DEF 14A 1 mcdonalds3170981-def14a.htm DEFINITIVE PROXY STATEMENT

Table of Contents

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 (Amendment No. )

Filed by the Registrant 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))
Definitive Proxy Statement
  Definitive Additional Materials
Soliciting Material Under Rule 14a-12

McDonald's Corporation

(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):
  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

 

 

McDonald’s Corporation

NOTICE OF 2017 ANNUAL MEETING
AND PROXY STATEMENT

 

 

 

 

 

 

 

 

 

 

 

 



Table of Contents




A LETTER TO OUR SHAREHOLDERS
FROM THE CHAIRMAN OF THE BOARD

Dear Fellow McDonald’s Shareholders,

Following last year’s Annual Shareholders’ Meeting, I was honored to be elected as Chairman by your Board of Directors. In my new role, I have focused my efforts on furthering the Board's commitment to enhancing shareholder value.

I am pleased to update you on the Company’s progress as we transition from revitalizing the McDonald’s Brand to strengthening the business for long-term sustainable growth.

2015-2016 business performance. The Board named Steve Easterbrook as President and CEO in 2015, with a mandate that he lead a turnaround of the McDonald’s business. We knew we had to change, for our customers and our shareholders. As the turnaround strategy evolved into action, the last eighteen months proved to be a time of purposeful change, fueled by four key areas of focus.

First, the Company restructured the business around four operating segments, becoming a more efficient organization. The Board and Steve built a strong leadership team, including naming presidents for each new segment, as well as new leaders in key areas such as strategy, people, marketing and communications. Including Steve, all are thoughtful innovators, passionate about McDonald’s and willing to challenge the status quo. Second, management embarked on a plan to refranchise 4,000 restaurants by the end of 2018, bolstering McDonald’s outstanding network of dedicated and independent franchisees and developmental licensees. The Company is well on its way to achieving the plan and will likely meet this goal by the end of 2017. Third, the Company targeted $500 million of net G&A savings by the end of 2018, supported in large part by the refranchising strategy as well as a more stringent discipline around spending throughout the Company. We have made meaningful progress on this initiative and are on track to achieve this target by the end of 2018. Fourth was the completion of our three-year plan to return $30 billion to shareholders by the end of 2016. That target was achieved, including the return of more than $14 billion to shareholders in 2016 - $11 billion of share repurchases and more than $3 billion in dividends, including a 6% dividend increase in the fourth quarter.

Quite simply, McDonald’s is now more focused, forward looking, fit for purpose and committed to sustaining operating growth. All of these purposeful changes resulted in improved financial results for 2016, notably our strongest year of global comparable sales since 2011. We also increased operating income and earnings per share, and grew restaurant cash flows worldwide. On behalf of the Board, I can state with confidence that Steve is the right leader for McDonald’s, and that he and his team are well-positioned to build on the success of 2016.

Board composition and structure. Our Board reflects a diverse, engaged group of Directors with relevant skills and backgrounds to oversee the McDonald’s business now and into the future. Since 2015, we have added four new Directors to the Board and four Directors retired, ensuring an appropriate mix of tenure that provides fresh perspectives balanced with institutional knowledge as we accelerate growth. Dr. Walter Massey will be retiring from the Board and not standing for re-election in 2017. We thank Walter for his 19 years of dedicated service to McDonald’s and our shareholders.

Our Governance Committee continues to utilize a comprehensive process to identify potential Director candidates who can contribute to the overall effectiveness of the Board as the need arises. We also have a robust Board evaluation process that includes regular self-assessment and Director peer review. We remain committed to ensuring that we have the right Directors in place to oversee the Company’s business and serve the interests of McDonald’s shareholders well into the future.

After becoming Chairman, I established a new Public Policy & Strategy Committee of the Board, designed to provide attentive oversight and counsel to management on the Company’s short- and long-term strategies, as well as on other matters that could affect McDonald’s iconic Brand. We also took the opportunity to rotate our other Committee memberships and most Committee Chairs, resulting in refreshing dialogue and renewed energy for all of the Directors. One thing that has not changed is our commitment to strong governance practices that appropriately balance the interests of the Company and our shareholders.

McDonald’s Corporation      

03




Table of Contents







 

2017 and beyond. On March 1 of this year, I was pleased to participate in the Company’s announcement of our new global “customer-centric” growth plan during a McDonald’s Investor Day event in Chicago. Steve and his team outlined the plan, new financial targets and initiatives to unlock meaningful growth and increase guest counts. Briefly, the plan focuses on enhancing digital capabilities and technology to elevate the customer experience; redefining customer convenience through delivery; accelerating deployment of Experience of the Future restaurants in the U.S.; initiating a new $22-24 billion target for cash return to shareholders for the three-year period ending 2019; and establishing new financial performance targets beginning in 2019.

We are optimistic about the trajectory of McDonald’s growth opportunities and the focus on efforts to build and sustain profitable, long-term growth. On behalf of the Board of Directors, I thank you for your continued support.

See you in the restaurants.

Sincerely,

Enrique Hernandez, Jr.
Chairman of the Board

04

      2017 Proxy Statement



Table of Contents




NOTICE OF THE ANNUAL
SHAREHOLDERS' MEETING


Time and Date:
8:30 a.m. Central Time on Wednesday, May 24, 2017

Place:
The Prairie Ballroom at The Lodge at McDonald’s Office Campus
2815 Jorie Boulevard, Oak Brook, Illinois 60523

Record Date:
March 27, 2017

Voting:
Shareholders as of the record date are entitled to vote. Each share of common stock is entitled to one vote for each Director position and one vote for each of the other proposals.

To McDonald’s Corporation Shareholders:
McDonald’s Corporation will hold its 2017 Annual Shareholders’ Meeting (Annual Meeting or Annual Shareholders’ Meeting) on Wednesday, May 24, 2017, at 8:30 a.m. Central Time in the Prairie Ballroom at The Lodge at McDonald’s Office Campus, Oak Brook, Illinois. The registration desk will open at 7:30 a.m. At the meeting, shareholders will be asked to consider and vote upon the following proposals:

     1.      Election of 11 Directors named in the Proxy Statement, each for a one-year term expiring in 2018;
2. Advisory vote to approve executive compensation;
3. Advisory vote on the frequency of future advisory votes to approve executive compensation;
4. Approval of the material terms of the performance goals for awards under the McDonald’s Corporation 2012 Omnibus Stock Ownership Plan;
5. Advisory vote to approve the appointment of Ernst & Young LLP as independent auditor for 2017; and
6. Advisory votes on seven shareholder proposals, if properly presented.

In addition, we will transact any other business properly presented at the meeting, including any adjournment or postponement thereof, by or at the direction of the Board of Directors.

Your Board of Directors recommends that you vote FOR the Board’s nominees for the election of Directors, FOR the approval of our executive compensation, in favor of a ONE YEAR advisory vote on executive compensation, FOR the approval of the material terms of the performance goals for awards under the 2012 Omnibus Stock Ownership Plan, FOR the approval of the appointment of the independent auditor and AGAINST all of the shareholder proposals.

To listen to the live audiocast of the Annual Meeting, go to www.investor.mcdonalds.com and click on the appropriate link. The Annual Meeting audiocast will be available for a limited time after the meeting.

Seating at the Annual Meeting is very limited. If you plan to attend the meeting in person, you must pre-register with McDonald’s Shareholder Services prior to the meeting. See page 86 for information about how to pre-register.

  By order of the Board of Directors,

Jerome N. Krulewitch
Corporate Secretary
Oak Brook, Illinois
April 13, 2017

Your vote is important
Please consider the issues presented in this Proxy Statement and vote your shares as promptly as possible.

Internet

www.proxyvote.com

Telephone

800-690-6903
Dial toll-free 24/7

Mail

If you received a proxy/ voting instruction card by mail, you can mark, date, sign and return it in the postage-paid envelope furnished for that purpose.


The Company will provide the Notice of Internet Availability, electronic delivery of the proxy materials or mailing of the 2017 Proxy Statement, the 2016 Annual Report on Form 10-K and a proxy card to shareholders beginning on or about April 13, 2017.


McDonald’s Corporation      

05




Table of Contents






TABLE OF CONTENTS


3    Chairman’s letter
5 Notice of the Annual Shareholders’ Meeting  
8 Proxy summary
13 Election of Directors
13 PROPOSAL NO. 1. Election of Directors
14 Director qualifications       15     Biographical information 
 
21 Board and governance matters
21 Independent Chairman 25 Executive sessions
21 Composition 25 Board Committees
22 Board succession planning 30 Risk oversight
22 Evaluations 31 Shareholder engagement
23 Selection of Director candidates 32 Board’s response to shareholder proposals
23 Board diversity 32 Corporate governance principles
24 Director independence 32 Code of conduct for the Board of Directors
24 Management succession planning 32 Director compensation
24 Meeting attendance
 
34 Executive compensation
34 Compensation Committee Report 54 PROPOSAL NO. 3. Advisory vote on the frequency of future advisory votes to approve executive compensation
34 Compensation Discussion and Analysis 55 PROPOSAL NO. 4. Approval of the material terms of the performance goals for awards under the McDonald’s Corporation 2012 Omnibus Stock Ownership Plan
44 Compensation tables 57 Equity compensation plan information
54 PROPOSAL NO. 2. Advisory vote to approve executive compensation
 
58 Audit & Finance Committee matters
58 Audit & Finance Committee Report 59 Auditor fees and services
59 Policy for pre-approval of audit and permitted non-audit services 60 PROPOSAL NO. 5 Advisory vote to approve the appointment of Ernst & Young LLP as independent auditor for 2017
 
61 Shareholder proposals
61 PROPOSAL NO. 6 Advisory vote on a shareholder proposal requesting a change to the vote-counting standard for shareholder proposals 70 PROPOSAL NO. 10 Advisory vote on a shareholder proposal requesting the Board to update the Company’s policy regarding use of antibiotics by its meat suppliers
64 PROPOSAL NO. 7 Advisory vote on a shareholder proposal regarding the threshold to call special shareholder meetings 73 PROPOSAL NO. 11 Advisory vote on a shareholder proposal requesting a report assessing the environmental impacts of polystyrene foam beverage cups
66 PROPOSAL NO. 8 Advisory vote on a shareholder proposal to issue a class of preferred stock with the right to elect its own Director 75 PROPOSAL NO. 12 Advisory vote on a shareholder proposal requesting a report on charitable contributions
68 PROPOSAL NO. 9 Advisory vote on a shareholder proposal requesting that the Board make all lawful efforts to implement and/or increase activity on the Holy Land Principles

06

      2017 Proxy Statement



Table of Contents

Table of Contents

77    Stock ownership            
77 Director stock ownership guidelines and stock ownership and retention policy for senior officers 77 Security ownership of certain beneficial owners
77 Section 16(a) beneficial ownership reporting compliance 78 Security ownership of management
 
79 Transactions with related persons
79 Policies and procedures for related person transactions 79 Related person transaction
 
80 Communications
80 Communications with the Board of Directors and non-management Directors 81 Shareholder proposals for inclusion in next year’s Proxy Statement
80 Consideration of Director nominations for the 2018 Annual Shareholders’ Meeting 81 Other shareholder proposals for presentation at the 2018 Annual Shareholders’ Meeting
  
82 Solicitation of proxies and voting
82 Notice and access 83 Voting tabulation
82 Record date 83 Registered shareholders
82 Voting prior to the Annual Shareholders’ Meeting 83 Beneficial holders
82 Voting at the Annual Shareholders’ Meeting 84 Proxy solicitation
82 Quorum 84 Confidential voting
 
85 Additional information
85 McDonald’s Corporation Annual Report on Form 10-K, other reports and policies 85 Householding of Annual Shareholders’ Meeting materials
  
86 Information about registering for and attending the Annual Shareholders’ Meeting
86 Pre-registration and admission policy

McDonald’s Corporation      

07




Table of Contents

 


PROXY
SUMMARY

This summary contains highlights about the Company and the upcoming 2017 Annual Shareholders’ Meeting. This summary does not contain all of the information that you should consider in advance of the meeting, and we encourage you to read the entire Proxy Statement and our 2016 Annual Report on Form 10-K carefully before voting.

NEW CUSTOMER-CENTRIC GROWTH STRATEGY

Velocity Growth Plan

  *   Long-term, average annual constant currency targets, beginning in 2019.  

On March 1, 2017, the Company announced its new “Velocity Growth Plan,” shifting its focus from turnaround to growth. We are going after the tremendous opportunity at the core of our business by building a better McDonald’s, not a different one. Our actions are focused on tapping into our unique competitive advantages – unmatched global scale, iconic Brand and local market presence.

08

      2017 Proxy Statement



Table of Contents

       Proxy Summary

Specifically, the three pillars of the new strategy are to:

At the same time, we remain relentlessly focused on the fundamentals of running great restaurants. As important as what we do is what we do not do – we are concentrating on our biggest opportunities and not doing the smaller things. We are building a Brand that makes delicious feel good moments easy for everyone. We have a keen sense of who we are, the customers we serve and what we will do to win back our customers.

GOVERNANCE HIGHLIGHTS

Our Board continues to evolve, including with the election of a new independent Chairman. As always, the Board continues to review, evaluate and enhance our governance. This is informed by feedback received from shareholders and evolving best practices, including:

Board refreshment. After the 2016 Annual Shareholders’ Meeting, the Board elected Enrique Hernandez, Jr. to be its next independent Chairman after the retirement of Andy McKenna. Mr. McKenna continues to advise the Board in his role as Chairman Emeritus. Later in 2016, Dr. Walter Massey announced that he would retire from the Board and not stand for reelection at the upcoming Annual Shareholders’ Meeting.

Committee refreshment. Following his election, Chairman Hernandez and the Board announced the creation of a new Board Committee – the Public Policy & Strategy Committee – to provide oversight and counsel to management on the Company’s short- and long-term strategies, as well as on other matters that could affect the McDonald’s iconic Brand. This action was complemented by the Board’s rotation of Committee members among the various standing Committees, and the appointment of new Chairs for each of the Audit & Finance, Compensation, Sustainability & Corporate Responsibility and Public Policy & Strategy Committees.

Shareholder engagement. Management continues to engage – together with participation from members of our Board – with a significant portion and variety of domestic and international shareholders, including index funds, union and public pension funds, actively-managed funds and socially-responsible investment funds. Over the past year, we have engaged with representatives of more than 30% of our outstanding shares on a variety of topics, including our turnaround and growth plans, board composition, corporate governance, executive compensation, and environmental and social issues.

BOARD OF DIRECTORS

Our current Board continues to reflect a diverse, highly-engaged group of Directors with a range of experiences.

Independence         Diversity         Experience
All independent,
except the CEO
>50% are women
or minorities
Fresh perspectives balanced
with institutional knowledge

McDonald’s Corporation      

09




Table of Contents

Proxy Summary       

Strong Board and Governance Practices

Separate Chairman and CEO roles, including a new independent Chairman elected in 2016       Ongoing shareholder outreach and engagement
Diverse, independent Board Annual election of Directors
New Public Policy & Strategy Committee Majority voting standard for uncontested Director elections
Committee memberships and Chairs refreshed in 2016 Proxy access for Director candidates nominated by shareholders
Board Committees are 100% independent (except Executive Committee) Shareholder right to call special meetings
Robust annual Board and Committee self-assessments and Director peer review Capital structure that requires one vote per share of common stock
Executive sessions of independent Directors generally scheduled for each regular Board meeting Regular succession planning at CEO, senior management and Board levels
Limited membership on other public company boards No shareholder rights plan
Stock ownership guidelines for Directors Public disclosure of corporate political contributions

The following table provides summary information about our Directors who are nominees for re-election at the 2017 Annual Shareholders’ Meeting. Additional information regarding our Directors may be found beginning on page 14.

Committee membership
Name     Director
since
    Primary occupation     Independent     AFC     CC     GC     SCR     PPS     EC
Lloyd Dean 2015 President and CEO
Dignity Health

 

Stephen Easterbrook 2015 President and CEO
McDonald’s
Robert Eckert 2003 Operating Partner
Friedman, Fleischer & Lowe
Margaret Georgiadis 2015 CEO
Mattel
Enrique Hernandez, Jr.
Chairman of the Board
1996 Chairman, President and CEO
Inter-Con Security Systems
Jeanne Jackson 1999 President, Senior Strategic Advisor
NIKE
Richard Lenny 2005 Non-executive Chairman
Information Resources
John Mulligan 2015 Executive Vice President and COO
Target
 
Sheila Penrose 2006 Non-executive Chairman
Jones Lang LaSalle
John Rogers, Jr. 2003 Founder, Chairman and CEO
Ariel Investments
Miles White 2009 Chairman and CEO
Abbott Laboratories
Number of Committee meetings held in 2016: 8 6 5 4 2 1
2016 average meeting attendance for Board of Director meetings: 95% 93% 89% 100% 100% 100% 67%
AFC = Audit & Finance Committee SCR = Sustainability & Corporate Responsibility Committee = Member
CC = Compensation Committee PPS = Public Policy & Strategy Committee = Committee Chair
GC = Governance Committee EC = Executive Committee = Financial Expert

10

      2017 Proxy Statement



Table of Contents

       Proxy Summary

EXECUTIVE COMPENSATION HIGHLIGHTS

Our executive compensation program is designed to support business initiatives, align the interests of our executives with those of our shareholders and strongly link pay and performance. We believe that our compensation program effectively incentivizes our executives through a mix of short- and long-term awards, which include rigorous performance goals that utilize objective metrics designed to drive the Company’s business strategy.

Below is a summary of our 2016 executive compensation program:

Key compensation
elements
      Performance-
based
      Primary metric       Key terms
Base Salary N/A Evaluated based on individual circumstances, including responsibility, performance and tenure
Short-Term Incentive Plan
(STIP)
Operating income growth Includes objective modifiers that can impact payouts
Stock Options Share price Vest 25% per year
10-year term
Performance-Based
Restricted Stock Units (RSUs)
Compound annual net income growth Cliff vest at end of three-year service period, subject to achievement of net income and ROIIC thresholds
Return on incremental invested capital (ROIIC)
Share price

The primary change from the Company’s 2015 executive compensation program was the elimination of our long-term cash incentive plan (Cash LTIP) moving forward. Beginning in 2016, long-term incentives will be delivered in generally equal economic proportions between performance-based RSUs and stock options to more closely align executive compensation with shareholder interests, and to better reflect market practice. Further, metrics for performance-based RSUs now include net income growth and ROIIC thresholds (versus earnings per share growth, which was used in prior years) to align executives with the Company’s new growth strategy.

