL OF EXECUTIVE COMPENSATION

 

2013 ADVISORY VOTE ON EXECUTIVE COMPENSATION; SHAREHOLDER OUTREACH

 

At the 2013 Annual Meeting, Pfizer’s executive compensation program was approved, on an advisory basis, by 95.6% of the votes cast. Our Compensation Committee and the other members of our Board believe that this level of approval of our executive compensation program is indicative of our shareholders’ strong support of our compensation philosophy and goals and the decisions made by the Compensation Committee in 2012 and early 2013.

 

This view was reinforced further in discussions with institutional investors both in connection with and following the 2013 Annual Meeting. Consistent with Pfizer’s long-standing reputation for investor engagement, our shareholder outreach resulted in discussions with both U.S. and U.K.- based investors representing approximately 30% of our outstanding shares. This robust outreach reflects Pfizer’s commitment to keep attuned with shareholders on key issues of importance to them, and to seek regular feedback on our compensation program and practices notwithstanding favorable advisory votes on executive compensation in prior years.

 

During our 2013 outreach, investor feedback was strongly positive. In particular, investors indicated support for our:

 

Performance Alignment. Investors commented that our program is appropriately linked to performance.
   
Level of Disclosure. A number of investors noted that our compensation disclosure remains robust and comprehensive, and were appreciative of our efforts to highlight, simplify and summarize relevant information through the use of graphics and an executive summary.
   
We also received specific feedback from investors on how we could continue to enhance our program. These suggestions included:
   
Performance Based Long-Term Incentives. A few investors suggested increasing the focus on performance based long-term incentives or modifying the performance share awards to further strengthen the link between pay and performance.
   
Equity Granting Practices. Some investors discussed the potential benefits of modifying the existing share ownership requirements and further aligning pay with performance into retirement.

 

The Compensation Committee and full Board were kept apprised of investor feedback gathered during our discussions.

 

Based on this feedback and marketplace trends, the Compensation Committee made two key changes to our compensation program. Effective with the 2014 long-term incentive award grants, the terms of the Performance Share Awards (PSAs) and Restricted Stock Units (RSUs) were modified to provide for continued vesting in accordance with the original grant term following retirement, rather than vest pro-rata upon retirement. This change will further strengthen the connection with pay for long-term performance into retirement. In addition, in 2013 we expanded the Performance Portfolio Share awards program to additional business units and countries to improve the alignment of long-term grant value with the achievement of R&D performance goals supporting the pipeline. The Compensation Committee also reviewed the PSA payout matrix to ensure that the matrix appropriately ties pay with performance and is consistent with competitive practice.

 

We elicited feedback on the benefits of including additional disclosures on “realized” and/or “realizable” pay in our proxy statement. We also obtained shareholder views on the usefulness of including pay ratios (comparing CEO total annual compensation to that of the Company’s median employee) prior to such disclosure being required. Investor views remain mixed on both topics, with the majority expressing concerns about the usefulness of inconsistent (across companies) disclosure of “realized” and/or “realizable” pay information. Most shareholders consulted also expressed uncertainty about the usefulness of pay ratio disclosures in their assessment of the Compensation Committee’s compensation decisions.

 

The Compensation Committee, after consideration of the feedback from shareholders, 2013 voting results, and advice from its independent advisor, concluded that our executive compensation program achieves the goals of our executive compensation philosophy and has the support of an overwhelming majority of our shareholders. Therefore, the Compensation Committee has reaffirmed the elements of Pfizer’s executive compensation plan and policies, with the modifications as described above.

 

OUR EXECUTIVE COMPENSATION PROGRAM

 

The Compensation Committee believes that Pfizer’s executive compensation program achieves the goals of our executive compensation philosophy. That philosophy, which is set by the Committee, is to align each executive’s compensation with Pfizer’s short-term and long-term performance and to provide the compensation and incentives needed to attract, motivate and retain key executives who are crucial to Pfizer’s long-term success.

 

A significant portion of the total compensation opportunity for each of our executives is directly related to Pfizer’s total shareholder return and to other performance factors that measure our progress against the goals of our strategic and operating plans, as well as our performance against that of our pharmaceutical peer group and general industry comparators with consideration of company

 

2014 PROXY STATEMENT 37
 

ADVISORY APPROVAL OF EXECUTIVE COMPENSATION

 

market capitalization and complexity as indicated by revenues, range of products, international operations and other factors because we use such factors in setting target levels of compensation and determining the value or level of awards granted.

 

We seek to implement our philosophy and achieve the goals of our program by following three key principles:

 

positioning total direct compensation and each compensation element at approximately the median of our peer and general industry comparator companies, with consideration of relative company market capitalization and complexity;
   
aligning annual incentive awards with annual operating financial and strategic objectives; and
   
rewarding absolute and relative performance in total shareholder return through long-term equity incentive awards.

 

We apply our compensation philosophy, goals and principles as follows:

 

We closely align our executive compensation structure with the median compensation of both a peer group of U.S.-based pharmaceutical companies and of general industry comparators with consideration of company market capitalization and complexity as indicated by revenues, range of products, international operations and other factors. Within the executive compensation structure, each element of total direct compensation is similarly aligned, including our salary midpoints and target annual short-term and long-term incentive award values. An executive’s pay may be higher or lower than the targeted structure depending primarily on corporate, Business Unit/Function, and individual performance; experience and advancement potential; and internal equity.
   
Our annual incentive program utilizes a pool that is funded based on Pfizer’s performance on three financial metrics: revenue, adjusted diluted earnings per share, and cash flow. The pool funding percentage ranges from 0% to 200% of target award levels; however, the pool is not funded unless performance exceeds a threshold level. Earned individual payouts also range from 0% to 200% of target and reflect allocations from the available earned pool based on corporate, Business Unit/Function and individual performance.
   
Awards under our Executive Long-Term Incentive Program are aligned with the interests of our shareholders because they deliver value based on absolute and relative shareholder return, encourage stock ownership and promote retention of key talent.
   
Our executive compensation structure is designed to deliver a significant portion of our executives’ total direct compensation in the form of long-term equity incentive awards, with targets ranging from approximately 60% to 70% of total direct compensation for our NEOs.

 

Further details concerning how we implement our philosophy and goals, and how we apply the above principles to our compensation program, are provided throughout the Compensation Discussion & Analysis (CD&A). In particular, we discuss how we set compensation targets and other objectives and evaluate performance against those targets and objectives to assure that performance is appropriately rewarded.

 

ADVISORY APPROVAL OF EXECUTIVE COMPENSATION

 

Shareholders are urged to read the CD&A and other information in the “Executive Compensation” section of this Proxy Statement. The Compensation Committee and the Board of Directors believe that the information provided in that section demonstrates that our executive compensation program aligns our executives’ compensation with Pfizer’s short-term and long-term performance and provides the compensation and incentives needed to attract, motivate and retain key executives who are crucial to Pfizer’s long-term success. Accordingly, the following resolution will be submitted for a shareholder vote at the 2014 Annual Meeting:

 

“RESOLVED, that the shareholders of Pfizer Inc. (the “Company”) approve, on an advisory basis, the compensation of the Company’s Named Executive Officers, as disclosed pursuant to Item 402 of Securities and Exchange Commission Regulation S-K, including the Compensation Discussion and Analysis, the compensation tables and narrative disclosures.”

 

Although the advisory vote is non-binding, the Compensation Committee and the Board will review the results of the vote. Consistent with Pfizer’s record of shareholder responsiveness, the Compensation Committee will consider shareholders’ concerns and take them into account in future determinations concerning our executive compensation program. The Proxy Committee appointed by the Board of Directors intends to vote for the approval, on an advisory basis, of the compensation of the Company’s Named Executive Officers, as stated in the above resolution, unless you indicate otherwise when you vote.

 

Your Board of Directors recommends a vote FOR the approval, on an advisory basis, of the compensation of the Company’s Named Executive Officers, as stated in the above resolution.

 

38 2014 PROXY STATEMENT
 

ITEM 4 – APPROVAL OF THE PFIZER INC. 2014 STOCK PLAN

 

On February 27, 2014, upon the recommendation of the Compensation Committee, the Board approved the Pfizer Inc. 2014 Stock Plan (the 2014 Plan), subject to shareholder approval at the 2014 Annual Meeting. The 2014 Plan will replace and supersede the 2004 Stock Plan, as amended and restated (the 2004 Plan). The 2004 Plan is the only Pfizer compensation plan under which equity-based compensation may currently be awarded to our executives and other employees. If the 2014 Plan is approved by our shareholders, the 2014 Plan will become effective on April 24, 2014 (the Effective Date). The 2014 Plan will terminate on April 24, 2024, unless terminated earlier by the Board or the Compensation Committee, but awards granted prior to such date may extend beyond that date. If the 2014 Plan is not approved by our shareholders, no awards will be made under the 2014 Plan, but we will not have enough shares to grant equity awards in the next annual award cycle in 2015.

 

If this proposal is approved, the maximum number of shares reserved for issuance under the 2014 Plan will be 520,000,000 plus (i) the number of shares that remain available for issuance as of April 24, 2014 under the 2004 Plan(1), and (ii) the number of shares that are subject to awards as of April 24, 2014 that, in the future, are forfeited, cancelled, exchanged, surrendered or terminate under the 2004 Plan, without a distribution of shares to the recipient and consistent with the terms of the 2004 Plan. No further awards will be made under the 2004 Plan if this proposal is approved.

 

In addition to requesting shareholder approval of the 2014 Plan and the new shares being reserved for issuance (520,000,000), we also are requesting shareholder approval of the material terms of the 2014 Plan in order to allow performance-based compensation under Section 162(m) (Section 162(m)) of the Internal Revenue Code (the Code) to be tax-deductible, including performance measures and maximum individual limits. See “Performance-Based Awards” below. Pfizer is required to obtain this approval for performance-based awards in order to ensure that we can claim an income tax deduction when we pay such awards. Pfizer’s shareholders last approved the material terms of the performance goals for performance awards under the 2004 Stock Plan in April 2009, when the 2004 Plan was amended and restated.

 

Although our future burn rate will depend upon and be influenced by a number of factors, such as the number of plan participants, the price per share of our common stock and the methodology used to establish the equity award mix, the 520,000,000(2) shares of common stock reserved for issuance under the 2014 Plan will enable us to continue to utilize stock-based awards as a significant component of our compensation program and help meet our objectives to attract, retain and incentivize talented personnel. The calculation of the share reserve took into account, among other things, our stock price and volatility, our share burn rate and overhang and how they compare with our industry peers, the existing terms of our outstanding awards, our proposed fungible share rate of 3:1 for full-share awards under the 2014 Plan, and the effect of our share repurchase program(s). The results of this analysis were presented to our Compensation Committee and our Board for their consideration.

 

KEY COMPONENT OF COMPENSATION

 

Equity compensation is a key component of our total compensation package. As a worldwide biopharmaceutical company, attracting, retaining and motivating specialized talent is critical to achieving our strategic and operating goals, including our goal to increase shareholder value. We believe that grants of equity allow us to remain competitive in the marketplace, enabling us to link executive compensation to performance, and attract, retain and motivate high-caliber talent dedicated to Pfizer’s long-term growth and success.

 

PURPOSE OF THE 2014 PLAN

 

We believe that the adoption of the 2014 Plan is necessary in order to allow Pfizer to continue to utilize equity awards, including performance awards to attract, retain and motivate employees and to further align the interests of our employees with those of Pfizer’s shareholders.

 

One key feature of the 2014 Plan is the flexibility to grant certain awards with performance-based vesting or payment requirements that are designed to satisfy the requirements of the “performance-based exception” under Section 162(m) of the Code. These awards are referred to as “Performance Awards” and are in addition to other awards, such as stock options, restricted stock units, total shareholder return units and stock appreciation rights, which are expressly authorized under the 2014 Plan and may also qualify as performance-based compensation for Section 162(m) purposes. Performance Awards made under the 2014 Plan may only qualify as “performance-based compensation” under Section 162(m) of the Code if the 2014 Plan and the performance goals provided by the plan are approved by our shareholders.

 

On February 27, 2014, the closing price of our common stock traded on the NYSE, as published in the Wall Street Journal, was $32.23 per share.

 

(1) Will not include approximately 42 million shares underlying stock options which expired unexercised on February 25, 2014 at a grant price of $37.15, which were granted under the 2001 Stock Plan.
   
(2) Does not include additional shares available for future grant under the 2004 Plan.

 

2014 PROXY STATEMENT 39
 

APPROVAL OF THE 2014 STOCK PLAN

 

REASONS FOR SEEKING SHAREHOLDER APPROVAL

 

In summary, we are seeking approval of the 2014 Plan in order, among other things, to: (i) comply with NYSE rules requiring stockholder approval of equity compensation plans; (ii) allow the Compensation Committee to grant incentive stock options (ISOs) to employee participants in the 2014 Plan; and (iii) allow the Compensation Committee the ability to continue to grant stock awards intended to qualify as “performance-based compensation,” thereby preserving the Company’s tax deduction under Section 162(m) of the Code.

 

We use equity compensation as a key tool for the attraction, retention and motivation of the best available talent. We anticipate that we will exhaust the current reserve of shares under the 2004 Plan before we would make our normal annual grants of equity awards in 2015.

 

HISTORICAL ANNUAL SHARE USAGE

 

While the use of equity is an important part of our compensation program, we are mindful of our responsibility to our shareholders to exercise judgment in the granting of equity awards.

 

Overhang. As of the end of 2013, we had 539 million shares of our common stock subject to outstanding equity awards or available for future equity awards under the 2004 Plan, which represented approximately 8% of fully diluted common shares outstanding (or, the “overhang percentage”). The 520 million new shares proposed to be included in the 2014 Plan Share Reserve would increase the overhang percentage by an additional 6% to approximately 14%. On February 25, 2014, stock options covering approximately 42 million shares expired unexercised and were not added back to the amount available for grant under the 2004 Plan.

 

Share Usage. The annual share usage under the Company’s equity compensation program for the last three fiscal years was as follows:

 

   Fiscal Year 2013  Fiscal Year 2012  Fiscal Year 2011  Average
A Stock Options Granted  45,013,036  57,919,386  66,850,001  56,594,141
B Restricted Stock Granted  10,252,727  13,232,154  15,671,064  13,051,982
C Total Shareholder Return Units Granted  7,978,490  10,290,050  10,001,855  9,423,465
D Performance Awards  9,514,384  6,056,024  2,380,890  5,983,766
E Total Full Value Awards (B+C+D)  27,745,601  29,578,228  28,053,809  28,459,213
F Total Options and Shares Granted (A+E)  72,758,637  87,497,614  94,903,810  85,053,354
G Basic Weighted Average Common Shares Outstanding  6,813,393,464  7,441,651,164  7,816,848,881  7,357,297,836
H Annual Share Usage (F / G)  1.07%  1.18%  1.21%  1.16%
I Dilution  7.78%  8.74%  9.75%  8.76%

 

PROMOTION OF GOOD COMPENSATION GOVERNANCE PRACTICES

 

We believe the 2014 Plan and our other related governance practices and policies contain provisions that are consistent with the interests of our shareholders and with our corporate governance practices.

 

  No “Evergreen” Provision. The 2014 Plan does not contain an “evergreen” or similar provision. The 2014 Plan fixes the number of shares available for future grants and does not provide for any increase based on increases in the number of outstanding shares of common stock.
     
  No Stock Option/SAR/TSRU Repricing/Exchange. The 2014 Plan does not permit the repricing of options/Stock Appreciation Rights (SARs)/Total Shareholder Return Units (TSRUs) or the exchange of underwater options/SARs/TSRUs and options/SARs/TSRUs may not be granted at a discount to the fair market value of our common stock on the grant date without shareholder approval. The limited circumstance of the assumption or substitution of awards in a transaction which involves the adjustment of awards in order to preserve aggregate value would not be a repricing for this purpose.
     
