DEF 14A 1 mcd3631831-def14a.htm DEFINITIVE PROXY STATEMENT

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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. )

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McDonald's Corporation

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      2020
Notice of Annual Shareholders’ Meeting
and Proxy Statement


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2020 PROXY CHAIRMAN’S LETTER

Dear McDonald’s Shareholders, Colleagues, Crew Members, Franchisees and Customers,

2019 was an important year for McDonald’s, with record setting financial and operational performance and an unprecedented challenge, the coronavirus, confronting the world towards the end of the year. With its strong performance in 2019, the company is well positioned to manage through this crisis, both from a business standpoint and with respect to our values, which will help guide us through these uncertain times.

Strength of the System. The McDonald’s system continues to demonstrate its strength, even through periods of change and uncertainty. I believe we did that incredibly well in 2019 by staying focused on executing our proven Velocity Growth Plan, and the proof is in the results as we hit a number of performance milestones for the company and our franchisees, including $100 billion in Systemwide sales, a global comparable sales increase of 5.9%, the highest in more than 10 years, and record – or near record – franchisee cash flow in most markets. Along with consolidated revenues of $21.1 billion, these achievements enabled McDonald’s to deliver a three-year total shareholder return of 75%, outpacing major indices and the average among our peer group. We also achieved our three-year target of returning $25 billion to shareholders. As a result, the McDonald’s system entered into 2020 in an exceptionally strong financial position.

No doubt, Ray Kroc and Fred Turner would have marveled at the success of the McDonald’s system. Our two founders devised one of the greatest business models on earth, and the strength of our three-legged stool has served us well in good times and in bad, making us resilient to disruption around us. Since 1980, McDonald’s is one of only four S&P companies that have outperformed the broader economy – decade after decade.

Drawing on Our Values. Far more important than our unique business model, Ray and Fred imbued our system with a deep sense of purpose and resilient values. Throughout our history, we have always made the right – but often difficult – decisions, rooted in our commitment to feeding and fostering communities. Most recently, we have witnessed an amazing sense of selfless team spirit in the face of the unprecedented coronavirus outbreak. Amid the understandable anxiety and uncertainty, I have heard countless stories of McDonald’s crew members and franchisees doing whatever they could to provide support for those affected, and I am confident that will continue, whether through our response to coronavirus or any other challenges our communities face, however big or small. Those values are what make McDonald’s special and underpin the resilience of our business. While there is no doubt that 2020 has presented its own challenges, I am confident that the resilience that McDonald’s has shown will carry through and will provide a solid foundation for our long-term success.

While many companies and Boards talk about commitment to purpose and values, the true measure of that commitment comes when confronted with difficult decisions. The McDonald’s Board faced such a decision, when we decided to implement a CEO change and appoint Chris Kempczinski as the new President & CEO of McDonald’s. The Board is confident that Chris has the character, experience and skills to boldly lead McDonald’s into its next chapter and extend the company’s global industry leadership.

Overcoming the Challenges Ahead. As we all now recognize, this next chapter will be defined by our company’s ability to navigate through the challenges created by coronavirus. This has been an historic disruption, and it is still unclear exactly how this pandemic will play out. The Board is actively engaged with management, and we are confident McDonald’s has the necessary plans to sustain its leadership under a variety of scenarios.

2020 Proxy Statement       1


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2020 Proxy Chairman’s Letter

While coronavirus certainly presents many challenges for the McDonald’s system, it also presents an opportunity to emerge stronger. Thanks to the strength of our Velocity Growth Plan, and with a balance sheet that is the envy of the industry, we entered into this crisis better positioned than most. That gives us a unique advantage to overcome the challenges that this crisis presents and to succeed in its aftermath.

A Strong Board with the Right Skillset. In 2019, as part of our ongoing commitment to Board refreshment to provide the right mix of skills, experience and fresh perspectives, the Board elected two new independent Directors, Paul Walsh and Catherine Engelbert. As former CEO of Diageo, Paul Walsh successfully led his company through the Great Recession of 2008 created by the financial crisis, and Cathy Engelbert brings robust financial expertise and a track record supporting diversity. With the added context of coronavirus, we will be sure to draw on their relevant experience as we manage through the situation. With these new additions to our Board, half of our 12 Directors have been added in the past five years. We know that in this current climate, McDonald’s needs to stay nimble, and as ever, the Board and management will continue to evaluate any necessary strategic adjustments.

Our Bright Future. McDonald’s entered into the coronavirus crisis in a strong position, and we have the leadership, resources and strategic vision to manage through the situation successfully. Above all, we possess a purpose and set of values that will continue to lead us – in good times and in bad – and inspire our actions as stewards of one of the world’s greatest brands.

On behalf the Board, I want to express our gratitude to the 2.2 million people across the McDonald’s system who make it possible for McDonald’s to contribute to our communities around the world every day and keep delivering results for the business at the same time. With this unwavering commitment to being ambassadors for our values and the continued delivery of our strategy, I have every confidence that McDonald’s is well positioned for our long-term future.

As always, the company will continue to engage with you regularly to keep you updated on our progress.

Thank you for your continued support of McDonald’s.

Sincerely,


ENRIQUE HERNANDEZ, JR.
Chairman of the Board

2       McDonald’s Corporation


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NOTICE OF OUR ANNUAL SHAREHOLDERS’ MEETING

McDONALD’S CORPORATION

MEETING TIME AND DATE
8:30 a.m. Central Time on Thursday, May 21, 2020
VIRTUAL MEETING LOCATION
Due to concerns relating to the coronavirus outbreak (COVID-19), and to support the health and well-being of our shareholders, McDonald’s Corporation will have a virtual only annual shareholders’ meeting in 2020, conducted exclusively via live audiocast at www.virtualshareholdermeeting.com/MCD2020. There will not be a physical location for our 2020 Annual Shareholders’ Meeting (our Annual Shareholders’ Meeting), and you will not be able to attend the meeting in person. See below for important information.
We will provide the Notice of Internet Availability, electronic delivery of the proxy materials or mailing of the 2020 Proxy Statement, the 2019 Annual Report on Form 10-K and a proxy card to shareholders beginning on or about April 9, 2020.

To McDonald´s Corporation Shareholders:

McDonald’s Corporation (the Company) will hold our 2020 Annual Shareholders’ Meeting on Thursday, May 21, 2020. Shareholders will be asked to vote upon the following proposals:

Agenda       Our Board’s Voting
Recommendation
PROPOSAL 1       Election of 12 Directors named in this Proxy Statement, each for a one-year term expiring in 2021; FOR EACH DIRECTOR
NOMINEE
PROPOSAL 2 Advisory vote to approve executive compensation; FOR
PROPOSAL 3 Advisory vote to approve the appointment of Ernst & Young LLP (EY) as our independent auditor for 2020; FOR
PROPOSAL 4 Vote to approve our Amended and Restated 2012 Omnibus Stock Ownership Plan; and FOR
PROPOSALS
5 – 6
Advisory votes on two shareholder proposals, only if properly presented. AGAINST EACH
SHAREHOLDER
PROPOSAL

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.

Who Can Vote: Shareholders at the close of business on March 23, 2020 (the record date) can vote on matters presented for our Annual Shareholders’ Meeting. Each share of common stock is entitled to one vote for each Director and one vote for each other proposal.

How to Attend the 2020 Virtual Annual Shareholders´ Meeting: To be admitted to the Annual Shareholders’ Meeting at www.virtualshareholdermeeting.com/MCD2020, you must enter the control number on your proxy card, voting instruction form or Notice of Internet Availability you previously received. Whether or not you plan to attend the virtual Annual Shareholders’ Meeting, we encourage you to vote and submit your proxy in advance of the meeting by one of the methods described to the right on this page. You also may vote online and examine our shareholder list during the Annual Shareholders’ Meeting by following the instructions provided on the meeting website during the Annual Shareholders’ Meeting. To vote at the meeting, visit www.virtualshareholdermeeting.com/MCD2020. For more information, please see page 85.

By order of our Board of Directors,


JEROME N. KRULEWITCH
Corporate Secretary, McDonald’s Corporation
110 North Carpenter Street, Chicago, Illinois 60607
April 9, 2020

IMPORTANT VOTING INFORMATION:
Please carefully review the proxy materials and follow the instructions below to cast your vote.

REGISTERED SHAREHOLDERS
If you hold shares through the Company’s transfer agent, Computershare, please use one of these options to vote by 11:59 p.m. Central Time on May 20, 2020:

Internet
www.proxyvote.com

Tablet or Smartphone
Scan this QR code to vote with your mobile device

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

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


BENEFICIAL OWNERS
If you hold shares through your bank or brokerage account, please use one of these options to vote by 11:59 p.m. Central Time on May 20, 2020:

Internet
www.proxyvote.com

Tablet or Smartphone
Scan this QR code to vote with your mobile device

Telephone
800-454-8683
Dial toll-free 24/7

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


YOUR VOTE IS IMPORTANT.
Please consider the issues presented in this Proxy Statement and vote your shares as promptly as possible.



2020 Proxy Statement       3


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TABLE OF CONTENTS

A Letter from our Chairman of the Board       1
Notice of our Annual Shareholders’ Meeting 3
Proxy Statement Summary 5
Voting Matters and Recommendations 5
Business Strategy and Performance Highlights 5
Governance Highlights 7
Executive Compensation Highlights 11
Election of Directors 13
     
PROPOSAL 1
Election of Directors 13
Director Qualifications 13
Biographical Information 15
Board and Governance Matters 21
     
Board Leadership 21
Board Composition and Succession Planning 21
Board Diversity 22
Director Independence 22
Selection of New Director Candidates 23
Board and Committee Evaluations 24
Board Committees 25
Risk Oversight 31
Strategy Oversight 32
Management Succession Planning 32
Shareholder Engagement 33
Board’s Response to Shareholder Proposals 34
Responsible Leadership 34
Other Governance Policies and Principles 35
Director Compensation 36
Executive Compensation 38
     
PROPOSAL 2
Advisory Vote to Approve Executive Compensation 38
Compensation Committee Report 38
Compensation Discussion and Analysis 39
1 | Our 2019 Year in Review 39
2 | Named Executive Officers (NEOs) 40
3 | Compensation Guiding Principles 41
4 | Compensation Setting Process 43
5 | Performance-Based Compensation Metrics 44
6 | Primary Elements of Total Direct Compensation 44
7 | Adjustments to Reported Results 47
8 | Other Compensation Elements 48
9 | 2020 Changes to Compensation Program       49
10 | Executive Departures 49
11 | Compensation Policies and Practices 50
Compensation Tables 53
Additional Compensation Matters 62
Audit & Finance Committee Matters 63
     
PROPOSAL 3
Advisory Vote to Approve the Appointment of Ernst & Young LLP as Independent Auditor for 2020 63
Audit & Finance Committee Report 64
Policy for Preapproval of Audit and Permitted Non-Audit Services 65
Auditor Fees and Services 65
Amended and Restated Equity Plan 66
     
PROPOSAL 4
Vote to Approve our Amended and Restated 2012 Omnibus Stock Ownership Plan 66
Shareholder Proposals 71
     
PROPOSAL 5
Advisory Vote on a Shareholder Proposal Requesting to Change the Thresholds to Call Special Shareholder Meetings 71
     
PROPOSAL 6
Advisory Vote on a Shareholder Proposal Requesting the Board Issue a Report on Sugar and Public Health 74
Stock Ownership 77
Transactions with Related Persons 79
Communications 80
Questions and Answers 81
Virtual Meeting Information 85
Exhibit A – Proposed Amended and Restated 2012 Omnibus Stock Ownership Plan 86

4       McDonald’s Corporation


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PROXY STATEMENT SUMMARY

This summary highlights information about McDonald’s Corporation and the 2020 Annual Shareholders’ Meeting. This summary is provided for your convenience and does not include all the information that you should consider in deciding how to vote. We encourage you to read the entire Proxy Statement and our Annual Report on Form 10-K before voting. As used in this Proxy Statement, the Company, we, us or our refer to McDonald’s Corporation and its wholly-owned subsidiaries. Website links included in this Proxy Statement are for convenience only. The content in any website links included in this Proxy Statement is not incorporated herein and does not constitute a part of this Proxy Statement.

We will hold a virtual Annual Shareholders’ Meeting. Shareholders may participate online by logging onto www.virtualshareholdermeeting.com/MCD2020. There will not be a physical meeting location, and you will not be able to attend the meeting in person. Please see page 85 for important information.

Voting Matters and Recommendations

The following proposals are scheduled to be presented at our upcoming 2020 Annual Shareholders’ Meeting:

MANAGEMENT PROPOSALS

      Item to be Voted on       Board’s Recommendation       Page
PROPOSAL 1 Election of 12 Directors named in this Proxy Statement, each for a one-year term expiring in 2021 FOR EACH NOMINEE 13
PROPOSAL 2 Advisory vote to approve executive compensation FOR 38
PROPOSAL 3 Advisory vote to approve the appointment of EY as independent auditor for 2020 FOR 63
PROPOSAL 4 Vote to approve the Company’s Amended and Restated 2012 Omnibus Stock Ownership Plan FOR 66
SHAREHOLDER PROPOSALS
PROPOSAL 5 Advisory vote on a shareholder proposal requesting to change the thresholds to call special shareholder meetings, if properly presented AGAINST 71
PROPOSAL 6 Advisory vote on a shareholder proposal requesting the Board issue a report on sugar and public health, if properly presented AGAINST 74

Business Strategy and Performance Highlights

VELOCITY GROWTH PLAN

Our Velocity Growth Plan, our consumer-centric strategy, is rooted in extensive customer research and insights, along with a deep understanding of the key drivers of the business. The Velocity Growth Plan is designed to drive sustainable comparable sales and guest count growth, which are reliable long-term measures of the Company’s strength that are vital to growing shareholder value.

We continue to target opportunities at the core of our business: food, value and the customer experience. Our strategy is built on these three pillars, which are all focused on building a better McDonald’s.


1

2

 

3

RETAINING
EXISTING CUSTOMERS
REGAINING
CUSTOMERS WHO VISIT LESS OFTEN
CONVERTING
CASUAL TO COMMITTED CUSTOMERS

Focusing on areas where we already have a strong foothold in the informal eating out category, including family occasions and food-led breakfast.

Recommitting to areas of historic strength, namely food taste and quality, convenience and speed, experience and value.

Building stronger relationships with customers so they visit more often, by elevating and leveraging the McCafé coffee brand and enhancing snack and treat offerings.


2020 Proxy Statement       5


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Proxy Statement Summary

We also continue to scale and optimize the Velocity Growth Plan through the following growth accelerators:

     

EXPERIENCE OF THE FUTURE

     

     

DIGITAL

     

     

DELIVERY

We are focusing on restaurant modernization to transform the restaurant service experience and enhance our Brand in the eyes of our customers. The modernization efforts are designed to provide a better customer experience, leading to increased frequency of customer visits and higher average check.

We are improving our existing service model for customers through technology. Digital technology is transforming the retail industry, and we are using technology to transform the McDonald’s experience for our customers at an accelerated pace.

We continue to build momentum with our delivery platform as a way of expanding convenience for our customers. In 2019, we continued to add third-party delivery partners to maximize the System’s* delivery scale and potential.


*

As used in this Proxy Statement, the “System” refers to the Company, its franchisees and suppliers.

In 2020, we plan to continue to focus on elevating the customer experience, leveraging technology, and enabling greater convenience and customer personalization. Despite unexpected changes due to the COVID-19 outbreak, our System will continue to serve communities around the world, including by providing support for the affected. While there is no doubt that 2020 will bring challenges, our resilience will carry us through and ensure our long-term success.

Our Velocity Growth Plan is a global strategy that is tailored at a market level to maximize convenience for our customers and contribute to the best overall customer experience. We are confident that through successfully executing the Velocity Growth Plan, we will continue to improve the taste of our delicious food, enhance convenience and service through running great restaurants, offer compelling value, and heighten the trust customers place in our Brand. We believe these actions will ultimately enable us to deliver long-term sustainable growth.

2019 BUSINESS PERFORMANCE

Our performance, as highlighted below, demonstrates continued momentum, which will enable us to drive our business, innovate, invest in our growth, and compete effectively in the global marketplace today and for the long term.

$21.1B REVENUE and $9.1B OPERATING INCOME

     

Over $100B in SYSTEMWIDE SALES**

     

5.9% increase in GLOBAL COMPARABLE SALES, reflecting increases across all segments

 

5% DILUTED EPS GROWTH

75% Cumulative 3-Year TOTAL SHAREHOLDER RETURN ending December 31, 2019***

$25B RETURNED TO SHAREHOLDERS for the 3-year period ending 2019


**

Systemwide sales include sales at all restaurants, whether operated by the Company or by franchisees. While franchised sales are not recorded as revenues by the Company, management believes the information is important in understanding the Company’s financial performance, because these sales are the basis on which the Company calculates and records franchised revenues and are indicative of the financial health of the franchisee base. The Company’s revenues consist solely of sales by Company-operated restaurants and fees from franchised restaurants operated by conventional franchisees, developmental licensees and affiliates.

***

The 3-Year Total Shareholder Return percentage is as reported on Bloomberg.com as of December 31, 2019.


6       McDonald’s Corporation


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Proxy Statement Summary

CEO TRANSITION

In November 2019, our Board appointed Christopher Kempczinski as President and Chief Executive Officer, following Stephen Easterbrook’s termination. Through this change in leadership, we remain committed to the Velocity Growth Plan. In Mr. Kempczinski’s prior roles as President, McDonald’s USA and Executive Vice President - Global Strategy, Business Development and Innovation, he was instrumental in the development of our Velocity Growth Plan, which has enabled global growth and leadership in our industry. Our Board believes that Mr. Kempczinski has demonstrated his dedication to upholding McDonald’s rich heritage of serving our customers and driving value for our shareholders and other stakeholders.

COMPANY VALUES

We recognize the link between our Company’s success, value creation for our shareholders and our ability to positively impact the industry and communities in which we operate. Our sustainability vision and initiatives are embodied in our Scale for Good platform. This platform is aligned with our strategic objectives and is designed to drive meaningful change in partnership with our franchisees and suppliers. Our Scale for Good priorities include beef sustainability, packaging and recycling, commitment to families, climate action and youth opportunity. We also continue to drive progress on our goals and commitments across key social and environmental topics such as diversity and inclusion, animal health and welfare, responsible sourcing and supporting farmers. For more details about our Scale for Good platform and other sustainability efforts, please see pages 34-35 of this Proxy Statement.

