DEF 14A 1 c87415_def14a.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A

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Securities Exchange Act of 1934

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Pfizer Inc.
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Proxy Statement for
2017 Annual Meeting
of Shareholders

 

2016 Financial Report1

 

1The 2016 Financial Report is not included in this filing. The portions of the 2016 Financial Report that are incorporated by reference in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (the “2016 Form 10-K”) were filed, and the other portions of the 2016 Financial Report were furnished, solely for the information of the U.S. Securities and Exchange Commission, on Exhibit 13 to the 2016 Form 10-K. The 2016 Financial Report is contained in Appendix A to the Notice of 2017 Annual Meeting and Proxy Statement being mailed to our shareholders beginning on or about March 16, 2017. The Letter to Shareholders from our Chairman and CEO and the Corporate and Shareholder Information contained in the materials being mailed to our shareholders beginning on or about March 16, 2017 are not included in this filing.

 

 

  Our Strategic Imperatives    
       
  1 Innovate and lead    
    Improve Pfizer’s ability to innovate in biomedical R&D and develop a new generation of high-value, highly differentiated medicines and vaccines.    
         
  2 Maximize value    
    Invest and allocate our resources in ways that create the greatest long-term returns for our shareholders.    
       

Our Purpose

 

Innovate to bring therapies
to patients that significantly
improve their lives

 

Our Mission

 

To be the premier innovative
biopharmaceutical company

 

Our Values

 

Customer focus
Community
Respect for people
Performance
Collaboration
Leadership
Integrity
Quality
Innovation

 

  3 Earn greater respect  
    Earn society’s respect by generating breakthrough therapies, improving access, expanding the dialogue on healthcare and acting as a responsible corporate citizen.  
       
  4 Own our culture  
    Build and sustain a culture where colleagues view themselves as owners, generating new ideas, dealing with problems in a straightforward way, investing in open and candid conversations and working as teammates on challenges and opportunities.  
       
       
       
       
       
       
       
 
A MESSAGE TO OUR SHAREHOLDERS FROM PFIZER’S LEAD INDEPENDENT DIRECTOR

A Message from Pfizer’s Lead Independent
Director

 

 

 

Dennis A. Ausiello, M.D.

 

 

Dear Shareholders:

 

It has been my privilege to serve as Pfizer’s Lead Independent Director this year, working with a group of highly-engaged and knowledgeable Board members, strongly attuned to their roles as your fiduciaries. As I embark on my third year as Lead Independent Director, I would like to reflect on 2016 and the many ways in which the Board worked together to provide independent oversight of management and to represent shareholder interests throughout the year.

 

Independent Board Oversight

 

First and foremost, your Board is composed of fully independent Directors, with the exception of Ian C. Read, Pfizer’s Chairman and CEO. The Directors’ skills reflect deep expertise and qualifications essential to effective oversight of the business, including business leadership, healthcare industry expertise and extensive experience in finance, science and risk management.

 

The Board utilizes its deep knowledge and diverse backgrounds to work with management in its oversight of corporate strategy, which we discussed at nearly every Board meeting in 2016. Additionally, we reviewed specific major business and organizational initiatives, capital allocation priorities and business development opportunities. Further, the Board and its Committees were involved in overseeing enterprise risk management, including risk priorities and developments that could impact the business. The Board also discussed Board and management succession planning.

 

Independent Board Leadership

 

As Lead Independent Director, I work closely with our CEO to ensure that an active dialogue between our independent Directors and management exists. I serve as a representative for our independent Directors and, in this capacity, contribute to the development of, and approval of Board meeting agendas, materials and schedules. At each Board meeting, I also preside over the executive sessions held with the independent Directors.

 

Further, I am responsible for leading the independent Directors’ evaluation of the effectiveness of Pfizer’s Chairman and CEO, Mr. Read. This assessment includes an annual evaluation of his performance in leading Pfizer’s business as our CEO, as well as his performance as Chairman through his interactions with the Directors and his ability to provide effective leadership and direction to the full Board.