  Minimum Restriction Period. Equity awards that are not subject to performance goals have a minimum restriction period of three years, except on certain terminations of employment.
     
  Minimum Performance Period. Equity awards that are subject to performance goals have a minimum performance period of one year, except on certain terminations of employment.
     
  Limit on Awards without Restriction. Equity awards that are not subject to restriction are limited to 5% of the total number of shares that may be issued or delivered under the 2014 Plan.
     
  Limit on Awards to Any One Individual. The number of stock options, SARs, TSRUs, restricted stock or units, other performance-based awards or other equity awards that may be granted to any one individual during any consecutive 36-month period is limited to 20 million shares. A performance cash award is limited to $20 million during any calendar year. Express limitations are required pursuant to Section 162(m) of the Code and do not indicate an intention to grant at these levels.

 

40 2014 PROXY STATEMENT
 

APPROVAL OF THE 2014 STOCK PLAN

 

    Limit on Awards to Non-Employee Director. The dollar value of equity awards that may be granted to any one non-employee Director is limited to an aggregate value of $500,000 in any consecutive 12-month period (determined as of the date of grant).
     
    Limitation on Reuse of Shares. Shares that are delivered to, or withheld by, the Company under an award may not be reissued under the 2014 Plan. Shares may be delivered or withheld in connection with the exercise of stock options, the settlement of SARs/TSRUs or the payment of required withholding taxes.
     
    Clawback Feature. The 2014 Plan contains a clawback feature that authorizes cancellation of awards if a participant engages in misconduct that is detrimental to the Company. See “Executive Compensation—Other Compensation Policies” later in this Proxy Statement.
     
    Dividend or Dividend Equivalents. Dividend or dividend equivalents on awards are subject to the same vesting restrictions as the underlying awards.
     
    No Hedging or Pledging of Equity. We maintain a policy which prohibits executive officers (including our Named Executive Officers) and members of the Board from pledging Pfizer common stock or engaging in activities considered hedging of our common stock.

 

ADDITIONAL INFORMATION ABOUT THE 2014 PLAN

 

The following is a summary of the principal features of the 2014 Plan. This summary is not a complete description of all of the provisions of the 2014 Plan. The full text of the 2014 Plan is attached as Annex 2 to this Proxy Statement, and the following description is qualified in its entirety by reference to that Annex.

 

It is the judgment of the Board of Directors that approval of the 2014 Plan is in the best interest of the Company and our shareholders.

 

General

 

The 2014 Plan authorizes the grant of the following types of awards:

 

Nonqualified and Incentive Stock Options (without reload features);
   
Total Shareholder Return Units/Stock Appreciation Rights;
   
Restricted Stock/Units;
   
Performance Awards, including Performance Share Awards, Portfolio Performance Share Awards, and Performance Cash Awards; and
   
Other Stock Unit Awards.

 

Such awards may have a performance feature under which the award is not earned unless performance goals are achieved. As noted above, the 2014 Plan does not permit the repricing of options/SARs/TSRUs or the granting of discounted options/SARs/TSRUs, and does not contain an “evergreen” or similar provision. See the discussion below under “Types of Awards” for more detail on the features of each award type.

 

The 2014 Plan includes provisions designed to meet the requirements for deductibility of executive compensation under Section 162(m) of the Code with respect to options/SARs/TSRUs and other awards by qualifying payments under the 2014 Plan as “performance-based compensation.” While we try to design our awards to maximize this deduction, it is not required.

 

The 2014 Plan provides the flexibility to grant equity-based awards to our non-employee Directors. The aggregate value of grants to an individual non-employee Director under the 2014 Plan may not exceed $500,000 (determined as of the date of grant) during any consecutive 12-month period.

 

Administration and Duration

 

The selection of employee participants in the 2014 Plan and the level of participation of each participant will be determined by the Compensation Committee, except that the Corporate Governance Committee will make such determinations as to any grants to non-employee Directors. Each member of the Compensation Committee must be a “non-employee Director” within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended, and an “outside director” within the meaning of Section 162(m) of the Code. Currently the Compensation Committee is composed of four independent directors who are not employees of the Company. As is currently the case with respect to the 2004 Plan, the Compensation Committee will have the authority to interpret the 2014 Plan, to establish and revise rules and regulations relating to the 2014 Plan, and to make any other

 

2014 PROXY STATEMENT 41
 

APPROVAL OF THE 2014 STOCK PLAN

 

determinations it believes necessary or advisable for the administration of the 2014 Plan. The Compensation Committee may delegate any or all of its authority to administer the 2014 Plan as it deems appropriate, except that no delegation may be made in the case of awards (i) intended to be qualified under Section 162(m) of the Code, or (ii) made to individuals who are subject to Section 16 of the Securities Exchange Act of 1934, as amended.

 

The 2014 Plan will terminate on April 24, 2024, unless terminated earlier by the Board or the Compensation Committee.

 

Limitations on Awards under the 2014 Plan

 

As of February 27, 2014, the maximum number of shares as to which stock options and stock awards may be granted under the 2014 Plan is 520,000,000 shares, plus shares remaining available for future grant under the 2004 Plan, which will be assumed under the 2014 Plan upon its approval by shareholders. The 2014 Plan provides that awards other than stock options and SARs/TSRUs will be counted against the 2014 Plan maximum in a 3-to-1 ratio.

 

For example, if we grant an award of 100 stock units, we would reduce the shares available for grant under the 2014 Plan by 300 shares. Awards initially granted under the 2004 Plan that terminate, expire or are forfeited, cancelled or settled in cash will be added back to the 2014 Plan at the 3-to-1 ratio. Further, during the term of the 2014 Plan no individual may be granted stock options, TSRUs, SARs, performance-based or other equity awards covering more than twenty million (20,000,000) shares during any consecutive 36-month period. The same ratio for counting awards against the maximum number of authorized shares also applies for counting awards to individuals against this limit.

 

Cash awards are limited to twenty million dollars ($20,000,000) during any calendar year period and do not count against the shares available to be issued under the 2014 Plan.

 

As noted above, the dollar value of equity awards that may be granted to any one non-employee Director under the 2014 Plan is limited to an aggregate value (at grant) of $500,000 in any consecutive 12-month period.

 

The foregoing limits are included so that the awards may be considered performance-based under Section 162(m) of the Code, and are not intended to reflect an intention to grant awards at such levels.

 

The shares to be delivered under the 2014 Plan will be made available from authorized but unissued shares of Pfizer common stock, from treasury shares and/or from shares purchased in the open market or otherwise.

 

Shares Subject to Awards; Share Counting

 

Any shares that terminate, expire, or are forfeited, cancelled or settled in cash, may be used for the future grant of awards to the extent of such termination, expiration, forfeiture, cancellation or settlement. Any shares that again become available for future grants shall be added back as one (1) share for options or TSRUs or SARs, and as three (3) shares for awards other than options, TSRUs or SARs. Shares may not again be made available for issuance or delivery if such shares are (i) shares that were subject to a stock-settled SAR/TSRU and were not issued upon the net settlement or net exercise of such SAR/TSRU, (ii) shares delivered or withheld by the Company to pay the exercise price of an option, (iii) shares delivered to or withheld by the Company to pay the withholding taxes related to an award, or (iv) shares repurchased on the open market with the proceeds of an option exercise.

 

Eligibility

 

All employees of the Company and its affiliates, as well as the Company’s non-employee Directors, will be eligible to participate in the 2014 Plan. From time to time, the Compensation Committee, or as to non-employee Directors, the Corporate Governance Committee, will determine who will be granted awards, and the number of shares/units awarded.

 

No Dividends or Dividend Equivalents on Unvested Awards

 

Notwithstanding any provision of the 2014 Plan to the contrary, dividends and dividend equivalents will only be paid if, and to the extent, the underlying award vests, regardless of whether vesting is contingent upon the achievement of performance goals or time.

 

Prohibition on Repricing

 

The 2014 Plan does not permit the repricing of options, TSRUs or SARs, or the exchange of underwater options, TSRUs or SARs for cash, and options, TSRUs and SARs may not be granted at a discount to the fair market value of our common stock on the grant date without shareholder approval. The limited circumstance of the assumption or substitution of awards in a transaction which involves the adjustment of awards in order to preserve aggregate value would not be a repricing for this purpose.

 

42 2014 PROXY STATEMENT
 

APPROVAL OF THE 2014 STOCK PLAN

 

Transferability

 

Unless otherwise determined by the Compensation Committee, awards granted under the 2014 Plan may not be transferred except by will or the laws of descent and distribution and, during his or her lifetime, any options or awards may be exercised only by the participant. The 2014 Plan explicitly prohibits the transfer of awards to third parties for consideration.

 

Certain Adjustments

 

In the event of any change in the number or kind of outstanding shares of common stock of the Company by reason of a recapitalization, merger, consolidation, reorganization, separation, liquidation, stock split, stock dividend, extraordinary cash dividend, combination of shares or any other change in the corporate structure or shares of stock of the Company, an appropriate adjustment will be made consistent with applicable provisions of the Code and Treasury Department rulings and regulations:

 

In the number and kind of shares for which any options or awards may thereafter be granted, both in the aggregate and as to each optionee or award holder;
   
In the number and kind of shares or other property, including cash, subject to outstanding options and awards;
   
In the option or award price, if applicable; and
   
Other adjustments as the Compensation Committee deems appropriate.

 

Change in Control

 

Unless the Compensation Committee or Board determines otherwise at the time of grant, in the event a participant’s employment is involuntarily terminated without cause during the 24-month period following a change in control:

 

Any unvested options, TSRUs and SARs will vest and remain exercisable for their full term or be settled in accordance with the terms of grant, as applicable;
   
The restrictions on any Restricted Stock, RSUs and Other Stock Unit Awards will lapse; and
   
Performance Awards will be considered earned and payable based upon the applicable performance criteria, or if not determinable, at target.

 

Additionally, the Compensation Committee or Board may provide for awards to be cancelled in exchange for a cash payment in connection with a change in control.

 

Amendment and Revocation

 

The Board may amend or revoke the 2014 Plan, but may not, without prior approval of our shareholders:

 

Increase the maximum number of shares of common stock that may be issued under the 2014 Plan or the number of shares of common stock that may be issued to any one participant;
   
Extend the term of the 2014 Plan or of options granted under the 2014 Plan;
   
Change the eligibility criteria;
   
Reprice any option, SAR or TSRU except as provided for in the 2014 Plan; or
   
Take any other action that requires shareholder approval to comply with any tax or regulatory requirement.

 

Types of Awards

 

Stock Options

 

Options granted under the 2014 Plan may be either non-qualified stock options or incentive stock options qualifying under Section 422 of the Code. The option price may not be less than the fair market value of the stock on the date the option is granted. The option price is payable in cash or, if the grant provides, in common stock. Generally, no option may be exercised during the first year of its term or such longer period as may be specified in the option grant.

 

In the event of a change in control, the 2014 Plan provides for unvested options to become exercisable upon certain terminations of employment within 24 months following a change in control (known as a “double trigger”) and allows the Compensation Committee to make unvested stock options immediately exercisable upon a change of control if an acquiring company does not assume or otherwise replace options or in its discretion.

 

Generally, all options terminate after a 10-year period from the date of the grant. The 2014 Plan also provides for the automatic exercise of options that are due to expire in the event that the option price is less than the fair market value of the underlying shares.

 

2014 PROXY STATEMENT 43
 

APPROVAL OF THE 2014 STOCK PLAN

 

The Compensation Committee determines the terms of each stock option grant at the time of the grant. Shares from the 2014 Plan underlying options that have terminated or lapsed, including options that have been surrendered unexercised, may be made subject to future options or awards at an exercise price of no less than the fair market value of the underlying stock at the time of the future grant, a term of no longer than 10 years and a vesting period of one or more years from the grant date (except as described above).

 

Total Shareholder Return Units/Stock Appreciation Rights

 

A TSRU or SAR represents a right to receive the excess of (i) the fair market value of one share on the date of the settlement pursuant to the terms of the grant, over (ii) the grant price of the right on the grant date, as specified by the Compensation Committee. TSRUs and SARs may, but need not, relate to options. The Compensation Committee determines the terms of each TSRU/SAR at the time of the grant and whether dividends are included. Any freestanding TSRU’s or SAR’s grant price may not be less than the fair market value of the stock on the date the TSRU/SAR is granted and cannot have a term longer than ten years. Distributions to the recipient may be made in common stock, in cash or in a combination of both as determined by the Compensation Committee.

 

Restricted Stock Awards

 

A restricted share is a share issued with such contingencies or restrictions as the Compensation Committee may impose. Until the conditions or contingencies are satisfied or lapse, the stock is subject to forfeiture. Restricted share awards that are restricted only on the passage of time will have a minimum three-year restriction period; provided, that a restriction period of less than this period may be approved for awards with respect to up to 5% of the shares authorized under the 2014 Plan. Unless the Compensation Committee determines otherwise, a recipient of a restricted share award has the same voting, dividend and other rights as holders of common stock, except that the 2014 Plan prohibits the granting of dividends on unearned awards. If the participant ceases to be an employee before the end of the contingency or restricted period, the award is forfeited, subject to such exceptions as authorized by the Compensation Committee.

 

Restricted Stock Units

 

A restricted stock unit is an award of a right to receive, in cash or shares, as the Compensation Committee may determine, the fair market value of one share of Pfizer common stock, on such terms and conditions as the Compensation Committee may determine, and may be performance-based compensation pursuant to the 2014 Plan. Restricted stock units that are vested only on the passage of time have a minimum three-year restriction period; provided that a restriction period of less than three years may be approved for restricted stock units with respect to up to 5% of the shares authorized under the 2014 Plan.

 

Performance-Based Awards

 

The Compensation Committee may grant incentive awards that are intended to qualify as performance-based compensation pursuant to the 2014 Plan, including PSAs, PPSs and Performance Cash Awards. Such performance conditions may be established and administered in accordance with the requirements under Section 162(m) of the Code for awards intended to qualify as “performance-based compensation” thereunder. A performance award may be in any form of award permitted under the 2014 Plan. The Compensation Committee may select periods of at least one year during which performance criteria chosen by the Committee are measured for the purpose of determining the extent to which a performance award has been earned. The Compensation Committee decides whether the performance levels have been achieved, what amount of the award will be paid and the form of payment, which may be cash, stock or other property or any combination. For any award intended to qualify under Section 162(m) of the Code, the Compensation Committee’s determinations will be made within the time period prescribed by, and otherwise in the manner required by Section 162(m) of the Code.

 

Performance-based awards that are denominated in cash may also be granted under the 2014 Plan, provided that the maximum amount of compensation that may be paid to any one participant in any calendar year in respect of performance-based awards payable only in cash (exclusive of cash-settled restricted stock unit awards and cash-settled stock appreciation rights, which are subject to the applicable individual share limits on these awards set forth above) is $20,000,000.

 

Performance-based awards may be subject to the achievement of specified levels of one or more of any combination of the following objective performance goals: (i) shareholder return; (ii) total shareholder return; (iii) cost targets or reductions, savings, productivity or efficiencies; (iv) operating income, income before or after taxes, net income, or adjusted net income; (v) earnings per share, adjusted earnings per share, earnings before or after taxes, earnings before or after interest, depreciation and/or amortization (EBITDA), adjusted EBITDA, economic earnings, or extraordinary or special items or book value per share (which may exclude nonrecurring items); (vi) operating profit or margins or operating expenses; (vii) working capital measures; (viii) return on assets (gross or net); return on equity or return on invested capital; (ix) cash flow measures; (x) market share; (xi) revenues; (xii) strategic business criteria, consisting of one or more objectives based on meeting specified market penetration, geographic business

 

44 2014 PROXY STATEMENT
 

APPROVAL OF THE 2014 STOCK PLAN

 

expansion, and goals relating to acquisitions, divestitures, joint ventures and similar transactions, and budget comparisons; (xiii) personal professional objectives, including any of the foregoing performance goals, the implementation of policies and plans, the negotiation of transactions, formation of joint ventures, research or development collaborations, and the completion of other corporate transactions and any combination of, or a specified increase in, any of the foregoing; or (xiv) economic value added to the Company or unit or division of the Company for or within which the participant is primarily employed.