Governance Highlights

STRONG CORPORATE GOVERNANCE

BOARD AND GOVERNANCE PRACTICES

 
Separate Chairman and CEO roles with an independent Chairman
Diverse, independent Board
Balanced mix of Director tenures
Three new Directors in 2019  NEW 
Committee refreshment  NEW 
Board Committees are 100% independent (except Executive Committee)
Executive sessions of independent Directors scheduled for each regular Board and Committee meeting
Robust annual Board and Committee self-assessments and Director peer review; including 1:1 discussions with Chairman and Directors and responses compiled by an independent third-party
Regular succession planning at CEO, senior management and Board levels
No Directors who are current public-company CEOs serve on more than one outside Board  NEW 
No special interest Directors; our Board represents all shareholders’ interests
Majority voting standard for uncontested Director elections
No Director hedging/pledging  NEW 
Proxy access for Director candidates nominated by shareholders reflecting standard market practices
Meaningful thresholds for shareholders to call special meetings
Public disclosure of corporate political contributions and certain trade association memberships
Significant shareholder outreach and engagement
Access to independent advisors


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Proxy Statement Summary

We remain committed to evolving our corporate governance practices informed by feedback from our shareholders, as well as our ongoing review of evolving best practices. Our 2019 corporate governance highlights included:

EXECUTIVE SUCCESSION PLANNING STRATEGY OVERSIGHT
Our Board considers executive succession plans on an ongoing basis, as well as the skills, experiences and attributes needed to be an effective leader in light of our global business strategies, opportunities and challenges. To familiarize our Board with our strong talent pipeline, our Board regularly interacts with members of management who are possible candidates to succeed our CEO and other members of senior leadership. In 2019, following the appointment of Mr. Kempczinski as President and CEO, our Board appointed Joseph Erlinger as President, McDonald’s USA with responsibility for approximately 14,000 McDonald’s restaurants in the U.S., and Ian Borden as President, International, with oversight for all international markets within our International Operated and International Developmental Licensed Markets. Our Board remains confident that its regular review of executive succession planning is well-designed and effective. Our Board believes that a fundamental understanding of our business, strategy and industry assists it in the effective discharge of its duties. Our Board oversees management’s execution of our strategy and regularly engages with management to discuss the Company’s strategic direction. Our Board holds an annual strategy session, and in 2019, our Directors traveled to an international market for the strategy session and met with one of the Company’s developmental licensees. At this strategy session, management also presented an update on the Velocity Growth Plan and related growth accelerators.
SHAREHOLDER ENGAGEMENT OTHER BOARD SERVICE
We continue to engage with a significant portion of our shareholders on a range of topics, including our leadership transition; Board composition and other governance practices; the Velocity Growth Plan; our business results; executive compensation; human capital management; and environmental, social and other sustainability topics. Since our last Annual Shareholders’ Meeting, we reached out to shareholders representing nearly 50% of our outstanding shares. Feedback from these meetings is reported to our Board, and our Directors use it as a valuable input in their decision-making processes. It is expected that each Director will have time to devote to his or her present responsibilities at our Company. No Directors who are active public-company CEOs serve on more than one other outside public company board. Further, as provided by our Corporate Governance Principles, none of our Directors shall serve on more than three boards of companies whose common stock is listed for trading on a recognized exchange in the U.S., in addition to his or her service on our Board.

COMMITMENT TO BOARD REFRESHMENT

Our Board believes that there should be a balance of institutional knowledge and fresh perspectives among our Directors. In this regard, our Board is committed to ongoing refreshment, and half of our Directors have joined our Board in the last five years, including three new additions in 2019. In January 2019, our Board elected Paul Walsh, adding significant international, consumer-centric experience to our Board. In November 2019, our Board appointed Christopher Kempczinski as President and CEO and elected Mr. Kempczinski as a Director, bringing an important Company perspective to our Board. In December 2019, our Board elected Catherine Engelbert, contributing significant global business operations and talent management experience to our Board. In addition, Ms. Engelbert’s qualification as an “audit committee financial expert” is an important attribute as a member of our Audit & Finance Committee.

8           McDonald’s Corporation


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Proxy Statement Summary

BOARD DIVERSITY

Our Governance Committee proactively seeks diverse Director candidates to provide representation of varied backgrounds, perspectives and experience in the boardroom to support the global demands of our business. Our Board represents a diverse and highly-engaged group of Directors, balancing tenure and fresh perspectives and contributing diversity in a broad sense, including, among other attributes, leadership, experience, skills, perspectives, gender, ethnicity and geography. The following graphics provide a few highlights:

INDEPENDENT
11 of 12
All independent, except the CEO
     
WOMEN OR MINORITIES
50%
     
BALANCED EXPERIENCE

SHAREHOLDER ENGAGEMENT

We understand the importance of engaging with shareholders and are committed to regularly hearing shareholders’ perspectives. Our Board and management team have developed a robust shareholder engagement program. Throughout the year, we engage with a significant and diverse portion of shareholders on topics of importance to both the Company and shareholders. Shareholder feedback received 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 and other relevant Committees periodically throughout the year. For more information, see page 33 of this Proxy Statement.

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Proxy Statement Summary

OVERVIEW OF DIRECTORS

The following table provides an overview of our current Directors. All of our current Directors are nominees for election at the 2020 Annual Shareholders’ Meeting. Directors who have been elected since the last Annual Shareholders’ Meeting are listed as “new.” Additional information regarding our Director nominees begins on page 13.

Director
since
Committee membership Other
Boards
Name Primary occupation Independent AFC CC GC SCR PPS EC
Lloyd Dean 2015 CEO
CommonSpirit Health
0
Robert Eckert 2003 Operating Partner Friedman,
Fleischer & Lowe
3
Catherine Engelbert
 NEW 

2019
Commissioner
Women’s National
Basketball Association
0
Margaret Georgiadis 2015 President and CEO
Ancestry
0
Enrique Hernandez, Jr.
Chairman of the Board
1996 Chairman and CEO
Inter-Con Security Systems, Inc.
1
Christopher Kempczinski
 NEW 
2019 President and CEO
McDonald’s Corporation
0
Richard Lenny 2005 Non-executive Chairman
Conagra Brands, Inc.
2
John Mulligan 2015 Executive Vice President and COO
Target Corporation
0
Sheila Penrose 2006 Non-executive Chairman
Jones Lang LaSalle Incorporated
1
John Rogers, Jr.
2003
Founder, Chairman,
Co-CEO and CIO
Ariel Investments, LLC
2
Paul Walsh 2019 Chairman
Compass Group PLC*
3*
Miles White 2009 Executive Chairman
Abbott Laboratories
2
* In January 2020, Compass Group PLC announced that Mr. Walsh will step down as Chairman and Director of Compass Group upon appointment of his successor. In addition to his service on other outside Boards, Mr. Walsh also serves as Executive Chairman of Bespoke Capital Acquisition Corp., which has a class of restricted voting shares listed on the Toronto Stock Exchange.

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         McDonald’s Corporation


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Proxy Statement Summary

Executive Compensation Highlights

Our executive compensation program supports the key elements of the Velocity Growth Plan and aligns the interests of our executives with those of our shareholders, while maintaining the appropriate level of risk. We believe that our compensation program effectively motivates and reflects strong pay-for-performance alignment and rewards our executives through a mix of short- and long-term awards with rigorous performance goals and objective metrics that reflect key drivers of our business strategy.

COMPENSATION BEST PRACTICES

WHAT WE DO            WHAT WE DO NOT DO
Strong pay-for-performance alignment
Challenging quantitative performance targets
Performance metrics support our growth strategy and align interests of management with interests of shareholders
Majority of direct compensation paid over the long-term
Double-trigger change in control equity provisions
Independent compensation consultant
Significant stock ownership and retention requirements
Clawback provisions
Change in control agreements
Tax gross-up on perquisites
Repricing of stock options
Backdating of stock options
Encourage unreasonable risk taking
Employment agreements
Hedging or pledging

PERFORMANCE-BASED COMPENSATION

Our 2019 executive compensation program was comprised of both short- and long-term incentive awards, based on objective performance metrics (both absolute and relative), as well as our stock price performance, as reflected in the below graphic*:

* As a result of our leadership transition, the charts herein represent the compensation attributable to the role of the CEO for 2019 (specifically, pro-rated salary and Short-Term Incentive Plan (STIP) awards for Messrs. Kempczinski and Easterbrook, based on time as CEO, and the long-term incentive awards granted to Mr. Easterbrook in 2019).

A substantial portion of our executive compensation is variable based on the Company’s performance against challenging targets. Our 2019 Short-Term Incentive Plan rewards growth in annual operating income and comparable guest counts (core metrics), and also considers delivery sales results (a modifier) to encourage the continued transition of our delivery initiative from restaurant deployment to sales growth. Our performance-based restricted stock units granted in 2017 were subject to compound annual net income growth, three-year return on incremental invested capital and relative total shareholder return over the 2017 – 2019 performance period. As described in the Compensation Discussion and Analysis (CD&A) beginning on page 39, strong Company performance resulted in Corporate STIP payouts at 145.5% of target, and 161.8% of 2017-2019 performance-based RSUs vested.

Please note that the executive compensation payouts described in this Proxy Statement relate to the Company’s performance prior to the recent outbreak of COVID-19, which has significantly disrupted business operations for most companies beginning in early 2020, including for McDonald’s. While we are unable to determine the duration or scope of the negative impact of COVID-19 to our financial results at this time, 2020 performance-based compensation plans will be negatively impacted. During this unprecedented time, the Compensation Committee’s long-standing principles will guide its decision-making process. As noted elsewhere in this Proxy Statement, these guiding principles include aligning pay with performance; driving business results and long-term shareholder value; and paying competitively, while mitigating compensation-related risk and supporting effective succession planning.

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Proxy Statement Summary

2019 COMPENSATION PROGRAM SUMMARY

The following summarizes our key compensation elements and percentage of direct CEO pay opportunity for 2019:

         Key compensation
elements and % of
CEO pay opportunity
Primary metrics Key terms

Base Salary

N/A
Decided based on competitive considerations, scope of responsibilities, individual performance, tenure in position, internal pay equity and the effect on our general and administrative expenses





Short-Term Incentive Plan
Operating income growth
Comparable guest count growth
Rewarded growth in annual operating income, which required the Company to balance increases in revenue with financial discipline to produce strong margins and a high level of cash flow
As a core metric, comparable guest count growth promoted the long-term health of our business and supported income growth
As the sole modifier, delivery sales were closely aligned with a key business strategy and encouraged the continued transition of our delivery initiative from restaurant deployment to growth
Individual STIP payouts were limited to 200% of the target award
 

Long-Term Incentives

Performance-Based Restricted Stock Units (RSUs)

Earnings per share (EPS) growth
Return on incremental invested capital (ROIIC)
Provided the right to receive a share of McDonald’s stock at the end of a three-year service period, subject to the Company’s achievement of two key financial metrics, EPS and ROIIC
Also subject to a modifier based on total shareholder return over the performance period compared to the S&P 500 Index
Individual RSU payouts were limited to 200% of the target award

Stock Options

Share price
Provided value only if our share price increased (with an exercise price equaling the stock price on the grant date), which closely aligned executive pay with shareholder interests
Will vest ratably 25% per year with a 10-year term

2020 COMPENSATION PROGRAM CHANGES

Our Compensation Committee’s review of our incentive program confirmed overall alignment with our compensation guiding principles. However, to further align our STIP with our current business goals and shareholder interests, for 2020, we added Systemwide sales growth as a core metric and removed the delivery sales modifier. Systemwide sales is important in a franchise business as income generation is closely correlated to sales growth. Our three performance metrics for 2020 STIP are operating income growth (weighted 50%), comparable guest count growth (weighted 25%) and Systemwide sales growth (weighted 25%), with no modifier. For more information, see the CD&A at page 49.

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ELECTION OF DIRECTORS

         

PROPOSAL 1

Election of Directors

 

Our Board of Directors recommends the following 12 nominees for election to our Board of Directors for a one-year term beginning in May and continuing until the 2021 Annual Shareholders’ Meeting and until their successors have been elected and qualified:

1. Lloyd Dean 4. Margaret Georgiadis 7. Richard Lenny 10. John Rogers, Jr.
2. Robert Eckert 5. Enrique Hernandez, Jr. 8. John Mulligan 11. Paul Walsh
3. Catherine Engelbert 6. Christopher Kempczinski 9. Sheila Penrose 12. Miles White
 

Our Board recommends a vote FOR each of the 12 Director nominees.

With the exception of our CEO, all Director nominees are independent. Our Board expects all nominees to be available for election. If any of them becomes unable to serve at any time prior to the Annual Shareholders’ Meeting, our Board may substitute another person as a nominee or may reduce the number of Directors to eliminate the vacancy. If you have voted for the unavailable nominee, your shares will be voted for any substitute nominee.

Nominees who receive a majority of the votes cast will be elected. If any Director does not receive a majority of the votes cast, he or she has tendered an irrevocable resignation that, subject to our Governance Committee’s recommendation and our Board’s acceptance, will be effective following the Annual Shareholders’ Meeting.

Director Qualifications

Our Board is a diverse, highly-engaged group of individuals that provides strong, effective oversight of the 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, including our Velocity Growth Plan.

Importantly, each Director has senior executive experience, in many cases having served as CEOs or high-level executives of large, complex, global organizations. Specifically, several Directors have leadership experience in the consumer goods or food sectors, which is particularly relevant to our business. Further, our Board values expertise in information technology, cybersecurity and digital initiatives, as well as global experience given the Company’s global, branded operations. These skills, along with the other skills and attributes discussed below and described more fully in the Company’s Director Selection Process guidelines, are key considerations in evaluating the composition of our Board and inform our Board’s succession planning and Director selection processes.

Our Director nominees’ individual skills and experiences are included on the following pages. In addition, all Director nominees demonstrate the following qualities:

     

KEY ATTRIBUTES AND SKILLS OF ALL DIRECTOR NOMINEES

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


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Election of Directors

In addition, our Director nominees contribute to our Board the individual experiences, qualifications, attributes and skills shown in the following matrix. The skills identified in the matrix are intended as a high-level summary and not an exhaustive list:

BRAND MANAGEMENT: Contributes to an understanding of how the Company’s business, standards and performance are essential to protecting and increasing the value of the McDonald’s brand

CUSTOMER-CENTRIC: Provides an understanding of the Company’s business, operations and customer-centric Velocity Growth Plan strategy, focusing on elevating the overall customer experience

GLOBAL EXPERIENCE: Contributes to an understanding of how the Company’s business is structured to enable the right level of support for our international markets, as well as the sharing of solutions across international markets

MARKETING/DIGITAL: Provides an understanding of how the Company’s traditional (dine in or drive-thru pickup) and evolving digital business models are marketed to consumers in a manner consistent with the Company’s strategy

INFORMATION TECHNOLOGY/CYBERSECURITY: Contributes to an understanding of information technology capabilities, cloud computing, scalable data analytics and risks associated with cybersecurity matters

REAL ESTATE: Provides an understanding of how owning or leasing real estate, combined with co-investment by franchisees, enables the Company to achieve high restaurant performance levels

FINANCE/CAPITAL MARKETS: Supports the oversight of the Company’s financial statements and strategy and financial reporting to investors and other stakeholders

SUSTAINABILITY/CORPORATE RESPONSIBILITY: Contributes to an understanding of sustainability issues and corporate responsibility, and their relationship to the Company’s business and strategy

HUMAN CAPITAL MANAGEMENT: Provides an understanding of how the Company manages and develops its workforce

ETHNIC/GENDER DIVERSITY: Contributes to the representation of varied backgrounds, perspectives and experience in the boardroom to support the global demands of our business and understanding of customer perspectives

OTHER PUBLIC COMPANY BOARD: Demonstrates a practical understanding of organizations, processes, governance and oversight of strategy, risk management, and driving change and growth

Further biographical information about each Director standing for re-election, including his or her age, committee memberships, professional experience, qualifications and other directorships is set forth on the following pages.

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Election of Directors

Biographical Information

    
LLOYD DEAN   INDEPENDENT 
Chief Executive Officer  |  CommonSpirit Health
Age 69  |  Director Since 2015
Board Committees Audit & Finance, Compensation
Skills and Qualifications

Professional Experience Director Qualifications
CommonSpirit Health, a non-profit, Catholic health system
Chief Executive Officer (2019 - Present)
Dignity Health, one of the nation’s largest healthcare systems
President and Chief Executive Officer (2000 - 2019)
Advocate Health Care, a healthcare organization
Chief Operating Officer (1997 - 2000)

In his career in executive management at leading healthcare organizations, Mr. Dean has led significant strategic, operational and financial transformations. He brings over 25 years of leadership, management, healthcare and strategy experience to our Board, which contributes an important perspective to our 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, customer-centric operations and community affairs expertise. In addition, Mr. Dean’s qualification as an “audit committee financial expert” is an important attribute as a member of our Audit & Finance Committee.

Other Directorships
Mr. Dean previously served on the boards of Navigant Consulting, Inc., Premier, Inc. and Wells Fargo & Company.

    
ROBERT ECKERT   INDEPENDENT 
Operating Partner |  Friedman Fleischer & Lowe
Age 65  |  Director Since 2003
Board Committees Public Policy & Strategy (Chair since 2016), Governance, Executive
Skills and Qualifications

Professional Experience Director Qualifications
Friedman Fleischer & Lowe, a private equity firm
Operating Partner (2014 - Present)
Mattel, Inc., a global children’s entertainment company specializing in toys and consumer products
Chairman of the Board (2000 - 2012)
Chief Executive Officer (2000 - 2011)
Kraft Foods Inc., a packaged food company
President and Chief Executive Officer (1997 - 2000)

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. He brings experience as a senior executive of global consumer brand companies with high performance expectations. In addition, through his role on other companies’ boards, Mr. Eckert has extensive experience in corporate governance, leadership development and succession planning and finance.

Other Directorships
Mr. Eckert also serves as the lead independent director of Amgen Inc. and on the boards of Levi Strauss & Co. and Uber Technologies, Inc.

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Election of Directors

    
CATHERINE ENGELBERT    INDEPENDENT 
Commissioner  |  Women’s National Basketball Association
Age 55  |  Director Since 2019
Board Committee Audit & Finance
Skills and Qualifications

Professional Experience       Director Qualifications
Women’s National Basketball Association, a professional basketball league
Commissioner (2019 - Present)
Deloitte LLP, an industry-leading audit, consulting, tax and advisory services firm
Chief Executive Officer (2015 - 2019)
Deloitte & Touche LLP, audit subsidiary of Deloitte LLP
Chairman and Chief Executive Officer (2014 - 2015)
Partner (1998 - 2014)

Ms. Engelbert’s experience as Commissioner of a professional sports league and as chief executive officer of Deloitte LLP, which provides knowledge of global business operations, finance, leadership, brand, customer, strategy and risk management matters. Having led a firm of 100,000 professionals at Deloitte, she also brings significant experience in talent management. Ms. Engelbert previously served on the private company board of Deloitte LLP and as Chairman of Deloitte & Touche LLP, providing leadership and governance experience. She also served on the Strategic Investment, Risk, Regulatory & Government Relations, and Finance & Audit Committees of the board of Deloitte LLP. She is a Certified Public Accountant. Ms. Engelbert’s qualification as an “audit committee financial expert” is an important attribute as a member of our Audit & Finance Committee.

Other Directorships
None.