Performance-based Compensation

    

90% of CEO direct
compensation
opportunity is ‘at risk’

              
195.5% payout for Corporate employees under 2016 STIP
15.6% payout under 2014-2016 Cash LTIP
35% vesting of 2014-2016 performance-based RSUs

81% of named
executive officers
direct compensation
opportunity is ‘at risk’


As further described in our Compensation Discussion and Analysis beginning on page 34, our turnaround efforts produced strong results in 2016, including:

3.8% increase in global comparable sales

8% (11% in constant currency) increase in operating income

13% (16% in constant currency) increase in diluted earnings per share


McDonald’s Corporation      

11




Table of Contents

Proxy Summary       

Demonstrating our strong pay-for-performance culture, the Company’s 2016 performance resulted in a Corporate STIP payout equal to 195.5% of target; however, as performance in prior years was not as strong, the 2014-2016 Cash LTIP paid out at 15.6% of target and only 35% of the 2014-2016 RSUs vested. The Company believes our 2016 incentive payouts highlight the appropriate balance of short- and long-term awards supported by challenging performance targets.

Our Compensation Committee adheres to the following best practices.

     
What We Do Strong pay-for-performance alignment
Challenging quantitative performance targets
Performance metrics align interests of management with interests of shareholders
Majority of direct compensation paid over the long term
Double-trigger change in control provisions
Independent compensation consultant
Significant stock ownership and retention requirements
Anti-hedging and pledging policy
Clawback provisions
           
What We
Don’t Do
No change in control agreements
No tax gross-up on perquisites
No repricing of stock options
No backdating of stock options
Do not encourage unreasonable risk taking
No employment agreements
     

VOTING MATTERS

Item       Matter to be voted on       Board
recommendation
      Page reference
(for more detail)
Management proposals
Proposal No. 1 Election of 11 Directors, each for a one-year term expiring in 2018 FOR each nominee 13
Proposal No. 2 Advisory vote to approve executive compensation FOR 54
Proposal No. 3 Advisory vote on the frequency of future advisory votes to approve executive compensation ONE YEAR 54
Proposal No. 4 Approval of the material terms of the performance goals for awards under the McDonald’s Corporation 2012 Omnibus Stock Ownership Plan FOR 55
Proposal No. 5 Advisory vote to approve the appointment of Ernst & Young LLP as independent auditor for 2017 FOR 60
Shareholder proposals
Proposal Nos. 6 – 12 Advisory votes on seven shareholder proposals, if properly presented AGAINST each proposal 61 - 76

12

      2017 Proxy Statement



Table of Contents

 


ELECTION OF
DIRECTORS

 
PROPOSAL NO. 1

Election of Directors

The Board of Directors recommends the following nominees for election to the Board of Directors for a one-year term beginning in May and continuing until the 2018 Annual Shareholders’ Meeting: Lloyd Dean; Stephen Easterbrook; Robert Eckert; Margaret Georgiadis; Enrique Hernandez, Jr.; Jeanne Jackson; Richard Lenny; John Mulligan; Sheila Penrose; John Rogers, Jr. and Miles White. Walter Massey will retire from the Board effective as of the 2017 Annual Shareholders’ Meeting and will not stand for re-election.

        The Board recommends a vote FOR each of the 11 Director nominees.
 

In connection with our Annual Shareholders’ Meeting, the size of our Board will be decreased by one Director, so that a total of 11 Directors will be standing for re-election, 10 of whom are independent.

Nominees who receive a majority of the votes cast will be elected. Each of the incumbent Directors has tendered an irrevocable resignation that will be effective if (i) the nominee does not receive a majority of the votes cast and (ii) upon the recommendation of the Governance Committee, the Board accepts the resignation following the meeting.

The Board of Directors expects all nominees to be available for election. If any of them should become unavailable to serve as a Director for any reason prior to the Annual Shareholders’ Meeting, the Board may substitute another person as a nominee. If you have voted for the unavailable nominee, your shares will be voted for the substitute nominee.

 
 
          The Board of Directors recommends that shareholders vote FOR all nominees.      
 
 

McDonald’s Corporation      

13




Table of Contents

Election of Directors       

DIRECTOR QUALIFICATIONS

Our Board is a diverse, highly engaged group of individuals that provides strong, effective oversight of our Company. Both individually and collectively, our Directors have the qualifications, skills and experience needed to inform and oversee the Company’s long-term strategic growth priorities. Importantly, each Director has senior executive experience, in many cases as CEO, in large organizations, often with significant global operations, and eight of our Directors have leadership experience in the consumer goods or food sector.

These and the other skills and attributes discussed below are taken into account in connection with Board succession planning and Director selection. For example, Directors Margaret Georgiadis and John Mulligan, who joined the Board in 2015, add to the Board’s qualifications on technology, digital initiatives and cyber-security oversight. Directors Lloyd Dean who also joined the Board in 2015 and John Mulligan supplement the Board’s skills regarding capital structure strategy and resource allocation priorities. They replaced two retiring Directors as “audit committee financial experts,” facilitating a smooth transition of financial reporting and accounting oversight.

The following are among the key attributes and skills possessed by all of our Directors:

               
 
High Integrity
 
Strength of Character and Judgment
Intellectual/Analytical Skills
 
Proven Record of Success
Knowledge of Corporate Governance Practices
 
Strategic Planning
 
Leadership
Talent Management/Succession Planning
Risk Assessment
 
   

Our Director nominees’ individual experiences, qualifications, attributes and skills are highlighted in the following matrix. The matrix is intended as a high-level summary and not an exhaustive list of each nominee’s skills or contributions to the Board. Further biographical information about each Director standing for re-election is set forth on the following pages.

                   
CEO/Operating Head Leadership
Other Public Company Board
Board Chair and/or Committee Chair  
Global Brand Management
Marketing and Consumer Insight
Technology, Digital and/or Cyber-security
Consumer Goods/Food    
Real Estate  
Financial
Sustainability/Corporate Responsibility
Ethnic/Gender Diversity

14

      2017 Proxy Statement



Table of Contents

Election of Directors

BIOGRAPHICAL INFORMATION

   

Lloyd Dean

   
           
   
Age: 66
Director since: 2015
   
McDonald’s Committees
Audit & Finance
Compensation
 
Other public company directorships
Wells Fargo & Company
 
Former public company directorships (within past five years)
Navigant Consulting, Inc.; Cytori Therapeutics, Inc. and Premier, Inc.
       
Career highlights
Dignity Health, a not-for-profit healthcare system
President and Chief Executive Officer (2000 - Present)
Advocate Health Care, a healthcare organization
Chief Operating Officer (1997 - 2000)
 
Experience and qualifications
In his career in executive management at leading healthcare organizations, Mr. Dean has led significant strategic, operational and financial transformations, which enables him to contribute an important perspective to the Board’s discussion of opportunities and challenges in a constantly changing business environment. We also benefit from Mr. Dean’s finance, systems operations, service quality and human resources expertise.
   
     

   

Stephen Easterbrook

   
           
   
Age: 49
Director since: 2015
   
McDonald’s Committees
Executive
(Chair since 2015)
 
Other public company directorships
None
 
Former public company directorships (within past five years)
None
       
Career highlights
McDonald’s Corporation
President and Chief Executive Officer (March 2015 - Present)
Corporate Senior Executive Vice President and Global Chief Brand Officer (May 2014 - February 2015)
Corporate Executive Vice President and Global Chief Brand Officer (June 2013 - April 2014)
President, McDonald’s Europe (December 2010 - September 2011)
Wagamama Limited, a Japanese-inspired restaurant company
Chief Executive Officer (September 2012 - May 2013)
Pizza Express Limited, a casual dining company in the U.K.
Chief Executive Officer (September 2011 - September 2012)
 
Experience and qualifications
Mr. Easterbrook’s experience enables him to contribute an important Company perspective and comprehensive industry knowledge to Board discussions about the Company’s business and relationships with key constituencies and stakeholders in the McDonald’s system, including franchisees and suppliers. This experience adds to our Board’s knowledge and understanding as it oversees our global operations and strategy.
   
     
 
McDonald’s Corporation      

15




Table of Contents

Election of Directors       

   

Robert Eckert

   
           
   
Age: 62
Director since: 2003
   
McDonald’s Committees
Public Policy & Strategy
(Chair since 2016)
Governance
Executive
 
Other public company directorships
Amgen Inc.
 
Other directorships
Levi Strauss & Co.
 
Former public company directorships (within past five years)
Mattel, Inc.
       
Career highlights
Friedman, Fleischer & Lowe, LLC, a private equity firm
Operating Partner (2014 - Present)
Mattel, Inc., a designer, manufacturer and marketer of toy products
Chairman of the Board (2000 - 2012)
Chief Executive Officer (2000 - 2011)
Kraft Foods Inc., a packaged food company
Chief Executive Officer (1997 - 2000)
 
Experience and qualifications
Mr. Eckert’s service as a chief executive officer of large, global consumer branded and food products companies contributes to our Board’s understanding of business and product development, marketing, supply chain management and distribution, and consumer behavior. In addition, through his role on other companies’ boards of directors, Mr. Eckert has extensive experience in corporate governance, leadership development and succession planning, finance, and risk assessment.
   
     

   

Margaret (Margo) Georgiadis

   
           
   
Age: 53
Director since: 2015
   
McDonald’s Committees
Audit & Finance
Sustainability & Corporate Responsibility
 
Other public company directorships
Mattel, Inc.
 
Former public company directorships (within past five years)
The Jones Group, Inc. and Amyris, Inc.
       
Career highlights
Mattel, Inc., a designer, manufacturer and marketer of toy products
Chief Executive Officer (February 2017 - Present)
Google Inc., a global technology company
President, Americas (October 2011 - January 2017)
Vice President, Global Sales Operations (October 2009 - April 2011)
Groupon, Inc., a global online local marketplace
Chief Operating Officer (April 2011 - September 2011)
Synetro Capital LLC, a private investment firm
Principal (January 2009 - September 2009)
Discover Financial Services, a direct banking and payments company
Executive Vice President, Card Products and Chief Marketing Officer (2004 - 2008)
 
Experience and qualifications
Ms. Georgiadis’ experience as a senior executive at large global businesses affords her a broad knowledge of global consumer businesses and marketing, as well as technology and digital initiatives. She has led teams that successfully have launched new products, and her achievements include the turnaround of a consumer finance business. Her knowledge in these and other areas provides critical insights to our business, particularly as the Board considers the impact of technology, including cyber-security risk.
   
     

16

      2017 Proxy Statement



Table of Contents

Election of Directors

   

Enrique Hernandez, Jr.

   
           
   
Age: 61
Chairman (since 2016)
Director since: 1996
   
McDonald’s Committees
Governance
Public Policy & Strategy
Executive
 
Other public company directorships
Chevron Corporation; Wells Fargo & Company and Nordstrom, Inc. (through May 2017)
 
Former public company directorships (within past five years)
None
       
Career highlights
Inter-Con Security Systems, Inc., a provider of high-end security and facility support to government, utilities and industrial customers
Chairman, Chief Executive Officer and President (1986 - Present)
Nordstrom, Inc., a leading fashion specialty retailer
Non-executive Chairman and Presiding Director (2006 - 2016)
 
Experience and qualifications
Mr. Hernandez is the chief executive officer of a global security company and has been a director of several large public companies in various industries. In addition, Mr. Hernandez served for five years as lead director and ten years as non-executive chairman and presiding director at Nordstrom, Inc., providing him with significant experience in corporate governance, leadership development and succession planning. Mr. Hernandez’s experience also facilitates the Board’s oversight and counsel regarding the Company’s knowledge about strategy, business development, finance and risk assessment.
   
     

   

Jeanne Jackson

   
           
   
Age: 65
Director since: 1999
   
McDonald’s Committees
Compensation
(Chair since 2016)
Governance
Executive
 
Other public company directorships
The Kraft Heinz Company and Delta Air Lines, Inc.
 
Former public company directorships (within past five years)
Motorola Mobility Holdings, Inc.
       
Career highlights
NIKE, Inc., a designer, marketer and distributor of athletic footwear, apparel, equipment and accessories
President, Senior Strategic Advisor (2016 - Present)
President, Product & Merchandising (2013 - 2016)
President, Direct to Consumer (2009 - 2013)
MSP Capital, a private investment company
Chief Executive Officer (2002 - 2009)
Walmart.com, a private e-commerce enterprise
Chief Executive Officer (2000 - 2002)
 
Experience and qualifications
Ms. Jackson’s extensive experience as a senior executive in global brand management, as well as her service as a director of large, public companies, provides the Board with insights on a broad range of topics, including product development, strategy and business development, leadership development and succession planning, finance, media and marketing and consumer behavior. These areas are important in the Board’s oversight of our strategic direction and operations.
   
     

McDonald’s Corporation      

17




Table of Contents

Election of Directors       

   

Richard Lenny

   
           
   
Age: 65
Director since: 2005
   
McDonald’s Committees
Compensation
Sustainability & Corporate Responsibility
 
Other public company directorships
ConAgra Brands, Inc.; Discover Financial Services and Illinois Tool Works Inc.
 
Former public company directorships (within past five years)
None
       
Career highlights
Information Resources, Inc., a leading market research firm
Non-executive Chairman (2013 - Present)
Friedman, Fleischer & Lowe, LLC, a private equity firm
Senior Advisor (2014 - 2016)
Operating Partner (2011 - 2014)
The Hershey Company, a chocolate and snacks company
Chairman, President and Chief Executive Officer (2001 - 2007)
 
Experience and qualifications
Mr. Lenny’s experience as a chief executive officer of a global retail food company with a major consumer brand is an asset to our Board given his knowledge of strategy and business development, finance, marketing and consumer insights, supply chain management and distribution, and risk assessment. Mr. Lenny also has a broad understanding of corporate governance from his service on other companies’ boards of directors.
   
     

   

John Mulligan

   
           
   
Age: 51
Director since: 2015
   
McDonald’s Committees
Audit & Finance
(Chair since 2016)
Public Policy & Strategy
Executive
 
Other public company directorships
None
 
Former public company directorships (within past five years)
None
       
Career highlights
Target Corporation, a general merchandise retailer
Executive Vice President and Chief Operating Officer (2015 - Present)
Executive Vice President and Chief Financial Officer (2012 - 2015)
Senior Vice President, Treasury, Accounting and Operations (2010 - 2012)
 
Experience and qualifications
Mr. Mulligan’s experience as a senior executive for a major consumer retailer has provided him with extensive experience in finance, supply chain, operations and properties. In addition, his experience in digital and technology issues, including cyber-security risk, is an important asset as the Board considers these topics and their potential impact on the Company. In addition, Mr. Mulligan’s qualifications as an “audit committee financial expert” is an important attribute as Chair of our Audit & Finance Committee.
   
     

18

      2017 Proxy Statement



Table of Contents

Election of Directors

   

Sheila Penrose

   
           
   
Age: 71
Director since: 2006
   
McDonald’s Committees
Sustainability & Corporate Responsibility
(Chair since 2016)
Audit & Finance
 
Other public company directorships
Jones Lang LaSalle Incorporated
 
Former public company directorships (within past five years)
None
       
Career highlights
Jones Lang LaSalle Incorporated, a global real estate services and investment management firm
Non-executive Chairman (2005 - Present)
Boston Consulting Group, a global management consulting firm
Executive Advisor (2001 - 2008)
Northern Trust Corporation, a financial services firm
President, Corporate and Institutional Services (1994 - 2000)
 
Experience and qualifications
Ms. Penrose brings to the Board extensive experience and knowledge of investment services, banking, and real estate, all areas of significance to the Company. She is well-versed in strategy and business development, finance, risk assessment, and leadership development and succession planning. Ms. Penrose also has significant experience in corporate governance from her service on other companies’ boards of directors, including as non-executive chairman at Jones Lang LaSalle.
   
     

   

John Rogers, Jr.

   
           
   
Age: 59
Director since: 2003
   
McDonald’s Committees
Compensation
Governance
 
Other public company directorships
Exelon Corporation
 
Registered investment company directorships
Ariel Investment Trust
 
Former public company directorships (within past five years)
Aon Corporation
       
Career highlights
Ariel Investments, LLC, a privately held institutional money management firm
Founder, Chairman of the Board and Chief Executive Officer (1983 - Present)
Ariel Investment Trust
Trustee (1986 - 1993; 2000 - Present)
 
Experience and qualifications
Mr. Rogers’ experience as a long-serving chief executive officer of an institutional money management firm has given him broad knowledge of finance, risk assessment, leadership development and succession planning, as well as strategy and business development. Mr. Rogers’ investment management knowledge also provides a unique perspective on investor relations. Mr. Rogers also brings perspective to the Company’s corporate responsibility and community affairs initiatives.
   
     

McDonald’s Corporation      

19




Table of Contents

Election of Directors       

   

Miles White

   
           
   
Age: 62
Director since: 2009
   
McDonald’s Committees
Governance
(Chair since 2014)
Public Policy & Strategy
Executive
 
Other public company directorships
Abbott Laboratories and Caterpillar, Inc.
 
Former public company directorships (within past five years)
None
       
Career highlights
Abbott Laboratories, a global pharmaceuticals and biotechnology company
Chairman and Chief Executive Officer (1999 - Present)

Experience and qualifications
As the long-standing chairman and chief executive officer of a large pharmaceutical, biotechnology and nutritional health products company, Mr. White has extensive knowledge of strategy and business development, risk assessment, finance, leadership development and succession planning, and corporate governance. In addition, he brings to the Board strong experience in addressing the needs of a global public company, as well as insights into the Board’s responsibility in oversight of management and operations matters. As Governance Committee Chair, Mr. White leads the Company’s succession planning and director candidate selection process, and he is often involved in shareholder engagement.
   