 

Performance goals may be based on the achievement of specified levels of Company performance (or performance of an applicable unit or division of the Company) under one or more of the measures described above relative to the performance of other companies or comparable businesses, and may provide for the inclusion or exclusion of specified extraordinary, nonrecurring charges. As noted above, for any award intended to qualify under Section 162(m) of the Code, the performance goals will be set by the Compensation Committee within the time period prescribed by, and will otherwise comply with, the requirements of Section 162(m) of the Code.

 

Plan Benefits

 

Future grants will be made at the discretion of the Compensation Committee and accordingly, future benefits under the 2014 Plan are not currently determinable. However, the 2014 awards granted to executive officers and all other employees would not have been increased if they had been made under the proposed 2014 Plan rather than under the 2004 Plan.

 

The Summary Compensation Table and the 2013 Grants of Plan-Based Awards Table appearing elsewhere in this Proxy Statement show the awards that were made under the 2004 Plan in 2013 to our NEOs, but would have been made under the 2014 Plan if it were in effect at that time.

 

Additionally, the following table shows the number of shares subject to awards granted under the 2004 Plan in February 2014 to members of our Executive Leadership Team (the ELT) (currently 13 individuals, including the CEO), other senior executives and members of our senior management team (the ELTI) (currently approximately 140 individuals, excluding the ELT) and other eligible employees (All Others) (approximately 19,630 colleagues).

 

Group  Total  Performance  Portfolio  Stock  Restricted
   Shareholder  Share  Performance  Options  Stock Unit
   Return Units  Awards  Share Awards     Awards
ELT  3,064,053  310,838      310,838
ELTI  3,224,217  281,310  206,450    384,531
All Others      3,989,504  44,662,843  9,099,233

 

U.S. TAX TREATMENT OF OPTIONS AND AWARDS

 

The following is a summary of the effect of U.S. federal income taxation on the participants in the 2014 Plan and the Company. This summary does not discuss the income tax laws of any other jurisdiction (including the state or local jurisdiction) in which the recipient of the award may reside or be subject to tax.

 

Incentive Stock Options

 

An incentive stock option results in no taxable income to the optionee or a deduction to the Company at the time it is granted or exercised. However, upon exercise, the excess of the fair market value of the shares acquired over the option price is an item of adjustment in computing the alternative minimum taxable income of the optionee. If the optionee holds the stock received as a result of an exercise of an incentive stock option for the later of two years from the date of the grant or one year from the date of exercise, then the gain realized on disposition of the stock is treated as a long-term capital gain. If the shares are disposed of during this period, however (i.e., a “disqualifying disposition”), then the optionee will include the income, as compensation for the year of the disposition, in an amount equal to the excess, if any, of the fair market value of the shares, upon exercise of the option over the option price (or, if less, the excess of the amount realized upon disposition over the option price). The excess, if any, of the sale price over the fair market value on the date of exercise will be a short-term capital gain. In such case, the Company will be entitled to a deduction, in the year of such a disposition, in an amount equal to the amount includible in the optionee’s income as compensation. The optionee’s tax basis in the shares acquired upon exercise of an incentive stock option is equal to the option price paid, plus any amount includible in his or her income as a result of a disqualifying disposition.

 

Non-Qualified Stock Options

 

A non-qualified stock option results in no taxable income to the optionee or deduction to the Company at the time it is granted. An optionee exercising a non-qualified stock option will, at that time, realize taxable compensation in the amount of the excess of the then market value of the shares over the option price. Subject to the applicable provisions of the Code, a deduction for federal

 

2014 PROXY STATEMENT 45
 

APPROVAL OF THE 2014 STOCK PLAN

 

income tax purposes will be allowable in the year of exercise in an amount equal to the taxable compensation realized by the optionee. The optionee’s tax basis in shares received upon exercise is equal to the sum of the option price plus the amount includible in his or her income as compensation upon exercise.

 

Any gain (or loss) upon subsequent disposition of the shares will be a long- or short-term gain (or loss), depending upon the holding period of the shares.

 

If a non-qualified option is exercised by tendering previously owned shares of the Company’s common stock in payment of the option price, then, instead of the treatment described above, the following will apply: a number of new shares equal to the number of previously owned shares tendered will be considered to have been received in a tax-free exchange; the optionee’s basis and holding period for such number of new shares will be equal to the basis and holding period of the previously owned shares exchanged. The optionee will have compensation income equal to the fair market value on the date of exercise of the number of new shares received in excess of such number of exchanged shares; the optionee’s basis in such excess shares will be equal to the amount of such compensation income, and the holding period in such shares will begin on the date of exercise.

 

Total Shareholder Return Units/Stock Appreciation Rights

 

Generally, the recipient of a stand-alone TSRU/SAR will not recognize taxable income at the time the stand-alone TSRU/SAR is granted.

 

The value received by an employee (in cash or stock) from the exercise or settlement of a TSRU/SAR will be taxed as ordinary income to the employee at the time it is received.

 

In general, there will be no federal income tax deduction allowed to the Company upon the grant or termination of TSRU/SARs. However, upon the exercise or settlement of a TSRU/SAR, the Company will be entitled to a deduction equal to the amount of ordinary income the recipient is required to recognize as a result of the exercise or settlement.

 

Stock Awards/Performance Awards

 

No income will be recognized at the time of grant by the recipient of a stock award or performance award if the recipient of such award is subject to contingencies or restrictions. Generally, at the time the contingencies or restrictions are satisfied or terminate with respect to a stock award, the then fair market value of the stock or the amount of cash received will constitute ordinary income to the employee. Subject to the applicable provisions of the Code, a deduction for federal income tax purposes will be allowable to the Company in an amount equal to the compensation realized by the employee.

 

Tax Treatment of Awards to Non-Employee Directors and to Employees Outside the United States

 

The grant and exercise or settlement of options and awards under the 2014 Plan to non-employee Directors and to employees outside the United States may be taxed (including income and/or employment taxes) on a different basis.

 

Your Board of Directors recommends a vote FOR the approval of the Pfizer Inc. 2014 Stock Plan.

 

46 2014 PROXY STATEMENT
 

Shareholder Proposals

 

We expect the following proposals (Items 5, 6 and 7 on the proxy card) to be presented by shareholders at the Annual Meeting. The proposals may contain assertions about Pfizer or other statements that we believe are incorrect. We have not attempted to refute all these inaccuracies. However, the Board of Directors has recommended a vote against these proposals for the broader policy reasons set forth following each proposal. The Proxy Committee appointed by the Board of Directors intends to vote against these proposals unless you indicate otherwise when you vote.

 

The names, addresses and share holdings of any co-filers of these proposals, where applicable, will be supplied promptly upon request.

 

ITEM 5 – SHAREHOLDER PROPOSAL REGARDING APPROVAL OF POLITICAL CONTRIBUTIONS POLICY

 

Mr. James W. Mackie, 122 Pennsylvania Avenue, Bryn Mawr, Pennsylvania 19010, who represents that he owns 5,700 shares of Pfizer common stock, has notified the Company that the following proposal is to be presented at the Annual Meeting:

 

THE SHAREHOLDER’S RESOLUTION

 

“Resolved: The Corporation shall have a policy pertaining to making political contributions (to individual candidates; organizations supporting candidates, directly or indirectly; leadership groups; or political action committees) only if such a policy is approved by at least 75% of its shares outstanding. No funds, or in kind support, shall be provided by the corporation to any of the entities listed above unless the contribution complies with the corporate policy.”

 

THE SHAREHOLDER’S SUPPORTING STATEMENT

 

There are five reasons for passage of this resolution:

 

1. The ability of large corporations to provide large amounts of funding for political candidates gives the corporation the ability to manage legislation that will provide them with legislated or regulatory benefits that place their smaller competitors at a disadvantage in the market place.
   
2. Endowment funds, insurance companies, mutual funds and pension funds currently hold the majority of all publicly traded shares and these shares are held for the benefit of many small investors. To have the large corporations utilize corporate funds to further the political goals of the executives is irresponsible fiduciary behavior that may be against the wishes of the individuals for whom they hold the shares.
   
3. We have recently seen the result of undue political influence that has reduced the oversight of regulatory agencies and created problems for stock holders and consumers in the areas of finance, food, health care and petroleum. The political influence exerted by large corporations had a direct impact on these actions. Unless large corporations are prevented from making political contributions to elected officials, or their political parties, these practices will continue.
   
4. Legislative and regulatory bodies should be guided by all constituents, not just those who pay for their re-election or provide significant perks to individuals in those bodies. Large corporate political contributions can corrupt honest efforts to provide reasonable laws and regulations.
   
5. The increasing use by advocacy groups of 501(c)(4) non-profit corporations to escape disclosure of political contributions would allow publicly held corporations to make unlimited political contributions, but to do so without even informing their own shareholders.

 

2014 PROXY STATEMENT 47
 

SHAREHOLDER PROPOSALS

 

YOUR COMPANY’S RESPONSE

 

The Board of Directors believes that the actions requested by the proponent are unnecessary and not in the best interests of our shareholders and recommends a vote AGAINST this proposal.

 

In the highly regulated and competitive pharmaceutical industry, we continue to face significant legislative and regulatory challenges. Because of this, it is crucial to our Company and its stakeholders that we maintain the flexibility to engage with lawmakers and trade and industry organizations regularly to help build constructive discourse in the political and regulatory environment in support of our short- and long-term business priorities.

 

The Company has already implemented robust policies, practices and disclosures concerning corporate political spending that require oversight by the Board of Directors and the expertise of Pfizer’s Government Affairs leaders. Federal law prohibits corporations from contributing to candidates seeking federal office, and Pfizer’s corporate policy mirrors that prohibition. The Company expects all colleagues to comply with the Federal Election Campaign Act, state election laws and corporate policy. While some states and local jurisdictions have similar prohibitions on corporate contributions, others permit corporations to directly support state candidates, political parties and committees. In those states where corporate contributions are allowed, Pfizer may use treasury funds to make contributions directly to candidates. These contributions are made to support the election of candidates, political parties and committees that support public policies important to the industry, such as the protection of intellectual property and fair and comprehensive tax reform. Political contributions may not be given to an official in exchange for an official act or to advance a particular business project, and the Company has adopted a strict policy precluding direct “independent expenditures” in connection with any federal or state election. The Company’s expenses related to political and lobbying activities are not financially material. In 2013, our total expenses relating to political and lobbying activities, even using a broad definition of such, were significantly less than one-tenth of one percent of our total operating costs.

 

Eligible Pfizer employees may voluntarily contribute to the nonpartisan Pfizer Political Action Committee (PAC). The PAC is an employee funded organization that is governed by the Political Contributions Policy Committee (PCPC). The PCPC is chaired by the Company’s Executive Vice President, Corporate Affairs, and is comprised of senior leaders from different divisions throughout the organization. Contribution requests are reviewed and approved by the PAC Steering Committee made up of Pfizer employees from different divisions throughout the organization. The PAC Steering Committee evaluates candidates on the basis of their views on issues that impact not only Pfizer but our patients as well. The Committee also takes note of whether Pfizer facilities or colleagues reside in a candidate’s district or state. The PAC supports candidates from both political parties who share Pfizer’s vision and values for healthcare. Accordingly, all corporate and PAC political spending decisions undergo a rigorous review process conducted by the Committee to ensure that each contribution we make is done to advance our business objectives, and is not based on the political preferences or views of any individual colleague at Pfizer.

 

Pfizer is a member of several industry and trade groups. These organizations along with the others to which we belong represent both the pharmaceutical industry and the business community at large in an effort to bring about consensus on broad policy issues that can impact our business and service to patients. Our support of these organizations is evaluated annually and based on such organizations’ expertise in healthcare policy/advocacy and issues that impact the life sciences industry (intellectual property and tax/trade). A copy of our formal funding criteria for these organizations is available on our Company’s website. In addition to their positions on health care policy issues, these organizations may engage in activities pertaining to a variety of issues. At times, our views on certain issues may differ from those promoted by these industry and trade groups and/or members. When this occurs, we choose to voice our concerns, as appropriate, through our colleagues who serve on the boards and committees of these groups.

 

The Company also has implemented robust corporate governance, review and oversight processes related to political and public policy activities. For example, under its Charter, the Corporate Governance Committee of the Board of Directors is responsible for maintaining an informed status on Company issues related to public policy, social responsibility, and philanthropy, and for monitoring emerging issues potentially affecting the reputation of the pharmaceutical industry and Pfizer. The Charter also requires that the Committee stay informed of Pfizer’s public policy and corporate political spending practices, which it does through periodic discussions and reviews of the Company’s bi-annual PAC and Corporate Political Contributions Report.

 

48 2014 PROXY STATEMENT
 

SHAREHOLDER PROPOSALS

 

YOUR COMPANY’S RESPONSE (CONTINUED)

 

In addition to its comprehensive policies and oversight processes, Pfizer also provides extensive disclosure regarding its political contributions and expenditures. Pfizer’s Corporate Policy 802a requires that all PAC and corporate political contributions are compiled and published semiannually in the PAC and Corporate Political Contributions Report that is made available to employees, shareholders, and the public, and posted on the Company’s website at www.pfizer.com/about/corporate_governance/corporate_governance. Pfizer asks trade associations receiving $100,000 or more from the Company in a given year to report to us the portion of Pfizer dues/payments used for political expenditures/contributions. We voluntarily include this information in the Report and on our website. Our disclosures comply fully with all federal, state, and local laws and reporting requirements governing PAC and corporate political contributions. We re-evaluate our reporting practices regularly to ensure that our disclosures meet the needs of our stakeholders.

 

Given the complexities of our business and the regulatory and competitive environment in which we operate, we believe the steps Pfizer has already taken—establishing comprehensive policies with Board oversight and robust review processes, and providing detailed disclosure—are the most practical and effective approach to addressing this issue. A shareholder vote on our policy to permit corporate political expenditures will hinder our flexibility to advance our business objectives when needed. Moreover, the proposal's requirement that any policy be approved by 75% of the shares outstanding would make shareholder approval extremely difficult, and as a practical matter, would effectively prevent Pfizer from participating in the political process.  For these reasons, we believe that implementing the proponent’s policy is not in the best interests of the Company and will not serve to enhance shareholder value.

 

Accordingly, your Board of Directors recommends a vote AGAINST this proposal.

 

 

2014 PROXY STATEMENT 49
 

SHAREHOLDER PROPOSALS

 

ITEM 6 – SHAREHOLDER PROPOSAL REGARDING LOBBYING ACTIVITIES

 

The Christopher Reynolds Foundation, 135 East 83rd Street, 15A, New York, New York 10028, which represents that it owns 258 shares of Pfizer common stock, and other co-filers have notified the Company that the following resolution is to be presented at the Annual Meeting:

 

THE SHAREHOLDER’S RESOLUTION

 

Whereas: Investors are increasingly concerned about how companies lobby at the federal, state and local levels, including indirect lobbying through trade associations and tax-exempt organizations. A high level of transparency helps ensure lobbying activities are consistent with stated corporate policies and values, thereby reducing reputational and business risk that potentially could alienate consumers, investors and other stakeholders.