    
MARGARET GEORGIADIS    INDEPENDENT 
President and Chief Executive Officer  |  Ancestry
Age 56  |  Director Since 2015
Board Committees Audit & Finance, Sustainability & Corporate Responsibility
Skills and Qualifications

Professional Experience       Director Qualifications
Ancestry, a global family history and consumer genomics company
President and Chief Executive Officer (2018 - Present)
Mattel, Inc., a global children’s entertainment company specializing in toys and consumer products
Chief Executive Officer (2017 - 2018)
Google Inc., a global technology company
President, Americas (2011 - 2017)
Vice President, Global Sales Operations (2009 - 2011)

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, digital consumer insights, e-commerce, finance, leadership, and strategy and development. She has led teams that successfully launched new products. Her knowledge in these and other areas provides critical insights to our business, particularly as our Board considers the impact of technology, digital and cybersecurity risks. Ms. Georgiadis also has over 15 years of analytical and strategic experience at McKinsey & Company, a global management and consulting firm. In addition, Ms. Georgiadis’ qualification as an “audit committee financial expert” is an important attribute as a member of our Audit & Finance Committee.

Other Directorships
Ms. Georgiadis previously served on the boards of Amyris, Inc. and Mattel, Inc.

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Election of Directors

    
ENRIQUE HERNANDEZ, JR.  Independent Chairman (since 2016)  INDEPENDENT 
Chairman and Chief Executive Officer  |  Inter-Con Security Systems, Inc.
Age 64  |  Director Since 1996
Board Committees Governance, Public Policy & Strategy, Executive
Skills and Qualifications

Professional Experience       Director Qualifications
Inter-Con Security Systems, Inc., a provider of security services to corporations, governments, diplomatic missions and non-profit organizations
Chairman and Chief Executive Officer (1986 - Present)
Nordstrom, Inc., a leading fashion retailer
Non-executive Chairman and Presiding Director (2006 - 2016)

Mr. Hernandez is the Chairman and chief executive officer of a global security company, providing knowledge of physical and electronic security. He also has been a director of several large public companies in various industries. In particular, Mr. Hernandez served for five years as lead director and ten years as non-executive chairman and presiding director at Nordstrom, Inc., a large publicly-traded fashion retailer known for its customer service and brand management, providing him with significant experience in corporate governance, leadership development, succession planning and finance. Through his extensive experience managing complex, people-oriented organizations, Mr. Hernandez is well-suited to address the important human capital management element of McDonald’s business. Mr. Hernandez’s experience also facilitates our Board’s oversight and counsel regarding strategy and business development.

Other Directorships
Mr. Hernandez also serves on the board of Chevron Corporation. He previously served on the boards of Nordstrom, Inc. and Wells Fargo & Company.

    
CHRISTOPHER KEMPCZINSKI  
President and Chief Executive Officer  |  McDonald’s Corporation
Age 51  |  Director Since 2019
Board Committees Executive (Chair since 2019)
Skills and Qualifications

Professional Experience       Director Qualifications
McDonald’s Corporation
President and Chief Executive Officer (2019 - Present)
President, McDonald’s USA (2017 - 2019)
Executive Vice President - Strategy, Business Development and Innovation (2015 - 2016)
The Kraft-Heinz Company, a packaged food company
Executive Vice President of Growth Initiatives and President of Kraft International (2014 - 2015)
President of Kraft Canada (2012 - 2014)
Senior Vice President – U.S. Grocery (2008 - 2012)

Mr. Kempczinski is President and CEO of our Company, having previously served as President, McDonald’s USA, where he was responsible for approximately 14,000 McDonald’s restaurants. He first joined the Company in 2015, overseeing global strategy, business development and innovation. In these roles, he has been instrumental in accelerating growth to increase the overall value of the System. As a member of our senior leadership team since 2015, Mr. Kempczinski also was involved in the development of the Velocity Growth Plan, the Company’s strategic plan. His experience leading our U.S. business and overseeing global strategy contributes an important Company perspective to our Board. This experience strengthens our Board’s knowledge and understanding as it oversees our operations and strategy.

Other Directorships
None.

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Election of Directors

    
RICHARD LENNY    INDEPENDENT 
Non-executive Chairman  |  Conagra Brands, Inc.
Age 68  |  Director Since 2005
Board Committees Compensation (Chair since 2019), Sustainability & Corporate Responsibility
Skills and Qualifications

Professional Experience       Director Qualifications
Conagra Brands, Inc., a branded food company
Non-executive Chairman (2018 - Present)
Information Resources, Inc., a leading market research firm
Non-executive Chairman (2013 - 2018)
Friedman Fleischer & Lowe, LLC, a private equity firm
Senior Advisor (2014 - 2016)
Operating Partner (2011 - 2014)
The Hershey Company, an industry-leading snacks company
Chairman, President and Chief Executive Officer (2001 - 2007)

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, sustainability and social responsibility matters. He previously served in executive-level positions with Kraft Foods, Nabisco Biscuit and Snacks and the Pillsbury Company, providing him extensive experience with major consumer brands in the food industry. He also serves as Non-executive Chairman of one of North America’s leading food companies. In addition, his service as non-executive chairman of Information Resources, Inc. provides additional Board and governance experience.

Other Directorships
Mr. Lenny also serves as Non-executive Chairman of Conagra Brands, Inc. and on the board of Illinois Tool Works Inc. He previously served on the board of Discover Financial Services.

    
JOHN MULLIGAN    INDEPENDENT 
Executive Vice President and Chief Operating Officer  |  Target Corporation
Age 54  |  Director Since 2015
Board Committees Audit & Finance (Chair since 2016), Public Policy & Strategy, Executive
Skills and Qualifications

Professional Experience       Director Qualifications
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)

Mr. Mulligan’s experience as a senior executive of a major consumer retailer has provided him with extensive experience in finance, global supply chain, operations, e-commerce, properties and human resources. His service at a retailer known for its focus on creating an exceptional guest experience brings customer-centric experience to our Board. In addition, his experience in digital and technology issues, including cybersecurity risk, is an important asset as our Board considers these topics and their potential impact on the Company. In addition, Mr. Mulligan’s qualification as an “audit committee financial expert” is an important attribute as our Audit & Finance Committee Chair.

Other Directorships
None.

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Election of Directors

    
SHEILA PENROSE    INDEPENDENT 
Non-executive Chairman  |  Jones Lang LaSalle Incorporated
Age 74  |  Director Since 2006
Board Committees Sustainability & Corporate Responsibility (Chair since 2016), Governance, Executive
Skills and Qualifications

Professional Experience       Director Qualifications
Jones Lang LaSalle Incorporated, a global real estate professional 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)

Ms. Penrose brings to our Board extensive experience in 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, and leadership development and succession planning. Ms. Penrose also has significant experience in corporate governance from her service on other public company boards, including as non-executive chairman at Jones Lang LaSalle Incorporated. In addition, Ms. Penrose co-founded the Corporate Leadership Center, a non-profit organization that partners with leading institutions to offer programs in executive leadership development.

Other Directorships
Ms. Penrose also serves as Non-executive Chairman of Jones Lang LaSalle Incorporated.

    
JOHN ROGERS, JR.    INDEPENDENT 
Founder, Chairman, Co-Chief Executive Officer and Chief Investment Officer  |  Ariel Investments, LLC
Age 62  |  Director Since 2003
Board Committees Compensation, Governance
Skills and Qualifications

Professional Experience       Director Qualifications
Ariel Investments, LLC, a privately-held institutional money management firm
Founder, Chairman, Co-Chief Executive Officer and Chief Investment Officer (1983 - Present)
Ariel Investment Trust, an investment company consisting of mutual funds managed by Ariel Investments, LLC
Trustee (2000 - Present; 1986 - 1993)

Mr. Rogers’ experience as a long-serving chief executive officer of an institutional money management firm has given him broad knowledge of finance, 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, and his service on other boards such as Nike, Inc. and The New York Times Company adds global, customer-centric and brand management experience.

Other Directorships
Mr. Rogers also serves on the boards of Nike, Inc. and The New York Times Company. He previously served on the board of Exelon Corporation.

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Election of Directors

    
PAUL WALSH    INDEPENDENT 
Chairman  |  Compass Group PLC*
Age 64  |  Director Since 2019
Board Committees Compensation, Sustainability & Corporate Responsibility
Skills and Qualifications
 
Professional Experience       Director Qualifications
Compass Group PLC*, a leading foodservice and support services company
Chairman (2014 - Present)
Bespoke Capital Partners LLC*, an investment company
Operating Partner (2019 – present)
Avanti Communications Group plc, a leading satellite operator providing internet and data services
Chairman (2013 - 2019)
Diageo plc, a multinational beverage company
Chief Executive Officer (2000 - 2013)
Chief Operating Officer (2000)

Mr. Walsh’s experience as chief executive officer of a large multinational corporation provides substantial corporate leadership experience and knowledge of consumer-centric companies. His experience at Diageo brings broader food and beverage industry perspective. He also has held executive-level finance positions, including as chief financial officer of Grand Metropolitan Foods and Intercontinental Hotels. Throughout his career, Mr. Walsh has built success and growth at his companies through the deployment of effective brand marketing strategies, which brings valuable perspective to our Board. His background as a UK national based in London provides international diversity on our Board.

Other Directorships
Mr. Walsh also serves on the boards of Compass Group PLC*, FedEx Corporation and TPG Pace Holdings Corp. He previously served on the Boards of Avanti Communications Group plc, HSBC Holdings plc, Ontex Group NV, RM2 International, S.A. and Unilever PLC.
*In January 2020, Compass Group PLC announced that Mr. Walsh will step down as Chairman and Director of Compass Group upon appointment of his successor. He also serves as Executive Chairman of Bespoke Capital Acquisition Corp., which has a class of restricted voting shares listed on the Toronto Stock Exchange.
 

    
MILES WHITE    INDEPENDENT 
Executive Chairman  |  Abbott Laboratories
Age 65  |  Director Since 2009
Board Committees Governance (Chair since 2014), Public Policy & Strategy, Executive
Skills and Qualifications
 
Professional Experience       Director Qualifications
Abbott Laboratories, a global healthcare company
Executive Chairman (2020 - Present)
Chairman and Chief Executive Officer (1999 - 2020)

Mr. White’s service as chairman and as recently retired chief executive officer of a global healthcare company provides our Board with extensive knowledge of strategy and business development, global operations, finance, leadership development and succession planning, public policy matters, and corporate governance. Abbott’s focus on developing consumer products and technologies brings customer-centric, marketing/digital and healthcare knowledge to our Board. In addition, Mr. White contributes strong experience in addressing the needs of a global public company, as well as insights into our Board’s responsibility to oversee management and operations matters. As Governance Committee Chair, Mr. White leads our Board’s succession planning and Director candidate selection process, and he is periodically involved in shareholder engagement.

Other Directorships
Mr. White also serves as Executive Chairman of Abbott Laboratories and on the board of Caterpillar, Inc.
Our Board of Directors recommends that shareholders vote FOR each of the 12 nominees.

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BOARD AND GOVERNANCE MATTERS

Board Leadership

Our separate Chairman and CEO roles enable our independent Chairman to oversee corporate governance matters and our CEO to lead the Company’s business. Independent Directors also chair our Board Committees, other than the Executive Committee. This structure facilitates effective oversight, further strengthens our Board’s independent leadership, and supports our commitment to enhancing shareholder value and strong governance. We believe that this structure is important due to the Company’s position as a leading global foodservice retailer, with more than 38,000 locations in over 100 countries.

Our Chairman oversees our Board and facilitates the flow of information between management and our Board. This fosters open dialogue and constructive feedback among the independent Directors and management. Further, our Chairman leads a critical evaluation of Company management, business practices and culture, as well as oversight of Company strategy. Our Board assesses this leadership structure annually to confirm it continues to meet the evolving needs of the Company and its shareholders. Enrique Hernandez, Jr. has served as our Board’s independent Chairman since 2016 and brings strong continuity of leadership in light of our CEO leadership transition in 2019.

Board Composition and Succession Planning

Our Board is comprised of a diverse, highly-engaged group of Directors with a wide range of skills and experience who each contribute to overall Board and Committee effectiveness. Each of our Directors is a dynamic leader whose experiences and perspectives are continually evolving as he or she navigates today’s fast-paced, ever-changing business environment both as a Director of McDonald’s and in his or her other professional roles.

Under our Corporate Governance Principles, our Governance Committee is primarily responsible for maintaining a strong and diverse Board through robust evaluation and succession planning processes, which include recommending Directors for re-election and identifying new candidates who will bring complementary skills and differentiated perspectives to our Board. Our Governance Committee evaluates and determines the most impactful and desirable mix of characteristics, skills, experience and diversity for our Board as a whole, as well as the qualifications and attributes of individual Directors and Director candidates. When selecting new Director candidates and recommending them to the full Board, our Governance Committee considers the qualifications discussed on page 13. Our Governance Committee also reviews each current Director’s contributions, considering the results of the most recent Board, Committee and peer evaluations, as further described on page 24.

Our Governance Committee strives to achieve an appropriate balance of continuity and refreshment through a mix of newer and longer-tenured Directors. Our Governance Committee and Board believe that there should be a balance of institutional knowledge and fresh perspectives among our Directors, and that long tenure does not itself impair a Director’s independence and often enhances a Director’s ability to demonstrate independence. While our Governance Committee and Board consider tenure in evaluating the overall effectiveness of our Board, it is not a dispositive factor. Our Governance Committee and Board also consider each Director’s availability and willingness to serve on our Board, recognizing that it is a significant time commitment. Half of our Director nominees have joined our Board in the last five years. In January 2019, Paul Walsh joined our Board as a new independent Director. In November 2019, our President and CEO Christopher Kempczinski joined our Board, succeeding Stephen Easterbrook. Additionally, in December 2019, a new independent director, Catherine Engelbert, joined our Board. As the Company’s strategic priorities continue to evolve and in consideration of anticipated retirements and departures, our Governance Committee continues to proactively evaluate our Board’s composition and succession planning to facilitate a smooth transition of skills, experience and diversity in the boardroom.

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Board and Governance Matters

Board Diversity

Our Governance Committee proactively seeks diverse Director candidates to provide representation of varied backgrounds, perspectives and experience in the boardroom to support the global demands of our business. Our Governance Committee and our Board consider diversity in a broad sense, including, among other attributes, leadership, experience, skills, perspectives, gender, ethnicity and geography. Our current Directors 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 evolve. When seeking new Director candidates, our Governance Committee actively endeavors to include women, racial or ethnic minorities and geographically-diverse persons in the candidate pool. Our Governance Committee remains focused on enhancing the Board’s gender diversity, which was supported by the recent election of Catherine Engelbert to serve as a Director.

INDEPENDENT
11 of 12
All independent, except the CEO
     
WOMEN OR MINORITIES
50%
     
BALANCED EXPERIENCE

Director Independence

Our Corporate Governance Principles require that all non-management Directors be independent under applicable law and listing standards, as well as under our Board’s Standards on Director Independence. Independence is determined by the Board after reviewing pertinent facts and circumstances and taking into consideration all applicable laws, regulations and stock exchange listing requirements, as well as the particular requirements under our Board’s Standards on Director Independence. This is important to ensure that Board representation is free of any relationship with the Company or our management that may impair, or appear to impair, a Director’s ability to make independent judgments. Our 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 our Board in its most recent determination involved commercial relationships with companies at which Board members then served as employees, officers, partners or had a 10% or more interest.

These commercial 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.

Based on its review, our 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, Catherine Engelbert, Margaret Georgiadis, Enrique Hernandez, Jr., Richard Lenny, John Mulligan, Sheila Penrose, John Rogers, Jr., Paul Walsh and Miles White. The Board determined that our CEO, Christopher Kempczinski, is not independent. In addition, the Board previously determined that Jeanne Jackson, who served as Director during 2019 and did not stand for re-election at our 2019 Annual Shareholders’ Meeting, was independent, and that our former CEO and Director Stephen Easterbrook, who separated from the Company in November 2019, was not independent.

Our Board’s Standards on Director Independence are available on the Company’s website at: http://corporate.mcdonalds.com/corpmcd/investors-relations/governance-principle-policies-and-guidelines.html.

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Board and Governance Matters

Selection of New Director Candidates

Our Governance Committee, together with our Board, maintains a robust policy for the consideration of potential outside Director candidates and is responsible for establishing criteria, screening candidates and evaluating the qualifications of persons who may be considered for service as a Director, including candidates nominated or suggested by shareholders. Our Governance Committee also retains independent third-party search firms, consultants and any other advisors as appropriate to help identify, screen and evaluate potential Director candidates and to enhance our Board’s preparedness in the event of an unanticipated Director departure. Since the last Annual Shareholders’ Meeting, our Board elected Christopher Kempczinski in connection with his appointment as President and CEO. Our Board also elected Catherine Engelbert, who was identified with the assistance of a third-party search firm.

The following describes the Company’s selection process for new outside Directors:

Succession Planning Our 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.
                   
Identification of Candidates       Our Governance Committee engages in a search process to identify qualified Director candidates, which includes the use of an independent search firm to assess whether candidates’ skills, experience and background align with the Company’s business strategy. Our Governance Committee considers that all Directors and Director candidates should possess the certain qualifications and skills as described above under the heading “Director Qualifications.”
 
Meeting with Candidates Potential Director candidates are interviewed by our Chairman, CEO and Governance Committee Chair.
 
Decision and Nomination Our Governance Committee recommends, and the full Board nominates, the Director candidates best qualified to serve the interests of the Company and all shareholders.
 
Election Shareholders consider the nominees and elect Directors at the Annual Shareholders’ Meeting to serve one-year terms. Our Board may also elect Directors on the recommendation of the Governance Committee throughout the year when determined to be in the best interests of the Company and our shareholders.

Shareholder recommendations for nominees are currently evaluated in the same manner as any other Director candidates. Our Board’s Director Selection Process is available on the Company’s website at: http://corporate.mcdonalds.com/content/corpmcd/investors-relations/governance-principle-policies-and-guidelines.html.

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Board and Governance Matters

Board and Committee Evaluations

Our Board is committed to regular evaluations of itself, its Committees and Directors to measure ongoing effectiveness and succession planning. Each year, Directors are asked to complete a written evaluation of our Board, their peers and the Committees on which they serve. The following describes the process by which our Board currently carries out these evaluations:

Annual Written Evaluations

Directors complete Board, peer and Committee evaluations.

Board evaluations consider:
General Board practices, including fostering a culture that promotes candid discussion
Input for improvement
Suggestions for new skills and experiences for potential future candidates
Effectiveness in attaining diverse representation on our Board
Peer evaluations consider a Director’s:
Contributions to Board discussions and decisions throughout the year
Sharing of knowledge and expertise with our Board and senior management
Staying informed on matters that impact the Company
Acting independently and in the 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 each Committee except for the Executive Committee, which does not have a regular meeting schedule but meets on as needed basis
Chairman holds individual discussions:
Our Chairman individually discusses with other Directors their views on the overall effectiveness of our Board, and feedback is considered in connection with the results of the written evaluations.
                   
Independent Third Party Generates Report       To protect anonymity and the integrity of our Board and peer evaluation process, an independent third party compiles responses to Board and peer evaluations into a report for our Governance Committee Chair.
 
Discussion of Results Our Governance Committee Chair and full Board discuss our Director and peer evaluation results. Each Committee discusses its respective evaluation in executive session and determines if any follow-up actions are appropriate. The Chair of each respective Committee then reports the Committee’s conclusions to the full Board. Regarding the Board evaluation, our Governance Committee Chair reports on the Governance Committee’s conclusions to the full Board.
 