   

20

      2017 Proxy Statement



Table of Contents

BOARD AND
GOVERNANCE
MATTERS


INDEPENDENT CHAIRMAN

Following the 2016 Annual Shareholders’ Meeting, the Board elected Enrique Hernandez, Jr. to be our new, independent Chairman. Our former independent Chairman, Andrew McKenna, retired from the Board and was named Chairman Emeritus, an honorary position.

The principal duty of the Chairman is to lead and oversee the Board of Directors. The Chairman facilitates an open flow of information between management and the Board of Directors, and leads a critical evaluation of Company management, practices and adherence to the Company’s strategic plan and objectives. The Chairman and Chief Executive Officer (CEO) roles have been separated since 2004, enabling the Chairman to focus on corporate governance matters and the CEO to focus on the Company’s business. We find that this leadership structure fosters an open dialogue and constructive feedback among the independent Directors and management. It further allows the Board to effectively represent the best interests of all shareholders and contribute to the Company’s long-term success.

COMPOSITION

The Company’s Board of Directors reflects a diverse, highly-engaged group of Directors. The Governance Committee of the Board of Directors is responsible for maintaining a strong and diverse Board through a robust succession planning process, which includes recommending Directors for re-election and selecting new candidates with a solid record of accomplishment in their chosen fields.

The Governance Committee evaluates and determines the appropriate and desirable mix of characteristics, skills, experience and diversity for the Board as a whole, as well as the qualifications and attributes of individual Directors and candidates. Among other qualifications, the Committee considers: high integrity and business ethics; strength of character and judgment; independence from management; necessary skills to meet the evolving needs of our business; the ability and willingness to devote sufficient time to Board duties; and diversity in all its forms, including ethnicity, gender, geography and experience.

The Governance Committee also strives to achieve an appropriate balance of continuity and refreshment through a mix of relatively new and longer tenured Directors. In considering this issue, the Committee and the Board strongly believe that long tenure does not in itself impair a Director’s independence and that, in fact, tenure may enhance independence. For example, a Director who has overseen CEO successions may be more independent than Directors who are new to the Board and have served with only one CEO. Accordingly, while the Committee and the Board consider tenure in evaluating the effectiveness of the Board, it is not a controlling factor.

McDonald’s Corporation      

21




Table of Contents

Board and Governance Matters       

BOARD SUCCESSION PLANNING

Under our Corporate Governance Principles, the Governance Committee has the primary responsibility for developing a succession plan for the Board and for making recommendations to the full Board on succession matters. The Governance Committee considers suggestions for new Director nominees that it receives from a variety of sources, including the independent search firm that it retained in 2015, to help ensure that diverse candidates are regularly identified, screened and evaluated as potential candidates.

The Governance Committee also evaluates all Directors who are being considered for renomination. In doing so, the Committee looks at their skills and experience in light of overall Board composition and the desire for new and different perspectives and skill sets, particularly given the evolving needs of the business. The Committee reflects on a Director’s contributions, including by taking into account results of the most recent Board and peer evaluations (as further described below).

In addition, the Governance Committee continually evaluates the mix of Directors in light of future retirements to facilitate a smooth transition of skills, experience and diversity as retirements occur.

EVALUATIONS

The Board is committed to regular evaluations of itself, its Committees and individual Directors. Each year, the Directors are asked to complete a written evaluation of the Board, their peers and the Committees on which they serve. The following graphic illustrates the process by which the Board currently carries out its evaluations:

             
     

Directors complete evaluations (Board, peer and Committee) and send directly to an independent third party.

  
Board evaluations consider:
General board practices
Input for improvement
Suggestions for new skills and experiences for potential future candidates
Peer evaluations consider:
Contributions to Board discussions and decisions throughout year
Sharing of knowledge and expertise with Board and senior management
Staying informed on matters that impact the Company
Acting independently and in best interests of shareholders
Committee evaluations consider:
Members’ balance of skills and experiences to promote active participation
Adequacy of information received, including access to non-management resources
Effectiveness of Committee
 
           
     

To protect anonymity and integrity of the process, an independent third party compiles responses to Board, peer and Committee evaluations into a report for the Chair of the Governance Committee.

  
   

The Governance Committee and full Board discuss the Board and peer evaluation results.

Each of the standing Board Committees, except the Executive Committee, discusses its respective Committee evaluation.

 
 

22

      2017 Proxy Statement



Table of Contents

Board and Governance Matters

SELECTION OF DIRECTOR CANDIDATES

The Board has a robust policy for the consideration of potential Director candidates. The Governance Committee plays a critical role by establishing criteria, screening candidates and evaluating the qualifications of persons that may be considered for service as a Director, including candidates nominated or suggested by shareholders. The Governance Committee has retained an independent search firm to identify, screen and evaluate potential candidates. Informed by this outside perspective, the Governance Committee develops a pool of candidates that the Board may draw upon from time to time.

The following graphic illustrates the Company’s selection process for new Directors:

           
     

The Governance Committee considers current and long-term needs of our evolving business and seeks potential Director candidates in light of emerging needs, current Board structure, tenure, skills, diversity and experience.

  
   
The Governance Committee identifies a pool of qualified Director candidates through a robust search process, which includes use of an independent search firm, and assesses candidates’ skills experience and background. Among other qualifications, the Governance Committee considers:
High integrity and business ethics
Strength of character and judgment
Necessary skills to meet the evolving needs of our business
Ability and willingness to devote sufficient time to Board duties
Independence from management
Ethnic, gender and geographic diversity
 
 

Potential Director candidates are interviewed by the Chairman, CEO, Chair of the Governance Committee and other Governance Committee members.

 

The Governance Committee recommends, and the full Board approves, Director candidates best qualified to serve the interests of the Company and all shareholders.

 

Shareholders consider the nominees for election to the Board and elect Directors to serve one-year terms.

 

The Board’s Director Selection Process may be found on the Company’s website at http://corporate.mcdonalds.com/mcd/investors/corporate-governance/governance-principles-policies-and-guidelines.html.

BOARD DIVERSITY

The Governance Committee, together with the Board, proactively seeks diverse Director candidates to ensure a representation of varied perspectives and experience in the boardroom. Diversity is considered in the broadest sense, including, among other attributes, leadership, experience, skills, perspectives, gender, ethnicity and geography. When seeking new candidates, the Governance Committee actively endeavors to include women, minorities and geographically-diverse persons in the candidate pool. Currently, more than 50% of the Board are women and individuals who are minorities, and this majority will continue following Dr. Massey’s retirement from the Board at the 2017 Annual Shareholders’ Meeting.

Our global business demands that we have highly skilled, broadly experienced and diverse leadership at both the executive level and in the boardroom. Our current Board members bring a diverse set of skills and experiences to the Company that are important to drive our strategy forward as the market and competitive landscape evolves.

McDonald’s Corporation      

23




Table of Contents

Board and Governance Matters

DIRECTOR INDEPENDENCE

Our Corporate Governance Principles require that all non-management Directors be independent under applicable law and listing standards, as well as under the Board’s Standards on Director Independence. The Board considers relationships involving Directors and their immediate family members and relies on information derived from Company records, questionnaires and other inquiries.

The relationships reviewed by the Board in its most recent determination involved commercial relationships with companies:

at which Board members then served as officers and employees (including Google Inc., Inter-Con Security Systems, Inc., Mattel, Inc. and Target Corporation);

in which Board members or their immediate family members then held an aggregate 10% or more direct or indirect interest (Inter-Con Security Systems, Inc.); and

at which Board members then served as outside Directors (including Chevron Corporation, ConAgra Brands, Inc., Discover Financial Services, Exelon Corporation, Illinois Tool Works Inc., Jones Lang LaSalle Incorporated, The Kraft Heinz Company, Navigant Consulting, Inc. and Wells Fargo & Company).


These relationships involved McDonald’s purchases of products and services in the ordinary course of business that were made on arm’s-length terms in amounts and under other circumstances that did not affect Director independence.

The Board also reviewed certain de minimis arm’s-length retail transactions with other companies affiliated with Directors, as well as Company donations to not-for-profit organizations with which Board members or their immediate family members were affiliated by service as directors or trustees.

Based on its review, the Board determined that none of its non-management Directors has a material relationship with the Company and that all of them are independent. Currently, our non-management Directors are Lloyd Dean, Robert Eckert, Margaret Georgiadis, Enrique Hernandez, Jr., Jeanne Jackson, Richard Lenny, Walter Massey, John Mulligan, Sheila Penrose, John Rogers, Jr. and Miles White. In addition, the Board previously determined that Susan Arnold and Andrew McKenna, who served as Directors during 2016 and did not stand for re-election at our 2016 Annual Shareholders’ Meeting, were independent.

MANAGEMENT SUCCESSION PLANNING

The Board regularly reviews short- and long-term succession plans for the CEO and other senior management positions. In assessing possible CEO candidates, the independent Directors identify the skills, experience and attributes they believe are required to be an effective leader in light of the Company’s global business strategies, opportunities and challenges. The Board employs a similar approach with respect to evaluating possible candidates for other senior management positions. In general, the Board’s management succession planning is designed to anticipate both “planned” successions, such as those arising from anticipated retirements, as well as unexpected successions, such as those occurring when an executive leaves suddenly to take a new position, or due to death, disability or other unforeseen events.

MEETING ATTENDANCE

Directors are expected to attend the Annual Shareholders’ Meeting and all Board meetings and meetings of the Committees on which they serve. Our Board met eight times during 2016. On average, our Directors attended 95% of the total number of meetings of the Board and respective Committees on which they serve. All Directors who stood for re-election last year attended the 2016 Annual Shareholders’ Meeting.

24

      2017 Proxy Statement



Table of Contents

Board and Governance Matters

EXECUTIVE SESSIONS

The independent Directors meet regularly in executive sessions, which, from time to time, include the CEO. An executive session is generally scheduled immediately before or after each regular Board of Directors’ meeting. At such sessions, the Chairman presides, except in such matters as may involve his re-election or compensation, in which case the Chair of the Governance Committee presides.

BOARD COMMITTEES

Our Board has the following committees: Audit & Finance; Compensation; Governance; Public Policy & Strategy; Sustainability & Corporate Responsibility and Executive. Each Committee has the responsibilities set forth in its respective Charter, which has been adopted by the Board of Directors. Other than the Executive Committee, all Committees review their respective Charters at least annually, and changes are recommended to the full Board of Directors for approval. Committee charters are available on the Company’s website at http://corporate.mcdonalds.com/mcd/investors/corporate-governance/board-committees-charters.html.

All Committee members are independent as defined by the listing standards of the New York Stock Exchange (NYSE) and the Board’s Standards on Director Independence, except for our CEO, who serves solely on the Executive Committee. In addition, the Board has determined that each member of the Audit & Finance Committee is financially literate, and that Lloyd Dean and John Mulligan qualify as “audit committee financial experts” as defined by applicable SEC rules and NYSE listing standards. In 2016, the Committee memberships were refreshed, and new Chairs were appointed to the following Committees: Audit & Finance; Compensation; Public Policy & Strategy and Sustainability & Corporate Responsibility.

The primary responsibilities of each Committee are summarized on the following pages. Each Committee also has oversight of risk areas as illustrated on page 30.

McDonald’s Corporation      

25




Table of Contents

Board and Governance Matters       

   

AUDIT & FINANCE COMMITTEE

   
           

 

Members
John Mulligan (Chair) (FE)
Lloyd Dean (FE)
Margaret Georgiadis
Walter Massey
Sheila Penrose
(FE = Financial Expert)

Primary Areas of Oversight
Oversees financial reporting, accounting, control and compliance matters
Appoints and evaluates the independent auditor
Reviews with the internal and independent auditors the scope and results of their audits, the adequacy and effectiveness of internal controls and the performance of the internal auditors
Reviews material financial disclosures
Reviews the Company’s capital structure, dividend policy and plans for share repurchases
Pre-approves all audit and permitted non-audit services
Annually reviews the Company’s Sarbanes-Oxley and tax compliance
Reviews the Company’s Disclosure Controls and Procedures
    
 

Meetings in 2016: 8*
Attendance:
93%

*In 2016, certain responsibilities of the Finance Committee were transferred to the Audit Committee, which was renamed the Audit & Finance Committee. The number of meetings reflects the total number of meetings of the Audit Committee (as originally constituted) and the Audit & Finance Committee (as later combined).

The Audit & Finance Committee typically addresses the following items throughout the year:

Second Quarter
Review first quarter Form 10-Q
Monitor Disclosure Controls and Procedures and management’s conclusions about their effectiveness
   

First Quarter

Third Quarter

Review critical accounting policies
Review Disclosure Controls and Procedures, internal control over financial reporting and management’s conclusions about their effectiveness
Review Form 10-K
Approve Committee Report and Fee Table for inclusion in Proxy Statement
Review services and fees of independent auditors
Monitor compliance matters
Review second quarter Form 10-Q
Monitor Disclosure Controls and Procedures and management’s conclusions about their effectiveness
Review audit plan and associated fees for annual audit
Monitor new or proposed regulatory and accounting initiatives
Review update regarding Internal Audit and controls
Discuss capital structure (including dividend and share repurchase)
   

Fourth Quarter

Review third quarter Form 10-Q
Monitor Disclosure Controls and Procedures and management’s conclusions about their effectiveness
Review Committee Charter

26

      2017 Proxy Statement



Table of Contents

       Board and Governance Matters

   

COMPENSATION COMMITTEE

   
           

 

Members
Jeanne Jackson (Chair)
Lloyd Dean
Richard Lenny
John Rogers, Jr.

Primary Areas of Oversight
Oversees the Company’s compensation program and policies
For more information, see the Compensation Discussion and Analysis beginning on page 34.
    
 

Meetings in 2016: 6
Attendance: 89%


The Compensation Committee typically addresses the following matters throughout the year:

Second Quarter
Monitor trends and developments in executive compensation
Review feedback from shareholders and policies of investors and proxy advisory firms
Review executives’ progress against stock ownership requirements
Evaluate potential exclusions from financial results used to determine incentive compensation
   

First Quarter

Fourth Quarter

Determine prior year payouts earned under annual and long-term plans
Set annual salaries
Determine current year awards
Establish performance targets for current year awards
Review potential risks associated with establishing current year performance targets
Evaluate potential exclusions from financial results used to determine incentive compensation
Approve Committee Report for inclusion in Proxy Statement
Consider total compensation program
Establish plan design, including performance metrics and payout ranges for upcoming year
Review peer group
Review potential risks associated with plan design and/or payout ranges
Evaluate potential exclusions from financial results used to determine incentive compensation
Review Committee Charter

The Committee does not generally meet during the third quarter; however, it will address matters that arise off-cycle (e.g., promotional and new-hire compensation).

McDonald’s Corporation      

27




Table of Contents

Board and Governance Matters       

   

GOVERNANCE COMMITTEE

   
           

 

Members
Miles White (Chair)
Robert Eckert
Enrique Hernandez, Jr.
Jeanne Jackson
John Rogers, Jr.

Primary Areas of Oversight
Monitors the Board’s structure, operations and Committee memberships
Sets criteria for Board membership
Considers and recommends candidates for election or to fill vacancies
Develops Board succession plans and makes recommendations to the Board on succession matters
Evaluates Director and Board performance and assesses Board composition and size
Recommends to the Board compensation for non-management Directors
Evaluates the Company’s Corporate Governance Principles and oversees governance risks
    
 

Meetings in 2016: 5
Attendance: 100%


The Governance Committee typically considers the following matters throughout the year:

Second Quarter
Recommend Committee appointments
Recommend election of Chairman and compensation
Review Directors’ compliance with Stock Ownership Guidelines
Discuss proxy voting update/Annual Shareholders’ Meeting matters
Discuss Director candidates/succession planning
   

First Quarter

Third Quarter

Review Corporate Governance Principles
Monitor shareholder proposals for Proxy Statement
Discuss Director candidates/succession planning
Recommend Director nominees/candidates for election at Annual Meeting
Review Annual Shareholders’ Meeting voting results
Approve criteria and process for evaluation of Board, Directors and Committees
Review Directors’ compensation
Review Directors’ Code of Conduct
Discuss Director candidates/succession planning
   

Fourth Quarter

Review Committee Charter
Consider Board, Director and Committee evaluations
Review Director Selection Process
Discuss Director candidates/succession planning

28

      2017 Proxy Statement



Table of Contents

       Board and Governance Matters

   

PUBLIC POLICY & STRATEGY COMMITTEE

   
           

   

Members
Robert Eckert (Chair)
Enrique Hernandez, Jr.
John Mulligan
Miles White

  
Primary Areas of Oversight
Reviews and monitors the Company’s long-term strategy development and implementation
Reviews and monitors trends and issues that could affect the Company’s business activities and performance, as well as reputation
Reviews and monitors government affairs strategies and priorities
Reviews human capital management matters
Reviews the Company’s compliance programs, including compliance with the Company’s Political Contributions Policy and employees’ compliance with the Company’s Standards of Business Conduct
Reviews risks related to cyber-security and tax matters
   
    
 

Meetings in 2016: 2
Attendance: 100%

In 2016, the Board created a new Public Policy & Strategy Committee to oversee the Company’s strategic initiatives and public policy matters relating to its evolving business.


   

SUSTAINABILITY & CORPORATE RESPONSIBILITY COMMITTEE

   
           

   

Members
Sheila Penrose (Chair)
Margaret Georgiadis
Richard Lenny
Walter Massey

   
Primary Areas of Oversight
Reviews and monitors the Company’s strategies and efforts to address Brand trust through its performance as a sustainable organization
Reviews and monitors Brand leadership priorities that are significant to the Company and its stakeholders, including food, sourcing, the environment, community engagement, philanthropy, and diversity and inclusion
Reviews and monitors the development and implementation of goals for performance with respect to the Company’s sustainability framework and initiatives
Reviews the Company’s global sustainability communication plans and reports
   
    
 

Meetings in 2016: 4
Attendance: 100%
 
 
 
 


The Executive Committee may exercise most Board powers during the periods between Board meetings. In 2016, the Executive Committee met once. The Executive Committee members are Stephen Easterbrook (Chair), Robert Eckert, Enrique Hernandez, Jr., Jeanne Jackson, John Mulligan and Miles White.