 

The tax-exempt American Legislative Exchange Council (ALEC) has come under unique scrutiny due to its controversial and partisan public policy positions and the lobbying enabled by the organization through model legislation it provides and promotes. ALEC has been associated with contentious anti-immigration, voter identification and “Stand Your Ground,” legislation. More recently, ALEC initiatives have opposed climate change policies and efforts to weaken state renewable energy standards with the Heartland Institute.

 

Pfizer is a member of ALEC and funds its work. We believe this partnership may bring significant reputational and business risk to the company.

 

For example, legislation inspired by ALEC’s model “Electricity Freedom Act” calling for the repeal of state-level Renewable Portfolio Standards is being presented to a number of state legislatures. In contrast, Pfizer is a leader in its commitment to address the environment and climate change.

 

As of July 2013, 50 corporations have ended ties with ALEC. Major corporations across a range of industries have disassociated, such as Brown-Forman, Coca-Cola, John Deere, Dell Computers, General Electric, General Motors, Johnson & Johnson, McDonald’s, Medtronic, PepsiCo, Procter & Gamble, Sallie Mae, Unilever and Wal-Mart. In suspending its membership in ALEC in 2012, Wal-Mart’s VP of Public Affairs remarked: “We feel that the divide between these activities and our purpose as a business has become too wide.”

 

Yet Pfizer has decided to continue as an ALEC supporter, and does not speak out on ALEC positions that violate our company’s policies and values.

 

Resolved: Shareholders request that the Board of Directors initiate a review and assessment of organizations in which Pfizer is a member or otherwise supports financially for involvement in lobbying on legislation at federal, state, or local levels. A summary report of this review, prepared at reasonable cost and omitting proprietary information, should be reviewed by the Board Governance Committee and provided to shareholders.

 

THE SHAREHOLDER’S SUPPORTING STATEMENT

 

We propose the review should:

 

1. Examine the philosophy, major objectives and actions taken by the organization supported;
   
2. Assess the consistency between our company’s stated policies, principles, and Code of Conduct with those of the organization supported;
   
3. Determine if the relationship carries reputational or business risk that could have a negative impact on the company, its shareholders, or other stakeholders;
   
4. Evaluate management’s rationale for its direct involvement in, or financial support of, the organization to determine if the support is in the long-term best interests of the company and its stakeholders;
   
5. Assess current and potential internal oversight and controls governing the use of corporate assets for political purposes.

 

50 2014 PROXY STATEMENT
 

SHAREHOLDER PROPOSALS

 

YOUR COMPANY’S RESPONSE

 

The Board of Directors believes that the actions requested by the proponent are unnecessary and not in the best interests of our shareholders and recommends a vote AGAINST this proposal.

 

In the highly regulated and competitive pharmaceutical industry, it is fundamental to our business that we engage on public policy issues such as barriers to access, counterfeit medicines, illegal drug importation and challenges to our intellectual property protection that may affect our ability to meet patient needs and enhance shareholder value. Because we have extensive knowledge about healthcare and many ideas about improving its efficiency, as well as a global perspective on public health, disease prevention and health education and wellness, we regularly collaborate with policy makers to help create and maintain an innovative environment where we can cultivate new medicines, bring them to market and ensure that patient health and safety remain a priority.

 

To broaden and enhance our engagement, we are also a member of several industry and trade groups. These organizations, along with the others to which we belong, represent both the pharmaceutical industry and the business community at large in an effort to bring about consensus on broad policy issues that can impact our business and service to patients. Our support of these organizations is evaluated annually and based on such organizations’ expertise in healthcare policy/advocacy and issues that impact the life sciences industry (such as intellectual property and tax/trade). In recent years, Pfizer’s contributions to legislative organizations, including the American Legislative Exchange Council (ALEC) and think tanks, were spotlighted by some stakeholders and advocacy groups due to their positions on certain issues. In response to inquiries, and discussions with key investors about the risks and benefits of associating with some of these organizations, we published our formal funding criteria on our Company’s website at: http://www.pfizer.com/files/responsibility/third_party_funding_criteria.pdf for these organizations. Among other things, the criteria indicate that decisions to fund such organizations are based on their support of issues that are of importance to Pfizer and impact our industry, including advancing biomedical research, healthcare innovation, advocating for protecting intellectual property rights and access to care. In addition to their positions on healthcare policy issues, these organizations may engage in activities pertaining to a variety of issues. At times, our views on certain issues may differ from those promoted by these industry and trade groups and/or members. When this occurs, we choose to voice our concerns, as appropriate, through our colleagues who serve on the boards and committees of these groups.

 

The Board and its Committees play an important role in Pfizer’s public policy engagement, and the Company has implemented robust corporate governance, review and oversight processes related to these activities. For example, under its Charter, the Corporate Governance Committee of the Board is responsible for maintaining an informed status on Company issues related to public policy, social responsibility, and philanthropy, and for monitoring emerging issues potentially affecting the reputation of the pharmaceutical industry and Pfizer specifically. The Charter also requires that the Committee stay informed of Pfizer’s public policy and corporate political spending practices, which it does through periodic discussions and reviews of the Company’s bi-annual “Political Action Committee (PAC) and Corporate Political Contributions Report”.

 

With respect to lobbying, we file quarterly reports of our federal lobbying activity in compliance with the Honest Leadership and Open Government Act of 2007 (HLOGA). In addition to Pfizer’s federal lobbying activity, the amount we report also includes the amount spent on federal lobbying activity by trade associations of which Pfizer is a member. Pfizer also complies with state registration and reporting requirements in all the states where it is currently active.

 

The Company’s policies and practices, as related to its lobbying activities and associations with trade and industry organizations, involve Board oversight and a rigorous annual assessment conducted by Pfizer Government Affairs leaders. Our disclosures comply fully with federal and state requirements.

 

For these reasons, we believe our current practices and disclosures sufficiently address the proponent’s concerns. A report further summarizing the Board’s review and assessment of organizations that lobby directly or indirectly on Pfizer’s behalf would not only be unnecessary but burdensome, as preparation of such a report would not be a productive use of the Company’s funds and would provide minimal value to the vast majority of Pfizer’s shareholders.

 

Accordingly, your Board of Directors recommends a vote AGAINST this proposal.

 

 

2014 PROXY STATEMENT 51
 

SHAREHOLDER PROPOSALS

 

ITEM 7 – SHAREHOLDER PROPOSAL REGARDING ACTION BY WRITTEN CONSENT

 

Mr. Kenneth Steiner, 14 Stoner Ave., 2M, Great Neck, NY 11021, who represents that he owns 700 shares of Pfizer common stock, has notified the Company that the following resolution is to be presented at the Annual Meeting:

 

THE SHAREHOLDER’S RESOLUTION

 

Proposal 7 – Right to Act by Written Consent

Resolved, Shareholders request that our board of directors undertake such steps as may be necessary to permit written consent by shareholders entitled to cast the minimum number of votes that would be necessary to authorize the action at a meeting at which all shareholders entitled to vote thereon were present and voting. This written consent is to be consistent with giving shareholders the fullest power to act by written consent in accordance with applicable law. This includes shareholder ability to initiate any topic for written consent consistent with applicable law.

 

THE SHAREHOLDER’S SUPPORTING STATEMENT

 

Wet Seal (WTSLA) shareholders successfully used written consent to replace certain underperforming directors in 2012. This proposal topic also won majority shareholder support at 13 major companies in a single year. This included 67%-support at both Allstate and Sprint.

 

This proposal would empower shareholders by giving them the ability to effect change at our company without being forced to wait until an annual shareholder meeting. Shareholders could replace a director using action by written consent. Shareholder action by written consent could save our company the cost of holding a physical meeting between annual meetings.

 

This proposal should also be more favorably evaluated due to our Company’s clearly improvable environmental, social and corporate governance performance as reported in 2013:

 

GMI Ratings, an independent investment research firm rated our company D for its executive pay - $25 million for Ian Read plus excess perks and excess pension. Pfizer can give long-term incentive pay to Mr. Read for below-median performance. Our company did not link environmental or social performance to its incentive pay policies.

 

GMI rated Pfizer D for its accounting. GMI said there were forensic accounting ratios related to revenue recognition that had extreme values either relative to industry peers or to our company’s own history. Pfizer was rated as having Very Aggressive Accounting & Governance Risk indicating higher accounting and governance risk than 99% of companies.

 

Three directors with 16 to 25 years long-tenure had seats on our key board committees. Don Cornwell (16-years) was on our audit and executive pay committees. Constance Horner (20-years) was on our nomination committee and Anthony Burns (25-years) was on our audit and nomination committees. George Lorch, our Lead Director, was overboarded with seats on 4 company boards.

 

Returning to the core topic of this proposal from the context of our clearly improvable corporate governance, please vote to protect shareholder value:

 

Right to Act by Written Consent – Proposal 7

 

52 2014 PROXY STATEMENT
 

SHAREHOLDER PROPOSALS

 

YOUR COMPANY’S RESPONSE

 

In the prior three years that a written consent shareholder proposal has appeared on Pfizer’s ballot, a majority of shares voted did not approve the measure. The Company takes pride in its responsiveness to shareholders and its status as a leader in good governance, and we believe in maintaining policies and practices that serve the interests of all shareholders. The Board of Directors believes that the actions requested by the proponent are not in the best interests of our shareholders and recommends a vote AGAINST this proposal for the following reasons:

 

Pfizer Shareholders Value the Opportunity to Vote on Important Matters at Shareholder Meetings

 

Pfizer regards its relationships with shareholders and other stakeholders as fundamental to its good governance practices. Since the 2013 Annual Meeting of Shareholders, Pfizer has engaged in discussions with institutional investors representing approximately 30% of the Company’s outstanding shares, as well as investor advocates and key opinion leaders, about a broad variety of governance issues, including the desirability of permitting shareholders to act by written consent. As a matter of policy, some investors support written consent proposals under any circumstances; however, there is general consensus among Pfizer shareholders that the ability to call special meetings under our existing By-laws is sufficient and preferable in some circumstances. Moreover, the ability to call special meetings affords them a formal and more equitable opportunity, including notice and disclosure to all shareholders, to conduct matters than enabling a limited group of shareholders to act by written consent.

 

Pfizer’s Existing Governance Structure Provides Strong Board Accountability and Supports Shareholder Rights

 

The Board believes that Pfizer’s existing governance structure and practices provide for a high level of Board accountability and active engagement with its shareholders. Each member of the Board is elected annually by majority vote. The Board has regularly demonstrated its responsiveness to shareholders’ concerns and emerging best practices to keep its governance practices industry leading. For example, in response to shareholder input, our By-laws permit holders of 20% of the outstanding shares to call special shareholder meetings. We believe this right to call special meetings, together with our Company’s overall responsiveness to shareholders and commitment to maintaining ongoing dialogue with them, gives shareholders the platform required to raise important matters between annual meetings, while at the same time ensuring a fair and orderly forum that permits all shareholders the ability to participate in the deliberations and allowing for engagement by the Board and management.

 

Written Consent May Not Provide Sufficient Time to Evaluate Proposed Actions and May Facilitate Short-Termism

 

The Board strongly believes that important matters should be the subject of shareholder meetings, which provide the opportunity for discussion and interaction among the Company’s shareholders so that all points of view may be considered prior to a vote. The Board also believes that shareholders should have an opportunity for fair discussion and to exchange views with the Board before shareholder action is taken. Because shareholder action by written consent does not require advance notice or communication to all shareholders, it would deprive many shareholders of the opportunity to assess, discuss, deliberate and vote on pending shareholder actions. In addition, it may prevent shareholders from receiving accurate and complete information on important pending actions. It would also deny the Board the opportunity to consider the merits of the proposed action and to suggest superior proposals or alternatives for shareholder evaluation.

 

Action by written consent can also facilitate short-term stock manipulation by permitting certain investors to quietly accumulate significant positions and take action without the waiting periods and other protections inherent in the shareholder meeting process. Further, permitting shareholder action by written consent can create substantial confusion and disruption for shareholders, as multiple shareholder groups could solicit multiple written consents simultaneously, some of which may be duplicative or contradictory.

 

In light of our current practices and the investor feedback discussed above, the Board has re-evaluated its policy concerning shareholder ability to act by written consent and believes that Pfizer’s existing governance structure is highly supportive of shareholder rights, and addresses the proponent’s concerns. Further, it believes that the adoption of this proposal is not in the best interests of the Company or its shareholders.

 

Accordingly, your Board of Directors recommends a vote AGAINST this proposal.

 

 

2014 PROXY STATEMENT 53
 

 

 

 

 

 

 

[THIS PAGE INTENTIONALLY LEFT BLANK]

 

 

 

 

 

 

 
Executive Compensation  
   
Table of Contents  
EXECUTIVE SUMMARY 57
COMPENSATION COMMITTEE REPORT 63
COMPENSATION DISCUSSION AND ANALYSIS 64
SECTION 1—COMPENSATION PROGRAM OVERVIEW 64
2013 Performance Overview 64
Recent Committee Actions 66
2013 Advisory Vote on Executive Compensation; Shareholder Outreach 67
Elements of Executive Compensation 68
Key Compensation Actions for 2013 69
CEO Compensation 69
Compensation for Our Other Named Executive Officers 69
2013 Salaries 71
Annual Incentive Compensation Criteria 72
Target Setting 72
Financial Results for Annual Incentive Purposes 73
Annual Incentive Awards (Cash) 73
Long-Term Incentive Awards (Equity) 74
EARLY 2014 COMPENSATION ACTIONS 76
Salary and Annual Incentive Targets 76
2014 Long-Term Equity Incentive Awards 76
Equity Award Grant Practices 76
SECTION 2—2013 COMPENSATION 77
OUR COMPENSATION FRAMEWORK 77
Philosophy, Goals and Principles of Our Executive Compensation Program 77
Applying Our Compensation Philosophy, Goals and Principles 77
Competitive Positioning 78
Creating an Executive Compensation Framework 78
Applying the Compensation Framework to Executive Positions 78
Setting Compensation Targets 79
Evaluating Performance 79
Setting Performance Objectives 79
Rewarding Performance 79
CEO Performance 79
Performance of Our Other Named Executive Officers 81
POST-EMPLOYMENT COMPENSATION 83
EMPLOYMENT AND RETIREMENT BENEFITS 83
PERQUISITES 85
OTHER COMPENSATION POLICIES 85
Tax Policies 85
Derivatives Trading 85
Stock Ownership and Holding Requirements 86
Compensation Recovery/Clawback 86
ROLE OF COMPENSATION CONSULTANT 87
POLICY—CRITERIA FOR SELECTION OF COMMITTEE CONSULTANT 88
INDEPENDENCE ASSESSMENT—COMMITTEE CONSULTANT 88
COMPENSATION TABLES 89
2013 Summary Compensation Table 89
2013 Grants of Plan-Based Awards Table 91
2013 Outstanding Equity Awards at Fiscal Year-End Table 92
2013 Option/SARs/TSRUs Exercises and Stock Vested Table 94
2013 Pension Benefits Table 95
Pension Plan Assumptions 97
2013 Non-Qualified Deferred Compensation Table 98
Estimated Benefits Upon Termination 99
Equity Compensation Plan Information 101
FINANCIAL MEASURES 102

 

2014 PROXY STATEMENT 55
 

 

 

 

 

 

 

[THIS PAGE INTENTIONALLY LEFT BLANK]

 

 

 

 

 

 

 

Executive Summary

 

2013 PERFORMANCE OVERVIEW

 

Overall, in 2013 we delivered strong operational performance, generated solid financial results, and continued to see steady progress with many of our inline products and pipeline assets. Despite facing the continued impact of product loss of exclusivity, the expiration of collaboration agreements for certain products, macroeconomics and other factors, we remain driven by our focus on our four imperatives. We continue to advance each imperative and have gained considerable momentum towards revitalizing our innovative core, generating value for Pfizer, returning value to our shareholders, deepening our engagement with members of the public and creating an ownership culture. The four imperatives drove our actions:

 

IMPROVING THE PERFORMANCE OF OUR INNOVATIVE CORE:

 

  £ We continued to see steady progress with many of our inline products and pipeline assets, advancing programs in our late-stage pipeline from our Primary Care, Vaccines, Specialty Care and Oncology portfolios.
     