Incorporation of Feedback Our Board and each Committee (except for the Executive Committee) develops and executes plans to take actions based on the results, as appropriate. Our Governance Committee Chair follows up with Directors regarding their peer evaluation results, as appropriate.

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Board Committees

Our Board has the following Committees: Audit & Finance; Compensation; Governance; Public Policy & Strategy; Sustainability & Corporate Responsibility and Executive. All Committee members are independent as defined by the listing standards of the New York Stock Exchange (NYSE) and our Board’s Standards on Director Independence, except for our CEO, who serves solely on the Executive Committee. In addition, our Board has determined that each member of our Audit & Finance Committee is financially literate, qualifies as an “audit committee financial expert” and meets the additional independence requirements for audit committee members as defined by applicable SEC rules and NYSE listing standards.

We periodically refresh our Committees and Committee Chairs to balance fresh perspectives with institutional knowledge. Since the last Annual Shareholders’ Meeting, Richard Lenny was appointed as Chair of our Compensation Committee, Christopher Kempczinski was appointed as Chair of our Executive Committee, and Sheila Penrose was appointed to our Executive Committee. In early 2020, Catherine Engelbert was appointed to our Audit & Finance Committee, and Sheila Penrose moved from our Audit & Finance Committee to the Governance Committee.

Each Committee has the responsibilities set forth in its respective Charter, which has been adopted by our Board. Other than the Executive Committee, all Committees review their respective Charters at least annually, and any changes are recommended to the full Board for approval.

All Committee Charters are available on the Company’s website at: https://corporate.mcdonalds.com/corpmcd/investors-relations/board-committees-and-charters.html. The primary responsibilities of each Committee and current Committee membership are summarized on the following pages. Each Committee also has oversight of risk areas as illustrated on page 31.

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AUDIT & FINANCE COMMITTEE

Current Members*: Relevant Areas of Focus:

John Mulligan (Chair) (FE)
Lloyd Dean (FE)
Catherine Engelbert (FE)
Margaret Georgiadis (FE)

Meetings in 2019: 8

(FE) Financial Expert

*Ms. Penrose served on this Committee through February 2020, and Ms. Engelbert was appointed to this Committee effective March 1, 2020.
   
Oversee financial reporting, accounting, control and compliance matters
Appoint and evaluate the independent auditor
Review 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
Review material financial disclosures
     
Review the Company’s capital structure, dividend policy and plans for share repurchases
Oversee financial risk and evaluate management’s process to assess and manage enterprise risk issues
Preapprove all audit and permitted non-audit services
Review Sarbanes-Oxley and tax compliance
Review Disclosure Controls and Procedures

Our Audit & Finance Committee establishes its meeting calendar for the following year during the fourth quarter, and will typically address the following key matters throughout the year:

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COMPENSATION COMMITTEE

Current Members*: Relevant Areas of Focus:

Richard Lenny (Chair)
Lloyd Dean
John Rogers, Jr.
Paul Walsh

Meetings in 2019: 5

*Mr. Lenny was appointed Chair of this Committee in May 2019.
   
Oversee executive compensation and the Company’s compensation program and policies
Review our executive compensation programs to confirm they are being administered in an equitable manner
Periodically review the Company’s programs and practices related to executive workforce diversity
     
Review risks related to compensation programs and policies
For more information, see the Compensation Discussion and Analysis beginning on page 39.

Our Compensation Committee establishes its meeting calendar for the following year during the fourth quarter. While its calendar may vary from year to year, the Committee will typically address the following key matters throughout the year:

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GOVERNANCE COMMITTEE

Current Members*: Relevant Areas of Focus:

Miles White (Chair)
Robert Eckert
Enrique Hernandez, Jr.
Sheila Penrose
John Rogers, Jr.

Meetings in 2019: 6

*Ms. Penrose was appointed to this Committee effective March 1, 2020.
   
Advise as to our Board’s structure, leadership, operations and Committee memberships
Set criteria for Board membership
Develop Board succession plans and make recommendations to our Board on succession matters
Consider and recommend candidates for election, re-election or to fill vacancies
     
Evaluate Director and Board performance and assess Board composition and size
Recommend non-management Directors’ compensation
Review Corporate Governance Principles and oversee governance risks
Consider trends in corporate governance and present recommendations to the Board, as appropriate

Our Governance Committee establishes its meeting calendar for the following year during the fourth quarter, and will typically address the following key matters throughout the year:

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PUBLIC POLICY & STRATEGY COMMITTEE

Members: Relevant Areas of Focus:

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

Meetings in 2019: 6

   
Review and monitor the Company’s long-term strategy development and implementation
Review and monitor the Company’s strategies and efforts to identify, evaluate and monitor trends, issues, regulatory matters and other concerns that do or could materially affect the Company’s business activities and performance, as well as reputation
Review and monitor the Company’s efforts to address human capital management matters (e.g., workplace health and safety, respectful workplace environments, and diversity and inclusion) that affect McDonald’s brand and business operations
     
Review and monitor government affairs strategies and priorities
Review and monitor tax strategy and the Company’s assessment and management of cybersecurity and other technology risks
Review compliance matters, including compliance with the Company’s Political Contributions Policy and employees’ compliance with the Company’s Standards of Business Conduct
Review risks related to public policy and strategy matters

Our Public Policy & Strategy Committee establishes its meeting calendar for the following year during the fourth quarter, and will typically address the following key matters throughout the year:

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SUSTAINABILITY & CORPORATE RESPONSIBILITY COMMITTEE

Members: Relevant Areas of Focus:

Sheila Penrose (Chair)
Margaret Georgiadis
Richard Lenny
Paul Walsh

Meetings in 2019: 4

   
Review and monitor the Company’s strategies and efforts to address Brand trust through its performance as a sustainable organization
Review and monitor sustainability priorities and other matters important to the Company, including philanthropy and diversity and inclusion
     
Review and monitor the development and implementation of performance metrics with respect to the Company’s sustainability priorities
Review the Company’s global sustainability communication plans and reporting
Review risks related to sustainability and corporate responsibility matters

Our Sustainability & Corporate Responsibility Committee establishes its meeting calendar for the following year during the fourth quarter, and will typically address the following key matters throughout the year:

EXECUTIVE COMMITTEE

The Executive Committee may exercise most Board powers during the periods between Board meetings. The Executive Committee members are Christopher Kempczinski (Chair) , Robert Eckert, Enrique Hernandez, Jr., John Mulligan, Sheila Penrose and Miles White. The Executive Committee did not meet during 2019.

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Risk Oversight

Under the Company’s Corporate Governance Principles, the entire Board is responsible for overseeing the Company’s enterprise-wide risk management (ERM) framework and the processes that are in place to safeguard the Company’s assets, support culture and values, and manage material risks facing the Company. The ERM framework is designed to identify, assess and prioritize strategic, financial and reputational risks with the potential to have a sustained impact on the Company. Management is responsible for the design and execution of the ERM framework, and our Board actively oversees the ERM framework and risks identified. The Company’s internal auditors also support risk identification and risk monitoring within the Company.

The current ERM framework leverages internal risk committees comprised of cross-functional leadership, which meet regularly to evaluate and prioritize risk in the context of the Company’s Velocity Growth Plan, with further escalation to our CEO or Board as appropriate. Our Board exercises oversight of the ERM framework, both as a full Board and through its standing Committees, which are comprised solely of independent Directors, except the Executive Committee. An important element of our Board’s oversight involves regular interaction among our Board and senior leadership regarding the Company’s risk exposures and mitigation effects as they relate to the Company’s business strategy, operations and values. Our Board also conducts an annual review of strategic and enterprise risks and considers, among other items, the Company’s mitigation and overall strategy, competitive landscape, capital structure and succession planning.

Our Board’s risk oversight process is further described as follows:

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As shown in the graphic, each of the Audit & Finance, Compensation, Governance, Public Policy & Strategy and Sustainability & Corporate Responsibility Committees are responsible for overseeing risks within their respective areas of accountability. Additionally, under the Committees’ charters they have resources and access to outside advisors. For example, the Compensation Committee engaged Frederic W. Cook & Co., Inc. (FW Cook) to conduct a risk assessment on the Company’s executive compensation programs. These Committees report to the full Board any risks that the Committees conclude may be reasonably likely to be significant to the Company and regularly update the full Board on their particular risk oversight activities. Our Board also may consider emerging or evolving risks as they arise, such as risks related to the COVID-19 outbreak, and may either meet as a full Board or assign risks to a Committee for continuing oversight.

More information about specific risks facing the Company are set forth in the Company’s other SEC filings, including under the heading “Risk Factors and Cautionary Statement Regarding Forward-Looking Statements” in the Company’s 2019 Annual Report on Form 10-K and in the Company’s Current Report on Form 8-K filed on March 25, 2020.

Strategy Oversight

Our Board believes that a fundamental understanding of the Company’s business, strategy and industry assists it in the effective discharge of its duties. As part of its oversight role, our Board reviews the Company’s performance, including progress on the Velocity Growth Plan and related business accelerators.

Our Board also holds an annual strategy session with the Company’s senior leadership team and other members of management who present our Board with important information about the Company’s strategic priorities. In 2019, our Directors used this opportunity to travel to an international market (Argentina) for their strategy session. During that time, management presented an update on the Velocity Growth Plan and the related growth accelerators, and Directors engaged with the Company’s largest developmental licensee. Additionally, in connection with our 2019 Annual Shareholders’ Meeting, our Board traveled to Dallas, Texas, which afforded them the opportunity to meet with local management of one of the Company’s U.S. field offices.

Our Board’s engagement in the Company’s business and exposure to issues important to the Company’s strategy provides our Board with useful information that enhances its performance, particularly in today’s ever-changing business environment. These experiences help inform and shape their perspectives and enable them to oversee more effectively the Company’s strategy.

Management Succession Planning

Our Board regularly reviews short- and long-term succession plans for our CEO and other senior management positions. This process is designed to prepare the Company for both expected successions, such as those arising from anticipated retirements, as well as those occurring when executives leave unexpectedly, or due to death, disability or other unforeseen events.

In 2019, our Board appointed Christopher Kempczinski as President and CEO. Mr. Kempczinski succeeded Stephen Easterbrook, who separated from the Company in November 2019. In assessing possible CEO candidates, both in the course of regular succession planning and when considering unexpected transitions, the independent Directors identify the skills, experiences and attributes they believe are required to be an effective leader in light of the Company’s global business strategies, opportunities and challenges. Our Board is confident that Mr. Kempczinski is the best leader to drive the Company’s continued success. Having previously led the Company’s U.S. business and overseen global strategy, business development and innovation, Mr. Kempczinski has the right mix of skills and experience to successfully lead the Company.

Also in 2019, our Board appointed Joseph Erlinger as President, McDonald’s USA, with responsibility for approximately 14,000 McDonald’s restaurants in the U.S., and Ian Borden as President, International, with oversight for all international markets within our International Operated and International Developmental Licensed Markets.

Our Board also regularly interacts with members of management who are possible candidates to succeed our CEO and other members of senior leadership to familiarize itself with the Company’s strong talent pipeline.

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Shareholder Engagement

Our Board and management team have developed a robust shareholder engagement program. Throughout the year, we engage with a significant and diverse portion of shareholders on topics of importance to both the Company and shareholders. In addition to discussing our business strategy and initiatives, we engage on other matters, such as governance practices, including Board composition, tenure and refreshment; executive compensation; human capital management; and environmental, social, and other sustainability topics such as climate change and protein sustainability. Over the last several months, there has been additional emphasis in our engagements related to our leadership transition following the termination of Stephen Easterbrook and appointment of Christopher Kempczinski as President and CEO.

Shareholder feedback received 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 and other relevant Committees periodically throughout the year. We also review our practices against guidelines published by shareholders and proxy advisory firms, among others.

The following graphics illustrate 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:

     
Engagement Highlights
 Since our last Annual Shareholders’ Meeting, we have engaged with a global and diverse group of shareholders, including actively managed funds, index funds, union and public pension funds, and socially responsible investment funds. This group represented nearly 50% of our outstanding shares.

Focus Areas
Leadership Transition
Board Governance, Composition and Refreshment
Business Strategy and Performance
Executive Compensation
Corporate Culture
Climate Change and Other Sustainability Matters

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Board’s Response to Shareholder Proposals

Following the Annual Shareholders’ Meeting, our Governance Committee considers the voting outcomes for management and shareholder proposals. In addition, our Governance Committee and other Board Committees, as appropriate, consider proposed courses of action in light of the voting outcomes of shareholder proposals under their oversight.

At the 2019 Annual Shareholders’ Meeting, an advisory shareholder proposal requesting the ability for shareholders to act by written consent received support of approximately 42% of shares voted. The Company engaged with shareholders regarding our governance practices, among other topics as described above, as part of our shareholder engagement program. Our Governance Committee continues to believe that in light of the Company’s ongoing commitment to shareholder engagement and robust governance practices, including the fact that the Company’s current By-Laws provide shareholders a meaningful right to call special meetings, it is unnecessary to take steps to implement this proposal. Additionally, each time proposals on this topic have been presented to shareholders for a vote, the proposals received less than majority support, indicating that the holders of a majority of shares who voted on the proposals continue to support the Company’s current governance practices.

Responsible Leadership

The Company’s sustainability vision and initiatives are embodied in our Scale for Good platform, which establishes our commitment to global priorities that are aligned with our strategic objectives and designed to drive meaningful change in partnership with our franchisees and suppliers. Our Scale for Good priorities include beef sustainability, packaging and recycling, commitment to families, climate action and youth opportunity.

As one of the world’s largest restaurant companies, we have the responsibility and opportunity to take action on some of the most pressing challenges in the world today and we embrace this opportunity to drive meaningful progress. We believe that delicious food can also be sustainable so we are using our Scale for Good to make this vision a reality including through our commitment to animal health and welfare, responsible sourcing and supporting farmers.

We are also committed to fostering workplaces where everyone is equally supported and empowered to realize their full potential. We launched our Better Together: Gender Balance & Diversity strategy with the aim to improve the representation of women at all levels of McDonald’s, achieve gender equality in career advancement, and champion the impact of women on the business. In addition, we signed the UN Women’s Empowerment Principles and began publishing our global gender representation data on our corporate website to further demonstrate our commitment to progress.

2019 Scale for Good highlights include:

BEEF SUSTAINABILITY

Our vision, reflected by our goals, is to lead a global movement for beef sustainability designed to accelerate industry progress, share knowledge and tools, promote flagship farmers, pioneer new practices and conserve forests in regions with identified deforestation risks where beef is produced. We recognize that responsible antibiotic use supports our vision for beef sustainability. Work is currently underway to establish baseline antibiotic usage across our top 10 beef sourcing markets in collaboration with farmers and our industry partners. These efforts will inform the setting of market-specific reduction targets that we expect to announce in 2020, and in 2022 we expect to report progress against those targets.

PACKAGING AND RECYCLING

The Company’s packaging and recycling goals position McDonald’s to help advance a circular economy and address growing public concerns about plastics. By 2025, our goals are:

100% of our guest packaging will come from renewable, recycled or certified sources; and
To recycle guest packaging in 100% of McDonald’s restaurants.

We understand that recycling infrastructure, regulations and consumer behaviors vary from city to city and country to country and plan to be part of the solution and help influence powerful change.


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COMMITMENT TO FAMILIES

We established and are tracking global Happy Meal goals designed to offer more balanced meals, simplify ingredients, and provide a variety of offerings from recommended food groups. We are also helping to inspire a passion for reading through the distribution of books in our Happy Meal Readers Book Program, and through continuing our long-standing support to the Ronald McDonald House Charities.

CLIMATE ACTION

We are the first global restaurant company to address climate change by setting a 2030 target approved by the Science Based Targets initiative (SBTi). The Company’s target involves collaboration with franchisees and suppliers to reduce greenhouse gas emissions from McDonald’s restaurants, offices and supply chain. For example, in 2019, we announced our first-ever large-scale renewable energy commitments in the U.S. in the form of Virtual Power Purchase Agreements (VPPAs) for wind and solar projects in Texas, which will help provide renewable energy to the U.S. grid. We are engaging suppliers representing the majority of our food and packaging spend to report strategic progress via CDP Climate Change and Forests, and we are proud to be counted among CDP’s Supplier Engagement leader board in 2019.

YOUTH OPPORTUNITY

In 2019, we furthered our global goal to reduce barriers to employment for young people by 2025, through pre-employment job readiness training, employment opportunities and workplace development programs. At the end of 2019, with 15 markets participating, McDonald’s is well-positioned to achieve the 2025 goal.

For more information and progress highlights on the Scale for Good platform, see the Company’s website at: https://corporate.mcdonalds.com/corpmcd/scale-for-good/using-our-scale-for-good.html.

Other Governance Policies and Principles

CORPORATE GOVERNANCE PRINCIPLES

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

CODE OF CONDUCT

Non-employee Directors must abide by the Company’s 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. The Company’s employees, including executive officers, are subject to the Company’s Standards of Business Conduct. These codes are available on our website at: https://corporate.mcdonalds.com/corpmcd/investors-relations/codes-of-conduct.html.

MEETING ATTENDANCE

Directors are expected to attend all Board meetings and meetings of the Committees on which they serve, as well as the Annual Shareholders’ Meeting. In 2019, our Board met seven times. As a group, our Directors who served in 2019 attended 96% of the total number of meetings of our Board and the respective Committees on which they served, and each Director attended 75% or more of such meetings. In addition, all Directors who stood for re-election in 2019 attended the 2019 Annual Shareholders’ Meeting, except Paul Walsh, due to a commitment that was scheduled prior to his election to the Board.

EXECUTIVE SESSIONS

The independent Directors meet regularly in executive sessions, which, from time to time, include our CEO. An executive session is typically scheduled immediately before or after each regular Board meeting. At such sessions, our Chairman presides, except in such matters as may involve his re-election or compensation, or the Board’s governance structure, in which case our Governance Committee Chair presides. Executive sessions are also regularly scheduled for Committee meetings, other than the Executive Committee, throughout the year.

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DIRECTOR ORIENTATION AND CONTINUING EDUCATION

Upon joining our Board, Directors participate in an orientation, including introductions to members of our senior management and information about our operations, performance, strategic plans, and corporate governance practices. In addition, members of senior management and other speakers are periodically invited to attend portions of Board and Committee meetings to provide updates on business and general industry trends, governance, regulatory, legal and financial matters.

Directors are also welcome to participate in continuing education programs to stay informed of developments in corporate governance and issues relating to the operation of public company boards. Directors also conduct periodic visits to our restaurants and, of course, are McDonald’s customers. For more information on how Directors oversee and are informed on Company strategy, see page 32.