 

The Board’s assessment of Mr. Read also informs the Board’s comprehensive annual review of our leadership structure. Our Board strongly believes that Mr. Read’s extensive knowledge of the research-based biopharmaceutical industry and his continued demonstration of exemplary leadership and vision, coupled with the active and engaged role that defines the Pfizer Lead Independent Director position, support our belief that, at this time, a unified Chairman and CEO role is the right leadership structure for Pfizer.

 

Board and Committee Composition and Refreshment

 

During the year, we also focused on Board and Committee composition and refreshment, two important topics to our investors. We discussed these items regularly at meetings and considered projected Director retirement dates in combination with a review of skill sets and qualifications. The Board ensures that

 


























 
 
A MESSAGE TO OUR SHAREHOLDERS FROM PFIZER’S LEAD INDEPENDENT DIRECTOR

 

   

it has the appropriate balance of skills, diversity, experience and tenure to provide effective oversight. Informed by this comprehensive review, as well as shareholder feedback we received, the Board recommended several Committee member rotations during 2016, including the appointment of new Chairs to lead the Audit, Compensation and Science and Technology Committees. Since 2012, we have also welcomed four new Directors to the Board, including Ronald E. Blaylock in February 2017, which brings our average tenure of the Board to seven years.

 

Committed to Strong Corporate Governance Standards

 

As part of the Board’s ongoing commitment to act with integrity and to maintain high corporate governance standards, we continued to place a high priority on listening and responding to shareholder feedback regarding our corporate governance practices. The Board considered the shareholder votes on the proxy items presented at last year’s Annual Meeting, which resulted in strong support for the re-election of the Director candidates, the company’s auditor and our executive compensation program. One area of focus for the Board was the vote received on the lobbying activities shareholder proposal in 2016. Although the proposal did not pass, in response to the feedback the Board received through our extensive shareholder outreach effort, the Corporate Governance Committee further strengthened its oversight of the company’s lobbying activities and priorities and amended its Charter to clarify this responsibility.

 

The Board remains committed to serving your interests in 2017 and appreciates your continued engagement and support of our company. I invite you to review this Proxy Statement to learn more about your Board, Pfizer’s strong corporate governance practices and the proposals on this year’s proxy ballot.

 

Sincerely,

 

 

 

Dennis A. Ausiello, M.D.

Lead Independent Director

 
 

 

Notice of 2017 Annual Meeting and Proxy Statement

 

Time and Date

9:00 a.m., Eastern Daylight Time (EDT),
on Thursday, April 27, 2017

 

Place

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

 

Record Date

You can vote your shares if you were a shareholder of record at the close of business on February 28, 2017.

 

Audio Webcast

Available at www.pfizer.com, starting at 9:00 a.m., EDT, on Thursday, April 27, 2017. A replay will be available through the first week of May 2017.

 

ITEMS OF BUSINESS

 

•   To elect 12 members of the Board of Directors, each until our next Annual Meeting and until his or her successor has been duly elected and qualified.

•   To ratify the selection of KPMG LLP as our independent registered public accounting firm for the 2017 fiscal year.

•   To conduct an advisory vote to approve our executive compensation.

•   To conduct an advisory vote on the frequency of future advisory votes on executive compensation.

•   To consider three shareholder proposals, if presented at the Meeting.

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

 

VOTING YOUR SHARES IS QUICK AND EASY—YOU CAN EVEN VOTE USING YOUR SMARTPHONE OR TABLET.

 

HOW TO VOTE  

For registered holders and Pfizer Savings Plan participants:  

(Shares are registered in your name with Pfizer’s transfer agent, Computershare, or held in the Pfizer Savings Plan)

 

For beneficial owners:

(Shares are held in a stock brokerage account or by a bank or other holder of record)

 

  Electronically*   www.investorvote.com/pfe   www.proxyvote.com
  By telephone*   Within the U.S., U.S. territories & Canada
+1-800-652-VOTE (8683) – toll-free

Outside of the U.S., U.S. territories & Canada
+1-781-575-2300 – standard rates apply
  +1-800-454-VOTE (8683) – toll-free
  By mail   Complete, sign and return the proxy card   Complete, sign and return the voting instruction card
* You will need to provide your control number that appears on the right hand side of the enclosed proxy card or voting instruction card.