McDonald’s Corporation      

29




Table of Contents

Board and Governance Matters       

RISK OVERSIGHT

The Board oversees the Company’s enterprise-wide risk management activities, both as a whole and through its Committees that are comprised solely of independent Directors. The following graphic illustrates this risk oversight process:

For more information on the Board’s risk oversight responsibilities, see the Company’s Corporate Governance Principles at http://corporate.mcdonalds.com/mcd/investors/corporate-governance/governance-principles-policies-and-guidelines.html and the various Committee Charters. Oversight of risks related to executive compensation are more fully described on page 42.

30

      2017 Proxy Statement



Table of Contents

       Board and Governance Matters

SHAREHOLDER ENGAGEMENT

Throughout each year, management and members of our Board engage with a significant portion of shareholders. In addition to current topics of particular relevance to McDonald’s, including our business results and initiatives, strategy and capital structure, we invite shareholders to discuss matters related to Board composition and tenure, corporate governance, executive compensation, and environmental and social issues, among other topics.

In 2016, we reached out to a variety of shareholders, including index funds, hedge funds, union and public pension funds, actively-managed funds and socially-responsible investment funds. Our outreach efforts represented more than 30% of our outstanding shares, with an emphasis this year on outreach to investors located outside of the United States. Shareholder feedback, including through direct discussions and prior shareholder votes, as well as engagement with proxy and other investor advisory firms that represent the interests of a wide array of shareholders, is reported to our Governance Committee periodically throughout the year. As appropriate, the Governance Committee may delegate specific issues to relevant Board Committees for further consideration.

The graphic below represents elements of our ongoing shareholder outreach and engagement, as well as certain items that take place more specifically before, during and after our Annual Shareholders’ Meeting:

Prior to Annual Shareholders’ Meeting    

    Annual Shareholders’ Meeting
Seek feedback on matters for shareholder consideration
Discuss shareholder proposals with proponents, when appropriate
Publish Annual Report and Proxy Statement, highlighting recent Board and Company activities
Opportunity for direct engagement with shareholders
Voting results for management and shareholder proposals

Off-season engagement and evaluation of practices

Post Annual Shareholders’ Meeting

Engage shareholders and other stakeholders regarding our Board, governance and executive compensation practices to better understand investor viewpoints and inform discussions in the boardroom
Evaluate potential changes to Board, governance or executive compensation practices in light of shareholder feedback and review of practices
Conduct annual Board and Committee evaluations and Director peer reviews
 
Discuss vote outcomes from Annual Shareholders’ Meeting in light of existing governance and compensation practices, as well as feedback received from shareholders during proxy season
Review corporate governance trends, recent regulatory developments, and the Company’s own corporate governance documents, policies and procedures
Determine topics for discussion during off-season shareholder engagement

McDonald’s Corporation      

31




Table of Contents

Board and Governance Matters       

BOARD’S RESPONSE TO SHAREHOLDER PROPOSALS

Last year, at the 2016 Annual Shareholders’ Meeting, shareholders expressed some support for an advisory shareholder proposal regarding the use of antibiotics by the Company’s meat suppliers. This proposal received support of less than 17% of our outstanding shares. As part of its oversight responsibilities with respect to sustainability matters generally, the Sustainability & Corporate Responsibility Committee continues to evaluate this issue. Additional information regarding the Board’s thoughtful analysis of this subject is included in its Statement in Opposition to a similar shareholder proposal expected to be presented at this year’s Annual Shareholders’ Meeting, beginning on page 70.

At the same meeting, an advisory shareholder proposal requesting the ability for shareholders to act by written consent received the support of about 30% of our outstanding shares. In response, the Board carefully considered the proposal and continues to believe that, in light of the Company’s strong governance profile, including the shareholder right to call special meetings, and the Board’s responsiveness to shareholder input, it is unnecessary and not in the best interests of all shareholders.

CORPORATE GOVERNANCE PRINCIPLES

The Governance Committee regularly reviews the Company’s Corporate Governance Principles and other governing documents and policies to ensure their appropriateness in light of the Company’s current and expected long-term circumstances, as well as evolving best practices. The Company’s Corporate Governance Principles are available on our website at http://corporate.mcdonalds.com/mcd/investors/corporate-governance/governance-principles-policies-and-guidelines.html.

CODE OF CONDUCT FOR THE BOARD OF DIRECTORS

Each year, our Directors confirm that they have read, and will comply with, the Code of Conduct for the Board of Directors. This code may be found on our website at http://corporate.mcdonalds.com/mcd/investors/corporate-governance/codes-of-conduct.html.

DIRECTOR COMPENSATION

Only non-management Directors are paid for their service on the Board. Through the 2016 Annual Meeting, this compensation was as follows: (i) an annual cash retainer of $100,000; (ii) an annual retainer fee of $25,000 for each Director serving as Chair of the Audit, Compensation or Governance Committee and an annual retainer fee of $15,000 for each Director serving as Chair of other Board Committees; and (iii) common stock equivalent units with a $140,000 value granted annually under the Directors’ Deferred Compensation Plan (Directors’ Plan).

In July 2016, upon the recommendation of the Governance Committee, the Board of Directors approved the following changes to the Directors’ compensation: (i) an annual cash retainer of $110,000; and (ii) common stock equivalent units with a $165,000 value granted annually under the Directors’ Plan. The Board of Directors also approved, upon the recommendation of the Governance Committee, an annual retainer fee of $30,000 for the Chair of the Audit & Finance Committee and an annual retainer fee of $25,000 for each Director serving as Chair of the Compensation, Governance, Public Policy & Strategy or Sustainability & Corporate Responsibility Committee, effective from and after the 2016 Annual Meeting.

Directors serving for a portion of the year receive prorated compensation. In addition, the Board considers and may, in its discretion, grant additional compensation to the Non-executive Chairman. Upon the recommendation of the Governance Committee, the disinterested members of the Board of Directors awarded Mr. Hernandez an annual retainer fee of $250,000 (prorated based on service as Chairman) and a restricted stock unit award with a deemed grant value of $250,000.

The Company reimburses non-management Directors for expenses incurred in attending Board, Committee, shareholder and other McDonald’s business meetings, as well as expenses for Director continuing education.

32

      2017 Proxy Statement



Table of Contents

Board and Governance Matters

The following table summarizes the compensation received by each non-management Director serving in 2016:

Name (a)        Fees earned
or paid in cash
($)(b)
(2)       Stock
awards
($)(c)
(3)(4)       All other
compensation
($)(g)
(5)       Total
($)(h)
Susan Arnold(1) 40,385 56,230 0 96,615
Lloyd Dean 104,266 150,724 0 254,990
Robert Eckert   129,266 150,724 10,000 289,990
Margaret Georgiadis 104,266 150,724 10,000 264,990
Enrique Hernandez, Jr. 264,019   393,201 10,000   667,220
Jeanne Jackson 125,255 150,724 10,000 285,979
Richard Lenny 104,266 150,724 10,000 264,990
Walter Massey 110,283 150,724 5,000 266,007
Andrew McKenna(1) 40,385 116,066 0 156,451
John Mulligan 122,233 150,724 0 272,957
Sheila Penrose 119,239 150,724   10,000 279,963
John Rogers, Jr. 104,266 150,724 0 254,990
Miles White 129,266 150,724 0 279,990
(1) Ms. Arnold did not stand for re-election at the 2016 Annual Shareholders’ Meeting and received prorated compensation to reflect her service in 2016. Mr. McKenna did not stand for re-election at the 2016 Annual Shareholders’ Meeting and was named Chairman Emeritus upon his retirement from the Board. Mr. McKenna received prorated compensation to reflect his service in 2016 and $100,000 in recognition of his service as Chairman Emeritus, prorated to $59,836 for 2016.
(2) Non-management Directors may defer all or a portion of their retainer(s) in the form of common stock equivalent units under the Directors’ Plan. Such deferrals, as well as the annual grant of common stock equivalent units described in footnote 3 below, are credited to an account that is periodically adjusted to reflect the gains, losses and dividends associated with a notional investment in our common stock. Common stock equivalent units so credited are based on a per-share price equal to the closing price of our common stock on the date of credit. Amounts credited are deferred until retirement from the Board or a date specified by the Director. A Director may elect that all or a portion of the credited amount be paid in equal annual installments over a period of up to 15 years beginning after retirement from the Board. In the event of death, amounts are paid in a lump sum. For Mr. Hernandez, the amount in this column also reflects additional compensation of $250,000, prorated for 2016.
(3) Common stock equivalent units are deferred until retirement from the Board or death. A Director may specify that deferred amounts from each year’s award be paid in a lump sum or installments over a period of up to 15 years beginning after retirement from the Board. In the event of death, amounts are paid in a lump sum. Amounts in this column represent the aggregate grant date fair value computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (ASC 718) of common stock equivalent units granted under the Directors’ Plan on December 31, 2016 to each non-management Director who served on the Board during 2016. Due to the compensation changes described above, such amounts reflect prorated values before and after May 2016 of $140,000 and $165,000, respectively. In connection with his service as Chairman, Mr. Hernandez also received a grant of 2,119 restricted stock units in August 2016 with an aggregate grant date fair value of $242,477 computed in accordance with ASC 718 (deemed grant value of $250,000). These restricted stock units vest on the later of one year from the date of grant or Mr. Hernandez’s departure from the Board, and shall be payable in either shares of the Company’s stock or cash, at the Company’s discretion.
(4) Outstanding stock awards held by non-management Directors are set forth below. Stock awards include common stock equivalent units under the Directors’ Plan and, in the case of Mr. Hernandez, both common stock equivalent units and restricted stock units as described in footnote 3. Amounts are as of December 31, 2016.

Name        Outstanding
stock awards
Susan Arnold 14,742
Lloyd Dean 2,981
Robert Eckert 52,151
Margaret Georgiadis 2,369
Enrique Hernandez, Jr. 72,573
Jeanne Jackson 63,619
Richard Lenny 29,382
Walter Massey   38,502
Andrew McKenna 121,685
John Mulligan 1,743
Sheila Penrose 22,167
John Rogers, Jr. 48,656
Miles White 12,335
(5) Represents Company matching gifts of charitable contributions to tax-exempt organizations for participating non-management Directors that were received in 2016. The matching gift program matches up to $10,000 of charitable contributions made to certain types of tax-exempt organizations.

McDonald’s Corporation      

33




Table of Contents

EXECUTIVE
COMPENSATION


COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed and discussed the Company’s Compensation Discussion and Analysis with McDonald’s management. Based on this review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

Respectfully submitted,

The Compensation Committee

Jeanne Jackson, Chair
Lloyd Dean
Richard Lenny
John Rogers, Jr.

COMPENSATION DISCUSSION AND ANALYSIS

OUR YEAR IN REVIEW

In 2016, we continued to implement our turnaround plan focusing on driving operational growth, returning excitement to our Brand and unlocking financial value. Over the past year, our results have demonstrated that the turnaround plan is working as we continue to strive to grow global comparable sales and serve more customers. We are focused on driving long-term, profitable results and pursuing our goal of being recognized by our customers as a modern, progressive burger company.

We remain committed to a pay-for-performance culture. Payouts to our executives vary based on performance against strategic financial metrics aligned with our key measures of long-term sustainable growth including: operating income, net income, return on incremental invested capital (ROIIC), and share price performance. Our 2016 pay package generally included base salary, a short-term cash incentive (STIP), performance-based restricted stock units (RSUs) and stock options. We eliminated our long-term cash incentive plan (Cash LTIP) in 2016 (see pages 36 and 40 for a discussion of this decision and its impact on our overall compensation program).

Our turnaround efforts yielded strong 2016 results, including a 3.8% increase in global comparable sales, an 8% (11% constant currencies) increase in operating income and a 13% (16% constant currencies) increase in diluted earnings per share. These results support the higher payouts under the 2016 STIP (195.5% for Corporate); however, our NEOs also received payouts well below target for the 2014-2016 Cash LTIP (15.6%) and 2014-2016 RSUs (35%), both based on performance during the 2014-2016 cycle. This balance is appropriate, as we believe it is important to reward short-term success, while also incentivizing our executives to drive shareholder value over the long term. Thus, our compensation approach effectively aligns pay and performance over both the short and long term.

34

      2017 Proxy Statement



Table of Contents

Executive Compensation

NAMED EXECUTIVE OFFICERS (NEOs)
NEOs refer to the following executive officers whose compensation is described in this Proxy Statement, pursuant to requirements of the Securities and Exchange Commission.

Stephen Easterbrook        President and Chief Executive Officer (CEO)
Kevin Ozan Executive Vice President and Chief Financial Officer (CFO)
Douglas Goare President, International Lead Markets and Global Chief Restaurant Officer
Michael Andres President, McDonald’s USA (retired December 31, 2016)
Silvia Lagnado   Executive Vice President, Global Chief Marketing Officer
Peter Bensen Former Chief Administrative Officer (CAO) (retired September 2, 2016)
David Hoffmann Former President, High Growth Markets (resigned September 30, 2016)

COMPENSATION SETTING PROCESS
The Compensation Committee of the Board (Committee) meets regularly during the year (six times in 2016). Meeting agendas are determined by the Chair of the Committee with the assistance of our Chief People Officer. Members of management, including the Chief People Officer, also attend Committee meetings, as well as representatives from the Committee’s independent advisor, Frederic W. Cook & Co., Inc. (FW Cook), and external legal counsel, if needed.

At least annually, the Committee reviews our overall executive compensation program to ensure that it remains aligned with current business objectives and evolving best practices. The graphic on page 27 highlights the Committee’s annual review process.

The Chair of the Committee regularly reports to the Board following Committee meetings. In addition, the Chair, along with the Chairman of the Board, lead the independent Directors in the evaluation of the CEO’s performance. Based upon the results of this performance evaluation, and informed by input from FW Cook and the Chief People Officer, the Committee reviews and approves CEO compensation.

FW Cook provides the Committee with detailed compensation recommendations for the CEO and CFO (and, prior to Mr. Bensen’s retirement, the CAO) at least annually. The Committee considers peer data and other similar information obtained from various sources, including Towers Watson & Co., Equilar and Aon Hewitt. While management provides the Committee with its perspectives on compensation matters, no member of management is involved in decisions regarding his or her own compensation.

Throughout the year, management and Directors are engaged in dialogue with a significant portion of the Company’s shareholder base on a number of matters important to both the Company and its investors, including our executive compensation program. The Committee considers feedback received through direct discussions with investors as well as previous “Say on Pay” results and the voting results of any shareholder proposals related to our executive compensation program. Our compensation program has received very strong shareholder support over the last five years.

Historic “Say on Pay” Voting Results (FOR)

McDonald’s Corporation      

35




Table of Contents

Executive Compensation

2016 CHANGES TO COMPENSATION PROGRAM

ELIMINATION OF CASH LTIP

The Company eliminated the Cash LTIP plan, removing the prior overlap of the operating income performance measure in short- and long-term plans.
Long-term incentives are now awarded in the form of performance-based RSUs and stock options in generally equal economic proportions.
Performance-based RSUs now have net income growth and ROIIC performance targets, as well as a total shareholder return (TSR) modifier.
The use of equity-based awards more closely aligns executive compensation with shareholder interests and better reflects market practice.
The 2015-2017 Cash LTIP award remains outstanding (the 2014-2016 award was paid in March 2017 and the 2015-2017 award will be paid in March 2018, subject to the achievement of the applicable performance targets).

COMPENSATION PERFORMANCE MEASURES AND TARGETS
In order to accomplish our compensation objectives, the Committee uses a mix of variable and fixed forms of compensation comprised of both short- and long-term incentive awards, based on various measurable, objective performance metrics (both absolute and relative), as well as our stock price performance, as reflected in the chart below.

2016 principal performance measures       STIP       Stock options       Performance-based RSUs
Operating income growth  
Net income growth    
ROIIC    
Share price

The Committee takes a holistic approach to establishing performance targets under the Company’s incentive compensation programs. The Committee recognizes the importance of achieving an appropriate balance between rewarding executives for strong performance over both the short- and long-term, and establishing realistic targets that continue to motivate and retain executives. In setting these objective performance targets, the Committee considers the Company’s financial objectives (over the short- and long-term) and the economic, industry and competitive environments.

EXCLUSIONS FROM REPORTED FINANCIAL RESULTS

The Committee may exclude certain items from the financial results used to determine incentive-based compensation for items that are not indicative of ongoing performance in order to focus our executives on the fundamentals of the Company’s underlying business performance. The Committee considers these exclusions pursuant to pre-established guidelines, including materiality, to provide clarity and consistency on how it views the business when evaluating performance. Charges/credits that may be excluded include the following categories: “strategic” (such as restructurings, acquisitions and divestitures); “regulatory” (changes in tax or accounting rules); and “external” (extraordinary, non-recurring events such as natural disasters).

For 2016, the Committee reviewed the impact of strategic actions taken in connection with the Company’s business turnaround plan (e.g., asset impairment and other one-time costs related to the sale of disaffiliated markets, business restructuring, and benefits/costs associated with incremental share repurchase and debt) on performance-based compensation. Consistent with the guidelines noted above, the Committee determined that it was appropriate to exclude certain turnaround-related charges, as well as charges related to changes in local market tax laws affecting the restaurant industry from operating income and earnings per share results. The impact of these exclusions on the calculation of the 2016 STIP, 2014-2016 Cash LTIP and performance-based RSUs is provided on page 39.

The Committee remains focused on ensuring that payouts closely reflect Company performance and hold management accountable for delivering long-term sustainable growth. Since actions to complete the turnaround plan will continue beyond 2016, we anticipate that additional exclusions will apply going forward, which may impact payouts in future years.

Payouts under our compensation plans also exclude the effects of foreign currency translation (either positive or negative) since we believe that changes in foreign exchange rates can cause our reported results to appear more or less favorable than business fundamentals indicate.

36

      2017 Proxy Statement



Table of Contents

Executive Compensation

PEER COMPANIES

Consistent with our goal of providing competitive compensation to incentivize and retain executive talent, we review our executives’ total direct compensation compared to levels at a peer group of companies that we believe is reflective of our business. When we set executive compensation targets, we use the market median for each compensation element as a reference point; however, we do not specifically target any element of compensation at the market median.

Following an annual review, the Committee selects a peer group comprised of companies with which we compete for talent, including our direct competitors, major retailers, producers of consumer branded goods and companies with a significant global presence. Revenues, market capitalization, systemwide sales and TSR are some of the criteria considered in constructing the peer group. Our peer group did not change this year and is set forth in the graphic below.