Director Compensation

Non-management Directors are compensated for their service on our Board; however, Directors who are Company employees do not receive any compensation for their service as a Director. The Governance Committee annually evaluates the compensation for non-management Directors. Consistent with this practice, in 2019, the independent compensation consulting firm FW Cook performed a comprehensive review of non-management Director compensation, including benchmarking director compensation at peer and similarly sized companies, using the same peer group as is used for executive compensation review and described in the CD&A portion of this Proxy Statement. Informed by the results of this review, our Governance Committee recommended, and our Board approved, a modest increase to the amounts received under the existing Director compensation program, as reflected in the following paragraph. The Board believes this increase will maintain the Company’s competitive market position and best position the Company to attract new Director candidates and retain existing Directors.

Effective July 2019, our Director compensation consists of: (i) an annual cash retainer of $115,000 (a $5,000 increase); (ii) an annual grant of common stock equivalent units with a value of $185,000 (a $10,000 increase) under the Directors’ Deferred Compensation Plan (Directors’ Plan); (iii) an annual cash retainer fee of $30,000 for our Audit & Finance Committee Chair; and (iv) an annual cash retainer fee of $25,000 for each Director serving as Chair of the Compensation, Governance, Public Policy & Strategy or Sustainability & Corporate Responsibility Committees. Directors serving for a portion of the year receive prorated compensation. The Company further matches up to $10,000 of charitable contributions made annually by Directors to certain types of tax-exempt organizations.

Common stock equivalent units granted to non-management Directors are credited to an account in the Directors’ Plan that reflects the gains, losses and dividends associated with a notional investment in our common stock. In addition, non-management Directors may defer all or a portion of their cash retainers in the form of additional common stock equivalent units under the Directors’ Plan. 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 the units are credited. 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 stock equivalents be paid in a lump sum or 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. All amounts paid from the Directors’ Plan are paid in cash.

In recognition of his 24 years of service on the Board and his leadership that helped the Company maintain strong financial performance, the disinterested members of our Board awarded Mr. Hernandez annual compensation for his service as Chairman. In 2016, the Board elected Mr. Hernandez as its Chairman amidst a turnaround and at a time that our CEO was relatively new in position. Mr. Hernandez has been re-elected as our Chairman of the Board each year since 2016 due to his record of accomplishments as a leader of our Board, his extensive knowledge of the Company’s operations and governance and his ability to mentor our CEOs. Mr. Hernandez has significant experience with Company strategy, business practices, and human capital management and he has facilitated strong independent Board oversight and fostered a proud Company culture during his tenure. In particular, during our recent CEO transition, Mr. Hernandez served as an invaluable resource to the Board, providing sound leadership in the boardroom during this critical period and working closely with management to execute our succession planning smoothly and effectively. He has and will continue to play a critical role in mentoring our new CEOs, as he has with our 8 CEOs since the time he joined our Board. For his service as Chairman, in May 2019, the disinterested members of the Board awarded Mr. Hernandez compensation of a $250,000 cash retainer and restricted stock units with a deemed grant date value of $250,000, which vest on the later of his retirement from the Board or the first anniversary of the grant date. The compensation for his Chairman role is unchanged since his appointment in 2016. This level of compensation highlights the significance of the Chairman’s role at McDonald’s, particularly through times of business turnaround, and Mr. Hernandez’s unique qualifications, including his Board leadership and business strengths.

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The following table summarizes the compensation received by each non-management Director serving in 2019:

Name      Fees earned
or paid in cash ($)(1)
     Stock awards
($)(2)
     All other 
compensation ($)(3) 
     Total
($)
Lloyd Dean 112,269 179,575 697 292,541
Robert Eckert 137,269 179,575 10,697 327,541
Catherine Engelbert(4) 8,125 13,178 0 21,303
Margaret Georgiadis 112,269 179,575 10,697 302,541
Enrique Hernandez, Jr. 362,269 431,923 11,503 805,695
Jeanne Jackson(5) 53,407 68,562 0 121,969
Richard Lenny 127,379 179,575 10,697 317,651
John Mulligan 142,269 179,575 10,697 332,541
Sheila Penrose 137,269 179,575 10,697 327,541
John Rogers, Jr. 112,269 179,575                 20,697 (6)  312,541
Paul Walsh(7) 108,297 173,342 7,267 288,906
Miles White 137,269 179,575 10,697 327,541
(1) As described above, Directors may defer all or a portion of their fees earned in the form of additional common stock equivalent units under the Directors’ Plan.
(2) Amounts in this column represent the aggregate grant date fair value of common stock equivalent units computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (ASC 718) and granted to each non-management Director who served on the Board during 2019. As discussed above, this column also includes 1,277 restricted units granted to Mr. Hernandez in connection with his service as Chairman, with an aggregate grant date fair value of $252,348 computed in accordance with ASC 718. These restricted stock units shall be payable in either shares of the Company’s stock or cash, at the Company’s discretion.
(3) Represents the Company’s matching gifts of charitable contributions to tax-exempt organizations for participating Directors that were received in 2019, a McDonald’s gift card and nominal gifts received at the Board’s annual strategy session in connection with a visit to the Argentina market.
(4) Ms. Engelbert joined the Board on December 6, 2019 and, therefore, received prorated compensation to reflect her service in 2019.
(5) Ms. Jackson did not stand for re-election at the 2019 Annual Shareholders’ Meeting and received prorated compensation to reflect her service in 2019.
(6) Includes a 2018 charitable gift matched by the Company in 2019.
(7) Mr. Walsh joined the Board on January 14, 2019 and, therefore, received prorated compensation to reflect his service in 2019.

CUMULATIVE OUTSTANDING STOCK AWARDS AS OF DECEMBER 31, 2019

Name       Outstanding
stock awards
Lloyd Dean 6,857
Robert Eckert 59,112
Catherine Engelbert 67
Margaret Georgiadis 5,506
Enrique Hernandez, Jr. 82,379
Jeanne Jackson* 72,972
Richard Lenny 34,593
John Mulligan 4,832
Sheila Penrose 26,824
John Rogers, Jr. 55,908
Paul Walsh 1,416
Miles White 16,237
* See Footnote 5. Amounts for Ms. Jackson are as of May 23, 2019.

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EXECUTIVE COMPENSATION

         
PROPOSAL 2

Advisory Vote to Approve Executive Compensation

 
The Board recommends that you vote FOR this proposal.

Shareholders are being asked to approve, on an advisory basis, the compensation of the named executive officers for 2019, as disclosed under Securities and Exchange Commission rules, including the Compensation Discussion and Analysis (CD&A), compensation tables, and related material disclosed in this Proxy Statement.

As fully described in the CD&A, the Company’s executive compensation program supports the key elements of our business strategy and reflects our strong pay-for-performance alignment. Our program reflects industry best practices and includes a mix of annual- and long-term incentive plans with rigorous and objective performance goals for key metrics that drive business success and shareholder value.

In 2019, the Company continued to execute its customer-centric growth strategy, producing strong financial results over both the one- and three-year periods ending 2019, as described in our CD&A. This performance resulted in above target payouts under both our annual and long-term incentive plans consistent with our pay-for-performance philosophy. The Company’s performance has driven an increase in shareholder value over both the one- and three-year periods.

For the reasons expressed above and discussed in more detail in the CD&A, the Board believes the Company’s executive compensation program effectively motivates strong performance while balancing risk, thereby aligning the interests of executives with the interests of shareholders.

Although this vote is advisory and non-binding, the Board values the opinion of shareholders and the Compensation Committee will review the voting results as well as our ongoing dialogue with shareholders when considering future executive compensation decisions.

Consistent with the Company’s past practice, we currently hold our Say on Pay vote annually and the next Say on Pay vote is expected to occur at our 2021 annual meeting of shareholders.

Compensation Committee Report

The Compensation Committee (the Committee) of the Board of Directors has reviewed and discussed the Company’s Compensation Discussion and Analysis with McDonald’s management. Based on this review and discussion, the 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, 2019.

Respectfully submitted,

The Compensation Committee

Richard Lenny, Chair
Lloyd Dean
John Rogers, Jr.
Paul Walsh

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Executive Compensation

Compensation Discussion and Analysis

The Compensation Discussion and Analysis describes the Company’s executive compensation program and provides insights into the Committee’s process and rationale for implementing important compensation decisions during 2019 under our executive compensation program. To enable easier navigation of the information provided below, we have organized the disclosure into the following sections:

1 Our 2019 Year in Review       39
2 Named Executive Officers (NEOs) 40
3 Compensation Guiding Principles 41
4 Compensation Setting Process 43
5 Performance-Based Compensation Metrics 44
6 Primary Elements of Total Direct Compensation 44
7 Adjustments to Reported Results 47
8 Other Compensation Elements 48
9 2020 Changes to Compensation Program 49
10 Executive Departures 49
11 Compensation Policies and Practices 50

1

OUR 2019 YEAR IN REVIEW

LEADERSHIP TRANSITION

In November 2019, our Board appointed Christopher Kempczinski as President and Chief Executive Officer following Stephen Easterbrook’s termination of employment by the Company without cause. With this change in leadership, we remain committed to the Velocity Growth Plan - our comprehensive, customer-centric growth strategy launched in 2017. In his prior roles as President, McDonald’s USA and Executive Vice President - Global Strategy, Business Development and Innovation, Mr. Kempczinski was instrumental in the development of the Company’s Velocity Growth Plan, which has enabled global growth and leadership. In addition, he is dedicated to upholding McDonald’s rich heritage of serving our customers and driving value for our shareholders and other stakeholders. In connection with Mr. Kempczinski’s appointment as President and CEO, his annual base salary was set at $1,250,000 and his target annual bonus opportunity was set at 170% of his annual base salary.

The Board also appointed Joseph Erlinger as President, McDonald’s USA, with responsibility for approximately 14,000 McDonald’s restaurants in the U.S., and Ian Borden as President, International, with oversight for all international markets within our International Operated and International Developmental Licensed Markets.

FINANCIAL PERFORMANCE

In 2019, the Company continued to execute the Velocity Growth Plan. This strategy establishes sustainable growth platforms grounded in critical insights around key customer segments. The design of the plan enables the Company to execute initiatives with speed, efficiency and impact, which is resonating with our customers. We targeted driving sustainable comparable sales and guest count growth in 2019 by focusing on the core of our business – our food, value and customer experience. The Company seeks to retain existing customers, regain those who visit less often, and convert casual customers to committed customers – while building on our investments in Experience of the Future (EOTF), digital capabilities and delivery. Our customers responded well to these initiatives and each of our global segments experienced strong sales and above-target operating income growth. In addition, our segments outside the U.S. also performed above target with respect to comparable guest count growth.

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COMPENSATION PROGRAMS

The Company’s executive compensation program supports the key elements of the Velocity Growth Plan and reflects strong pay-for-performance alignment, while maintaining the appropriate level of risk. Further, our program continues to reflect industry best practices, as informed by the advice of the Committee’s independent advisor, Frederic W. Cook & Co., Inc. (FW Cook). We continue to believe our compensation program is appropriately aligned with our compensation guiding principles, as described herein.

SUSTAINED FINANCIAL PERFORMANCE*

* The 3-Year Total Shareholder Return percentage is as reported on Bloomberg.com as of December 31, 2019.
** Compound Annual Growth Rate

2

NAMED EXECUTIVE OFFICERS

Our named executive officers (or NEOs*) for 2019 are listed below:

Christopher Kempczinski       President and Chief Executive Officer
Kevin Ozan Executive Vice President and Chief Financial Officer
Joseph Erlinger President, McDonald’s USA
Jerome Krulewitch Executive Vice President, General Counsel and Secretary
Ian Borden President, International
Stephen Easterbrook Former President and Chief Executive Officer
Silvia Lagnado Former Executive Vice President and Chief Marketing Officer
* The titles above for our Named Executive Officers represent their current position with the Company. Please see the footnotes to our Summary Compensation Table beginning on page 53 for each NEO’s role during fiscal year 2019.

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3

COMPENSATION GUIDING PRINCIPLES

The Company maintains the following long-standing guiding principles: (i) pay for performance, (ii) drive business results and long-term shareholder value and (iii) pay competitively. These principles guide the design, implementation, and risk profile of our compensation programs in support of our business strategy.

Throughout the year, management engages in dialogue with a significant portion of our shareholder base on a variety of matters important to both the Company and its investors, including our executive compensation program (for more details see page 33). The Committee considers feedback received through direct discussions with investors, “Say on Pay” results and the voting results of any shareholder proposals related to our executive compensation program. Our compensation program continues to receive very strong shareholder support, receiving 94% support in 2019, and at least 93% support in each of the last five years.

FIRST PRINCIPLE: PAY-FOR-PERFORMANCE

Payouts to our executives vary based on performance against challenging targets. Our incentive plans are based on diverse strategic financial metrics that are aligned with our key measures of long-term sustainable growth. In 2019, we shifted comparable guest count growth from a modifier to a core metric in our short-term incentive plan (STIP) to further align with the Velocity Growth Plan’s focus on attracting incremental customers.

We remain committed to a pay-for-performance culture that closely links compensation with performance, as evidenced by the pie chart to the right. As a result of our leadership transition, this chart represents the compensation attributable to the role of the CEO for 2019 (specifically, pro-rated salary and STIP for Messrs. Kempczinski and Easterbrook based on time as CEO, and the long-term incentive awards granted to Mr. Easterbrook in 2019).

In addition, for the NEOs other than the CEO who were employed at year end, approximately 79% of the target total direct compensation opportunity for 2019 was allocated to variable compensation that is dependent on Company performance.
91% of CEO’s target direct
compensation opportunity is
performance-based**
** This chart uses ASC 718 grant-date fair values for
equity awards granted in 2019.

2019 Key Financial Metrics*

Operating income growth
Comparable guest count growth
Earnings per share (EPS) growth
Return on Incremental Invested Capital (ROIIC)
* Operating income growth and comparable guest count growth were used in our STIP while the other metrics were used in the performance-based restricted stock units (PRSUs) granted in 2019.

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SECOND PRINCIPLE: DRIVE BUSINESS RESULTS AND LONG-TERM SHAREHOLDER VALUE

While we believe it is important to reward success against short-term goals, our overall focus is on driving long-term shareholder value. The Committee regularly considers how the Company’s compensation program is aligned with and supports current business strategy. The Committee’s annual review of our executive compensation program confirmed that it is straightforward, holistic and incorporates multiple aspects of business performance in support of Company strategy. Further, to drive long-term value creation, we generally deliver approximately 75% of our CEO’s compensation opportunity in the form of equity awards that vest over several years. Mr. Kempczinski’s target total direct compensation is consistent with this breakdown in 2020, which will be his first full year as CEO.

INCENTIVE AWARDS – 2019 PAYOUTS

The Committee established meaningful stretch targets that were closely aligned with our annual and three-year business plans. Our Corporate STIP payout was above target (145.5%) due to strong operating income results across the world. The Company’s robust multi-year performance (2017-2019) also resulted in a payout significantly above target (161.8%) for the PRSUs that vested in early 2020.

2019 CORPORATE STIP RESULTS 2017-2019 PRSUs RESULTS

* The 2019 operating income target and the operating income and net income results above have been adjusted in accordance with the Committee’s pre-established guidelines. Please see page 47 for further information regarding the Committee’s guidelines and 2019 operating income adjustments.

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THIRD PRINCIPLE: PAY COMPETITIVELY

It is critical to our success that our compensation opportunities attract, engage and motivate talented executives who will drive our business strategy. The Committee monitors the compensation practices of our peer group with whom we compete for talent. In addition, the Committee considers internal pay equity, as described below, when making executive compensation decisions.

4

COMPENSATION SETTING PROCESS

As discussed in the second guiding principle above, the Committee reviews our executive compensation program to ensure that it remains aligned with current business objectives and evolving best practices. The following highlights the Committee’s annual review process.

Input from our
compensation
consultant
     

FW Cook reviews and provides input on overall compensation design and management’s recommendations with respect to each of the NEOs at least annually.

     

Number of meetings:
Five throughout 2019

Agendas:
Determined by the Committee Chair with the assistance of our Chief People Officer

Attendees:
The Committee, members of management, including the Chief People Officer, as well as representatives from FW Cook, and when appropriate, other external professional advisors

Other
considerations

The Committee considers peer data and market benchmarking pay data obtained from various sources, including Willis Towers Watson, Aon and Meridian Compensation Partners, LLC.

Role of
management

Management provides the Committee with its perspectives on compensation matters. No member of management is involved in decisions regarding their own compensation.

The Committee Chair regularly reports to the Board following Committee meetings. Further, the Chair, along with the Chairman of the Board, lead the independent Directors in the evaluation of our 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.

INTERNAL PAY EQUITY

Our executive pay decisions are based on multiple criteria including individual performance and internal pay equity. Compensation opportunities reflect our executive officers’ positions, responsibilities and tenures in position and are generally similar for executives who have comparable levels of responsibility (though actual compensation delivered may differ depending on relative performance). In addition, as circumstances warrant, we grant awards to executives outside of our core compensation structure in connection with their hiring, promotion or retention. These grants permit us to meet specific business objectives with minimum impact to long-term pay equity.

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5 PERFORMANCE-BASED COMPENSATION METRICS

Our 2019 compensation program was comprised of both short- and long-term incentive awards, based on objective performance metrics (both absolute and relative), as well as our stock price performance, as reflected in the graphic below.

75% OPERATING INCOME
GROWTH
     
The Committee takes a holistic approach to establishing performance targets under the Company’s incentive compensation program.
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 but rigorous targets.
The Committee focuses on the need to motivate and retain executives, without encouraging excessive risk taking.

In setting these objective performance targets, the Committee considers the Company’s financial objectives and the economic, industry and competitive environments.

25% COMPARABLE GUEST
COUNT GROWTH
    SHARE PRICE
EPS GROWTH
ROIIC
SHARE PRICE

6 PRIMARY ELEMENTS OF TOTAL DIRECT COMPENSATION

Annual Compensation

BASE SALARY

The Committee incorporates the following in determining salary levels: competitive considerations, scope of responsibilities, individual performance, tenure in position, internal pay equity and the effect on our general and administrative expenses. In early 2019, the Committee approved increases to the base salary of each of our NEOs to better align their compensation relative to comparable roles within our peer group, which are reflected in the Summary Compensation Table on page 53. In addition, each of Messrs. Borden, Erlinger and Kempczinski received a salary increase in connection with their respective promotions, with Messrs. Erlinger and Kempczinski’s increases taking effect on November 1, 2019, and Mr. Borden’s on January 1, 2020.

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SHORT-TERM CASH INCENTIVE (STIP)

Our 2019 STIP rewards growth in annual operating income and comparable guest counts (our core metrics), which measure 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. The Committee continues to believe that driving operating income growth remains the primary indicator of Company performance, therefore it applied a 75% weighting to this metric. Comparable guest count growth is weighted at 25% to promote the long-term health of our business and support income growth.

2019 STIP payouts also consider our delivery sales results, which are closely aligned with a key business strategy and encourages the continued transition of our delivery initiative from restaurant deployment to sales growth. As a single modifier, delivery sales can increase or decrease the payout opportunity range by up to 25 percentage points. There is no positive impact from the modifier, however, if the operating income growth payout factor is below 50%.

Individual STIP payouts are capped at 200% of target.