  £ We remained focused on high-priority therapeutic areas, including Cardiovascular and Metabolic Diseases, Immunology and Inflammation, Neuroscience and Pain, Oncology and Vaccines. Other areas of focus include rare diseases and biosimilars.
     
  £ We received U.S. FDA approval for Duavee, for treatment of moderate-to-severe vasomotor symptoms (hot flashes) associated with menopause and prevention of postmenopausal osteoporosis.
     
  £ In our late-stage pipeline, we initiated key Phase 3 programs including bococizumab for hyperlipidemia, ertugliflozin for type 2 diabetes (in partnership with Merck), Xeljanz for psoriatic arthritis, tafamidis for cardiomyopathy, and palbociclib for recurrent and advanced breast cancer.
     
  £ We advanced approximately 25 programs in our early- and mid-stage pipeline and made significant progress in key programs, including vaccines for meningococcal B and staphylococcus aureus, rivipansel for vaso-occlusive crisis associated with sickle cell disease, a novel PDE5 inhibitor for diabetic nephropathy, and biosimilars rituximab and infliximab for rheumatoid arthritis.

 

MAKING THE RIGHT CAPITAL ALLOCATION DECISIONS:

 

  £ We achieved approximately $1 billion in year-over-year operational expense reductions in adjusted R&D and Selling, Informational and Administrative expenses*.
     
  £ We completed the successful separation of Zoetis, formerly Pfizer’s Animal Health business, into a stand-alone public company; the disposition generated approximately $17.3 billion in after-tax value for Pfizer’s shareholders.
     
  £ We continued to create shareholder value through prudent capital allocation. We purchased $16.3 billion of Pfizer’s common stock (approximately 563 million shares) under our publicly announced share-purchase plans in 2013 and had approximately $5.5 billion remaining at year-end under our current share-purchase authorization.
     
  £ We increased our quarterly dividend by 9% as compared to 2012.

 

EARNING GREATER RESPECT FROM SOCIETY:

 

  £ We continued to build and sustain momentum with Pfizer’s “Get Old” Program by advancing the healthy aging story globally with expansion in key markets across Europe and Asia and by launching the second phase of the program, focused on the stigma of aging.
     
  £ We remained committed to providing access to our medicines through a series of patient-access programs such as Pfizer Helpful Answers, a U.S. initiative that provides our medicines for free or at significant savings to uninsured and underinsured patients who qualify.
     
  £ We extended our commitment to provide additional doses of the Prevenar 13 vaccine, to help protect against pneumococcal disease for infants and young children under the terms of the Advance Market Commitment (AMC).

 

2014 PROXY STATEMENT 57
 

EXECUTIVE SUMMARY

 

CREATING A CULTURE OF OWNERSHIP:

 

  £ We continued our efforts to instill a culture of ownership by building a strong and engaged leadership team, developing diverse talent at senior levels and in the talent pipeline.
     
  £ We made significant progress in advancing our ownership culture including the launch of OWNIT! Day, a first-of-its-kind. It was a day devoted to accelerating culture change, consisting of enterprise-wide colleague forums and ‘Straight Talk’ workshops that empowered colleagues at every level to have candid conversations.
     
  £ Our external communications to the investor community have highlighted an ownership culture as a business imperative.

 

* See the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 for the definition of “adjusted income” and for reconciliations of 2013 “adjusted income” and “adjusted diluted earnings per share” to 2013 net income attributable to Pfizer Inc. and diluted earnings per share attributable to Pfizer Inc. common shareholders, respectively. “Adjusted diluted earnings per share,” “adjusted cost of sales,” “adjusted selling, informational and administrative expenses” and “adjusted research and development expenses” are income statement line items prepared on the same basis as, and are components of, the “adjusted income” measure.

 

HIGHLIGHTS OF RECENT CHANGES TO OUR EXECUTIVE COMPENSATION PROGRAM

 

During 2013 and early 2014, the Compensation Committee (the Committee) took several actions that enhance our executive compensation programs. We believe these changes improve alignment with performance and market practices. These changes included:

 

Expansion of the Portfolio Performance Share (PPS) program to include colleagues in additional business units and countries other than the U.S. and U.K. The program supports Research & Development (R&D) activities by tying approximately 50% of the participants’ long-term grant value to the achievement of R&D performance goals supporting the pipeline.
   
Modification of the treatment of performance share awards (PSAs) and restricted stock units (RSUs) upon retirement. To continue the alignment of pay for performance into retirement, RSUs and PSAs will continue to vest, and will be settled in accordance with the original grant terms and performance requirements, as applicable. This change became effective with the 2014 long-term incentive grants.
   
Refinement of our executive compensation philosophy to include consideration of market capitalization and complexity of our peers while continuing to position total direct compensation at the market median.
   
Formally adopting language for Pfizer’s anti-pledging policy which prohibits executive officers (including the NEOs) and members of the Board from pledging Pfizer common stock.

 

These and other actions relating to our compensation program are discussed in greater detail below under “Recent Committee Actions.”

 

58 2014 PROXY STATEMENT
 

EXECUTIVE SUMMARY

 

2013 SHAREHOLDER OUTREACH PROGRAM

 

Pfizer’s executive compensation program was approved, on an advisory basis at the 2013 Annual Meeting, by shareholders representing 95.6% of the shares voted. Our Committee and the other members of our Board believe that this vote reflected our shareholders’ strong support of Pfizer’s executive compensation programs and the compensation decisions made by the Committee for Pfizer’s Named Executive Officers (the NEOs) for 2012 and early 2013.

 

As part of our outreach program, Pfizer’s management team held numerous meetings with institutional shareholders and investors to discuss, among other matters, the Company’s executive compensation program, future potential changes to the program and to answer questions regarding the program. Generally, the feedback was positive and most questions were requests for additional information or clarification. With respect to the 2012 compensation program and 2013 disclosure, some of these institutional shareholders:

 

Expressed appreciation for our continued outreach on Pfizer’s executive compensation program;
   
Indicated that Pfizer’s compensation program design and the alignment between pay and performance was appropriate;
   
Generally approved of the compensation mix, especially with equity representing more than half of total compensation awarded;
   
Noted the robust and comprehensive Compensation Discussion and Analysis (CD&A) compared to other similar companies;
   
Appreciated the Executive Summary and added graphics, which helped to highlight and summarize key information;
   
Asked for clarification regarding the levels of Pfizer’s share ownership requirements and equity retention policy;
   
Requested further information about Total Shareholder Return Units (TSRUs) and their five- and seven-year settlement terms; and
   
Asked us to increase our focus on long-term elements of compensation and to review the Performance Share Award payout matrix.

 

2014 ORGANIZATIONAL STRUCTURE UPDATE

 

Effective January 1, 2014, we began to manage our commercial businesses through a new global commercial structure consisting of three businesses that fully integrate the emerging markets into each business. The three businesses are:

 

Global Innovative Pharmaceutical business consisting of medicines within several therapeutic areas that are generally expected to have market exclusivity beyond 2015, led by Geno Germano, Group President, Global Innovative Pharma Business. The therapeutic areas include: Immunology and Inflammation, Cardiovascular/Metabolic, Neuroscience and Pain, Rare Diseases and Women’s/Men’s Health.
   
Vaccines, Oncology and Consumer Healthcare business focuses on the development and commercialization of vaccines and products for oncology and consumer healthcare, and consisting of three businesses, each of which operates as a separate, global business, with distinct specialization in terms of the science, talent and market approach necessary to deliver value to consumers and patients. This business is led by Albert Bourla, Group President, Vaccines, Oncology and Consumer Healthcare.
   
Global Established Pharmaceutical business consisting of brands that have lost market exclusivity, and generally, the mature, patent-protected products that are expected to lose exclusivity through 2015 in most major markets and, to a much smaller extent, generic pharmaceuticals. Additionally, this business includes our sterile injectable products and biosimilar development portfolio and current established products collaborations. This business is led by John Young, Group President, Global Established Pharma Business.

 

We believe this organizational structure gives each global business the authority and accountability needed to drive potential growth within our business and build on our four imperatives, thereby having the potential to increase shareholder value.

 

2014 PROXY STATEMENT 59
 

EXECUTIVE SUMMARY

 

OVERVIEW OF EXECUTIVE COMPENSATION PROGRAM

 

Pfizer continues to implement and maintain leading practices in its compensation program, shareholder outreach and related areas.

These practices include the following:

 

OUR COMPENSATION PRACTICES

 

 

£ Risk Mitigation. Our executive compensation program includes a number of controls that mitigate risk, including executive stock ownership and holding requirements and our ability to recover compensation paid to executives in certain circumstances, each as mentioned below.
   
£ Compensation Recovery. To the extent permitted by law, we can recover cash- or equity-based compensation paid to executives in various circumstances, including where the compensation is based upon the achievement of specified financial results that are the subject of a subsequent restatement (see “Compensation Recovery/Clawback” below).
   
£ No Hedging or Pledging. We prohibit our executives and Directors from pledging, hedging, or engaging in any derivatives trading, with respect to Company shares (see “Derivatives Trading” below).
   
£ No “Gross-Ups”. We do not provide tax “gross-ups” for perquisites or other benefits provided to our executive officers, other than in the case of certain relocation expenses, consistent with our relocation policy for all U.S.-based employees (see “Perquisites” below).
   
£ Stock Ownership Requirements. We require our executive officers to meet stock ownership requirements, and we prohibit them from selling any
  shares (except to meet tax withholding obligations) if doing so would cause them to fall below required levels (see “Stock Ownership and Holding Requirements” below). We also have stock ownership requirements for our Directors, as discussed elsewhere in this Proxy Statement.
   
£ No Repricing. Our equity incentive plan prohibits the repricing or exchange of equity awards without shareholder approval.
   
£ Minimum Vesting. Our annual equity awards provide for minimum three-year vesting, except in limited circumstances involving certain terminations of employment.
   
£ No Employment Agreements. None of our executive officers has an employment agreement with the Company.
   
£ Independent Compensation Consultant. The Committee has engaged an independent compensation consultant that has no other ties to the Company or its management and that meets stringent selection criteria (see “Role of Compensation Consultant” below).
   
£ Robust Investor Outreach. We maintain a robust investor outreach program that enables us to obtain ongoing feedback concerning our compensation program, as well as how we disclose that program.

 

Pfizer’s Pay for Performance Philosophy, Goals and Principles

 

Pfizer’s compensation philosophy, which is set by the Committee, is to align each executive’s compensation with Pfizer’s short-term and long-term performance and to provide the compensation and incentives needed to attract, motivate and retain key executives who are crucial to Pfizer’s long-term success.

 

The Global Performance Plan (GPP), our annual incentive program, is funded based on Pfizer’s performance on three financial metrics: total revenue, adjusted diluted earnings per share, and cash flow from operations, each for annual incentive compensation purposes. The GPP pool is not funded unless performance exceeds a threshold level. Individual awards are earned based on the available earned pool, Business Unit/Function performance, and the individual’s performance against his or her objectives.

 

Our annual long-term incentive awards are aligned with the interests of our shareholders because they deliver value based on absolute and relative shareholder return, encourage stock ownership and promote retention of key talent.

 

A significant portion of the total compensation opportunity for each of our executives (including the NEOs) is directly related to Pfizer’s total shareholder return and to other performance factors that measure our progress against the goals of our strategic and operating plans, as well as our performance against that of our pharmaceutical peer group and general industry comparators with consideration

 

60 2014 PROXY STATEMENT
 

EXECUTIVE SUMMARY

 

of company market capitalization and complexity as indicated by revenues, range of products, international operations and other factors because we use such factors in setting target levels of compensation and determining the value or level of awards granted.

 

Elements of Executive Compensation

 

The elements of total compensation for our executives are as follows:

 

2013 SALARY

 

Salary is a fixed amount of compensation for performing day-to-day responsibilities. Salary represented less than 20% of total compensation for each of our NEOs in 2013.

 

2013 ANNUAL INCENTIVE AWARDS

 

The GPP is funded based on Pfizer’s performance on three financial metrics, each for annual incentive compensation purposes:

 

       
  Financial Performance Metric* Supports Basic Principles  
       
  Total Revenue Revenue is a leading indicator of performance and value creation; provides a clear focus on growth; is an important measure in a sales industry; and is understandable with clear line of sight and employee impact.  
       
  Adjusted diluted earnings per share (EPS) EPS is a comprehensive measure of income; provides focus on profitable growth; focuses managers on expense control; is viewed as a strong indicator of sustained performance over the long term; and is understandable with clear line of sight and employee impact.  
       
  Cash flow from operations (Cash Flow) Cash flow provides focus on generating cash in the short term to fund operations and research and to return funds to shareholders in the form of dividends and share repurchases; focuses managers on expense control and on improvement in working capital; and is a strong link to long-term shareholder value creation.  
       

 

* See “Financial Measures” on page 102 for a reconciliation of U.S. GAAP numbers to these objectives for annual incentive purposes and “Financial Results for Annual Incentive Purposes” on page 73 for additional information.

 

2013 PERFORMANCE

 

The Company exceeded the 2013 target goal for adjusted diluted EPS, with slightly below-target performance for revenue and cash flow. These targeted goals for annual incentive purposes were set by the Committee in the first quarter of 2013 based on its evaluation of the budgeted amounts and its determination that there was a sufficient degree of stretch in the targets. These results are different from our results under Generally Accepted Accounting Principles (GAAP) in the U.S. (see “Financial Results for Annual Incentive Purposes” on page 73).

 

2013 Financial Objectives (For Annual Incentive Purposes)*

 

 

 

* See “Financial Measures” on page 102 for a reconciliation of U.S. GAAP numbers to these objectives for annual incentive purposes and “Financial Results for Annual Incentive Purposes” on page 73 for additional information.

 

2014 PROXY STATEMENT 61
 

EXECUTIVE SUMMARY

 

Annual incentive awards for our executives, including the NEOs, are determined based on the pool funding, using the above objective performance measures for the Company, and adjusted for Business Unit/Function and individual performance. Annual incentive awards for 2013 were determined in February 2014. The pool is allocated to the various business units based on relative performance compared to objective performance.

 

2013 LONG-TERM INCENTIVE AWARDS (EQUITY)

 

Long-term incentive compensation for our executives, including the NEOs, was delivered entirely in the form of equity awards. In February 2013, executives received long-term equity incentive awards consisting of RSUs, PSAs and TSRUs. The long-term incentive grant value was equally divided among RSUs, PSAs and 5- and 7-Year TSRUs.

 

       
  Long-Term Instruments Objective  
       
  RSUs with dividend equivalents, payable in shares of common stock and only upon vesting To encourage ownership and retention while providing alignment with shareholders  
       
  PSAs with dividend equivalents, payable on vesting in shares of common stock and only on the number of shares earned To reward relative total shareholder return over a three-year performance period  
       
  TSRUs with dividend equivalents, payable in shares of common stock and only on settlement To link rewards to absolute total shareholder return over a five-/seven-year period  
       

 

The grant value of each NEO’s long-term equity incentive award was based on competitive market data (targeted to median), relative duties and responsibilities, the individual’s future advancement potential, and his or her impact on Pfizer’s results; the awards are also used for retention purposes.

 

Our compensation program is discussed in greater detail below under “Elements of Executive Compensation.”