3M Company        Johnson & Johnson        Restaurant Brands International Inc.
Best Buy Co., Inc. Kellogg Company Starbucks Corporation
The Coca-Cola Company The Kraft Heinz Company Target Corporation
Colgate-Palmolive Company Lowe’s Companies, Inc. Walgreens Boots Alliance, Inc.
Dunkin’ Brands Group, Inc.   Mondeléz International, Inc. Wal-Mart Stores, Inc.
FedEx Corporation NIKE, Inc.   The Walt Disney Company
General Mills, Inc. PepsiCo, Inc. The Wendy’s Company
The Home Depot, Inc. The Procter & Gamble Company Yum! Brands, Inc.

The following table compares McDonald’s size and performance to that of our peer group.

McDonald’s vs. Peer Group

* Dollars in millions. Financial data as reported on Bloomberg.com and as of December 31, 2016 unless otherwise indicated.

McDonald’s Corporation      

37




Table of Contents

Executive Compensation       

ELEMENTS OF TOTAL DIRECT COMPENSATION

Approximately 90% of our CEO’s total direct target compensation opportunity for 2016 was allocated to variable compensation that is at-risk based on performance, including short- and long-term incentive compensation (as shown in the pie chart below). Further, for the NEOs who were employed at year-end, approximately 81% of the total direct compensation opportunity for 2016 was allocated to variable compensation that is at-risk based on performance.

The above chart uses ASC 718 values for equity awards granted in 2016.

ANNUAL COMPENSATION

BASE SALARY

In setting annual salary levels, we take into account competitive considerations, change in responsibilities, individual performance, tenure in position, internal pay equity and the effect on our general and administrative expenses. As part of the annual review process, each NEO received a salary increase for 2016.

STIP

Our STIP is designed to reward growth in annual operating income, which measures the success of the most important elements of our business strategy. Operating income growth requires the Company to balance increases in revenue with financial discipline to produce strong margins and a high level of cash flow. If there is no growth in operating income, there is no payout under the STIP.

If sufficient operating income growth is achieved, STIP payouts take into account pre-established “modifiers” reflecting other measures of Corporate and/or segment performance that are important drivers of our business. These modifiers in 2016 included the following objective metrics:

Comparable guest count growth
Customer satisfaction (only for U.S. segment)

38

      2017 Proxy Statement



Table of Contents

       Executive Compensation

The following graphic illustrates the Corporate STIP payout calculation for 2016.

The chart below provides operating income growth necessary to achieve threshold, target and maximum payouts under 2016 STIP for Corporate (prior to adjustment based on the modifiers discussed on the previous page).

2016       Threshold       Target       Maximum
Consolidated annual operating income growth*   0% 5.3% 11.6%
* Payout percentage interpolated for results that fall between each of the performance levels specifically identified.

The following table shows the operating income targets and results under 2016 STIP, as adjusted for the exclusions described on page 36:

(Dollars in millions)       Target 2016
operating income
($)
      Target 2016
operating
income growth
over 2015 (%)
      2016
adjusted
operating
income* ($)
      2016
adjusted
operating
income growth
over 2015 (%)
Corporate 7,715 5.3 8,182 11.7
U.S. 3,617   3.6   3,793   8.7
International Lead Markets   2,886 5.6 2,981 9.1
High Growth Markets 987 6.6 1,063 14.8
Foundational Markets 955 11.1 1,085 26.3
* The exclusions discussed on page 36 had the following impact on the calculation of incentive awards (including 2016 STIP, 2014-2016 Cash LTIP and 2014-2016 performance-based RSUs): Corporate $265 million; U.S. $24 million; International Lead Markets $37 million; High Growth Markets $(20) million, and Foundational Markets $46 million.

The 2016 target awards and STIP payouts for the NEOs are shown in the table below. Please see the notes to the Grants of Plan-Based Awards table on page 47 for more information regarding the impact of the modifiers on these payouts.

Named executive officer       Target STIP
payment
as percentage
of salary (%)
      2016 target
STIP payout ($)
      2016
STIP payout ($)
      STIP payment
as percentage
of target (%)
Stephen Easterbrook 175%   2,275,000 4,447,625   195.5
Kevin Ozan   100% 700,000 1,368,500 195.5
Douglas Goare 90% 616,500   1,057,760 171.6
Michael Andres 90% 576,000 1,080,720 187.6
Silvia Lagnado 80% 494,400 966,552 195.5
Peter Bensen 84% 819,160 1,601,457 195.5
David Hoffmann 67% 0

McDonald’s Corporation      

39




Table of Contents

Executive Compensation       

LONG-TERM INCENTIVE COMPENSATION

RSUs

An RSU provides the right to receive a share of McDonald’s stock subject to both service- and performance-based vesting requirements.

RSUs granted to executives in 2016 as part of the annual cycle are scheduled to vest on the third anniversary of the grant date, subject to the Company’s achievement of two key financial metrics, compound annual net income growth and ROIIC, along with a modifier based on relative TSR over the 2016-2018 performance period, as illustrated in the graphic below. These awards also align executive pay with shareholder value by delivering any payout in the form of shares of Company stock.

Consistent with market practice, there is an above-target payout opportunity with a maximum payout at 200% of the target award (180% based on the two performance metrics, with an additive modifier of up to 20% based on the Company’s cumulative TSR vs. the S&P 500 Index). In granting performance-based RSUs, we use a balanced set of metrics to encourage an increase in profitability, ensure an efficient and effective use of capital, and enhance shareholder value. The combination of compound annual net income growth and ROIIC metrics emphasizes the Company’s key long-term focus of growing net income while achieving desired returns.

While the RSUs awarded to our executives as part of the annual grant cycle are generally performance-based, from time to time an executive may receive a special award (e.g., a sign-on incentive) of RSUs that are time-based. In 2016, Ms. Lagnado received a sign-on award of time-based RSUs that vested on the first anniversary of the grant date.

2016-2018*       Threshold       Target       Maximum
3-year ROIIC   10%   10 to 24.9%   25%
Compound annual 1% 5% 9%
net income growth
A maximum payout will be earned if the Company achieves 9% net income growth and ROIIC exceeds the 10% threshold over the performance period. At 8% net income growth, a maximum payout can also be earned with ROIIC of at least 25%.

Cumulative TSR v. S&P 500 Index Modifier*      
0 - 19%-tile -20%
40 - 59%-tile   0%
80 - 100%-tile 20%
* In all cases, payout percentage will be interpolated for results that fall between each of the performance levels specifically identified.


STOCK OPTIONS

Options have an exercise price equal to the closing price of our common stock on the grant date, a term of ten years and vest ratably over four years, subject to continued service. Options require executives to drive share price increases in order to receive value from awards and thereby closely align executive pay with shareholder interests. The Company’s policies and practices regarding option grants, including the timing of grants and the determination of the exercise price, are described on page 43.

OUTSTANDING CASH LTIP AWARDS FROM PRIOR YEARS

In 2016, the Committee eliminated the Cash LTIP, and instead grants long-term incentives in the form of options and performance-based RSUs in generally equal economic proportions. This transition was designed to simplify our long-term incentive design, better align with market practice and to more closely align executive compensation with shareholder interests. As a result of this transition, in 2016, executives received larger option and RSU awards than in previous years (see the Summary Compensation Table on page 44 for more information regarding these awards).

The 2014-2016 Cash LTIP was paid in March 2017 at 15.6% of target, based on performance during that period (see pages 36 and 39 for information on the exclusions applied for 2016). The 2015-2017 Cash LTIP remains outstanding and will be paid in March 2018. Payouts will be initially determined based on the following quantitative measures over the three-year performance period: growth in operating income and ROIIC. 2015-2017 Cash LTIP payouts will be adjusted, positively or negatively, by first applying a modifier based on share of traffic and then applying a multiplier based on cumulative TSR versus the S&P 500 Index for the performance period.

40

      2017 Proxy Statement



Table of Contents

Executive Compensation

The following graphic depicts the calculation of the outstanding 2015-2017 Cash LTIP payouts:


RETIREMENT SAVINGS ARRANGEMENTS
We believe a competitive retirement program contributes to the recruitment and retention of top executive talent. NEOs participate in the same tax-qualified defined contribution retirement savings plan and supplemental non-qualified deferred compensation retirement plan applicable to U.S.-based employees.

SEVERANCE AND CHANGE IN CONTROL ARRANGEMENTS
NEOs participate in our U.S. broad-based severance plan. Benefits under the severance plan are described under “Potential Payments Upon Termination of Employment” on page 51.

The Company no longer has any change of control agreements and will not enter into new change in control agreements going forward.

PERQUISITES AND OTHER BENEFITS
McDonald’s provides the following limited perquisites to NEOs: car allowance, financial planning, physical examination (which are also available for the NEOs’ spouses), life insurance, executive security (for select NEOs), matching charitable donation, limited personal items and, generally in the case of the CEO only (and the CAO prior to retirement), personal use of the Company’s aircraft, subject to reimbursement of a portion of the cost of personal use. The Company does not provide any tax gross-ups on perquisites. NEOs also participate in all of the broad-based benefit and welfare plans available to Company staff in general.

RETIREMENTS OF MICHAEL ANDRES AND PETER BENSEN
Messrs. Andres and Bensen retired on December 31, 2016 and September 2, 2016, respectively. In connection with each executive’s retirement, the Committee agreed to waive certain notice and service requirements pursuant to the terms of their respective equity awards. These waivers permitted each executive to vest in all outstanding RSU awards upon retirement, subject to the original performance-based vesting conditions. Each executive will also continue to vest in their respective outstanding options pursuant to the original vesting schedules and such options shall remain outstanding until their original expiration dates. In addition, Messrs. Andres and Bensen received service credit through March 1, 2017, enabling them to fully vest in their 2016 option awards. In exchange for these additional benefits, each agreed to extend the non-compete period following their retirement, from the Company’s customary eighteen month period (twenty months for Mr. Andres and twenty-four months for Mr. Bensen).

See pages 51 and 52 for information regarding the Company’s customary treatment of equity awards upon termination.

RESIGNATION OF DAVID HOFFMANN
Mr. Hoffmann resigned from the Company on September 30, 2016. Mr. Hoffmann did not receive severance and, upon his resignation, he forfeited his 2016 STIP award, his Cash LTIP awards and all unvested option and RSU awards. Pursuant to an existing tax equalization arrangement, the Company made certain foreign tax payments on behalf of Mr. Hoffmann arising from his exercise of options granted during his international assignment.

McDonald’s Corporation      

41




Table of Contents

Executive Compensation       

COMPENSATION POLICIES AND PRACTICES

POLICY REGARDING MANAGEMENT’S STOCK OWNERSHIP
The Company maintains stock ownership requirements because it believes executives will more effectively pursue the long-term interests of shareholders if they are long-term shareholders themselves. The Committee reviews compliance with these stock ownership requirements annually. Based on the most recent annual evaluation, all executives are in compliance with the policy.

The following table illustrates our stock ownership requirements.

Stock ownership requirements        Multiple of salary
President & CEO   6x
Other NEOs (prior to retirement, Mr. Bensen’s ownership requirement was 5x) 4x

Executives have five years to achieve their required ownership level. This five-year period restarts when an executive is promoted to a position with a higher ownership requirement. If an executive is not on track to meet his/her ownership requirements following the third year of the five-year period, he or she must retain the lesser of 50% of the net after-tax shares received upon the vesting of an RSU award or such percentage of net after-tax shares necessary to satisfy the applicable requirement. If an executive has not achieved the requisite stock ownership within five years, he or she must retain 100% of the net after-tax shares received upon the vesting of an RSU award and/or a stock option exercise until the required ownership level is attained.

The Company has adopted restrictions that prohibit executives from engaging in derivative transactions to hedge the risk associated with their stock ownership. Further, executives may not enter into an agreement that has the effect of transferring or exchanging economic interest in any award.

INDEPENDENT COMPENSATION CONSULTANT
The Committee has the sole authority to retain and dismiss an independent compensation consultant, and has engaged FW Cook as its consultant. FW Cook also provides assistance to the Board in compiling and summarizing the results of Board and Director evaluations and advising on Director fees. Consistent with its Charter, the Committee regularly considers FW Cook’s independence and, in 2016, the Committee concluded that FW Cook is independent and that its work for the Committee did not raise any conflicts of interest. Management may not engage the Committee’s consultant for any purpose.

CLAWBACKS AND FORFEITURE PROVISIONS
The Company’s equity grant agreements contain a repayment/forfeiture provision that triggers repayment of any benefits received in connection with such grants as may be required to comply with (i) New York Stock Exchange listing standards adopted in accordance with Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (regarding recovery of erroneously awarded compensation) and any implementing rules and regulations of the Securities and Exchange Commission adopted thereunder, (ii) similar rules under the laws of any other jurisdiction and (iii) any policies adopted by the Company to implement such requirements, all to the extent determined by the Company in its discretion to be applicable to the award recipient.

RISK AND COMPENSATION PROGRAMS
Our compensation program is designed to mitigate the potential to reward unreasonable risk-taking that may produce short-term results that appear in isolation to be favorable, but that may undermine the successful execution of our long-term business strategy and erode shareholder value. In particular, our executive compensation program seeks to provide an appropriate balance of short-term and long-term incentives. Our incentive program incorporates performance metrics related to various measures of operational performance. By diversifying the time horizons and the applicable performance metrics of our incentives, we seek to mitigate the risk of significant compensation payments based on accomplishments in one area that may have a negative consequence for our business as a whole.

The Company reviews its compensation programs, including broad-based programs, taking into consideration the factors described above. Based on this review, the Company does not believe that the risks arising from its compensation program are reasonably likely to have a material adverse effect on the Company.

42

      2017 Proxy Statement



Table of Contents

       Executive Compensation

INTERNAL PAY EQUITY
Compensation opportunities reflect our executive officers’ positions, responsibilities and tenure in a given position and are generally similar for executives who have comparable levels of responsibility (although actual compensation delivered may differ depending on relative performance). Although our executive pay decisions are based on individual performance and other criteria, we consider the potential impact of internal pay equity on morale, incentive, management alignment and succession planning. In addition, from time to time, we make special one-time equity awards to executives in connection with their hiring or promotion. These awards permit us to meet one-time business objectives with minimum impact to long-term pay equity.

POLICY WITH RESPECT TO TAX DEDUCTIBILITY OF COMPENSATION
Our compensation programs are designed to permit the Company to deduct compensation expense under Section 162(m) of the Internal Revenue Code (Code), which limits the tax deductibility of annual compensation paid to executives to $1 million, unless the compensation is performance-based. However, the Company may, from time to time, pay compensation that does not qualify as performance-based compensation under Section 162(m) of the Code.

POLICIES AND PRACTICES REGARDING EQUITY AWARDS
We have a policy to not grant equity awards when the Company possesses material non-public information. The Company generally makes broad-based equity grants at approximately the same time each year following our release of financial information; however, the Company may choose to make equity awards outside of the annual broad-based grant (e.g., for certain new hires or promotions). Stock options may be granted only with an exercise price at or above the closing market price of the Company’s stock on the date of grant.

McDonald’s Corporation      

43




Table of Contents

Executive Compensation

COMPENSATION TABLES

SUMMARY COMPENSATION TABLE
The table below summarizes the total compensation earned by our NEOs in 2016, 2015 and 2014.

Name and
principal position
(a)
Year
(b)
     Salary
($)(c)
(4)      Bonus
($)(d)
     Stock
awards
($)(e)
(5)(6)      Option
awards
($)(f)
(5)(7)           Non-equity
incentive plan
compensation
($)(g)
(5)(8)      All other
compensation
($)(i)
(9)      Total
($)(j)
Stephen Easterbrook
President and Chief
Executive Officer(1)
2016 1,266,667 0 5,108,811 3,897,785 Annual: 4,447,625 523,665 15,355,746
Long-term: 111,193
Total: 4,558,818
2015 1,025,000 0 2,968,674 2,104,524 Annual: 1,469,797 341,301 7,909,296
Long-term: 0
Total: 1,469,797
2014 633,333 0 535,453 386,627 Annual: 0 134,449 1,689,862
Long-term: 0
Total: 0
Kevin Ozan
Corporate Executive
Vice President and
Chief Financial Officer
2016 683,333 0 1,277,262 974,446 Annual: 1,368,500 110,247 4,437,188
Long-term: 23,400
Total: 1,391,900
2015 568,333 0 534,434 378,818 Annual: 503,223 76,662 2,061,470
Long-term: 0
Total: 503,223
Douglas Goare
President, International
Lead Markets and Chief
Restaurant Officer
2016 648,750 0 1,021,786 779,565 Annual: 1,057,760 1,249,941 4,849,062
Long-term: 91,260
Total: 1,149,020
2015 586,667 0 623,463 441,950 Annual: 659,277 963,909 3,275,266
Long-term: 0
Total: 659,277
2014 570,000 0 624,611 451,055 Annual: 0 1,259,655 2,905,321
Long-term: 0
Total: 0
Michael Andres
President,
McDonald’s USA(2)
2016 636,667 0 919,691 701,610 Annual: 1,080,720 107,769 3,517,437
Long-term: 70,980
Total: 1,151,700
Silvia Lagnado
Corporate Executive Vice
President and Global
Chief Marketing Officer(3)
2016 615,000 337,500 1,138,466 350,805 Annual: 966,552 54,848 3,463,171
Long-term: 0
Total: 966,552
Peter Bensen
Former Chief
Administrative Officer(2)
2016 653,333 0 1,839,263 1,403,206 Annual: 1,601,457 207,092 5,868,801
Long-term: 164,450
Total: 1,765,907
2015 941,667 0 1,068,782 757,635 Annual: 1,021,558 186,424 3,976,066
Long-term: 0
Total: 1,021,558
2014 858,333 0 1,026,200 741,028 Annual: 0 168,735 2,794,296
Long-term: 0
Total: 0
David Hoffmann
Former President, High
Growth Markets(2)
2016 454,167 0 911,938 695,754 Annual: 0 1,567,704 3,629,563
Long-term: 0
Total: 0
2015 586,667 0 534,434 378,818 Annual: 227,462 1,200,155 2,927,536
Long-term: 0
Total: 227,462
2014 533,333 0 490,832 354,401 Annual: 0 1,381,119 2,759,685
Long-term: 0
Total: 0