2019 STIP Target
The chart below provides operating income and comparable guest count growth necessary to achieve threshold, target and maximum payouts under 2019 STIP for Corporate (prior to adjustment based on the delivery sales modifier):

Threshold       Target       Maximum
Consolidated annual operating income growth* 0% 4.0% 9.8%
Comparable guest counts growth 0% 1.0% 2.5%
* Payout percentage interpolated for results that fall between each of the performance levels specifically identified. The operating income target was adjusted as discussed on page 47.

Performance Versus 2019 STIP Target
The following table shows the operating income and comparable guest count targets and results under 2019 STIP for each of the segments. Although the underlying business momentum in the U.S remains positive, as a result of the completion of our refranchising strategy in 2018 and our U.S. EOTF strategy (specifically, lower gains on restaurant sales, higher depreciation expenses and the corresponding impact on Company’s financial performance), the Committee determined that a negative operating income growth target for the U.S. business was advisable.

    Operating Income*
(75% weighting)
  Comparable Guest Counts
(25% weighting)
Dollars in millions Target 2019
operating
income
($)
Target 2019
operating
income
growth over
2018
(%)
2019 adjusted
operating
income
($)
2019 adjusted
operating
income
growth over
2018
(%)
Target 2019
comparable
guest count
growth
(%)
Actual 2019
comparable
guest count
growth
(%)
Corporate         9,382         4.0         9,525         5.6                 1.0         1.0        
U.S. 3,944 (3.8 ) 4,075 (0.6 ) 0.0 (1.9 )
International Operated Markets (IOM) 4,912 5.8 5,020 8.1 1.8 3.5
International Developmental Licensed Markets (IDL) 1,241 7.3 1,266 9.5 1.5 2.2
* The 2019 operating income target and results above have been adjusted in accordance with the Committee’s pre-established guidelines. Please see page 47 for further information on the Committee’s guidelines as well as 2019 STIP adjustments.

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Individual 2019 STIP Payouts
The 2019 STIP target and actual payouts for the NEOs are shown in the table below. Please see the notes to the Grants of Plan-Based Awards table on page 55 for more information regarding the team factors applicable to each NEO as well as the impact of the modifiers on these payouts.

 

Named executive officer Applicable team
factor
Target STIP
payment as
percentage
of salary
(%)
2019 target
STIP payout
($)
2019
STIP payout
($)
STIP payment
as percentage
of target
(%)
Christopher Kempczinski*       U.S. (56%)       112       1,396,233       1,707,478       122.3
Corporate (44%)
Kevin Ozan Corporate (100%) 100 850,000 1,236,750 145.5
Joseph Erlinger* IOM (61%) 92 710,452 1,132,819 159.5
U.S. (14%)
Corporate (25%)
Jerome Krulewitch Corporate (100%) 85 552,500 803,888 145.5
Ian Borden** IDL (75%) 80 452,656 714,631 157.9
Corporate (25%)
Stephen Easterbrook*** Corporate (100%) 180 2,105,753 3,063,872 145.5
Silvia Lagnado**** Corporate (100%) 80 463,746 674,751 145.5
* In early 2019, the Committee determined to increase the STIP targets (compared to 2018) for each of Messrs. Kempczinski and Erlinger to remain competitive with pay levels at peer companies. The Committee increased the target from 90% to 100% for Mr. Kempczinski and from 80% to 90% for Mr. Erlinger. Effective November 1, 2019, their respective target bonus opportunity also increased upon promotion (to 170% in the case of Mr. Kempczinski and 100% in the case of Mr. Erlinger). As a result of these changes, their STIP payouts reflect blended metrics and targets as presented in the table above.
** Mr. Borden’s 2019 STIP was not impacted by his promotion to President, International in late 2019. However, his target bonus opportunity for 2020 increased to reflect his additional responsibilities.
*** Mr. Easterbrook was terminated by the Company without cause on November 1, 2019. As a result, his STIP was reduced to reflect the portion of the year in which he was employed.
**** Ms. Lagnado separated from the Company on October 31, 2019. As a result, her STIP was reduced to reflect the portion of the year in which she was employed.

Long-Term Incentive Compensation
Components of 2019 Long-Term Incentive Compensation
Performance-based RSUs Stock Options
 
Each component generally weighted equally

Performance-Based Restricted Stock Units

PRSUs provide the right to receive a share of McDonald’s stock, subject to certain vesting requirements, and accrue dividend equivalent rights that are reinvested in additional PRSUs and earned in proportion to the percentage of PRSUs earned.

PRSUs granted in 2019 as part of the annual cycle will vest on the third anniversary of the grant date, subject to the Company’s achievement of two key financial metrics, EPS growth and ROIIC. PRSUs are also subject to a modifier based on relative TSR over the 2019-2021 performance period. This balanced set of metrics encourages an increase in profitability and an efficient and effective use of capital, which will enhance shareholder value. Consistent with the Company’s cash return to shareholders philosophy, EPS targets incorporate the planned level of share repurchases during the performance period. As a result, the Company’s share repurchase activity has minimal impact on PRSU payouts. These awards also align the interests of our NEOs with those of our shareholders by delivering payouts in the form of Company stock.

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Payout of the PRSUs is limited to 200% of the target award (calculated with a limit of 175% of target based on EPS and ROIIC, subject to a modifier of up to an additional 25% based on the Company’s cumulative TSR vs. the S&P 500 Index over the performance period), plus any dividend equivalents earned on the PRSUs. The following graphic details the RSUs vesting calculation.

PRSUs granted in 2019 were, for the first time, subject to a cap of 100% of target if the Company’s absolute TSR for the three-year performance period is negative (notwithstanding performance against the measures described above). This change supports our commitment to ensuring that the interests of executives are aligned with those of our shareholders.

2019-2021       Threshold       Target       Maximum
Compound annual EPS growth 3 % 9 % 13 %
3-year ROIIC 15 % 25 % 25 %
 
Cumulative TSR v. S&P 500 Index Modifier
0 - 19%-ile -25 %
20 - 39%-ile -12.5 %
40 - 59%-ile 0 %
60 - 79%-ile    +12.5 %
80 - 100%-ile +25 %

In 2017, the Committee granted PRSUs to our executives, which were subject to compound annual net income growth, three-year ROIIC and Relative TSR over the 2017 to 2019 performance period. As both the Company’s net income growth and ROIIC exceeded targets (adjusted for the exclusions discussed on page 47) and the Company’s TSR was at the 80th percentile compared to the S&P 500 Index, please refer to page 42 for details, the PRSUs vested at 161.8% of the target amount in early 2020.

In addition to the PRSUs awarded as part of the annual grant cycle, from time to time, an executive may receive an RSU award as part of a new hire package or as a retention or promotional incentive. Such RSU awards may be either performance- or time-based. The Committee did not grant a retention or promotional award to an executive in 2019.

STOCK OPTIONS

Options granted to our NEOs have an exercise price equal to the closing price of our common stock on the grant date and a term of ten years. Options vest ratably over four years subject to continued service. Options provide value only if our share price increases, thereby closely aligning 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 52.

7 ADJUSTMENTS TO REPORTED RESULTS

In order to focus our executives on the fundamentals of the Company’s underlying business performance, certain adjustments that are not indicative of ongoing performance may be approved for purposes of incentive-based compensation. Our goal is to align incentive payouts with underlying business results that our investors use to measure performance, as opposed to allowing special gains or losses from having a significant impact on payouts.

The Committee considers potential adjustments pursuant to pre-established guidelines, including materiality, to provide consistency in how the Committee views the business. The graphic below illustrates the three categories (“strategic”, “regulatory” and “external”) of items the Committee may exclude from financial results for purposes of determining incentive payouts. In addition, the Committee excludes the effects of foreign currency translation (either positive or negative) for purposes of incentive payouts since changes in foreign exchange rates may cause our reported results to appear more or less favorable than business fundamentals indicate.

The Committee may approve adjustments to reflect events in the prior period and/or the results achieved during the applicable performance period to account for items not indicative of underlying performance, in STIP and/or PRSUs. Individual adjustments may have positive or negative impact, and in any given year, aggregate adjustments may increase or decrease incentive payouts.

In establishing 2019 operating income threshold applicable to STIP, the Committee determined it was appropriate to exclude 2018 impairment and restructuring charges. This resulted in an increased threshold of operating income that was required to be achieved for an STIP payout to be earned. 2019 operating income thresholds did not include amounts related to any potential 2019 impairment charges because the associated transactions could not be predicted as to timing and amount. However, an expected gain on the planned sale of real estate assets in an international market was included in the target.

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In determining 2019 operating income results for STIP awards, the Committee adjusted performance to account for each of the items identified in the graphic below. Total adjustments for Corporate were less than 2% of the Company’s consolidated operating income for 2019.

2019 STIP ADJUSTMENTS
            Category       Adjustments       Amount of
Adjustment ($)*
STRATEGIC Asset impairment and gains/losses related to strategic initiatives, including restructurings, acquisitions, divestitures and developmental licensee transactions Net gain on sale of our former corporate headquarters
Corporate – $26 million gain
Corporate and US - $6 million loss
(20)
Transactional asset impairment charges and related gains/losses, primarily associated with the purchase of a joint venture partner’s interest in the India Delhi market (Corporate and IDL) 83
REGULATORY Changes in tax or accounting law or regulations
EXTERNAL Extraordinary, unforeseeable events, such as natural disasters or the impact of social or political unrest that are outside of management’s control Delay of a planned sale of real estate assets (Corporate) 112
* Pre-tax amounts in millions. The amounts in the table for each segment sum to the total adjustments identified below for the respective segment.

The following chart provides the net adjustment (other than for foreign currency translation), by segment, made to 2019 operating income for purposes of calculating STIP payouts.

Corporate + $175 million
U.S. + $6 million
International Operated Markets (IOM) $0
International Developmental Licensed Markets (IDL) + $83 million

In determining net income and ROIIC results for 2017-2019 PRSU awards, the Committee adjusted performance consistent with the above pre-established guidelines, excluding the benefit provided by the 2017 U.S. Tax Cuts and Jobs Act as well as adjustments made to STIP awards relevant for this performance period. In the aggregate, the Committee’s adjustments decreased 2017-2019 PRSU payouts.

8

OTHER COMPENSATION ELEMENTS

Retirement Savings Arrangements

We believe a competitive retirement program contributes to the recruitment and retention of top executive talent. We do not have any supplemental executive retirement plans. NEOs participate in the same tax-qualified defined contribution retirement savings plan and non-tax qualified deferred compensation retirement plan that is applicable to U.S.-based employees, except Mr. Borden who participates in the Company’s Canadian retirement program.

Perquisites and Other Benefits

The Company provides certain limited perquisites to NEOs, including a car allowance, financial planning, physical examination (which are also available for the NEOs’ spouses), life insurance and matching charitable donations. The safety and security of our employees is a priority for the Company; accordingly, we provide risk-based executive security for select NEOs. As an additional security measure, the CEO is encouraged to use the Company’s aircraft for personal use, subject to the Company’s policy regarding reimbursement. The Company does not provide any tax gross-ups on perquisites.

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NEOs also participate in all the broad-based benefit and welfare plans available to Company staff in general. The Company maintains a Global Assignee Policy covering all employees and eligible family members who are on international assignments. The policy provides certain relocation and expatriate benefits, which are intended to equalize cost of living differences between the home and assignment country as well as to facilitate the transition associated with an international assignment. During 2019, Messrs. Borden and Erlinger received benefits under this policy. In addition, as a result of Mr. Erlinger’s promotion to President, McDonald’s USA, he received incremental benefits in order to facilitate his transition back to the U.S.

Please refer to footnote 4 to the Summary Compensation Table on page 54 for additional details on the costs of the benefits provided to the NEOs.

Severance and Change in Control Arrangements

The Company has a U.S. severance plan that covers all U.S-based officers, including our NEOs, except Mr. Borden. Benefits under the U.S. severance plan are described under “Potential Payments Upon Termination of Employment or Change in Control” starting on page 59. In the event of Mr. Borden’s departure, he may be entitled to receive payments and benefits, as required by local law.

The Company does not have any change in control agreements. Further, we do not provide for any single-trigger change of control benefits or Section 280G tax gross-up payments.

9

2020 CHANGES TO COMPENSATION PROGRAM

STIP

The Committee’s review of our incentive programs confirmed overall alignment with our compensation guiding principles. However, in order to better align our STIP with our business goals and shareholder interests, for 2020, the Company has added Systemwide sales growth as a core metric. Systemwide sales reflects sales across all McDonald’s restaurants (including conventional franchisee and developmental licensee sales), and they are the basis on which we calculate franchised revenue, which is important in a franchise business as income generation is closely correlated to sales growth. The Committee also removed the delivery sales modifier, which was effective in 2019 at accelerating delivery sales but is now embedded in our business plans.

The weighting of our performance metrics for 2020 STIP will be operating income growth at 50%, comparable guest count growth at 25% and Systemwide sales growth at 25%. These three performance measures will focus executives on the most important aspects of Company performance and the Committee believes the mix of 2020 metrics appropriately balances top and bottom line measures to motivate our executives to drive sustainable and profitable growth.

Personal Use of Corporate Aircraft

The Company reviewed its policy on reimbursement for personal use of the Company’s aircraft and determined that beginning in 2020 it would require reimbursement for the full aggregate incremental cost after the Company’s incremental cost reaches a predetermined amount. The Company believes this approach manages costs while allowing the Company to benefit from the enhanced security and accessibility afforded by private air travel. The Company intends to continue to monitor and consider how the aircraft is being used to determine the appropriate amount of personal use prior to requiring full reimbursement.

10

EXECUTIVE DEPARTURES

Stephen Easterbrook

On November 1, 2019, Mr. Easterbrook was terminated by the Company without cause. Mr. Easterbrook entered into a separation agreement documenting his receipt of the benefits provided for under the Company’s Officer Severance Plan as well as his equity award agreements. These benefits include a severance payment, a pro-rata STIP payout as well as continued vesting of a portion of his outstanding stock options and a pro-rata portion of his PRSUs, subject to the achievement of the performance goals, as detailed under “Potential Payments Upon Termination of Employment or Change in Control” starting on page 59. In exchange for these benefits, Mr. Easterbrook agreed to a release of claims as well as various restrictive covenants, including nonsolicitation of employees and noninterference with business partners for two years post-termination and perpetual confidentiality and nondisparagement covenants. In addition, the separation agreement contains a two-year post-termination noncompetition covenant, which is six months longer and more expansive in scope than those to which Mr. Easterbrook had previously agreed.

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Silvia Lagnado

On October 31, 2019, Ms. Lagnado separated from the Company and entered into an agreement documenting her receipt of severance benefits provided for under the Company’s Officer Severance Plan as well as her equity award agreements, plus an additional amount of $30,000 to cover storage and other costs incidental to her separation. Ms. Lagnado agreed to a release of claims as well as various restrictive covenants, including an 18-month noncompete and nonsolicitation agreement, and perpetual confidentiality and nondisparagement covenants. Please refer to “Potential Payments Upon Termination of Employment or Change in Control” starting on page 59 for more details.

11

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 shareholders themselves. The Committee reviews compliance with these stock ownership requirements annually. Based on the most recent annual evaluation, all NEOs are in compliance.

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. In response to shareholder feedback, the Company enhanced its policy to require executives who are not on track to meet his or her ownership requirements following the third year (of the five-year period) to retain 50% of the net after-tax shares received upon an RSU award vesting. If an executive has not achieved the requisite stock ownership within five years, they 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 following table illustrates our stock ownership requirements.

Stock ownership requirements Multiple of salary
President & CEO
Other NEOs

Policy Regarding Prohibition on Pledging and Hedging

The Company has adopted restrictions that prohibit executives and Directors from engaging in pledging and/or derivative transactions to hedge the economic risk associated with their Company stock ownership. Further, executives and Directors 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 assists the Board in compiling and summarizing the results of Board and Director evaluations and advising on Director compensation. Consistent with its Charter, the Committee regularly considers FW Cook’s independence. In 2019, 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.

Peer Companies

Consistent with our goal of providing competitive compensation to incentivize and retain executive talent, we review total direct compensation compared to levels at peer companies that we believe are 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.

Annually, based on input from FW Cook, 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. Although we strive for year-over-year continuity for our peer group, in 2018, the Committee, with the assistance of FW Cook, updated the peer group that applied for establishing 2019 compensation based on objective criteria to ensure a representative peer

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group. In identifying the Company’s peer group, the Committee considered the Company’s industry classification (under the S&P’s Global Industry Classification Standard), the revenues and market capitalization of potential peer companies as well as peers of peers, among other criteria. The highlighted companies below were added for 2019, and we removed the companies noted below.

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

The following table compares McDonald’s size and performance to that of our peer group.(1)

McDonald’s Percentile Rank
Revenues (most recent fiscal year)       $21,077             16 of 23
Market Capitalization (12/31/19) $148,819 7 of 23
Systemwide sales (most recent fiscal year) $100,178 3 of 23
1-year TSR (12/31/19) 13.97% 17 of 23
3-year TSR (12/31/19) 74.84% 7 of 23
5-year TSR (12/31/19) 142.18% 2 of 23
(1) Revenues and Systemwide sales information is for the most recent fiscal year available and market capitalization and TSR data is as of December 31, 2019. Amounts provided for revenues, market capitalization and Systemwide sales are in millions.

Clawbacks and Forfeiture Provisions

The Company’s STIP awards and equity grant agreements for executives provide that the Company may terminate awards and/or recapture previously paid awards if a participant engages in willful fraud that: (i) causes harm to the Company or (ii) is intended to manipulate performance goals either during employment, or after employment has terminated. Furthermore, executives are required to have executed restrictive covenants as a condition to receiving equity awards. An executive who violates the restrictive covenants to which he or she is subject will forfeit outstanding equity awards, whether or not vested, and may be required to repay awards that have previously been paid.

The Company’s equity grant agreements also 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, and (ii) similar rules under the laws of any other jurisdiction, as well as pursuant to any policies adopted by the Company to implement such requirements, in all cases to the extent determined by the Company to be applicable to the award recipient.

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Risk and Compensation Programs

Our compensation program is designed to mitigate the potential for rewarding excessive risk-taking that may produce short-term results that appear in isolation to be favorable, but which, in fact, 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.

In 2019, FW Cook reviewed the Company’s global incentive compensation programs, including both broad-based programs and its executive compensation programs, taking into consideration the factors described above. Based on this review, the Committee agreed with FW Cook’s assessment that the risks arising from its compensation program are not reasonably likely to have a material adverse effect on the Company.

Policies and Practices Regarding Equity Awards

The Company does not grant equity awards when in possession of material non-public information. The Company generally makes broad-based equity grants at approximately the same time each year following our release of full-year financial results, however, the Company may choose to make equity grants outside of the annual broad-based grant (e.g., as part of a new hire package or as a retention or promotional incentive). 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.

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Compensation Tables

SUMMARY COMPENSATION TABLE

The table below summarizes the total compensation earned by our NEOs in 2019, and, to the extent required, 2018 and 2017.