 

62 2014 PROXY STATEMENT
 

Compensation Committee Report

 

The Compensation Committee has reviewed and discussed with management the following Compensation Discussion and Analysis section of the Company’s 2014 Proxy Statement. Based on our review and discussions, we have recommended to the Board of Directors that the Compensation Discussion and Analysis be included in Pfizer’s 2014 Proxy Statement.

 

The Compensation Committee

 

   
   
James M. Kilts, Chair W. Don Cornwell

 

   
   
Frances D. Fergusson Suzanne Nora Johnson

 

2014 PROXY STATEMENT 63
 

Compensation Discussion and Analysis

 

This Compensation Discussion and Analysis, or “CD&A,” describes Pfizer’s executive compensation program for 2013 and certain elements of the 2014 program. We use this program to attract, motivate and retain the colleagues who lead our business. In particular, this CD&A explains how the Compensation Committee (the Committee) of the Board of Directors (the Board) made 2013 compensation decisions for our executives, including the following NEOs:

 

Ian C. Read, Chairman and Chief Executive Officer (CEO);
   
Frank A. D’Amelio, Executive Vice President, Business Operations and Chief Financial Officer (CFO);
   
Dr. Mikael Dolsten, President, Worldwide Research and Development;
   
Geno Germano, President and General Manager, Specialty Care and Oncology;
   
John Young, President and General Manager, Primary Care;
   
Dr. Olivier Brandicourt, Former President and General Manager, Emerging Markets and Established Products (separated October 31, 2013); and
   
Amy W. Schulman, Former Executive Vice President and General Counsel; Business Unit Lead, Consumer Healthcare (ceased being an executive officer, effective December 16, 2013).

 

Effective January 1, 2014, Messrs. Germano and Young began their new roles as Group President, Global Innovative Pharma Business and Group President, Global Established Pharma Business, respectively, in the new commercial organization. This CD&A discusses compensation and accomplishments for our NEOs for 2013 under the prior organizational structure.

 

This CD&A is divided into two sections:

 

Section 1 discusses our 2013 performance, the Committee’s actions in 2013, our compensation practices and the compensation decisions for our NEOs.

 

Section 2 discusses our compensation framework in greater detail.

 

SECTION 1 – COMPENSATION PROGRAM OVERVIEW

2013 PERFORMANCE OVERVIEW

 

The environment across many of our markets remained challenging in 2013. Despite the challenges, we believe that we are positioned to deliver value for our shareholders and are driven by our commitment to achieving our mission to be the premier, innovative biopharmaceutical company through a continued focus on our four imperatives. Our four imperatives are:

 

FOUR IMPERATIVES:

 

£ Improving the Performance of our Innovative Core by generating a portfolio of differentiated medicines and creating a culture of ownership and decisiveness in research.
£ Making the Right Capital Allocation Decisions by developing a corporate strategic plan to maximize capital allocation across the business portfolio and achieve targeted growth on core assets.
£ Earning Greater Respect from Society by continuing to maintain and improve Pfizer’s strong reputation with our customers, the communities in which we operate, our shareholders, and the investor community.
£ Creating a Culture of Ownership by instilling a culture of confidence and making Pfizer a great place to work.

 

64 2014 PROXY STATEMENT
 

COMPENSATION DISCUSSION AND ANALYSIS

 

KEY HIGHLIGHTS

KEY STRATEGIC AND FINANCIAL HIGHLIGHTS:

 

£ As discussed in the “2014 Organizational Structure Update” of the Executive Summary, in 2013, we announced our intent in 2014 to internally separate our commercial businesses into three businesses that fully integrate the emerging markets into each business. The new commercial structure, which became operational on January 1, 2014, has three businesses:
   
  Global Innovative Pharmaceutical business consisting of medicines within several therapeutic areas that are generally expected to have market exclusivity beyond 2015, led by Geno Germano, Group President, Global Innovative Pharma Business. The therapeutic areas include: Immunology and Inflammation, Cardiovascular/Metabolic, Neuroscience and Pain, Rare Diseases and Women’s/Men’s Health.
     
  Vaccines, Oncology and Consumer Healthcare business focuses on the development and commercialization of vaccines and products for oncology and consumer healthcare, and consisting of three businesses, each of which operates as a separate, global business, with distinct specialization in terms of the science, talent and market approach necessary to deliver value to consumers and patients. This business is led by Albert Bourla, Group President, Vaccines, Oncology and Consumer Healthcare.
     
  Global Established Pharmaceutical business consisting of brands that have lost market exclusivity, and generally, the mature, patent-protected products that are expected to lose exclusivity through 2015 in most major markets and, to a much smaller extent, generic pharmaceuticals. Additionally, this business includes our sterile injectable products and biosimilar development portfolio and current established products collaborations. This business is led by John Young, Group President, Global Established Pharma Business.
     
  We believe this organizational structure gives each global business the authority and accountability needed to drive potential growth within our business and build on our four imperatives, thereby having the potential to increase shareholder value.
   
£ We received U.S. FDA approval for Duavee, for treatment of moderate-to-severe vasomotor symptoms (hot flashes) associated with menopause and prevention of postmenopausal osteoporosis.
   
£ In our late stage pipeline, we initiated key Phase 3 programs including bococizumab for hyperlipidemia, ertugliflozin for type 2 diabetes (in partnership with Merck), Xeljanz for psoriatic arthritis, tafamidis for cardiomyopathy, and palbociclib for recurrent and advanced breast cancer.
   
£ We advanced approximately 25 programs in our early- and mid-stage pipeline and made significant progress in key programs, including vaccines for meningococcal B and Staphylococcus aureus, rivipansel for vaso-occlusive crisis associated with sickle cell disease, a novel PDE5 inhibitor for diabetic nephropathy, and biosimilars rituximab and infliximab for rheumatoid arthritis.
   
£ We achieved approximately $1 billion in year-over-year operational expense reductions in adjusted R&D and Selling, Informational and Administrative expenses.
   
£ We completed the successful separation of Zoetis, formerly Pfizer’s Animal Health business, into a stand-alone public company; the disposition generated approximately $17.3 billion in after-tax value for Pfizer’s shareholders.
   
£ We returned approximately $23 billion to shareholders through dividends and share repurchases.
   
£ We increased our quarterly dividend by 9% as compared to 2012.
   
£ We continued to build and sustain momentum with Pfizer’s “Get Old” Program by advancing the healthy aging story globally with expansion in key markets across Europe and Asia and by launching the second phase of the program, focused on the stigma of aging.
   
£ We made significant progress in advancing our ownership culture including the launch of OWNIT! Day, a first-of-its-kind. It was a day devoted to accelerating culture change, consisting of enterprise-wide colleague forums and ’Straight Talk’ workshops, that empowered colleagues at every level to have candid conversations.

 

2014 PROXY STATEMENT 65
 

COMPENSATION DISCUSSION AND ANALYSIS

 

RECENT COMMITTEE ACTIONS

 

As in the past several years, we continued our robust investor outreach program. This enables us to obtain valuable feedback and incorporate a number of shareholder suggestions in our compensation program. In light of our shareholders’ recent response and inquiries in 2013, the Committee has taken a number of actions to make our executive compensation program more aligned with our performance and more responsive to shareholder interests.

 

These actions included the following:

 

Topic   Action   Rationale
Compensation Philosophy   Refined our executive compensation philosophy to include consideration of market capitalization and complexity while continuing to position total direct compensation at the market median   To ensure our executive compensation program is an effective tool to attract, motivate and retain executive talent
Anti-Pledging Policy   In 2013, formally adopted language for Pfizer’s anti-pledging policy which prohibits executive officers (including the NEOs) and members of the Board from pledging Pfizer common stock   Supports ongoing best practice
Long-Term Incentives   Commencing with annual grants made in 2014, modified the vesting schedule upon retirement for RSUs and PSAs to generally allow for continued vesting (tied to non-compete provisions) vs. pro-rata vesting upon retirement   Consistent with market practice and continues alignment of retiree’s compensation with shareholders and impact of pre-retirement decisions
Performance Share Awards (PSAs) Long-Term Incentives   Reviewed the payout matrix for Performance Share Awards and determined that the existing matrix was appropriate and adequately aligns pay with performance   Matrix found to be consistent with market practice and appropriately aligns pay with performance
Portfolio Performance Shares (PPSs) Long-Term Incentives   In 2012, introduced a new long-term incentive vehicle—Portfolio Performance Shares—designed to reward eligible R&D colleagues (excluding the Executive Leadership Team (ELT)) in the U.S. and U.K. based on the achievement of the R&D performance goals relating to enhancing the pipeline   Supports Pfizer’s strategy to drive sustained progress on the product portfolio to create shareholder value; provides direct alignment between participants’ compensation and growth of the pipeline
         
    In 2013 and 2014, expanded this program to include colleagues in additional business units which support R&D activities in many additional countries    

 

66 2014 PROXY STATEMENT
 

COMPENSATION DISCUSSION AND ANALYSIS

 

2013 ADVISORY VOTE ON EXECUTIVE COMPENSATION; SHAREHOLDER OUTREACH

 

At the 2013 Annual Meeting, Pfizer’s executive compensation program was approved, on an advisory basis, by 95.6% of the votes cast. Our Compensation Committee and the other members of our Board believe that this level of approval of our executive compensation program is indicative of our shareholders’ strong support of our compensation philosophy and goals and the decisions made by the Committee in 2012 and early 2013.

 

This view was reinforced further in discussions with institutional investors both in connection with and following the 2013 Annual Meeting. Consistent with Pfizer’s long-standing reputation for investor engagement, our shareholder outreach resulted in discussions with both U.S. and U.K.-based investors representing approximately 30% of our outstanding shares. This robust outreach reflects Pfizer’s commitment to keep attuned with shareholders on key issues of importance to them, and to seek regular feedback on our compensation program and practices notwithstanding favorable advisory votes on executive compensation in prior years.

 

During our 2013 outreach, investor feedback was strongly positive. In particular, investors indicated support for our:

 

Performance Alignment. Investors commented that our program is appropriately linked to performance.
   
Level of Disclosure. A number of investors noted that our compensation disclosure remains robust and comprehensive, and were appreciative of our efforts to highlight, simplify and summarize relevant information through the use of graphics and an executive summary.

 

We also received specific feedback from investors on how we could continue to enhance our program. These suggestions included:

 

Performance Based Long-Term Incentives. A few investors suggested increasing the focus on performance based long-term incentives or modifying the performance share awards to further strengthen the link between pay and performance.
   
Equity Granting Practices. Some investors discussed the potential benefits of modifying the existing share ownership requirements and further aligning pay with performance into retirement.

 

The Committee and full Board were kept apprised of investor feedback gathered during our discussions.

 

Based on this feedback and marketplace trends, the Committee made two key changes to our compensation program. Effective with the 2014 long-term incentive award grants, the terms of the PSAs and RSUs were modified to provide for continued vesting in accordance with the original grant term following retirement, rather than vest pro-rata upon retirement. This change will further strengthen the connection with pay for long-term performance into retirement. In addition, in 2013 we expanded the PPS awards program to additional business units and countries to improve the alignment of long-term grant value with the achievement of R&D performance goals supporting the pipeline. The Committee also reviewed the PSA payout matrix to ensure that the matrix appropriately ties pay with performance and is consistent with competitive practice.

 

We elicited feedback on the benefits of including additional disclosures on “realized” and/or “realizable” pay in our proxy statement. We also obtained shareholder views on the usefulness of including pay ratios (comparing CEO total annual compensation to that of the Company’s median employee) prior to such disclosure being required. Investor views remain mixed on both topics, with the majority expressing concerns about the usefulness of inconsistent (across companies) disclosure of “realized” and/or “realizable” pay information. Most shareholders consulted also expressed uncertainty about the usefulness of pay ratio disclosures in their assessment of the Committee’s compensation decisions.

 

The Committee, after consideration of the feedback from shareholders, 2013 voting results, and advice from its independent advisor, concluded that our executive compensation program achieves the goals of our executive compensation philosophy and has the support of an overwhelming majority of our shareholders. Therefore, the Committee has reaffirmed the elements of Pfizer’s executive compensation plan and policies, with the modifications described above.

 

2014 PROXY STATEMENT 67
 

COMPENSATION DISCUSSION AND ANALYSIS

 

ELEMENTS OF EXECUTIVE COMPENSATION

 

Element Type Terms
Long-Term Incentive Restricted Stock Units (RSUs) RSUs generally vest three years from the grant date
Compensation (100% Equity) (representing 25% of total Dividend equivalent units (DEUs) are accumulated on RSUs during the vesting period
  annual grant value) Both RSUs and DEUs are paid in shares of Pfizer common stock but only on vesting*
  5- and 7-Year Total Shareholder Return Units (5-Year and 7-Year 5- and 7-Year TSRUs generally vest three years from the grant date and are settled five or seven years from the grant date, respectively
  TSRUs) Dividend equivalents are accumulated on TSRUs during the five- or seven-year term
  (each representing 25% of
total annual grant value)
The number of shares that are earned for each TSRU is equal to the difference between the settlement price (the 20-day average of the closing prices of Pfizer common stock ending on the settlement date) and the grant price (the closing price of Pfizer common stock on the date of grant) plus the value of dividend equivalents accumulated over the term, divided by the settlement price, subject to the results being positive
    Both 5- and 7-Year TSRUs are paid in shares of Pfizer common stock on settlement
  Performance Share Awards PSAs generally vest three years from the grant date
  (PSAs) The performance period for PSAs is three years
  (representing 25% of total annual grant value) The number of shares that are earned over the performance period is based on Pfizer’s Total Shareholder Return (TSR, defined as change in stock price plus dividends) relative to the TSR of our pharmaceutical peer group and ranges from 0% to 200% of the initial award
    Dividend equivalents are applied to the number of shares actually earned under the award
    Earned PSAs are paid in shares of Pfizer common stock
Salary Cash The fixed amount of compensation for performing day-to-day responsibilities. Generally eligible for increase annually, depending on market movement, performance and internal equity
Annual Short-Term Incentive/GPP Cash Provides the opportunity for competitively-based annual incentive awards for achieving Pfizer’s short-term financial goals and other strategic objectives measured over the current year
Retirement Pension Plan Provides retirement income for eligible participants based on years of service and highest average earnings up to tax code limitations
  Supplemental Pension Plan Provides retirement income, on a non-qualified basis, relating to compensation in excess of tax code limitations under the same formula as the qualified pension plan noted above
  Savings Plan A qualified 401(k) plan that provides participants with the opportunity to defer a portion of their compensation, up to tax code limitations, and receive a company matching contribution
  Retirement Savings Contribution (RSC) An age and service weighted Company contribution (5%-9%) to the savings plan for those not participating in the Pension Plan
  Supplemental Savings Plan Extends the Savings Plan, on a non-qualified basis, for deferral of compensation in excess of the tax code limitations under the same terms
Other Perquisites Certain other benefits provided to executives by the Company

 

* Unless automatically deferred as stock units due to Section 162(m) of the Internal Revenue Code.

 

68 2014 PROXY STATEMENT
 

COMPENSATION DISCUSSION AND ANALYSIS

 

KEY COMPENSATION ACTIONS FOR 2013

 

The following highlights the Committee’s key compensation decisions for 2013, as reported in the 2013 Summary Compensation Table. These decisions were made with the advice of the Committee’s independent consultant, Frederic W. Cook & Co. (see “Role of Compensation Consultant” below), and are discussed in greater detail elsewhere in this CD&A.

 

CEO COMPENSATION

 

Aligned with our executive compensation program and practices, considering his performance and assessing market competitiveness, the Committee, with advice from its independent consultant, set Mr. Read’s salary and short- and long-term incentive compensation as follows:

 

Effective April 1, 2013, Mr. Read’s annual base salary was set at $1.785 million; actual salary paid in 2013 was $1.776 million;
   
His 2013 annual incentive award (paid in March 2014) was $3.4 million; and
   
His 2013 annual long-term incentive award was valued by the Committee at $11.8 million at grant; accounting value was $12.1 million. See the “2013 Grants of Plan-Based Awards table” elsewhere in this Proxy Statement for further detail.