44

      2017 Proxy Statement



Table of Contents

Executive Compensation

(1) Mr. Easterbrook was promoted to CEO in 2015. In connection with this promotion, Mr. Easterbrook’s 2015 compensation increased significantly, as reflected in the table.
(2) Mr. Andres retired from the Company, effective December 31, 2016. Mr. Bensen retired from the Company, effective September 2, 2016. Mr. Hoffmann resigned from the Company on September 30, 2016.
(3) As an incentive to join the Company, Ms. Lagnado received a cash sign-on bonus, $337,500 of which was paid in 2016. Ms. Lagnado also received sign-on equity grants, as described in Footnote 7 to the Grants of Plan-Based Awards table on page 47.
(4) Reflects annual increases in base salary that took effect during 2016. Annual base salaries as of December 31, 2016 were as follows: Messrs. Easterbrook: $1,300,000; Ozan: $700,000; Goare: $685,000; and Andres: $640,000; and Ms. Lagnado: $618,000. The base salary of each of Messrs. Bensen and Hoffmann as of the last day of employment was $975,000 and $610,000, respectively.
(5) In 2016, the Committee eliminated the Cash LTIP and replaced the value with additional performance-based RSUs and options in generally equal proportions. As a result, the Summary Compensation Table reflects higher RSU and option awards in 2016 than in prior years. The 2014-2016 Cash LTIP was paid in March 2017 and is reflected in the "Long-term" row of column (g). The 2015-2017 Cash LTIP remains outstanding, and will be paid in 2018, subject to the achievement of threshold levels of performance. Any such payout will be disclosed in the 2018 Proxy Statement. For more information regarding this transition, see pages 36 and 40.
(6) Computed in accordance with ASC 718, this represents the aggregate grant date fair value based on the probable outcome of the applicable performance conditions and excluding the effect of estimated forfeitures during the applicable vesting periods of RSUs granted under the McDonald’s Corporation 2012 Omnibus Stock Ownership Plan (2012 Plan). Values are based on the closing price of the Company’s common stock on the grant date, less the present value of expected dividends over the vesting period. Performance-based RSUs vest on the third anniversary of the grant date and are subject to performance-based vesting conditions linked to the achievement of net income, ROIIC and relative TSR targets over the performance period running from January 1, 2016 to December 31, 2018 (as described on page 40). For Ms. Lagnado, this also includes the additional grant of service-based RSUs that vested on February 11, 2017. Additional information is disclosed in the Grants of Plan-Based Awards table on pages 46 and 47 and the Outstanding Equity Awards at 2016 Year-end table on pages 48 and 49. A more detailed discussion of the assumptions used in the valuation of RSU awards may be found in the Notes to Consolidated Financial Statements under “Share-based Compensation” on page 46 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
(7) Computed in accordance with ASC 718, this represents the aggregate grant date fair value excluding the effect of estimated forfeitures during the applicable vesting periods of options. Options have an exercise price equal to the closing price of the Company’s common stock on the grant date, vest in equal installments over a four-year period and are subject to the 2012 Plan, as applicable. Values for options granted in 2016 are determined using a closed-form pricing model based on the following assumptions, as described in the footnotes to the consolidated financial statements: expected volatility based on historical experience of 19.2%; an expected annual dividend yield of 3.0%; a risk-free return of 1.2%; and expected option life based on historical experience of 5.9 years. Additional information about options is disclosed in the Grants of Plan-Based Awards table on pages 46 and 47 and the Outstanding Equity Awards at 2016 Year-end table on pages 48 and 49. A more detailed discussion of the assumptions used in the valuation of option awards may be found in the Notes to Consolidated Financial Statements under “Share-based Compensation” on pages 35 and 46 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
(8) Our annual cash incentive plan is referred to as STIP and our long-term cash incentive plan, which was discontinued in 2016, is referred to as Cash LTIP. Mr. Bensen’s STIP award was prorated through September 2, 2016.
(9) “All other compensation” for 2016 includes the Company’s contributions to the 401k Plan and Deferred Compensation Plan as follows:

Stephen Easterbrook $191,552
Kevin Ozan $83,059
Douglas Goare $91,562
Michael Andres $78,420
Silvia Lagnado $0
Peter Bensen   $117,242
David Hoffmann $50,834

Also included are the following categories of perquisites: car allowance; financial planning; annual physical examinations for the executives and their spouses; executive security (for select executives); matching charitable donations; Company-paid life insurance; limited personal items; storage of household goods for Ms. Lagnado in the amount of $35,000 related to her relocation to the U.S from the United Kingdom; and personal use of the Company’s aircraft by the CEO and former Chief Administrative Officer (CAO), with a net cost to the Company in 2016 for Mr. Easterbrook of $302,279 and for Mr. Bensen of $53,802. In 2016, the CEO and CAO were the only executives permitted to use the aircraft for personal travel. However, in certain circumstances the CEO may at his discretion permit other executives to use the aircraft for personal travel. In addition, at the discretion of the CEO, other executives may be joined by their spouses on the aircraft. The Company does not provide any tax gross-ups on the perquisites described above.

The incremental cost of perquisites is included in the amount provided in the table and based on actual charges to the Company, except that corporate aircraft includes fuel, on-board catering, landing/handling fees, maintenance costs and crew costs and excludes fixed costs, such as pilot salaries and the cost of the aircraft. In accordance with Company policy, any executive who is permitted per the above to use the Company’s aircraft for personal use reimburses the Company for a portion of personal use of the corporate aircraft, calculated as the lower of (i) amount determined under the Code based on two times the Standard Industry Fare Level (SIFL) rate per person or (ii) 200% of the actual fuel cost.

In the case of the Company’s NEOs based overseas, Mr. Goare and, prior to his departure, Mr. Hoffmann, the amount in this column for 2016 also includes certain benefits in connection with their international assignments, as follows:

For Mr. Goare: Company-provided housing (in the amount of $130,237), which includes: rent, rental furniture, utilities, cleaning and a lease renewal fee; a cost-of-living adjustment (in the amount of $112,263); home leave travel allowance; tax preparation services; and tax equalization (in the amount of $835,774), which is designed to satisfy tax obligations arising solely as a result of his international assignment.

For Mr. Hoffmann: Company-provided housing (in the amount of $346,389), which includes: rent, rental furniture, utilities, maintenance, a security deposit and tenancy management; a cost-of-living adjustment; home leave travel allowance; educational expenses; transportation expenses; relocation expenses and related allowances; membership in an expatriate organization; tax preparation services; and tax equalization (in the amount of $894,685), which is designed to satisfy tax obligations arising solely as a result of his international assignment.

For each of Messrs. Goare and Hoffmann, certain amounts were paid in local currency. In these cases, when the information is available, the amounts reported reflect the exchange rate on the date the respective payments were made, and when the information is not available, the amounts reported reflect the average monthly exchange rate.

McDonald’s Corporation      

45




Table of Contents

Executive Compensation

GRANTS OF PLAN-BASED AWARDS
Name (a)    Plan    Grant
date
(b)
   Estimated future payouts
under non-equity incentive
plan awards
(2)
   Estimated future payouts
under equity incentive
plan awards(3)
   All other
stock
awards:
number
of shares
of stock
or units
(#)(i)
   All other
option
awards:
number of
securities
underlying
option
(#)(j)
   Exercise
or base
price of
option
awards
($/Sh)(k)
   Grant
date fair
value of
stock and
option
awards
($)(l)
(4)
Threshold
($)(c)
   Target
($)(d)
   Maximum
($)(e)
Threshold
(#)(f)
   Target
(#)(g)
   Maximum
(#)(h)
Stephen Easterbrook STIP 0 2,275,000 4,550,000
Equity 2/11/16 0  42,834 85,668 5,108,811
Plan(5)
Equity 2/11/16 285,552 116.73 3,897,785
Plan(6)
Kevin Ozan STIP 0 700,000 1,400,000
Equity 2/11/16 0 10,709 21,418 1,277,262
Plan(5)
Equity 2/11/16 71,388 116.73 974,446
Plan(5)
Douglas Goare STIP 0 616,500 1,233,000
Equity 2/11/16 0 8,567 17,134 1,021,786
Plan(5)
Equity 2/11/16 57,111 116.73 779,565
Plan(6)
Michael Andres(1) STIP 0 576,000 1,152,000
Equity 2/11/16 0 7,711 15,422 919,691
Plan(5)
Equity 2/11/16 51,400 116.73 701,610
Plan(6)
Silvia Lagnado STIP 0 494,400 988,800
Equity 2/11/16 0 3,856 7,712 459,905
Plan(5)
Equity 2/11/16 25,700 116.73 350,805
Plan(6)
Equity 2/11/16 5,997 678,561
Plan(7)
Peter Bensen(1) STIP 0 819,160 1,638,320
Equity 2/11/16 0 15,421 30,842 1,839,263
Plan(5)
Equity 2/11/16 102,799 116.73 1,403,206
Plan(6)
David Hoffmann(1) STIP 0 411,000 822,000
Equity 2/11/16 0 7,646 15,292 911,938
Plan(5)
Equity 2/11/16 50,971 116.73 695,754
Plan(6)
(1) In connection with Messrs. Andres and Bensen’s retirements, the Committee waived certain notice and service requirements pursuant to their equity awards, so that each executive will vest in all outstanding RSU awards, subject to the original performance-based vesting conditions. Each executive will also continue to vest in outstanding options pursuant to their original vesting schedule and such options shall remain outstanding until the original expiration date. Mr. Hoffmann forfeited certain benefits, including all unvested equity awards, in connection with his resignation.
(2) In 2016, each of the NEOs received an annual cash award under the STIP. Columns (d) and (e) show the target and maximum awards they could have earned. Actual STIP payouts are in column (g) of the Summary Compensation Table. The amount paid to Mr. Bensen was prorated to reflect service during 2016, and Mr. Hoffmann’s award was forfeited upon his resignation.
STIP awards for 2016 were equal to a percentage of salary. STIP measures performance using a "team factor" that is initially determined based on growth in operating income. See the Compensation Discussion and Analysis at page 39 for a discussion of operating income targets, as adjusted for turnaround-related exclusions. The target level of growth produces a 100% payout and a payout can be achieved from the threshold of 0% to the maximum. Payouts can then be adjusted up or down, within specified limits, based on “modifiers” that reflect other measures of Corporate and/or segment performance that are important drivers of our business. In 2016, these modifiers included comparable guest count growth and, for the U.S. segment, customer satisfaction. The target amount is multiplied by the team factor, which includes the modifiers. The maximum STIP payout is 200% of target.
(3) In 2016, the NEOs received two types of equity awards: RSUs subject to performance-based vesting conditions (see columns (f), (g), (h) and (l)) and options (see columns (j), (k) and (l)).

46

      2017 Proxy Statement



Table of Contents

Executive Compensation

(4) The values in this column for RSUs and options were determined based on the assumptions described in footnotes 6 and 7, respectively, to the Summary Compensation Table.
(5) Reflects grants of RSUs subject to performance-based vesting conditions. The RSUs vest on February 11, 2019, subject to achievement of compound annual net income growth of 5% and 3-year ROIIC of 10-25%. If the targets are achieved, 100% of the RSUs will vest. If net income growth and ROIIC performance is either above or below the target range, the awards will vest proportionally, as determined by the Committee. In addition, if net income growth and ROIIC thresholds are achieved, a TSR modifier can impact final payouts by up to plus or minus 20 percentage points. The maximum payout is 200% of target. See page 40 for more information.
(6) Reflects grants of options in 2016. For details regarding options, refer to footnote 7 to the Summary Compensation Table.
(7) As an incentive to join the Company, Ms. Lagnado received an equity grant of service-based RSUs in each of 2015, 2016 and 2017. The 2016 award is reflected in this table (see column (i)).

2016 STIP
The target STIP awards, the team factors (including the impact of the modifiers), and the final payouts for the NEOs in 2016 are summarized below:

Named executive officer    Target
STIP award
(% of salary)
   Applicable team factor(s)    Team factor(s)
before application
of modifiers
(% of target award)
   Impact of
modifiers
(% added or
subtracted)
   Final
STIP award
($)
(2)
Stephen Easterbrook 175 Corporate 205.0 -9.5 4,447,625
Kevin Ozan 100 Corporate 205.0 -9.5 1,368,500
Douglas Goare 90 Corporate (25%) 205.0 -9.5 1,057,760
International Lead Markets (75%) 163.2 0.4
Michael Andres 90 Corporate (25%) 205.0 -9.5 1,080,720
U.S. (75%) 185.0 0.0
Silvia Lagnado 80 Corporate 205.0 -9.5 966,552
Peter Bensen(1) 84 Corporate 205.0 -9.5 1,601,457
David Hoffmann 67 Corporate (25%) 205.0 -9.5 0
High Growth Markets (75%) 215.0 -9.2
(1) The target award was prorated for Mr. Bensen for his service through September 2, 2016.
(2) These amounts are also reflected in column (g) to the Summary Compensation Table. Mr. Hoffmann forfeited his 2016 STIP payment upon his resignation.

McDonald’s Corporation      

47




Table of Contents

Executive Compensation

OUTSTANDING EQUITY AWARDS AT 2016 YEAR-END
Option awards Stock awards
Name (a)      Number of
securities
underlying
unexercised
options
exercisable
(#)(b)
(2)       
Number of
securities
underlying
unexercised
options
unexercisable
(#)(c)
(2)     
Option
exercise
price
($)(e)
     Option
expiration
date
(f)
     Number
of shares
or units of
stock that
have not
vested
(#)(g)
(3)     
Market
value of
shares or
units of
stock that
have not
vested
($)(h)
(4)      Equity
incentive
plan awards:
number of
unearned
shares, units
or other
rights that
have not
vested

(#)(i)
(5)      Equity
incentive
plan awards:
market or
payout value
of unearned
shares, units
or other rights
that have
not vested
($)(j)
(4)(5)
Stephen Easterbrook 35,235 11,744 98.42 06/14/2023
15,807 15,806 94.89 02/12/2024
50,444 151,332 97.15 03/16/2025
0 285,552 116.73 02/11/2026 83,470 10,159,968
Kevin Ozan 12,875 0 57.08 02/11/2019
12,447 0 63.25 02/10/2020
11,755 0 75.93 02/09/2021
20,291 0 100.05 02/08/2022
7,980 2,659 94.00 02/13/2023
5,667 5,662 94.89 02/12/2024
9,080 27,240 97.15 03/16/2025
0 71,388 116.73 02/11/2026 2,108 256,586 16,886 2,055,364
Douglas Goare 17,286 0 75.93 02/09/2021
38,481 0 100.05 02/08/2022
25,932 8,643 94.00 02/13/2023
18,441 18,440 94.89 02/12/2024
10,594 31,779 97.15 03/16/2025
0 57,111 116.73 02/11/2026 23,150 2,817,818
Michael Andres(1) 16,668 16,666 93.75 09/16/2024
9,080 27,240 97.15 03/16/2025
0 51,400 116.73 02/11/2026 20,555 2,501,955
Silvia Lagnado 5,205 15,609 98.92 08/07/2025
0 25,700 116.73 02/11/2026 5,997 729,955 7,395 900,119
Peter Bensen(1) 46,105 0 75.93 02/09/2021
59,996 0 100.05 02/08/2022
39,894 13,298 94.00 02/13/2023
30,297 30,294 94.89 02/12/2024
18,160 54,480 97.15 03/16/2025
0 102,799 116.73 02/11/2026 39,894 4,855,898
David Hoffmann(1)
(1) In connection with Messrs. Andres and Bensen’s retirements, the Committee waived certain notice and service requirements pursuant to their equity awards, so that each executive will vest in all outstanding RSU awards, subject to the original performance-based vesting conditions. Each executive will also continue to vest in outstanding options pursuant to their original vesting schedule and such options shall remain outstanding until the original expiration date. Mr. Hoffmann forfeited certain benefits, including all unvested equity awards, in connection with his resignation.
(2) In general, options expire on the tenth anniversary of grant. For details regarding customary equity treatment upon termination, see pages 51 and 52.

48

      2017 Proxy Statement



Table of Contents

Executive Compensation

(3) Our typical practice is to grant RSUs subject to performance-based vesting conditions to our NEOs. Mr. Ozan’s RSUs shown in columns (g) and (h) were not subject to performance-based vesting conditions as they were granted prior to Mr. Ozan’s promotion to CFO. These RSUs vested on February 12, 2017. Ms. Lagnado’s RSUs shown in columns (g) and (h) reflect a sign-on grant of service-based RSUs, which vested on February 11, 2017.
(4) Calculated by multiplying the number of shares covered by the award by $121.72, the closing price of Company stock on the New York Stock Exchange on December 30, 2016, the last trading day in 2016.
(5) Reflects unvested performance-based RSUs that are scheduled to be paid out as follows if the targets are met (or were paid out, in the case of awards that vested in early 2017):

Named executive officer Vesting date        Number of
performance-based
RSUs
Stephen Easterbrook 2/12/2017 6,324 (1)
3/16/2018 34,312
2/11/2019 42,834
Kevin Ozan 3/16/2018 6,177
2/11/2019 10,709
Douglas Goare 2/12/2017 7,377 (1)
3/16/2018 7,206
2/11/2019 8,567
Michael Andres 9/16/2017 6,667
3/16/2018 6,177
2/11/2019 7,711
Silvia Lagnado 8/7/2018 3,539
2/11/2019 3,856
Peter Bensen 2/12/2017 12,120 (1)
3/16/2018 12,353
2/11/2019 15,421

(1)   35% of these shares vested as a result of the Company’s performance during the 2014-2016 performance period.


OPTION EXERCISES AND STOCK VESTED — FISCAL 2016
Option awards Stock awards
Name (a)        Number of shares
acquired on exercise
(#)(b)
       Value realized
on exercise
($)(c)
       Number of shares
acquired on vesting
(#)(d)
       Value realized
on vesting
($)(e)
Stephen Easterbrook 0 0 2,350 287,899
Kevin Ozan 13,007 944,265 2,128 250,955
Douglas Goare 32,230 1,941,253 1,135 133,851
Michael Andres 0 0 532 61,329
Silvia Lagnado 0 0 7,077 843,649
Peter Bensen(1) 129,507 7,333,317 1,746 205,906
David Hoffmann(1) 86,368 2,655,987 655 77,244

(1)   Mr. Bensen exercised 114,350 stock options, and Mr. Hoffmann exercised 56,023 stock options, following their respective departures from the Company.