Name and
principal position
(a)
    Year
(b)
    Salary
($)(c)(1)(5)
    Stock
awards
($)(e)(2)
    Option
Awards
($)(f)(3)
    Non-equity incentive
plan compensation
($)(g)(5)
    All other
compensation
($)(i)(4)(5)
    Total
($)(j)(5)
Christopher Kempczinski*
President and Chief Executive Officer
2019 867,500 1,250,129 1,250,022 Annual: 1,707,478 154,026 5,229,155
2018 725,000 2,500,183 1,000,005 Annual: 336,869 116,283 4,678,340
2017 675,000 843,479 846,103 Annual: 813,291 120,846 3,847,453
Long-term:     548,734
Total: 1,362,025
Kevin Ozan
Chief Financial Officer
2019 841,667 1,625,078 1,625,011 Annual: 1,236,750 128,072 5,456,578
2018 791,667 1,450,043 1,450,015 Annual: 808,800 149,727 4,650,252
2017 741,667 1,204,846 1,208,724 Annual: 1,145,250 160,166 5,474,378
Long-term: 1,013,725
Total: 2,158,975
Joseph Erlinger*
President, McDonald’s USA
2019 712,500 850,088 850,022 Annual: 1,132,819 1,232,877 4,778,306
2018 587,500 750,055 750,009 Annual: 794,880 1,075,292 3,957,736
Jerome Krulewitch
General Counsel and Secretary
2019 642,500 850,088 850,022 Annual: 803,888 104,923 3,251,421
Ian Borden*
President, International
2019 561,329 750,078 750,003 Annual: 714,631 470,856 3,246,897
Stephen Easterbrook
Former President and Chief
Executive Officer
2019 1,163,718 6,125,006 6,125,005 Annual: 3,063,872 954,805 17,432,406
2018 1,341,667 5,750,104 5,750,009 Annual: 2,456,730 577,606 15,876,116
2017 1,300,000 5,301,249 5,318,329 Annual: 3,473,925 743,905 21,761,052
Long-term: 5,623,644
Total: 9,097,569
Silvia Lagnado
Former Chief Marketing Officer
2019 575,667 850,088 850,022 Annual: 674,751 114,038 3,064,566
2018 665,000 750,055 750,009 Annual: 541,896 148,014 2,854,974
2017 636,333 1,238,665 604,362 Annual: 781,824 123,098 3,973,663
Long-term: 589,381
Total: 1,371,205
* Effective November 2019, Mr. Kempczinski was appointed the Company’s President and CEO, and Mr. Erlinger was appointed President, McDonald’s USA. Effective December 2019, Mr. Borden was appointed President, International.
(1) Reflects increases in base salary that took effect during 2019. Annual base salaries as of December 31, 2019 for those named executives still employed with the Company as of that date were as follows: Messrs. Kempczinski: $1,250,000; Ozan: $850,000; Erlinger: $775,000; Krulewitch: $650,000; and Borden: $565,820 (CAD 735,000).
(2) Represents the aggregate grant date fair value of performance-based restricted stock units (PRSUs) granted under the McDonald’s Corporation 2012 Omnibus Stock Ownership Plan (2012 Plan) based on the probable outcome of the applicable performance conditions and excluding the effect of estimated forfeitures during the applicable vesting periods of PRSUs, as computed in accordance with Accounting Standards Codification (ASC) 718. Values are based on the closing price of the Company’s common stock on the grant date. PRSUs vest on the third anniversary of the grant date and are subject to performance-based vesting conditions linked to the achievement of EPS, ROIIC, and a relative TSR modifier over the performance period (as described on pages 46 and 47). For the first time in 2019, the PRSUs were subject to a cap of 100% of target if the Company’s absolute TSR for the three-year performance period is negative. The fair value of PRSUs that include the TSR modifier is determined using a Monte Carlo valuation model.
This also includes, for Mr. Kempczinski in 2018, a grant of special 9,507 RSUs, which are service based, and which vest in full on the third anniversary of the date of grant. Additional information is disclosed in the Grants of Plan-Based Awards table on page 55 and the Outstanding Equity Awards at 2019 Year-End table starting on page 56.
A more detailed discussion of the assumptions used in the valuation of RSU awards (including PRSUs) may be found in the Notes to Consolidated Financial Statements under “Share-based Compensation” on pages 44 and 53 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
(3) Represents the aggregate grant date fair value of options granted under the 2012 Plan, excluding the effect of estimated forfeitures during the applicable vesting periods of options, as computed in accordance with ASC 718. 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 2019 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 18.94%; an expected annual dividend yield of 2.66%; a risk-free return of 2.54%; and expected option life based on historical experience of 5.77 years. Additional information about options is disclosed in the Grants of Plan-Based Awards table on page 55 and the Outstanding Equity Awards at 2019 Year-End table starting on page 56. 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 44 and 53 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

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(4) “All other compensation” for 2019 includes the Company’s contributions to the McDonald’s Corporation 401(k) Plan (401k Plan) and Deferred Compensation Plan, except for Mr. Borden, who participates in our Canadian retirement plan, as follows:
Christopher Kempczinski       $ 72,262
Joseph Erlinger $ 90,443
Kevin Ozan $ 99,028
Jerome Krulewitch $ 69,744
Ian Borden $ 10,481
Stephen Easterbrook $ 217,227
Silvia Lagnado $ 69,463

The amounts in this column also include 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; and personal use of the Company’s aircraft by the CEO, with a net cost to the Company in 2019 for Mr. Easterbrook of $717,993 and for Mr. Kempczinski of $49,645 (as more fully described on page 49, beginning in 2020, the Company requires full reimbursement of costs associated with personal use once the Company’s cost reaches a predetermined threshold). In 2019, our policy required the CEO to use the Company’s aircraft for all air travel and requires the CEO reimburse the Company on all personal travel (in accordance with Federal Aviation Administration regulations). In certain circumstances, the CEO may permit other executives to use the aircraft for personal travel or to be joined by their spouses on the aircraft for business travel. 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, and for corporate aircraft includes fuel, on-board catering, landing/handling fees, maintenance costs and crew costs attributable to personal flights 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 reimbursed 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 rate per person or (ii) 200% of the actual fuel cost, plus any excise tax amounts.

Because Messrs. Erlinger and Borden were based overseas in 2019, the amount in this column includes certain benefits in connection with their international assignments including: Company-provided housing (in the amount of $344,270 and $253,458 for each of Messrs. Erlinger and Borden respectively, which includes: rent, rental furniture, utilities, lease renewal fees and council tax); a cost-of-living adjustment (in the amount of $73,229 for Mr. Borden); children’s tuition payments (in the amount of $100,044 and $47,616 for Messrs. Erlinger and Borden respectively); a family allowance; a global banking allowance; global health insurance, shipment of household goods; home leave travel; relocation allowance and assistance; departure services; tax preparation services; and tax equalization (in the amount of $535,106 for Mr. Erlinger).

The amount paid to Ms. Lagnado includes payments in connection with her separation, including storage fees and other administrative costs.

(5) Certain amounts were paid in non-US 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.

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GRANTS OF PLAN-BASED AWARDS

Estimated future payouts
under non-equity incentive
plan awards(1)
  


Estimated future payouts
under equity incentive
plan awards(2)
   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)(3)
Name
(a)
   Plan    Grant date
(b)
   Threshold
($)(c)
   Target
($)(d)
   Maximum
($)(e)
   Threshold
(#)(f)
   Target
(#)(g)
   Maximum
(#)(h)
  
Christopher
Kempczinski
2019
STIP
2/13/2019 0 1,396,233 2,792,466
Equity
Plan(4)
2/13/2019 0 6,975 13,950 1,250,129
Equity
Plan(5)
2/13/2019 48,829 174.15 1,250,022
Kevin Ozan 2019
STIP
2/13/2019 0 850,000 1,700,000
Equity
Plan(4)
2/13/2019 0 9,067 18,134 1,625,078
Equity
Plan(5)
2/13/2019 63,477 174.15 1,625,011
Joseph Erlinger 2019
STIP
2/13/2019 0 710,452 1,420,904
Equity
Plan(4)
2/13/2019 0 4,743 9,486 850,088
Equity
Plan(5)
2/13/2019 33,204 174.15 850,022
Jerome
Krulewitch
2019
STIP
2/13/2019 0 552,500 1,105,000
Equity
Plan(4)
2/13/2019 0 4,743 9,486 850,088
Equity
Plan(5)
2/13/2019 33,204 174.15 850,022
Ian Borden 2019
STIP
2/13/2019 0 452,656 905,312
Equity
Plan(4)
2/13/2019 0 4,185 8,370 750,078
Equity
Plan(5)
2/13/2019 29,297 174.15 750,003
Stephen
Easterbrook
2019
STIP
2/13/2019 0 2,105,753 4,211,506
Equity
Plan(4)
2/13/2019 0 34,174 68,348 6,125,006
Equity
Plan(5)
2/13/2019 239,258 174.15 6,125,005
Silvia Lagnado 2019
STIP
2/13/2019 0 463,746 927,492
Equity
Plan(4)
2/13/2019 0 4,743 9,486 850,088
Equity
Plan(5)
2/13/2019 33,204 174.15 850,022
(1) 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. STIP awards for 2019 were established based on a percentage of salary. STIP measures performance initially determined based on growth in operating income (75%) and comparable guest counts (25%). See the Compensation Discussion and Analysis at pages 44-47 for a discussion of operating income targets, as adjusted for certain exclusions, and comparable guest counts targets. Upon achievement of sufficient core metric growth, a single delivery sales modifier for 2019 was applied. The maximum STIP payout is 200% of target.
(2) All of the NEOs received two types of equity awards: PRSUs (see columns (f), (g), (h) and (l)) and options (see columns (j), (k) and (l)).
(3) The values in this column for PRSUs and options were determined based on the assumptions described in footnotes 2 and 3, respectively, to the Summary Compensation Table.
(4) The PRSUs vest on February 13, 2022, subject to achievement of 3-year compound annual EPS growth of at least 3% and 3-year ROIIC of at least 15%. If EPS growth is at or above the 3% threshold, a relative TSR modifier can impact final payouts by up to plus or minus 25 percentage points. The maximum payout is 200% of target. However, if absolute TSR for the three year period is negative the maximum payout is 100% of target. These PRSUs also provide for dividend equivalent rights. See page 47 for more information.
(5) For details regarding options, refer to footnote 3 to the Summary Compensation Table.

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2019 STIP

The target STIP awards, the team factors (including the impact of the modifiers), and the final payouts for the NEOs in 2019 are summarized below:

Name       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
($)(1)
Christopher Kempczinski 112 U.S. (56%) 125.9 (21.9) 1,707,478
Corporate (44%) 120.5 25.0
Kevin Ozan 100 Corporate (100%) 120.5 25.0 1,236,750
Joseph Erlinger 92 IOM (61%) 152.5 25.0 1,132,819
U.S. (14%) 125.9 (21.9)
Corporate (25%) 120.5 25.0
Jerome Krulewitch 85 Corporate (100%) 120.5 25.0 803,888
Ian Borden 80 IDL (75%) 137.0 25.0 714,631
Corporate (25%) 120.5 25.0
Stephen Easterbrook 180 Corporate (100%) 120.5 25.0 3,063,872
Silvia Lagnado 80 Corporate (100%) 120.5 25.0 674,751
(1) These amounts are also reflected in column (g) of the Summary Compensation Table.

OUTSTANDING EQUITY AWARDS AT 2019 YEAR-END

Option awards Stock awards
Name (a)     Number of
securities
underlying
unexercised
options
exercisable
(#)(b)(1)
    Number of
securities
underlying
unexercised
options
unexercisable
(#)(c)(1)
    Option
exercise
price
($)(e)
    Option
expiration
date
(f)
    Number
of shares
or units
of stock
that
have not
vested
(#)(g)(2)
    Market
value of
shares or
units of
stock that
have not
vested
($)(h)(3)
    Equity
incentive
plan awards:
number of
unearned
shares,
units or
other rights
that have
not vested
(#)(i)(4)
    Equity
incentive
plan awards:
market or
payout value
of unearned
shares, units
or other rights
that have
not vested
($)(j)(3)(4)
Christopher Kempczinski 9,291 0 112.11 11/12/2025
26,277 26,276 128.09 3/8/2027
10,505 31,512 157.79 2/19/2028 9,982 1,972,607
0 48,829 174.15 2/13/2029 20,602 4,071,169
Kevin Ozan 11,329 0 94.89 2/12/2024
36,320 0 97.15 3/16/2025
53,541 17,847 116.73 2/11/2026
37,538 37,538 128.09 3/8/2027
15,232 45,693 157.79 2/19/2028
0 63,477 174.15 2/13/2029 28,653 5,662,171
Joseph Erlinger 7,377 0 94.89 2/12/2024
8,324 0 97.15 3/16/2025
5,890 1,963 116.73 2/11/2026
13,514 13,514 128.09 3/8/2027
7,879 23,634 157.79 2/19/2028
0 33,204 174.15 2/13/2029 13,342 2,636,425
Jerome Krulewitch 9,309 0 94.00 2/13/2023
10,012 0 94.89 2/12/2024
10,594 0 97.15 3/16/2025
10,709 3,569 116.73 2/11/2026
13,514 13,514 128.09 3/8/2027
7,879 23,634 157.79 2/19/2028
0 33,204 174.15 2/13/2029 13,342 2,636,425

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Option awards Stock awards
Name (a)     Number of
securities
underlying
unexercised
options
exercisable
(#)(b)(1)
    Number of
securities
underlying
unexercised
options
unexercisable
(#)(c)(1)
    Option
exercise
price
($)(e)
    Option
expiration
date
(f)
    Number
of shares
or units
of stock
that
have not
vested
(#)(g)(2)
    Market
value of
shares or
units of
stock that
have not
vested
($)(h)(3)
    Equity
incentive
plan awards:
number of
unearned
shares,
units or
other rights
that have
not vested
(#)(i)(4)
    Equity
incentive
plan awards:
market or
payout value
of unearned
shares, units
or other rights
that have
not vested
($)(j)(3)(4)
Ian Borden 4,149 0 75.93 2/9/2021
5,948 0 100.05 2/8/2022
5,320 0 94.00 2/13/2023
5,796 0 94.89 2/12/2024
7,264 0 97.15 3/16/2025
12,851 4,283 116.73 2/11/2026
13,514 13,514 128.09 3/8/2027
6,566 19,695 157.79 2/19/2028
0 29,297 174.15 2/13/2029 11,942 2,359,802
Stephen Easterbrook 50,444 0 97.15 11/1/2022
71,388 71,388 116.73 11/1/2022
165,167 165,164 128.09 11/1/2022
60,400 181,197 157.79 11/1/2022
0 179,444 174.15 11/1/2022 72,163 14,260,130
Silvia Lagnado 20,814 0 98.92 10/31/2021
19,275 6,425 116.73 10/31/2021
0 18,768 128.09 10/31/2021
0 15,756 157.79 10/31/2021
0 16,602 174.15 10/31/2021 8,427 1,665,259
(1) In general, options expire on the tenth anniversary of grant. For details regarding customary equity treatment upon termination, see the section on Potential Payments Upon Termination of Employment or Change in Control beginning on page 59.
(2) PRSUs are typically granted to our NEOs subject to performance-based vesting conditions, but from time to time, we grant service-based awards. In 2018 Mr. Kempczinski received a grant of 9,507 shares of service-vested RSUs (which have dividend equivalent rights), as reflected in columns (g) and (h), and which vest on February 19, 2021.
(3) Calculated by multiplying the number of shares covered by the award by $197.61, the closing price of Company stock on the New York Stock Exchange on December 31, 2019, the last trading day in 2019.
(4) Reflects unvested PRSUs that are scheduled to be paid out as follows if the targets are met:

Named executive officer       Vesting date       Number of
performance-based
RSUs
Christopher Kempczinski 03/08/2020                       6,832 *
02/19/2021 6,628
02/13/2022 7,142
Kevin Ozan 03/08/2020 9,759 *
02/19/2021 9,610
02/13/2022 9,285
Joseph Erlinger 03/08/2020 3,514 *
02/19/2021 4,971
02/13/2022 4,857
Jerome Krulewitch 03/08/2020 3,514 *
02/19/2021 4,971
02/13/2022 4,857
Ian Borden 03/08/2020 3,514 *
02/19/2021 4,142
02/13/2022 4,285

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Named executive officer       Vesting date       Number of
performance-based
RSUs
Stephen Easterbrook** 03/08/2020                     39,361 *
02/19/2021 23,142
02/13/2022 9,660
Silvia Lagnado** 03/08/2020 4,338 *
02/19/2021 2,882
02/13/2022 1,207
* Represents the target number of PRSUs awarded, as a result of the Company’s performance during the 2017 - 2019 performance period, 161.8% of these PRSUs vested.
** The number of PRSUs that may vest have been prorated to reflect the portion of the service period in which the executive was employed with the Company.

OPTION EXERCISES AND STOCK VESTED - FISCAL 2019

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)
Christopher Kempczinski 27,875 2,316,300 9,662 1,682,637
Kevin Ozan 30,930 3,028,609 18,559 3,232,050
Joseph Erlinger 21,683 2,223,857 1,178 205,278
Jerome Krulewitch 18,384 1,773,339 3,213 559,544
Ian Borden 4,149 564,140 4,456 776,012
Stephen Easterbrook 0 0 74,232 12,927,503
Silvia Lagnado 26,649 2,017,459 6,683 1,163,844

NON-QUALIFIED DEFERRED COMPENSATION - FISCAL 2019

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)
      Aggregate
balance at
last FYE
($)(f)(2)
Christopher Kempczinski 393,996 55,462 191,268 0 1,429,504
Kevin Ozan 95,933 82,228 516,104 0 4,719,949
Joseph Erlinger 293,720 73,643 394,080 0 2,241,749
Jerome Krulewitch 61,769 52,944 564,522 0 4,556,105
Ian Borden*
Stephen Easterbrook 200,427 200,427 19,543 0 2,143,368
Silvia Lagnado 651,149 52,663 605,424 0 3,544,625
* Mr. Borden is not eligible to participate in the Company’s non-qualified deferred compensation plan.
(1) Represents salary deferrals which are also reported as compensation for 2019 in the Summary Compensation Table.
(2) Includes the following aggregate amounts reported in the Summary Compensation Table in prior years:
Christopher Kempczinski       $ 805,441
Kevin Ozan $ 1,161,220
Joseph Erlinger $ 250,746
Jerome Krulewitch $ 0
Ian Borden $ 0
Stephen Easterbrook $ 1,686,347
Silvia Lagnado $ 1,100,259

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DEFERRED COMPENSATION PLAN

The Company’s Deferred Compensation Plan (Deferred Plan) is a non-tax qualified, unfunded deferred compensation retirement plan that allows NEOs and certain highly compensated staff employees to: (i) make tax-deferred contributions from their salary and STIP awards; and (ii) receive Company matching contributions, in excess of the Internal Revenue Service (IRS) limits under the Company’s 401k Plan.

At the time of deferral, participants must elect how and when they will receive distributions. Participants can elect from the following distribution options: (i) lump-sum in-service distributions; (ii) lump-sum distributions upon separation from service, or (iii) installment payments upon separation from service. Installment payments can be paid over 5, 10 or 15 years. Distributions upon a separation from service are delayed for six months following the participant’s separation.