 

In 2013, 90% of Mr. Read’s compensation was tied to Company performance. The factors considered by the Committee in determining Mr. Read’s compensation are discussed under “Evaluating Performance.”

 

 

 

COMPENSATION FOR OUR OTHER NEOS (INCLUDING THE FORMER NEOS—DR. BRANDICOURT AND MS. SCHULMAN)

 

The Committee also approved the compensation for the other NEOs. Their compensation was set based upon the recommendations of the CEO, evaluation by the Committee and the other independent members of the Board of each individual’s performance (see “Evaluating Performance”), the advice of the Committee’s independent consultant, compensation data from the peer and comparator groups, internal pay relationships based on relative duties and responsibilities, the individual’s future advancement potential, and his or her impact on Pfizer’s results. The Committee also considered the need, if any, for retention incentives.

 

2014 PROXY STATEMENT 69
 

COMPENSATION DISCUSSION AND ANALYSIS

 

Over 80% of the compensation for our other NEOs was tied to Company performance. The factors considered by the Committee in determining compensation for our other NEOs are discussed below (see “Evaluating Performance”).

 

      
 
      

 

COMPENSATION ACTIONS RELATING TO THE FORMER NEOS—DR. BRANDICOURT AND MS. SCHULMAN

 

During 2013, Dr. Brandicourt and Ms. Schulman served as members of the ELT through October 31, 2013 and December 16, 2013, respectively. The Committee assessed the performance of Dr. Brandicourt and Ms. Schulman based on the contributions they made during the months served as an executive officer of the Company. Further information regarding their 2013 performance is included in “Performance of Our Former Named Executive Officers” elsewhere in this Proxy Statement.

 

70 2014 PROXY STATEMENT
 

COMPENSATION DISCUSSION AND ANALYSIS

 

    

 

SEPARATION OF FORMER NEOS

 

Olivier Brandicourt

 

As a result of the commercial business reorganization, Dr. Brandicourt’s position was eliminated leading to his termination without cause. He was paid his salary until his separation date (October 31, 2013) and he will receive the following benefits pursuant to the terms of the Executive Severance Plan, which provides for severance benefits to ELT members, and related severance provisions of other plans and programs:

 

A cash severance payment of $3,362,450, equal to the sum of his annual base salary plus his target bonus for 2013 multiplied by the factor provided under the Executive Severance Plan (see further description under “Executive Severance Plan” later in this Proxy Statement). This payment will be made on or around May 1, 2014.
   
A cash payment of $780,300, which represents a prorated annual incentive award based on his performance. This payment will be made on or before March 14, 2014.
   
Outstanding equity awards were treated in accordance with the terms of the grants.
   
Continuation of certain health and insurance coverage for 12 months at active employee rates.

 

The benefits provided are consistent with the terms of the plans and programs and no enhanced treatment was provided in connection with his termination.

 

Amy W. Schulman

 

Effective December 16, 2013, Ms. Schulman ceased serving as an executive officer, including as General Counsel and Business Unit Lead for the Consumer Healthcare business. She did not assume the role of Group President, Vaccines, Oncology and Consumer Healthcare as had been previously announced. She will remain at the Company for a transition period. At the conclusion of this period, Ms. Schulman will separate from the Company and, subject to the successful completion of the transition, will receive separation payments and benefits under Pfizer’s applicable plans and policies. This will include severance under the Executive Severance Plan in accordance with its terms. Outstanding equity awards will be treated in accordance with the terms of the grants with no enhanced treatment.

 

2013 SALARIES

 

The table below shows the annual salaries for our NEOs set by the Committee, effective April 1, 2013.

 

Name April 1, 2013 Salary
($)
2013 Salary Grade Midpoint
($)(1)
I. Read 1,785,000 1,759,500
F. D’Amelio 1,250,000 1,147,500
M. Dolsten 1,155,000 1,147,500
G. Germano 935,000 1,040,400
J. Young 820,000 1,040,400
O. Brandicourt 985,000 1,040,400
A. W. Schulman 962,000 1,040,400

 

(1) See “Target Setting” for an explanation of how we use salary grade midpoints to determine target annual incentive awards.

 

2014 PROXY STATEMENT 71
 

COMPENSATION DISCUSSION AND ANALYSIS

 

ANNUAL INCENTIVE COMPENSATION CRITERIA

 

Annual incentives for each member of the ELT, including our NEOs, are based on:

 

GPP pool funding based on the financial performance of the Company measured by total revenue, adjusted diluted EPS and cash flow;
   
The financial performance of the executive’s Business Unit/Function measured by revenue and income before adjustments;
   
The achievement of selected strategic and operational goals for the executive’s Business Unit/Function; and
   
The Committee’s assessment of the executive’s individual performance against goals (see “Evaluating Performance”).

 

Each year, the Committee evaluates the continued use of the financial measures that fund the annual incentive pool, using the following basic concepts:

 

measures that support the achievement of the Company’s annual operating plan;
   
measures that promote decisions and behaviors aligned with maximizing near-term business results while supporting the achievement of the Company’s long-term goals;
   
measures that exhibit a strong line of sight (i.e., are clearly understood and can be impacted by the performance of our executives and employees); and
   
measures that are consistent with best practices and are commonly used within our industry.

 

Financial Performance Metric* Supports Basic Principles
Total Revenue Revenue is a leading indicator of performance and value creation; provides a clear focus on growth; is an important measure in a sales industry; and is understandable with clear line of sight and employee impact.
Adjusted diluted earnings per share (EPS) EPS is a comprehensive measure of income; provides focus on profitable growth; focuses managers on expense control; is viewed as a strong indicator of sustained performance over the long term; and is understandable with clear line of sight and employee impact.
Cash flow from operations (Cash Flow) Cash flow provides focus on generating cash in the short term to fund operations and research and to return funds to shareholders in the form of dividends and share repurchases; focuses managers on expense control and on improvement in working capital; and is a strong link to long-term shareholder value creation.

 

* See “Financial Measures” on page 102 for a reconciliation of U.S. GAAP numbers to these objectives for annual incentive purposes and “Financial Results for Annual Incentive Purposes” on page 73 for additional information.

 

As in prior years, the Committee considered other metrics, such as return on equity, return on assets, return on invested capital, and economic value added as potential measures under our annual incentive plan, but determined that the metrics selected—total revenue, adjusted diluted EPS and cash flow—were better suited for a biopharmaceutical company, whose business is characterized by long lead times and significant uncertainties relating to product development. The Committee also believes that the alternative metrics lacked clear line of sight for employees and therefore are not appropriate measures for Pfizer’s annual incentive plan.

 

TARGET SETTING

 

The target annual incentive award opportunity for our NEOs represents a percentage of salary grade midpoint. Target annual incentive award levels are reviewed annually to ensure alignment with our compensation philosophy to target each compensation element and total direct compensation at the market median and are based on an evaluation of competitive market data and internal equity among the members of our ELT. For 2013, target annual incentive opportunities for the NEOs ranged from 90% to 150% of salary midpoint, as indicated under “2013 Annual Cash Incentive Awards” below.

 

72 2014 PROXY STATEMENT
 

COMPENSATION DISCUSSION AND ANALYSIS

 

FINANCIAL RESULTS FOR ANNUAL INCENTIVE PURPOSES

 

The annual incentive awards were based on both individual performance and the achievement of target goals for total revenue, adjusted diluted EPS and cash flow set by the Committee for annual incentive purposes. These targets for compensation purposes were set by the Committee in the first quarter of 2013 based on its evaluation of the budgeted amounts and its determination that there was a sufficient degree of stretch in the targets. The 2012 amounts below exclude the results from Pfizer’s Nutrition business and the 2013 amounts below exclude the results from Pfizer’s Animal Health and Nutrition businesses. The Nutrition business was sold in 2012 and the separation of Zoetis (the animal health business) occurred in 2013 through a two-step process, consisting of: an initial public offering (February 2013) and a share exchange offer (June 2013).

 

Financial Objectives (For Annual Incentive Purposes) 2012 Results(a) 2013 Threshold(a) 2013 Target(a) 2013 Results(a)
Total Revenue(b) $59.2 Billion $48.0 Billion $52.5 Billion $52.4 Billion
Adjusted Diluted EPS(c) $2.26 $1.94 $2.14 $2.24
Cash Flow from Operations(d) $18.4 Billion $14.5 Billion $18.0 Billion $17.8 Billion

 

(a) Data adjusted to reflect the sale of our Nutrition business and separation of Zoetis, respectively. Results for 2012 have not been restated for the treatment of Animal Health as a discontinued operation.
(b) Total revenue for annual incentive purposes is based on budgeted foreign exchange rates. Therefore, 2013 and 2012 results differ from U.S. GAAP revenue of $51.6 billion and $59.0 billion, respectively. See “Financial Measures” for a reconciliation of U.S. GAAP revenue to total revenue for 2013 and 2012 for annual incentive purposes.
(c) Adjusted diluted EPS for annual incentive purposes is based on budgeted foreign exchange rates and excludes certain non-recurring items. See “Financial Measures” for a reconciliation of U.S. GAAP diluted EPS to the adjusted diluted EPS for 2013 and 2012 for annual incentive purposes.
(d) 2013 Targets and Results exclude certain tax and other discretionary timing items for compensation purposes (non-GAAP amounts).

 

See “Financial Measures” for reconciliations of 2013 and 2012 U.S. GAAP revenues and U.S. GAAP diluted EPS to non-GAAP total revenue and non-GAAP adjusted diluted EPS for annual incentive purposes. Adjusted diluted EPS is defined as U.S. GAAP diluted EPS excluding purchase-accounting adjustments, acquisition-related costs, discontinued operations and certain significant items. Non-GAAP total revenue and non-GAAP adjusted diluted EPS for annual incentive purposes are not, and should not be viewed as, substitutes for U.S. GAAP revenues and U.S. GAAP diluted EPS, respectively.

 

Since actual annual incentive amounts are based on Pfizer’s performance and the Committee’s assessment of each executive’s level of achievement against his or her specified goals, an executive’s annual incentive award may be more or less than target. However, for annual incentive awards to be deductible under Internal Revenue Code (IRC) Section 162(m), the total amount of any annual incentive that can be paid to an executive officer in any one year is limited to a maximum of 0.3% of Pfizer’s “adjusted net income” (defined for this purpose as operating income from continuing operations, reduced by taxes and interest expense, and adjusted for any one-time gains or other non-recurring events). See “Evaluating Performance” for a more complete description of how Company and individual performance are evaluated against stated objectives and “Other Compensation Policies—Tax Policies” for further information on our policy on IRC Section 162(m).

 

ANNUAL INCENTIVE AWARDS (CASH)

 

Annual incentives for 2013 were determined by the Committee in February 2014. The Committee reviewed Mr. Read’s performance for 2013 (see “Evaluating Performance”), with input from the other independent members of the Board and with advice from the Committee’s independent consultant, and determined his 2013 annual incentive award. Mr. Read submitted 2013 annual incentive award recommendations to the Committee for each of the other ELT members (including the other NEOs (including the Former NEOs)), based on his evaluation of their individual performance (see “Evaluating Performance”) and the performance of their respective Business Unit/Function. The Committee, with input from the other independent members of the Board and the Committee’s independent consultant, reviewed these recommendations and considered its evaluation of each executive’s performance, and his or her relative contribution to the Company’s overall performance, to determine the amounts awarded. The awards for the CEO and other ELT members (including the other NEOs) were ratified by the independent members of the Board.

 

Annual incentive award targets and payout ranges for 2013, as well as the actual annual incentive award payouts for each of the NEOs, are shown in the table below. Actual annual incentive awards are determined based on objective performance measures for the Company (see “Financial Results for Annual Incentive Purposes”) and adjusted for individual and Business Unit/Function performance.

 

2014 PROXY STATEMENT 73
 

COMPENSATION DISCUSSION AND ANALYSIS

 

2013 ANNUAL CASH INCENTIVE AWARDS

 

Name   Target Payout As a %
of Salary Midpoint
  Payout Range As a %
of Salary Midpoint
  Target Award
($)
  Maximum Award
($)(1)
  Actual Award
($)
I. Read   150%   0-300%   2,639,300   5,278,600   3,400,000
F. D’Amelio   100%   0-200%   1,147,500   2,295,000   1,650,000
M. Dolsten   100%   0-200%   1,147,500   2,295,000   1,340,000
G. Germano   90%   0-180%   936,400   1,872,800   1,075,000
J. Young   90%   0-180%   936,400   1,872,800   1,075,000
O. Brandicourt(2)   90%   0-180%   780,300   1,560,600   780,300
A. W. Schulman(3)   90%   0-180%   936,400   1,872,800   936,400

 

(1) Maximum award is 200% of target award.
(2) Full year target award was $936,400; prorated target award is $780,300.
(3) Ms. Schulman is eligible for a full year target award under the terms of the bonus plan.

 

LONG-TERM INCENTIVE AWARDS (EQUITY)

 

Long-term incentive compensation for our ELT (including the NEOs) is delivered entirely in the form of equity awards. In February 2013, executives received long-term equity incentive awards consisting of TSRUs, PSAs, and RSUs. Each executive’s long-term incentive grant value (including the NEOs) was equally divided among 5- and 7-Year TSRUs, PSAs, and RSUs (see “Elements of Executive Compensation”).

 

The 2013 grant value of each NEO’s long-term equity incentive award was set by the Committee based on competitive market data, relative duties and responsibilities, the individual’s future advancement potential, and his or her impact on Pfizer’s results; the awards were also used for retention purposes. These grant values (which differ from the accounting values shown in the 2013 Summary Compensation Table due to the timing of the awards) were as follows:

 

Name 2013 Long-Term Incentive Award (Millions)  
  5-Year
TSRUs ($)
7-Year
TSRUs ($)
PSAs ($) RSUs ($) Total Award
Value ($)
I. Read 2.95 2.95 2.95 2.95 11.8
F. D’Amelio 0.95 0.95 0.95 0.95 3.8
M. Dolsten 0.90 0.90 0.90 0.90 3.6
G. Germano 0.75 0.75 0.75 0.75 3.0
J. Young 0.55 0.55 0.55 0.55 2.2
O. Brandicourt 0.70 0.70 0.70 0.70 2.8
A. W. Schulman 0.75 0.75 0.75 0.75 3.0

 

Our long-term equity awards are structured to align our executives’ interests with the interests of our shareholders and to emphasize the Committee’s expectation that our executive officers focus their efforts on improving Pfizer’s TSR, both on an absolute basis (through TSRUs as the value realized from the TSRUs is consistent with the value received by Pfizer’s shareholders) and on a relative basis (through PSAs, which are earned based on Pfizer’s TSR compared to peer companies in the pharmaceutical industry). RSUs are full value shares with dividend equivalents and are used for their retention value.

 

2013 long-term incentive grant values represent a significant percentage of the compensation for our NEOs—70% for the CEO and approximately 55% for the other NEOs. At the time of grant, the Committee awards these values based on an evaluation of competitive market data and internal equity. At the time the equity is ultimately earned by the executive, the value realized is directly linked to Company performance and aligned with the interests of our shareholders—the value of PSAs over the three-year performance period is realized based on relative TSR, the value of TSRUs over the 5- and 7-year performance periods is realized based on absolute TSR and the value of RSUs is tied to stock price upon vesting plus reinvested dividends during their term.