McDonald’s Corporation      

49




Table of Contents

Executive Compensation

NON-QUALIFIED DEFERRED COMPENSATION — FISCAL 2016
Name (a)       Executive
contributions
in last FY
($)(b)
(1)      Registrant
contributions
in last FY
($)(c)
(1)      Aggregate
earnings in
last FY
($)(d)
      Aggregate
withdrawals/
distributions
($)(e)
(2)      Aggregate
balance at
last FYE
($)(f)
(3)
Stephen Easterbrook 123,573 173,002 4,709 0 490,846
Kevin Ozan 213,311 74,659 162,408 0 2,845,530
Douglas Goare 172,204 80,362 254,862 0 3,471,752
Michael Andres 777,950 75,060 66,773 (345,172) 4,035,313
Silvia Lagnado 0 0 0 0 0
Peter Bensen 143,489 100,442 131,096 0 8,530,112
David Hoffmann 54,621 38,234 (48,216) (19,930) 1,264,318
(1) Represents salary deferrals which are also reported as compensation for 2016 in the Summary Compensation Table.
(2) The amount for Mr. Andres reflects his deferred compensation plan account balance prior to his rejoining the Company, and the payments are being made in accordance with the required schedule. The amount for Mr. Hoffmann reflects the balance paid upon his resignation.
(3) Includes the following aggregate amounts reported in the Summary Compensation Table in prior years:

Stephen Easterbrook $187,586
Kevin Ozan $95,900
Douglas Goare $532,385
Michael Andres $0
Silvia Lagnado $0
Peter Bensen $5,407,557
David Hoffmann $299,834

DEFERRED COMPENSATION PLAN
Effective January 1, 2017, the Company’s Excess Benefit and Deferred Bonus Plan was renamed the Deferred Compensation Plan (Deferred Plan). The Deferred Plan is a non tax-qualified, unfunded deferred compensation plan that allows senior management and certain highly compensated staff employees to: (i) make tax-deferred contributions from their salary, STIP and, for performance periods beginning prior to January 1, 2017, Cash LTIP awards; and (ii) receive Company matching contributions (on deferrals of salary and STIP awards only), in excess of the Internal Revenue Service (IRS) limits under the Company’s 401k Plan.

At the time of deferral, participants may elect to receive distributions either in a lump-sum or in regular installments over a period of up to 15 years following separation from service. Commencement of distributions are delayed for six months following separation from service.

Deferrals are nominally invested in investment options selected by participants and are credited with a rate of return based on the investment option(s) selected. The investment options are currently based on returns of the 401k Plan’s Capital Preservation Fund, Large Cap Equity Index Fund, and the Company’s Common Stock Fund.

SUPPLEMENTAL PROFIT SHARING AND SAVINGS PLAN
Prior to the adoption of the Excess Benefit and Deferred Bonus Plan in 2005, the Company’s Supplemental Profit Sharing and Savings Plan (Supplemental Plan) allowed participants to defer compensation in excess of the IRS limits that applied to the 401k Plan. The Supplemental Plan allowed deferrals of salary and all or a portion of cash incentives as well as Company contributions on deferrals of salary and STIP. At the end of 2004, the Company froze the Supplemental Plan. The investment options for existing accounts under the Supplemental Plan are identical to those under the Deferred Plan. A participant may elect to have distributions in a single lump-sum, in installments commencing on a date of the participant’s choice or in an initial lump-sum payment with subsequent installment payments.

50

      2017 Proxy Statement



Table of Contents

Executive Compensation

Distributions may commence in the year following termination or any later date and must be completed within 25 years. If the participant does not file a distribution election in the year of termination, the participant’s entire Supplemental Plan balance is paid out in cash in the calendar year following termination. In-service and hardship withdrawals are permitted subject to certain conditions.

POTENTIAL PAYMENTS UPON TERMINATION OF EMPLOYMENT OR CHANGE IN CONTROL
Our NEOs are entitled to certain payments and benefits in connection with a termination of employment or change in control followed by termination of employment, as described below. Post-termination arrangements for Messrs. Andres, Bensen, and Hoffmann, who were either not employed with the Company on December 31, 2016 or who retired on that date, are discussed separately at the end of this section.

TERMINATION OF EMPLOYMENT

SEVERANCE PLAN

Messrs. Easterbrook, Ozan, Goare and Ms. Lagnado would have received severance benefits under the McDonald’s Corporation Severance Plan (Severance Plan) if they were terminated by the Company without “cause,” due to a reduction in work force or job elimination on December 31, 2016. The Severance Plan excludes severance benefits in the event of termination for performance reasons.

The applicable benefits consist of a lump-sum payment with respect to severance pay, based on final salary, and a continued subsidy of medical and dental benefits. Amounts are based on position and length of service. In addition, in a covered termination, each eligible NEO would receive prorated STIP and Cash LTIP payments based on actual performance (and paid at the same time payments are made to other participants), unused sabbatical leave, and transitional assistance. Payments would be delayed for six months following termination of employment to the extent required under Code Section 409A.

The value of the benefits that would have been payable to eligible NEOs under the Severance Plan, assuming a covered termination of employment on December 31, 2016, are set forth below.

Name      Salary
continuation
($)
     Benefit
continuation
($)
     Cash LTIP
($)
     Other (sabbatical and
transition assistance) ($)
     Total ($)
Stephen Easterbrook 650,000 2,591 2,126,543 25,000   2,804,134
Kevin Ozan   511,538 3,787   383,333 119,692 1,018,351
Douglas Goare 685,000   17,670 390,000   12,000 1,104,670
Silvia Lagnado 309,000 6,842 195,972 12,000 523,814

STOCK OPTIONS

Unvested options are generally forfeited on termination of employment, with vested options remaining outstanding and exercisable for 90 days, except on termination for “cause.”

If the NEO qualifies for favorable treatment (by satisfying the conditions for retirement or “special circumstances,” which includes termination by the Company without “cause,” and agreeing to the restrictive covenants), the options continue to become exercisable on the originally scheduled dates and remain exercisable for an extended post-termination exercise period (the full term of the option in the case of retirement and for a lesser period in the case of “special circumstances”), as applicable. If a NEO terminates employment as a result of death or disability, the options vest upon termination and remain exercisable for an extended post-termination exercise period. If a NEO violates a restrictive covenant following termination, the Company may cancel any outstanding options. Further, if a NEO terminates employment for any reason other than death or disability, all options granted in the last 12 months are generally forfeited upon termination, although the Company may elect to waive that forfeiture.

McDonald’s Corporation      

51




Table of Contents

Executive Compensation

RSUs

Unvested RSUs are generally forfeited on termination of employment. As discussed on page 40, the Company’s practice generally is to grant NEOs RSUs subject to performance-based vesting conditions. In the case of certain termination events (including retirement and termination by the Company without “cause”), generally NEOs are entitled to full or pro-rata vesting with respect to their unvested RSUs; however, performance-based RSUs are not accelerated on termination of employment and vesting remains subject to the satisfaction of the applicable performance conditions, which is determined following completion of the performance period. Further, if a NEO terminates employment for any reason other than death or disability, all RSUs granted in the last 12 months are generally forfeited upon termination, although the Company may elect to waive that forfeiture. Further, the Committee may waive the achievement of performance goals on death or disability. With respect to the performance-based RSUs held by our NEOs, we are not able to calculate the hypothetical value that each NEO could have realized as a result of a termination of employment, as vesting is based not only on the portion of the vesting period in which the NEO remained employed, but also on the Company’s actual performance through the entire performance period.

Mr. Ozan held service-based RSUs, which were granted to him prior to his promotion to Corporate Executive Vice President and CFO. If Mr. Ozan were terminated by the Company on December 31, 2016, he would have realized a value of $249,526 as a result of the accelerated pro-rata vesting of these RSUs. If Mr. Ozan retired on December 31, 2016, he would have realized a value of $256,586. In each case, amounts are based on the closing price of the Company’s common stock on December 30, 2016.

Per the terms of her sign-on arrangement, Ms. Lagnado was granted service-based RSUs. In the event Ms. Lagnado’s employment is involuntarily terminated by the Company without cause prior to the vesting date of this award, she will vest in a pro-rata portion of the RSUs granted based on the number of months worked during the vesting period, with a minimum prorated vesting equal to 6 months of service. If Ms. Lagnado’s employment had been involuntarily terminated by the Company on December 31, 2016, she would have realized a value of $669,217.

CHANGE IN CONTROL
A “change in control” is generally defined as either (i) the acquisition of 20% or more of our common stock or voting securities by a single purchaser or a group of purchasers acting together; (ii) the incumbent members of the Board cease to constitute at least a majority of the Board as a result of an actual or threatened election contest; (iii) a significant merger or other business combination involving the Company; or (iv) a complete liquidation or dissolution of the Company.

SEVERANCE PLAN PAYMENTS

Following a change in control, Messrs. Easterbrook, Ozan, and Goare and Ms. Lagnado would be entitled to payments under the Severance Plan as described above in the event their employment is terminated and they otherwise qualify for the payments and benefits thereunder. In addition, each NEO would have been entitled to a prorated Cash LTIP payment following a change in control based on actual performance through the date of the change in control for the year ended December 31, 2016. Assuming that a change in control occurred on December 31, 2016, the NEOs would have been entitled to the following Cash LTIP payments: Messrs. Easterbrook: $3,473,514; Ozan: $626,625; and Goare: $651,690; and Ms. Lagnado: $327,470, based on actual performance through such date.

CHANGE IN CONTROL AGREEMENT

The Company no longer has any change in control agreements.

Prior to his retirement, the Company was party to a change in control agreement with Mr. Bensen, which provided for: (i) a lump-sum cash payment equal to three times the sum of his salary, target annual bonus and contribution received under the Company’s deferred compensation plan; (ii) a pro-rata portion of the annual bonus based upon actual performance, reduced (but not below zero) by any portion of the annual bonus for that year previously paid to him, if any; (iii) a lump-sum payment equal to continued medical, life insurance, fringe and other benefits for three years after the termination; and (iv) a lump-sum cash payment for any accrued sabbatical leave. Mr. Bensen’s receipt of these benefits would have been subject to execution of an agreement that included restrictive covenants and a release of claims. Payment of these benefits would have been delayed for six months to the extent required under Code Section 409A. Mr. Bensen was also entitled to be reimbursed for excise tax payments that were considered to be contingent upon a change in control if the aggregate after-tax amount of benefits was at least 110% of what he would receive if benefits were reduced to a level that would not be subject to excise taxes. This agreement expired upon Mr. Bensen’s retirement.

52

      2017 Proxy Statement



Table of Contents

Executive Compensation

TREATMENT OF EQUITY AWARDS UPON A CHANGE IN CONTROL

Under the Company’s 2012 Omnibus Stock Ownership Plan (2012 Plan), upon a change in control, outstanding unvested options and RSUs will be replaced by equivalent awards based on publicly-traded stock of the successor entity. The replacement awards will vest and become exercisable (in the case of options) or be paid out (in the case of service-based RSUs) if the grantee’s employment is terminated for any reason other than “cause” within two years following the change in control. In addition, if employment is terminated other than for “cause” within two years following the change in control, all options will remain outstanding for not less than two years following termination or until the end of the original term, if sooner.

If the awards are not replaced (e.g., because the acquirer does not have publicly-traded securities) or if the Committee so determines, vesting will be accelerated. RSUs would vest (performance-based RSUs at target) and be paid out upon a Code Section 409A change in control; otherwise, the RSUs would be paid out on the originally scheduled payment date or, if earlier, on the NEO’s death, disability or termination of employment, subject to any required delay under Code Section 409A. Terminations initiated by the NEO will not result in accelerated vesting of replacement awards.

If a change in control had occurred on December 31, 2016 and either (i) the outstanding options and RSUs held by the NEOs could not be replaced or (ii) the Committee so determined, assuming that the transaction met the applicable definition of a change in control under the 2012 Plan and Code Section 409A: (i) options would have vested and (ii) RSUs would have vested and been paid out immediately (performance-based RSUs at target). The awards held by the NEOs as of December 31, 2016 are set forth in the Outstanding Equity Awards at 2016 Year-end table on pages 48 and 49.

The table below summarizes the value of the change in control payments that the NEOs could have received based on: (i) in the case of options, the “spread” between the exercise price and the closing price of the Company’s common stock on December 30, 2016 (the last trading day in 2016) and (ii) in the case of RSUs, the target number of shares, multiplied by the closing price of the Company’s common stock on December 30, 2016. The table sets forth the hypothetical value that the NEOs could have realized as a result of the accelerated equity awards, based on these assumptions. If there was no change in control, the amounts shown would have vested over time, subject to continued employment and, with respect to the RSUs, subject to performance-based vesting conditions.

Named executive officer       Stock options
(closing price on 12/30/16 minus
exercise price) ($)
      RSUs
(target number of shares multiplied
by closing price on 12/30/16) ($)
      Total ($)
Stephen Easterbrook   5,840,842 10,159,968 16,000,810
Kevin Ozan 1,251,132 2,311,950 3,563,082
Douglas Goare 1,800,123 2,817,818 4,617,941
Silvia Lagnado 484,128 1,630,074 2,114,202

DEFERRED COMPENSATION
Following separation from service for any reason, the NEOs will receive distributions from their accounts under the Deferred Plan and the Supplemental Plan in accordance with their elected distribution schedules, as described on page 50.

POST-TERMINATION ARRANGEMENTS FOR MESSRS. ANDRES, BENSEN AND HOFFMANN
In connection with Mr. Andres’ retirement on December 31, 2016, Mr. Andres received a 2016 STIP of $1,080,720 and also received $20,560 of a continued subsidy of health benefits for 18 months and $12,500 towards retirement planning. In connection with Mr. Bensen’s retirement in September, 2016, Mr. Bensen received a prorated 2016 STIP of $1,601,457 and $150,000 in lieu of untaken sabbatical, both of which were paid in March 2017. Mr. Bensen also received $20,618 of a continued subsidy of health benefits for 18 months and $12,500 towards retirement planning. As described in further detail on page 41, the Committee waived certain notice and service requirements for both Messrs. Andres and Bensen pursuant to their 2016 RSU and option awards in exchange for an extended non-compete provision. As a result, each executive will vest in all outstanding RSU awards, subject to the original performance-based vesting schedule and each will continue to vest in his outstanding options subject to their original vesting schedule. Outstanding options will remain outstanding until their original expiration dates. Mr. Hoffmann did not receive any additional payments and forfeited all unvested equity awards in connection with his departure from the Company.

McDonald’s Corporation      

53




Table of Contents

Executive Compensation

 
PROPOSAL NO. 2
       

Advisory vote to approve executive compensation

 

The Company is asking its shareholders to approve, on an advisory basis and as required pursuant to Section 14A of the Securities Exchange Act of 1934, the compensation awarded to the named executive officers for 2016, as described in the Executive Compensation section, beginning on page 34, which includes the Compensation Discussion and Analysis (CD&A) and the compensation tables and related narrative discussion.

As fully described in the CD&A, the Company’s executive compensation program is designed to support our business initiatives, align the interest of our executives with those of shareholders, and strongly link pay and performance. The Company believes its compensation program appropriately incentivizes executives through a mix of short- and long-term plans that reflect measurable, rigorous performance goals closely aligned with Company strategy.

In 2016, the Company’s turnaround efforts yielded strong results that support the above-target payouts under our annual cash incentive plan. However, as a result of performance challenges in prior years, payouts under the long-term plans were significantly below target levels. The Company believes that these pay outcomes demonstrate the appropriate mix of both short- and long-term plans as well as the rigorous target-setting process that highlights the program’s success in aligning pay and performance.

The Board believes that the Company’s executive compensation program appropriately incentivizes strong operational and financial performance in both the current year and over the long-term, thereby aligning the interests of executives with the interests of shareholders.

 
 
          The Board of Directors recommends that shareholders vote FOR the approval, on an advisory basis, of the compensation awarded to McDonald’s named executive officers for 2016, as disclosed under SEC rules, including the Compensation Discussion and Analysis and the compensation tables and related narrative discussion included in this Proxy Statement.      
 
 

 
PROPOSAL NO. 3
       

Advisory vote on the frequency of future advisory votes to approve executive compensation

 

In addition to providing shareholders with the opportunity to cast an advisory vote to approve executive compensation, the Company is also asking its shareholders to provide an advisory, nonbinding vote on how frequently the advisory vote to approve executive compensation should be presented to shareholders, as required pursuant to Section 14A of the Securities Exchange Act of 1934. You may vote your shares to have the advisory vote held annually, every two years or every three years, or you may abstain.

After careful consideration of this proposal, the Board recommends an annual vote. When the Company’s shareholders last voted on this matter, a majority of shareholders voted in favor of an annual vote, and the Board adopted an annual frequency for executive compensation advisory votes. The Company respects the shareholders’ preference, and the Board believes that an annual frequency vote will allow shareholders to provide the Company with their input on the Company’s compensation philosophy, policies and practices as disclosed in the Proxy Statement every year.

While this vote is advisory and not binding on the Company, the Board expects to take into account the outcome of the vote, along with other relevant factors, when considering how frequently to present future advisory votes to approve executive compensation.

 
 
          The Board of Directors recommends that shareholders vote in favor of the option of advisory votes every ONE YEAR to approve executive compensation.      
 
 

54

      2017 Proxy Statement



Table of Contents

Executive Compensation

 
PROPOSAL NO. 4
       

Approval of the material terms of the performance goals for awards under the McDonald’s Corporation 2012 Omnibus Stock Ownership Plan

 

The Company is asking its shareholders to approve the material terms of the performance goals (Performance Goals) for awards under the McDonald’s Corporation 2012 Omnibus Stock Ownership Plan (Plan). We are not amending or altering the Performance Goals or any other provision of the Plan.