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 (net of expenses that apply to the Deferred Plan). 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 Deferred Plan, 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 payouts. 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.

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. The post-termination arrangements for Mr. Easterbrook and Ms. Lagnado, who separated from the Company on November 1, 2019 and October 31, 2019, respectively, are also discussed on page 62.

TERMINATION OF EMPLOYMENT

Cash Severance

Messrs. Kempczinski, Ozan, Erlinger, and Krulewitch are entitled to receive severance benefits under the McDonald’s Corporation Officer Severance Plan (Severance Plan) upon a termination of their employment by the Company without cause, and each of Mr. Easterbrook and Ms. Lagnado received the benefits to which they were entitled under the Severance Plan upon their separation from service on November 1, 2019 and October 31, 2019, respectively.

The applicable benefits under the Severance Plan consist of a lump-sum payment with respect to severance pay, based on final salary and a continued subsidy of medical, dental and vision benefits. Amounts are based on position and length of service. In addition, in a covered termination, each eligible NEO would receive prorated STIP 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.

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Executive Compensation

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, 2019, are set forth below.

Name       Salary
continuation
($)
       Benefit
continuation
($)
      Other (sabbatical and
transition assistance)
($)(1)
      Total
($)
Christopher Kempczinski 625,000 7,592 25,000 657,592
Kevin Ozan 719,231 4,613 155,769 879,613
Joseph Erlinger 506,731 28,167 25,000 559,898
Jerome Krulewitch 425,000 10,064 25,000 460,064

Based on the payments to which the NEO is entitled as a result of ceasing to be employed with the Company in 2019. Mr. Borden is not entitled to any severance benefits as the result of a separation from service beyond any notice requirements and separation pay required under Canadian law.

(1) Includes eligible sabbatical time for Mr. Ozan.

Stock Options

In the case of certain termination events (including retirement and termination by the Company without cause) generally 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 termination by the Company without cause), as applicable. In order to receive this treatment, a NEO must agree to certain restrictive covenants and a release of claims in favor of the Company. If a NEO terminates employment as a result of death or disability, the options vest upon termination and remain exercisable for three years following their termination of employment. 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 four months are forfeited upon termination. If a NEO does not qualify for the favorable treatment described above upon a termination of employment, generally unvested options are forfeited and vested options remain outstanding and exercisable for 90 days. In the event of a termination for cause, all options are immediately forfeited.

Performance-based RSUs

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 PRSUs, subject to satisfying the applicable performance criteria. Upon termination, PRSUs and any related dividend equivalents are not accelerated, except in the case of death or disability. In order to receive such vesting, a NEO must agree to certain restrictive covenants and a release of claims in favor of the Company. Further, if a NEO terminates employment for any reason other than death or disability, all PRSUs granted in the last 4 months and any related dividend equivalents are forfeited upon termination. Upon termination for death or disability, the performance conditions are waived and 100% of the award immediately vests. As the number of PRSUs that vest is based, in part, on the Company’s actual performance through the performance period, we are unable to calculate hypothetical values that would have been realized by our NEOs upon termination of employment on December 31, 2019.

A pro rata portion of Mr. Kempczinski’s service-vested RSUs and any related dividend equivalents accelerates in the event the Company terminates his employment without cause, and the full award vests in the event of his death or disability. Based on the closing price of the Company’s common stock on December 31, 2019, the value of the accelerating service-based RSUs held by Mr. Kempczinski would have equaled $1,260,357 had his employment been terminated by the Company without cause as of that date.

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Executive Compensation

CHANGE IN CONTROL

The Company does not have any change in control agreements. However, a change in control may trigger certain rights under the Severance Plan and the 2012 Plan if employment is terminated.

A “change in control” is generally defined in the 2012 Plan 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.

Cash Severance upon a Change in Control

Had a change in control occurred in 2019, Messrs. Kempczinski, Ozan, Erlinger, Krulewitch, and Easterbrook and Ms. Lagnado would have been entitled to payments under the Severance Plan as described above in the event their employment was terminated and they otherwise qualify for the payments and benefits thereunder.

Treatment of Equity Awards upon a Change in Control

Under the 2012 Plan, upon a change in control, outstanding unvested options, RSUs (including PRSUs) will be replaced by equivalent awards based on publicly-traded stock of the successor entity. The replacement awards will vest and become exercisable or paid out, as applicable, 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 (including PRSUs) would vest (with PRSUs vesting at target) and be paid out upon a Code Section 409A change in control; otherwise, RSUs (including PRSUs) 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, 2019, and either (i) the outstanding options and RSUs (including PRSUs) 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 become fully vested, exercisable and free of restrictions; and (ii) RSUs (including PRSUs) would have vested (PRSUs at target) and been paid out immediately. The awards held by the NEOs as of December 31, 2019, are set forth in the Outstanding Equity Awards at 2019 Year-End table starting on page 56.

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 31, 2019 and (ii) in the case of RSUs (including PRSUs), the target number of shares, multiplied by the closing price of the Company’s common stock on December 31, 2019. 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 PRSUs, subject to performance-based vesting conditions.

Name       Stock options
(closing price on 12/31/19
minus exercise price)
($)
      RSUs
(target number of shares multiplied
by closing price on 12/31/19)
($)
      Total
($)
Christopher Kempczinski 4,227,044 6,043,777 10,270,821
Kevin Ozan 7,361,773 5,662,171 13,023,944
Joseph Erlinger 2,818,332 2,636,425 5,454,757
Jerome Krulewitch 2,948,226 2,636,425 5,584,651
Ian Borden 2,757,465 2,359,802 5,117,267

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Executive Compensation

POST-TERMINATION ARRANGEMENTS FOR MR. EASTERBROOK AND MS. LAGNADO

In connection with his termination on November 1, 2019, Mr. Easterbrook was entitled to a separation payment in the amount of $700,000, a continued subsidy of health benefits in the amount of $2,516, and outplacement services in the amount of $25,000. In addition, he was entitled to a pro-rated 2019 STIP of $3,063,872. In connection with her separation on October 31, 2019, Ms. Lagnado was entitled to a separation payment in the amount of $348,000 and a continued subsidy of health benefits in the amount of $6,726. In addition, she was also entitled to a pro-rated 2019 STIP of $674,751 and a payment in the amount of $30,000 to cover storage and other costs incidental to her separation. In accordance with the terms of their outstanding equity awards, (i) Mr. Easterbrook’s options that would have vested within the three years following his termination of employment will continue to vest in accordance with their regular schedule and will remain exercisable for three years, (ii) Ms. Lagnado’s options that would have vested within the two years following her termination of employment will continue to vest in accordance with their regular schedule and will remain exercisable for two years, and (iii) Mr. Easterbrook’s and Ms. Lagnado’s PRSUs were pro-rated to reflect the portion of the performance period in which they were employed, and will remain outstanding and subject to their original performance-based vesting schedule.

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 59.

Additional Compensation Matters

PAY RATIO

2020 Pay Ratio

McDonald’s is committed to a strong pay-for-performance culture that stresses paying compensation based on performance in order to closely align the interests of executives with those of shareholders. In setting CEO compensation, we strive to ensure that over 90% of our CEO’s total target direct compensation opportunity is subject to performance against the Company’s robust objective targets. Over the past four years, McDonald’s has revitalized its brand and business, successfully completing a transition from turnaround to growth and experiencing 18 consecutive quarters of global comparable sales growth.

On November 1, 2019, Christopher Kempczinski succeeded Stephen Easterbrook as the Company’s President and Chief Executive Officer. As the Company had two CEO’s during 2019, for purposes of calculating the pay ratio, we combined the compensation that each of Messrs. Kempczinski and Easterbrook earned during their time served as CEO (60 days for Mr. Kempczinski and 305 days for Mr. Easterbrook). Specifically, we prorated the respective amounts of 2019 salary, annual bonus and all other compensation by the portion of the year in which they served as CEO, applying the increased salary and annual bonus awarded to Mr. Kempczinski in connection with his promotion. Mr. Easterbrook’s equity awards were included in full, as he was in the role of CEO on the annual grant date. Based upon this calculation method, the CEO’s 2019 total compensation was $18,012,549, resulting in a ratio of 1,939:1.

Median Employee Methodology

In 2019, the Company identified its median employee for purposes of the pay ratio disclosure by annualizing one month’s total gross wages for its employees (other than the CEO) located in markets across the globe who were employed on October 1, 2019. The Company considered all full-time, part-time, seasonal and temporary workers employed on such date. Our methodology was straightforward and transparent; we did not exclude employees or make any adjustments to compensation. Our median employee for 2019 (a part-time restaurant crew employee located in the United Kingdom) had 2019 total compensation of $9,291.

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AUDIT & FINANCE COMMITTEE MATTERS

         
PROPOSAL 3
Advisory Vote to Approve the Appointment of Ernst & Young LLP as Independent Auditor for 2020
 
The Board recommends that you vote FOR this proposal.

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 (Ernst & Young) as the Company’s independent external audit firm for 2020. In executing its responsibilities, the Committee engages in a thorough annual evaluation of Ernst & Young’s qualifications, past performance and continuing independence. Among other things, the Committee is informed by the results of a comprehensive assessment survey undertaken 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 both audit and 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 Ernst & Young’s effectiveness and independence and for considering alternative 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 Chair 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 as the Company’s independent external audit firm for 2020 is in the best interests of the Company and its shareholders, and are therefore asking shareholders to again approve this annual appointment. A representative of the firm is expected to attend the Annual 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. After such reconsideration, the Committee may exercise its discretion to select another auditor or retain Ernst & Young, if it determines such retention to be in the best interests of the Company and shareholders. Even if shareholders approve the appointment of Ernst & Young, the Committee may select another independent auditor if it determines it to be in the best interests of the Company and shareholders.

The Board of Directors recommends that shareholders vote FOR the appointment of Ernst & Young LLP as independent auditor for 2020.

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Audit & Finance Committee Matters

Audit & Finance Committee Report

The role of the Audit & Finance Committee is to assist the Board 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. The Audit & Finance Committee met regularly with Ernst & Young and the head of internal audit, both privately and with management present, during 2019.

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 applicable standards of the Public Company Accounting Oversight Board (PCAOB), 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 PCAOB, 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 2019 and 2020. In that regard, 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 that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, for filing with the SEC.

Respectfully submitted,

The Audit & Finance Committee*
John Mulligan, Chair
Lloyd Dean
Margaret Georgiadis
Sheila Penrose
**

* Ms. Engelbert was appointed to the Audit & Finance Committee effective March 1, 2020 and therefore is not listed as an Audit & Finance Committee member participant for the purposes of Audit & Finance Committee Report on matters related to fiscal year 2019.
** Ms. Penrose no longer serves on the Audit & Finance Committee effective March 1, 2020 but is listed on this Audit & Finance Committee Report as a member of the committee at the time the matters in this report were discussed.

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Audit & Finance Committee Matters

Policy for Preapproval of Audit and Permitted Non-Audit Services

The Audit & Finance Committee has a policy for the preapproval of all audit and permitted non-audit services to be provided by Ernst & Young to the Company. The Audit & Finance Committee may preapprove engagements on a case-by-case basis or on a class of service basis if the relevant services are predictable and recurring.

Preapprovals for classes of services are granted at the start of each fiscal year and are applicable for the year. In considering these preapprovals, 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 a preapproved class, or for which total fees are expected to exceed the relevant budgetary estimate, must be preapproved on an individual basis. Preapproval of any individual engagement may be granted not more than one year before commencement of the relevant service. Preapprovals of services that may be provided over a period of multiple years must be reviewed for renewal each year.

The Chief Accounting Officer monitors services provided by Ernst & Young and overall compliance with the preapproval 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 preapproval policy to the Chair of the Audit & Finance Committee.

In accordance with the policy, all services provided to the Company by Ernst & Young in 2019 and 2018 were preapproved by the Audit & Finance Committee.

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

Auditor Fees and Services

The following table presents fees paid for professional services rendered for the audit of the Company’s annual financial statements for 2019 and 2018 and fees paid for other services provided by Ernst & Young in those years:

Dollars in millions 2019 2018
Audit fees(1)         $ 8.9         $ 9.8
Audit-related fees(2) 0.5 0.4
Tax fees:
Compliance 2.4 2.1
Planning/advisory 0.7 0.2
Tax reform 0.8
Total tax fees: 3.1 3.1
Total $ 12.5 $ 13.3
(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.

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AMENDED AND RESTATED EQUITY PLAN

PROPOSAL 4
Vote to approve the Company’s Amended and Restated 2012 Omnibus Stock Ownership Plan
 The Board recommends that you vote FOR this proposal.

The Board of Directors (the Board) is requesting that shareholders vote in favor of amending and restating the McDonald’s Corporation 2012 Omnibus Stock Ownership Plan (the 2012 Plan), which would extend the 2012 Plan for an additional ten years from the date of the 2020 Annual Shareholders’ Meeting, among other changes described below. If this proposal is approved, the term of the Amended and Restated 2012 Omnibus Plan (the Amended & Restated Plan) will extend to 2030. If not approved, the 2012 Plan will continue in effect until its termination in 2022. Also, as described below, shareholder approval which would result in an estimated $1 million of annual tax savings for French law purposes. We are not seeking an increase in the number of shares of the Company’s common stock available for equity awards under the Amended & Restated Plan or for changes to the way in which these shares are counted. The Amended & Restated Plan would continue to use the currently available shares in the manner previously approved by shareholders under the 2012 Plan.

The 2012 Plan is the Company’s sole active plan for granting equity awards to eligible employees and non-employee directors. The Board believes that the approval of the Amended & Restated Plan is in the best interests of shareholders and the Company, as equity awards granted under the 2012 Plan help to attract, retain and motivate talented employees and non-employee directors, align employee and shareholder interests, tie compensation to Company performance, and reinforce a corporate culture that encourages employee stock ownership. In 2019, approximately 3,300 employees were eligible for awards and approximately 2,900 received awards under the 2012 Plan, of approximately 205,000 employees of the Company. In addition, the Company may from time-to-time grant equity to our Non-Executive Chairman in consideration for his service as Chairman.

In February 2020, the Compensation Committee of the Board approved the Amended & Restated Plan and, upon recommendation from the Governance Committee, the Board directed that it be submitted for shareholder approval. The Board recommends that shareholders vote FOR approval of the Amended & Restated Plan.

The following summary of major features of the Amended & Restated Plan is qualified in its entirety by reference to the actual text of the Amended & Restated Plan, which is included as Exhibit A to this Proxy Statement. A copy of the Amended & Restated Plan is also available on our website at www.investor.mcdonalds.com and on the Securities and Exchange Commission’s (SEC) website at www.sec.gov, where it is an exhibit to the electronic version of this Proxy Statement. We will provide you with a copy without charge if you call Shareholder Services at 1-630-623-7428, or email us at shareholder.services@us.mcd.com. Copies will also be available at the Annual Shareholders’ Meeting.

KEY CHANGES

Extension of the Expiration Date to May 21, 2030. The 2012 Plan is currently scheduled to expire on June 1, 2022, and we are requesting an extension of the expiration date to May 21, 2030. We are not asking that additional shares of common stock be made available or for changes to the way in which shares used under the plan are counted. The Amended & Restated Plan will continue to use the available shares previously approved by shareholders under the 2012 Plan.

Deletion of the Provisions Relating to Section 162(m) of the Internal Revenue Code of 1986, as amended. The 2012 Plan contained provisions enabling awards to qualify as performance-based compensation for purposes of Section 162(m) of the Internal Revenue Code. Due to the repeal of that exception in the Tax Cuts and Jobs Act of 2017, these provisions have been deleted in the Amended & Restated Plan.

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Amended and Restated Equity Plan

French Tax-Qualified RSUs. Pursuant to French law, US companies are permitted, but not required, to grant French tax-qualified restricted stock units (French RSUs), which provide for more favorable income tax and social tax treatment for both French employers and their employees than the current non-qualified restricted stock unit (RSU) awards granted by the Company. Changes to the income tax and social tax treatment of French RSUs were implemented into French law in December 2017. To benefit from the most recent French-qualified income tax and social tax regime, French law provides that grants of French RSUs must be made under a plan that has been approved by stockholders after December 31, 2017. We are not proposing any changes in the Amended & Restated Plan in order to grant French RSUs, as the 2012 Plan already authorizes the Compensation Committee to implement such changes, including adopting a sub-plan, to comply with French RSU requirements. However, because shareholders have not approved the 2012 Plan since May 2012, shareholder approval of this Proposal and the Amended & Restated Plan would enable us to satisfy this requirement and to grant French RSUs under the latest French tax regime, which would result in an estimated $1 million of annual tax savings. The Committee will not, however, be obligated to grant French RSUs and may grant RSUs that are not considered French RSUs.

PURPOSE

The Amended & Restated Plan is an important part of our pay-for-performance compensation strategy. The Amended & Restated Plan is important to attract, retain and motivate highly qualified individuals and to ensure compensation is aligned with both Company performance and the interests of our shareholders.

GENERAL INFORMATION

The Amended & Restated Plan provides for the granting of non-qualified stock options, restricted stock units, stock bonuses, dividend equivalents and other stock-based awards (collectively, Awards). The Company has generally granted non-qualified stock options, restricted stock units and dividend equivalents under the 2012 Plan, and the Compensation Committee expects to continue to grant non-qualified stock options, restricted stock units and dividend equivalents under the Amended & Restated Plan, although it may consider granting other types of Awards as described in this proposal and as provided for in the full text of the Amended & Restated Plan. Awards may be granted under the Amended & Restated Plan to any employee (including officers) or non-employee director of the Company or any of its subsidiaries.

COMMON STOCK AVAILABLE

The total shares available under the 2012 Plan is 56 million and we are not asking for additional shares. As of December 31, 2019, approximately 26.5 million shares remained available for grants of Awards. Common stock issued under the Amended & Restated Plan may be treasury shares or newly issued shares. The Company generally intends to use treasury shares purchased through its share repurchase program for Awards. As of December 31, 2019, 914,311,874 shares of common stock were held in treasury, and an additional $15.0 billion in share repurchases remained authorized. The closing price for the common stock on December 31, 2019 was $197.61.

AWARDS UNDER THE 2012 PLAN

Stock options. The Amended & Restated Plan provides that the per-share option price cannot be less than 100% of the fair market value of a share of the common stock on the grant date. The Committee expects to continue to grant this type of Award under the Amended & Restated Plan. Payment of the option price may be made in cash, through the exchange of common stock, or through a broker-assisted exercise.

The Committee determines when and how an option may be exercised, and establishes its maximum term, which may not be greater than 10 years. Generally, an option may not be exercisable within one year after its grant date.

Restricted stock units (RSUs). The Amended & Restated Plan provides for the grant of RSUs. The Committee expects to continue to grant this type of Award. RSUs are generally similar to restricted stock awards, though instead of issuing actual shares at the time of grant, the units are settled at or after the time they vest by the delivery of the appropriate number of shares of common stock, or of cash equal to the then-value of those shares, depending upon the terms of the Award. Unless and until RSUs are settled with actual shares, the participant does not have the rights of a shareholder, although he or she may be entitled to dividend equivalents, if the Award so provides.

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