 

Total Shareholder Return Units (TSRUs)

 

TSRUs, which deliver value based on total shareholder return, vest three years following the date of grant and settle on the fifth or seventh anniversary of the grant date. The value delivered equals the difference between the settlement price and the grant price (both as described below), plus dividend equivalents accumulated during the term. The grant price is the closing stock price on the date of grant (for the TSRUs granted on February 28, 2013, $27.37 per share) and the settlement price is the 20-day average of the closing prices ending on the fifth or seventh anniversary of the grant. The value is delivered in shares of Pfizer common stock.

 

Performance Share Awards (PSAs)

 

PSAs link ultimate payout to Pfizer’s cumulative relative TSR (including reinvested dividends) over a three-year period as compared to our pharmaceutical peer group. In 2013, our pharmaceutical peer group consists of AbbVie, Amgen, AstraZeneca, Bristol-Myers Squibb, Eli Lilly, GlaxoSmithKline, Johnson & Johnson, Merck, Novartis, Roche and Sanofi. The payout ranges from 0% to 200% of target. If TSR is negative in the absolute (i.e., the decrease in the value of the stock exceeds the dividend equivalents), then the

 

74 2014 PROXY STATEMENT
 

COMPENSATION DISCUSSION AND ANALYSIS

 

number of shares awarded can in no event exceed the target amount regardless of Pfizer’s relative ranking. The award payout is determined by the Committee based on performance. As part of this determination, the Committee, in its sole discretion, may adjust the payout percentage downward to a percentage not less than the bottom of the payout range. In no event will the payout exceed the maximum payout for the respective range.

 

Performance Share Award Payout Matrix

 

Tier Ranking Payout Range
1 1st or 2nd 166% – 200%
2 3rd or 4th 133% – 166%
3 5th or 6th 100% – 133%
4 7th or 8th 66% – 100%
5 9th or 10th 33% – 66%
6 11th or 12th 0%

 

The Committee continues to believe that TSR is the most appropriate measure of relative performance in relation to Pfizer’s business objectives and therefore selected relative TSR as the sole performance measure for the 2013-2015 PSA performance cycle. In the Committee’s view, our relative TSR compared with the pharmaceutical peer group remains a strategic priority.

 

During the shareholder outreach meetings, a few shareholders asked about the Performance Share Award Payout matrix; management shared this question with the Committee. As a result, the Committee requested that its independent compensation consultant review the existing matrix and benchmark it against Pfizer’s pharmaceutical and general industry comparators and to determine whether the use of a broader comparator group was warranted. Based on the review, the Committee concluded that the matrix provides payouts consistent with those used by comparable companies and the use of the pharmaceutical peer group continues to be appropriate. Therefore, the Committee made no changes to the existing matrix.

 

2011 Performance Share Awards

 

Our 2011 long-term equity incentive grants to our executives, including the NEOs, also included PSAs that were earned in 2013 based on the above matrix.

 

Pfizer’s performance over the three-year period (2011-2013) resulted in a relative performance ranking of 5th (Tier 3), resulting in a payout ranging from 100% to 133% of target. In February 2014, the Committee approved a payout at 125% of target as shown below due to the Company’s strong TSR performance:

 

Performance Share Award Payout for the 2011-2013 Performance Award Cycle

 

Name Target Award
At Grant (#)
Actual Award
Shares(1) (#)
Actual Award Value At
$31.99 Per Share(2) ($)
I. Read 132,345 179,394 5,738,814
F. D’Amelio 47,644 64,581 2,065,946
M. Dolsten 47,644 64,581 2,065,946
G. Germano 37,057 50,231 1,606,890
J. Young 11,911 16,145 516,479
O. Brandicourt(3) 37,057 44,963 1,438,366
A. W. Schulman 39,704 53,819 1,721,670

 

(1) These amounts include accumulated dividends on 125% of the target award for the three-year period, converted into shares at $31.99 per share.
(2) This column represents the actual award value based on a stock price of $31.99 on February 26, 2014, the date the Committee approved the payout.
(3) Dr. Brandicourt’s full target award at grant was 37,057; in connection with his October 2013 termination, this target award was prorated to the amount of 33,170.

 

2014 PROXY STATEMENT 75
 

COMPENSATION DISCUSSION AND ANALYSIS

 

EARLY 2014 COMPENSATION ACTIONS

 

SALARY AND ANNUAL INCENTIVE TARGETS

 

In February 2014, the Committee approved 2014 salaries and target annual incentive award levels for the NEOs as follows:

 

Name  Year-End 2013  January 1, 2014  April 1, 2014          
   Salary  Salary  Salary  2014 Salary  2014 Target Annual  2014 Target Annual 
   ($)  ($)  ($)  Midpoint ($)(3)  Incentive (%)  Incentive ($)(4) 
I. Read   1,785,000   1,785,000   1,825,000   1,794,700   150%   2,692,100 
F. D’Amelio   1,250,000   1,250,000   1,275,000   1,170,500   100%   1,170,500 
M. Dolsten   1,155,000   1,155,000   1,185,000   1,170,500   100%   1,170,500 
G. Germano(1)   935,000   1,150,000   1,150,000   1,170,500   100%   1,170,500 
J. Young(1)   820,000   1,040,000   1,040,000   1,170,500   100%   1,170,500 
A. W. Schulman(2)   962,000   962,000   962,000   1,061,200   90%   955,100 

 

(1) Messrs. Germano and Young received salary increases in January 2014 (rather than as part of the usual April 1 cycle) as a result of their assumption of new responsibilities effective January 2014.
(2) Ms. Schulman will not receive a merit increase in 2014 and her salary is therefore unchanged from 2013. Upon successful completion of a transition period, she will be eligible for a prorated annual incentive award for 2014 under the terms of the GPP.
(3) Reflective of the market, the 2014 salary midpoints were increased by 2%; the last change was in 2012.
(4) Also reflective of the market, 2014 target annual incentive amounts have increased by 2% as they are based on a percentage of 2014 salary range midpoints.

 

2014 LONG-TERM EQUITY INCENTIVE AWARDS

 

In February 2014, the Committee granted long-term equity incentive awards to the NEOs in consideration of their 2013 performance and their expected future performance. These awards included 5- and 7-Year TSRUs, PSAs and RSUs.

 

Name  Performance Period   Estimated Future Payouts Under the  5-Year  7-Year  RSU 
   (Or Other Period   Performance Share Program(1) PSA Grants  TSRU  TSRU  Grant(6) 
   Maturation or   Threshold(2)   Target(3)  Maximum(2)  Grant(4)  Grant(5)  (#) 
   Payment Period)   (#)   (#)  (#)  (#)  (#)    
I. Read  1/1/14 – 12/31/16  0  100,031   200,062   548,885   437,158   100,031 
F. D’Amelio  1/1/14 – 12/31/16  0  33,214   66,428   182,247   145,150   33,214 
M. Dolsten  1/1/14 – 12/31/16  0  28,915   57,830   158,662   126,366   28,915 
G. Germano  1/1/14 – 12/31/16  0  28,134   56,268   154,374   122,951   28,134 
J. Young  1/1/14 – 12/31/16  0  28,134   56,268   154,374   122,951   28,134 
A. W. Schulman(7)  1/1/14 – 12/31/16  0  0   0   0   0   0 

 

(1) The actual number of shares, if any, that will be paid out at the end of the performance period cannot be determined because the shares earned by the NEOs will be based upon our future performance compared to the future performance of the pharmaceutical peer group. Dividend equivalents on any shares earned will be paid in shares of common stock at the end of the performance period.
(2) Based on performance compared to the performance of our pharmaceutical peers, varying amounts of shares of common stock, from 0% to 200%, will be earned. The Committee will apply the matrix (see “Performance Share Awards (PSAs)” elsewhere in this CD&A), subject to negative discretion, to determine the payout. In no event will the payout exceed the maximum payout of the respective range.
(3) The target amounts represent 25% of the value of the long-term incentive grant.
(4) 5-Year TSRUs vest on the third anniversary of the grant date (February 27, 2017) and will be settled in shares on the fifth anniversary of the grant date (February 27, 2019). The number of shares delivered at settlement, if any, for each TSRU will equal the difference between the settlement price (the average of the closing prices of Pfizer common stock for the 20 trading days ending February 27, 2019) and the TSRU grant price ($32.23), plus dividend equivalents accrued during the life of the TSRU, divided by the settlement price, subject to the results being positive.
(5) 7-Year TSRUs vest on the third anniversary of the grant date (February 27, 2017) and will be settled in shares on the seventh anniversary of the grant date (February 27, 2021). The number of shares delivered at settlement, if any, for each TSRU will equal the difference between the settlement price (the average of the closing prices of Pfizer common stock for the 20 trading days ending February 27, 2021) and the TSRU grant price ($32.23), plus dividend equivalents accrued during the life of the TSRU, divided by the settlement price, subject to the results being positive.
(6) RSUs vest and are settled on the third anniversary of the grant date (February 27, 2017). Dividend equivalent units are reinvested as additional RSUs during the restricted period.
(7) Ms. Schulman ceased to be an executive officer (see “Separation of Former NEOs” elsewhere in this Proxy Statement) and is transitioning from the Company. As a result, she did not receive a long-term incentive award in 2014.

NOTE: Consistent with historical practice, long-term incentive award values are converted into units using the closing stock price on the first trading day of the week of grant. The PSA and RSU values were converted to units using the closing stock price on February 24, 2014 of $31.99. The 5-Year TSRU values were converted to TSRUs using $5.83 and the 7-Year TSRU values were converted to TSRUs using $7.32, representing the estimated value at grant using the Monte Carlo Simulation model as of February 24, 2014.

 

EQUITY AWARD GRANT PRACTICES

 

The Committee customarily grants equity awards to eligible employees, including the NEOs, at its meeting held in late February of each year. Equity grants to certain newly hired employees, including executive officers, are effective on the last business day of the month of hire. Special equity grants to continuing employees are effective on the last business day of the month in which the award is approved. Stock option and TSRU grants have an exercise/grant price equal to the closing market price of Pfizer’s common stock on their grant date. Our equity incentive plan prohibits the repricing or exchange of equity awards without shareholder approval.

 

76 2014 PROXY STATEMENT
 

COMPENSATION DISCUSSION AND ANALYSIS

 

SECTION 2 – 2013 COMPENSATION

OUR COMPENSATION FRAMEWORK

 

PHILOSOPHY, GOALS AND PRINCIPLES OF OUR EXECUTIVE COMPENSATION PROGRAM

 

The Committee believes that Pfizer’s executive compensation program achieves the goals of our executive compensation philosophy. That philosophy, which is set by the Committee, is to align each executive’s compensation with Pfizer’s short- and long-term performance and to provide the compensation and incentives needed to attract, motivate and retain key executives who are crucial to Pfizer’s long-term success. A significant portion of the total compensation opportunity for each of our executives (including the NEOs) is directly related to Pfizer’s total shareholder return and to other performance factors that measure our progress against the goals of our strategic and operating plans, as well as our performance against that of our pharmaceutical peer group and general industry comparators with consideration of company market capitalization and complexity as indicated by revenues, range of products, international operations and other factors because we use such factors in setting target levels of compensation and determining the value or level of awards granted.

 

We seek to implement our philosophy and achieve the goals of our program by following three key principles:

 

positioning total direct compensation and each compensation element at approximately the median of our peer and general industry comparator companies, with consideration of relative company market capitalization and complexity;
aligning annual incentive awards with annual operating financial and strategic objectives;and
rewarding absolute and relative performance in TSR through long-term equity incentive awards.

 

APPLYING OUR COMPENSATION PHILOSOPHY, GOALS AND PRINCIPLES

 

We apply our compensation philosophy, goals and principles as follows:

 

We closely align our executive compensation structure with the median compensation of both a peer group of U.S.-based pharmaceutical companies and of general industry comparators with consideration of company market capitalization and complexity as indicated by revenues, range of products, international operations and other factors. Within the executive compensation structure, each element of total direct compensation is similarly aligned, including our salary midpoints and target annual short- and long-term incentive award values. An executive’s pay may be higher or lower than the targeted structure depending primarily on corporate, Business Unit/Function, and individual performance; experience and advancement potential; and internal equity.
   
Our GPP, or annual incentive program, utilizes a pool that is funded based on Pfizer’s performance on three financial metrics: revenue, adjusted diluted EPS, and cash flow. The pool funding percentage ranges from 0% to 200% of target award levels; however, the pool is not funded unless performance exceeds a threshold level (the threshold levels are shown in the “Financial Objectives” chart under “Financial Results for Annual Incentive Purposes” earlier in this CD&A). Earned individual payouts also range from 0% to 200% of target and reflect allocations from the available earned pool based on corporate, Business Unit/Function, and individual performance.
   
Awards under our Executive Long-Term Incentive Program are aligned with the interests of our shareholders because they deliver value based on absolute and relative shareholder return, encourage stock ownership and promote retention of key talent.
   
Our executive compensation structure is designed to deliver a significant portion of our executives’ total direct compensation in the form of long-term equity incentive awards, with targets ranging from approximately 60% to 70% of total direct compensation for our NEOs.

 

Further details concerning how we implement our philosophy and goals, and how we apply the above principles to our compensation program, are provided throughout this CD&A. In particular, we discuss how we set compensation targets and other objectives and evaluate performance against those targets and objectives to assure that performance is appropriately rewarded.

 

2014 PROXY STATEMENT 77
 

COMPENSATION DISCUSSION AND ANALYSIS

 

COMPETITIVE POSITIONING

 

Creating an Executive Compensation Framework

 

In support of our compensation philosophy, we target the median compensation values of both a peer group of U.S. based pharmaceutical companies and a general industry comparator group to determine an appropriate total value and mix of pay for our executives. We include general industry comparators because Pfizer’s size, revenue, assets, and market capitalization are more closely aligned with these general industry comparators. Both groups were chosen because they are a source of talent, based on the complexity of their businesses as well as the availability of comparative data. They define the market for benchmarking and pay positioning, which serves to attract and retain senior executive leaders for both pharmaceutical and general industry roles. The Committee reviews these peer groups on an annual basis. In light of Abbott separating its research-based pharmaceutical business to create AbbVie, effective January 1, 2013, the Committee reviewed the pharmaceutical peer group and as a result, in 2013, AbbVie replaced Abbott in our pharmaceutical peer group. No other changes were made in 2013.

 

2013 PHARMACEUTICAL PEER GROUP    
             
AbbVie   Bristol-Myers Squibb   Johnson & Johnson   Roche*
Amgen   Eli Lilly   Merck   Sanofi*
AstraZeneca   GlaxoSmithKline   Novartis*    

 

* The Committee recognizes that while data are available on the performance of our non-U.S.-based peer companies, the compensation data are limited in terms of comparable benchmarks and other information for certain non-U.S. peers.

 

2013 GENERAL INDUSTRY COMPARATOR GROUP
   
Alcoa   Comcast   Honeywell   United Parcel Service
Altria Group   Dell   IBM   United Technologies
Boeing   Dow Chemical   Lockheed Martin   UnitedHealth Group
Caterpillar   DuPont   PepsiCo   Verizon
Chevron   FedEx   Procter & Gamble   Walt Disney
Coca-Cola   General Electric   TimeWarner    

 

The chart below compares Pfizer’s 2013 revenue, net income and market capitalization to the median revenue, net income and market capitalization for our pharmaceutical peer group and general industry comparator group.

 

In Billions  Pfizer  Pharmaceutical Peer  General Industry 
      Group Median  Comparator Group Median** 
Revenue*  $51.6  $24.4  $56.4 
Reported Net Income*  $22.0  $4.5  $5.2 
Market Capitalization*  $204.5  $85.7  $92.6 

 

* Revenue and Net Income based on published earnings releases. Market Capitalization as of February 20, 2014.
** Excludes Dell which became a private company on October 29, 2013.

 

Applying the Compensation Framework to Executive Positions

 

The Committee uses median compensation data for similar positions in both the pharmaceutical peer and general industry comparator groups as a guide in setting compensation targets for each execut