BACKGROUND

Section 162(m) of the Internal Revenue Code (Section 162(m)) limits the deductibility of certain executive compensation paid to the Company’s Chief Executive Officer and the three highest compensated executive officers (other than the Chief Financial Officer), as determined pursuant to the executive compensation disclosure rules under the Securities Exchange Act of 1934. These executive officers are referred to as covered employees. An exemption from this limitation (the Performance Exception) applies to “performance-based” compensation as defined in the regulations under Section 162(m).

The Plan gives the Board’s Compensation Committee (Committee) the ability to grant equity incentive awards based upon the achievement of Performance Goals during specified periods that are designed to qualify for the Performance Exception, assuming the regulatory requirements are satisfied. One of the requirements under the Performance Exception is shareholder approval of the Performance Goals pursuant to which compensation is paid. The regulations under Section 162(m) require that, in order for awards under the Plan to qualify for the Performance Exception, shareholders must approve the material terms of the applicable Performance Goals every five years. The Performance Goals for awards under the Plan were last approved by shareholders on May 24, 2012. Therefore, the Company is asking for your approval of the Performance Goals again this year.

Nothing in the Plan or this Proxy Statement is intended to guarantee that the Company will always seek to ensure that its compensation qualifies as performance-based compensation, and no guarantee can be given that the terms of the Plan do in fact comply with the requirements for performance-based compensation, as they exist today or as they may change from time to time.

MATERIAL TERMS OF PERFORMANCE GOALS

PERFORMANCE MEASURES
For awards (other than stock options and stock appreciation rights) intended to qualify for the Performance Exception, the Performance Goals shall be based upon the attainment of specified levels of performance with respect to one or more of the following measures, applied to the Company as a whole or to any subsidiary, division or other unit of the Company: revenue; operating income; net income; basic or diluted earnings per share; return on revenue; return on assets; return on equity; return on total capital; total shareholder return; or any other measure of financial performance that can be determined pursuant to U.S. generally accepted accounting principles. These Performance Goals may be absolute or relative to the performance of one or more other companies comparable to the Company or of an index covering multiple companies. In establishing Performance Goals, the Committee may specify that there shall be excluded the effect of restructuring charges, discontinued operations, extraordinary items, cumulative effects of accounting changes, and other unusual or nonrecurring items, and asset impairment and the effect of foreign currency fluctuations, in each case as those items are defined under generally accepted accounting principles and provided in each case that such excluded items are objectively determinable by reference to the Company’s financial statements, notes to the Company’s financial statements and/or management’s discussion and analysis in the Company’s financial statements.

ELIGIBLE EMPLOYEES
The Plan may be used to grant performance-based awards to any employee of McDonald’s and its subsidiaries. Officers, other employees and non-employee directors of the Company and its subsidiaries are eligible to participate in the Plan, in the sole discretion of the Committee. As of December 31, 2016, approximately 375,000 employees, including the Company’s executive officers, and all non-employee directors were eligible to participate in the Plan, with approximately 200 officer level employees receiving awards with Performance Goals in recent years. The Committee anticipates that a comparable number of individuals will be selected for awards in the future.

McDonald’s Corporation      

55




Table of Contents

Executive Compensation       

MAXIMUM AWARDS
Subject to the adjustment provisions included in the Plan, the maximum number of shares that may be granted to any grantee in any one-year period in the form of stock options or stock appreciation rights is 2,000,000 and the maximum number of shares that may be granted to any grantee in any one-year period in the form of restricted stock or other stock-based awards, in each case that are performance-based compensation awards under Section 162(m), is 500,000.

SUMMARY DESCRIPTION OF THE PLAN

AWARDS
The Plan provides for the granting of stock options, restricted stock units, stock bonuses, dividend equivalents and other stock-based awards. The closing price for the common stock on the New York Stock Exchange on March 1, 2017 was $129.05.

PLAN ADMINISTRATION
The Plan is administered by the Committee. Subject to the terms of the Plan, the Committee may delegate certain of its administrative responsibilities, and its powers may also be exercised by the full Board. Subject to the Plan, the Committee has the authority to administer the Plan, including the right to: approve the persons to whom, and the times when, awards are to be granted, as well as the type, size and terms of such awards and to modify such grants; interpret the Plan; accelerate the exercisability of and waive the restrictions and conditions applicable to, awards; and extend the time during which awards may be exercised (but not beyond 10 years).

AMENDMENT AND TERMINATION
The Plan and awards under it may be amended by our Board or the Committee, subject to shareholder approval if required by applicable law or stock exchange rules or to the extent the Board or the Committee seeks to amend the option repricing prohibition including in the Plan. No amendment may adversely affect outstanding awards without the consent of the affected grantee, unless the amendment does not materially decrease the value of the awards or is made to comply with applicable law, stock exchange rules or accounting rules. Moreover, in no event may any award be amended in any manner that would cause it to cease to qualify for the Performance Exception. The Plan will terminate on the 10th anniversary of its effective date, unless terminated earlier by the Board.

NEW PLAN BENEFITS
Because the grant of awards pursuant to the Plan is within the discretion of the Committee, it is not possible to determine the awards that will be made under the Plan. Please see the “2016 Summary Compensation Table” and “2016 Grants of Plan-Based Awards Table” for the grant date fair values of the equity-based awards granted to our named executive officers during 2016. In addition, during 2016, all executive officers of the Company as a group (including the current named executive officers) were granted awards under the Plan with aggregate share targets of 657,851 shares.

The foregoing summary is qualified in its entirety by the full text of the Plan. The Plan is not part of this Proxy Statement. A copy of the Plan is available on the Company’s website at http://corporate.mcdonalds.com/mcd/investors.html, by clicking on “2017 Proxy Statement,” and the Securities and Exchange Commission’s website at www.sec.gov, where it is an exhibit to an electronic version of this Proxy Statement. We will provide you with a copy without charge if you call McDonald’s Corporation Shareholder Services at 800-228-9623, or write to us at McDonald’s Corporation, Shareholder Services, Department 720, One McDonald’s Plaza, Oak Brook, IL 60523-1928. Copies of the Plan will also be available at the Annual Shareholders’ Meeting.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

The following describes the principal United States federal income tax consequences related to options granted under the Plan.

Non-qualified Options. A grantee will not be subject to tax at the time a non-qualified option is granted, and no tax deduction is then available to the Company. Upon the exercise of a non-qualified option, an amount equal to the difference between the option price and the fair market value of the shares acquired on the date of exercise will be included in the grantee’s ordinary income and the Company will generally be entitled to deduct the same amount. Upon disposition of shares acquired upon exercise, appreciation or depreciation after the date of exercise will be treated by the grantee or transferee of the non-qualified option as either capital gain or capital loss.

56

      2017 Proxy Statement



Table of Contents

Executive Compensation

Incentive Stock Options. A grantee will not be subject to tax, and no tax deduction is available to the Company, at the time an incentive stock option is granted or exercised; however, the excess of the fair market value of the shares received upon exercise of the incentive stock option over the option price on the date of exercise is included in the grantee’s alternative minimum taxable income subject to the alternative minimum tax. Upon disposition of the shares acquired upon exercise of an incentive stock option, capital gain or capital loss will generally be recognized in an amount equal to the difference between the sale price and the option price, as long as the grantee has not disposed of the shares within two years of the date of grant or within one year from the date of exercise. If the grantee disposes of the shares without satisfying the holding period (a disqualifying disposition), the grantee will recognize ordinary income at the time of the disqualifying disposition to the extent of the difference between the option price and the fair market value of the shares on the date the incentive stock option is exercised, or the amount realized on such disqualifying disposition (if less). Any remaining gain or loss is treated as a capital gain or capital loss.

The Company is not entitled to a tax deduction upon either the exercise of an incentive stock option or upon disposition of the shares acquired pursuant to such exercise, except to the extent that the grantee recognized ordinary income in a disqualifying disposition.

THE BOARD’S RECOMMENDATION

The Board believes that the approval of the material terms of the Performance Goals under the Plan will permit the Committee to continue to grant performance-based equity incentive awards designed to qualify for the Performance Exception to those employees upon whose judgment and efforts the Company is largely dependent for the successful conduct of its operations. The Board believes that this is in the best interest of the Company.

If shareholders do not approve the material terms of the Performance Goals, management and the Committee will examine all of the available alternatives, including, but not limited to, granting equity compensation that does not qualify for the Performance Exception.

 
 
          The Board of Directors recommends that shareholders vote FOR the approval of the material terms of the Performance Goals for awards under the McDonald’s Corporation 2012 Omnibus Stock Ownership Plan.      
 
 

EQUITY COMPENSATION PLAN INFORMATION

The following table summarizes information about the Company’s equity compensation plans as of December 31, 2016. All outstanding awards relate to the Company’s common stock. Shares issued under all of the following plans may be from the Company’s treasury, newly issued or both.

Plan category      Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(a)
     Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
     Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
(c)
Equity compensation plans approved by
security holders
23,430,608(1) $92.40 34,112,990
Equity compensation plans not approved by
security holders
Total 23,430,608 $92.40 34,112,990

(1) Includes 8,407,342 options granted under the McDonald’s Corporation 2001 Omnibus Stock Ownership Plan and 13,102,849 options and 1,920,417 restricted stock units granted under the McDonald’s Corporation 2012 Omnibus Stock Ownership Plan.

McDonald’s Corporation      

57




Table of Contents

AUDIT & FINANCE
COMMITTEE
MATTERS


AUDIT & FINANCE COMMITTEE REPORT

The role of the Audit & Finance Committee is to assist the Board of Directors in fulfilling its responsibility to oversee the Company’s financial reporting process. Management is primarily responsible for the Company’s financial statements, including the Company’s internal control over financial reporting. Ernst & Young LLP (Ernst & Young), the Company’s independent auditor, is responsible for performing an audit of the Company’s annual consolidated financial statements in accordance with generally accepted accounting principles and for issuing a report on those statements. Ernst & Young also reviews the Company’s interim financial statements in accordance with applicable auditing standards. The Audit & Finance Committee oversees the Company’s financial reporting process and internal control structure on behalf of the Board of Directors. The Audit & Finance Committee met regularly with Ernst & Young and the head of internal audit, both privately and with management present, during 2016.

In fulfilling its oversight responsibilities, the Audit & Finance Committee reviewed and discussed with management and Ernst & Young the audited and interim financial statements, including Management’s Discussion and Analysis, included in the Company’s Reports on Form 10-K and Form 10-Q.

In connection with its review of the Company’s annual consolidated financial statements, the Audit & Finance Committee also discussed with Ernst & Young other matters required to be discussed with the auditor under Auditing Standard 1301, as modified or supplemented (communication with audit committees), and those addressed by Ernst & Young’s written disclosures and its letter provided under the applicable requirements of the Public Company Accounting Oversight Board, as modified or supplemented (independence discussions with audit committees).

The Audit & Finance Committee is responsible for the engagement of the independent auditor and appointed Ernst & Young to serve in that capacity during 2016 and 2017. In that connection, the Audit & Finance Committee reviewed Ernst & Young’s independence from the Company and management, including Ernst & Young’s written disclosures described above.

Based on the reviews and discussions referred to above, the Audit & Finance Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 for filing with the SEC.

Respectfully submitted,

The Audit & Finance Committee

John Mulligan, Chair
Lloyd Dean
Margaret Georgiadis
Walter Massey
Sheila Penrose


58

      2017 Proxy Statement



Table of Contents

Audit & Finance Committee Matters

POLICY FOR PRE-APPROVAL OF AUDIT AND PERMITTED
NON-AUDIT SERVICES

The Audit & Finance Committee has a policy for the pre-approval of all audit and permitted non-audit services to be provided to the Company by its independent auditor. The Audit & Finance Committee may pre-approve engagements on a case-by-case basis or on a class basis if the relevant services are predictable and recurring.

Pre-approvals for classes of services are granted at the start of each fiscal year and are applicable for the year. In considering these pre-approvals, the Audit & Finance Committee reviews a description of the scope of services falling within each class and imposes budgetary estimates that are largely based on historical costs. Any audit or permitted non-audit service that is not included in an approved class, or for which total fees are expected to exceed the relevant budgetary estimate, must be pre-approved on an individual basis. Pre-approval of any individual engagement may be granted not more than one year before commencement of the relevant service. Pre-approvals of services that may be provided over a period of years must be reviewed for renewal each year.

The Chief Accounting Officer monitors services provided by the independent auditor and overall compliance with the pre-approval policy. The Chief Accounting Officer reports periodically to the Audit & Finance Committee about the status of outstanding engagements, including actual services provided and associated fees, and must promptly report any noncompliance with the pre-approval policy to the Chair of the Audit & Finance Committee.

In accordance with the policy, all services provided to the Company by Ernst & Young in 2015 and 2016 were pre-approved by the Audit & Finance Committee.

The policy is available on the Company’s website at http://corporate.mcdonalds.com/mcd/investors/corporate-governance/ governance-principles-policies-and-guidelines.html.

AUDITOR FEES AND SERVICES

The following table presents fees billed for professional services rendered for the audit of the Company’s annual financial statements for 2016 and 2015 and fees paid for other services provided by our independent auditor in those years:

(In millions)        2016        2015
Audit fees(1) $12.0 $11.0
Audit-related fees(2) 1.7 0.5
Tax fees(3) 0.5 0.8
Total $14.2 $12.3
(1) Fees for services associated with the annual audit (including internal control reporting), statutory audits required internationally, reviews of Quarterly Reports on Form 10-Q and accounting consultations.
(2) Fees for employee benefit plan audits and certain attestation services not required by statute or regulation. 2016 also includes audit-related fees associated with the Company’s refranchising related initiatives.
(3) Primarily fees for tax compliance in various international markets.

McDonald’s Corporation      

59




Table of Contents

Audit & Finance Committee Matters

 
PROPOSAL NO. 5
       

Advisory vote to approve the appointment of Ernst & Young LLP as independent auditor for 2017

 

The Audit & Finance Committee is directly responsible for the appointment, compensation, retention, evaluation and termination of the independent external audit firm. The Committee has appointed Ernst & Young LLP as the Company’s independent external audit firm for 2017. In executing its responsibilities, the Committee engages in a thorough annual evaluation of Ernst & Young’s qualifications, performance and independence. Among other things, the Committee is informed by results of a comprehensive assessment survey of the firm by senior financial personnel from the Company’s headquarters and largest global markets, and discusses opportunities for improvement with the lead audit partner. The Committee has sole authority to approve all engagement fees to be paid to Ernst & Young. In assessing independence, the Committee reviews the fees paid, including those related to non-audit services, and annually reviews compliance with the Company’s Hiring Policy for Employees of External Audit Firm and Its Affiliates. The Committee regularly meets with the lead audit partner without members of management present, and in executive session with only the Committee members present, which provides the opportunity for continuous assessment of the firm’s effectiveness and independence and for consideration of rotating audit firms.

Ernst & Young or its predecessor, Arthur Young & Company, has been retained as the Company’s external audit firm continuously since 1964. In accordance with SEC rules and Ernst & Young policies, the firm’s lead engagement partner rotates every five years. The Audit & Finance Committee and its Chairman are directly involved in the selection of Ernst & Young’s lead engagement partner.

The Audit & Finance Committee and the Board of Directors believe that the continued retention of Ernst & Young LLP to serve as the Company’s independent external audit firm for 2017 is in the best interests of the Company and its shareholders, and the Board is asking shareholders to approve this appointment. A representative of the firm is expected to attend the Annual Shareholders’ Meeting and will be available to answer shareholders’ questions and have the opportunity to make a statement. If shareholders do not approve the appointment of Ernst & Young, the Audit & Finance Committee will reconsider the appointment.

 
 
          The Board of Directors recommends that shareholders vote FOR the appointment of Ernst & Young LLP as independent auditor for 2017.      
 
 

60

      2017 Proxy Statement



Table of Contents

SHAREHOLDER
PROPOSALS


The text of the shareholder proposals and supporting statements appear exactly as received by the Company unless otherwise noted. All statements contained in the shareholder proposals and supporting statements are the sole responsibility of the respective proponent(s). The shareholder proposals may contain assertions about the Company or other matters that the Company believes are incorrect, but the Company has not attempted to refute all such assertions. All website links included in the shareholder proposals, supporting statements and statements in opposition are not part of the Proxy Statement. The Board recommends a vote against all of the shareholder proposals based on the reasons set forth in the Board’s statements in opposition following each shareholder proposal.

The name and share ownership of each proponent of a shareholder proposal is set forth below. The address of each proponent, and the name and share ownership of any co-filer, are available, and will be provided promptly, upon request by calling 1-630-623-2553 or by sending a request to McDonald’s Corporation, Shareholder Services, Department 720, One McDonald’s Plaza, Oak Brook, IL 60523.

 
PROPOSAL NO. 6
       

Advisory vote on a shareholder proposal requesting a change to the vote-counting standard for shareholder proposals.

 

The Equality Network Foundation, represented by Investor Voice, SPC, has notified the Company that it intends to submit the following proposal at this year’s Annual Shareholders’ Meeting. As explained below, the Board recommends that you vote AGAINST this shareholder proposal. The proponent states that it beneficially owns 30 shares of McDonald’s common stock, and there were 816,753,115 shares outstanding as of the record date.

The proponent is responsible for the content of the following proposal, for which the Company and the Board accept no responsibility:

SHAREHOLDER PROPOSAL

RESOLVED:

     

McDonald’s Corporation (“McDonald’s”) shareholders ask the Board to take or initiate steps to amend Company governing documents to provide that all non-binding matters presented by shareholders shall be decided by a simple majority of the votes cast FOR and AGAINST an item. This policy would apply to all such matters unless shareholders have approved higher thresholds, or applicable laws or stock exchange regulations dictate otherwise.


SUPPORTING STATEMENT:
This proposal seeks transparency, clarity, and understanding around how informed stockholders vote on shareholder proposals. In voting, the Oxford English dictionary defines “Abstain” as:

To formally decline to vote either FOR or AGAINST a proposal…
A “simple majority” formula, therefore, includes votes cast FOR and AGAINST (but not abstentions). It provides the most democratic, clear, and accurate picture of the intent of shareowners who are both informed and decided, while excluding the votes of those who, by definition, have declined to express an opinion.

When voters choose to mark ABSTAIN (whether they are confused, disinterested, or lack time to become fully informed), it is apparent their votes should be regarded as neither FOR nor AGAINST a proposal.