 

MATERIALS TO REVIEW

 

This booklet contains our Notice of 2017 Annual Meeting and Proxy Statement. Our 2016 Financial Report is included as Appendix A and is followed by certain Corporate and Shareholder Information. None of Appendix A, the Corporate and Shareholder Information, or the accompanying Letter to Shareholders from our Chairman and CEO are a part of our proxy solicitation materials.

 

If you received a Notice of Internet Availability and would like a printed copy of the materials, please follow the instructions provided in your notice. Alternatively, follow the instructions included on how to vote online.

 

This Notice of 2017 Annual Meeting and Proxy Statement and a proxy or voting instruction card are being mailed or made available to shareholders starting on or about March 16, 2017.

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR
THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 27, 2017

 

This Notice of 2017 Annual Meeting and Proxy Statement and the 2016 Financial Report and Corporate and Shareholder
Information are available on our website at www.pfizer.com/annualmeeting. Except as stated otherwise, information on
our website is not considered part of this Proxy Statement.

 

 

Margaret M. Madden

Senior Vice President and Corporate Secretary, Chief Governance Counsel
March 16, 2017

 
 

 

Table of Contents

 

    Proxy Statement Summary 1
    Item 1 — Election of Directors 7
      Criteria for Board Membership 7
       Selection of Candidates 8
      Retirement Policy 8
      Our 2017 Director Nominees 8
      Director Nominees 9
    Governance 16
      Overview 16
      Board Information 16
        Board Leadership Structure 16
        The Board’s Role in Risk Oversight 19
        Board Oversight of Company Strategy 20
        The Board’s Role in Succession Planning 20
        The Board’s Role in Evaluating Its Effectiveness 20
        Board and Committee Information 21
        Corporate Governance Committee Report 25
        Regulatory and Compliance Committee Report 26
      Shareholder Outreach 27
      Corporate Responsibility and Sustainability 29
      Public Policy Engagement and Political Participation 30
      Pfizer Policies on Business Ethics and Conduct 31
      Other Governance Practices and Policies 32
    Non-Employee Director Compensation 34
      2016 Director Compensation Table 36
    Securities Ownership 37
      Beneficial Owners 38
      Section 16(a) Beneficial Ownership Reporting Compliance 38
    Related Person Transactions and Indemnification 39
    Item 2 — Ratification of Selection of Independent Registered Public Accounting Firm 40
      Audit and Non-Audit Fees 41
    Audit Committee Report 42
    Item 3 — 2017 Advisory Approval of Executive Compensation 43
      Results of 2016 Advisory Vote on Executive Compensation 43
      2016 Pay for Performance 43
       2017 Advisory Vote on Executive Compensation 44
    Item 4 — Advisory Vote on Frequency of Future Advisory Votes on Executive Compensation 45
    Compensation Committee Report 46
    Executive Compensation 47
      Compensation Discussion and Analysis 48
        Table of Contents 48
      Executive Summary 49
      Compensation Tables 82
      Financial Measures 98
    Shareholder Proposals 99
      Item 5 — The Holy Land Principles 99
      Item 6 — Special Shareowner Meetings 101
      Item 7 — Independent Chair Policy 103
    Annual Meeting Information 106
      Voting 107
      Proxy Materials 109
      Other Questions 110
      Other Business 111
      Submitting Proxy Proposals and Director Nominations for the 2018 Annual Meeting 111
    Annex 1 — Corporate Governance Principles i


 
 

 

Proxy Statement Summary

 

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

 

SUMMARY OF SHAREHOLDER VOTING MATTERS

 

  Voting Matter   Board Vote
Recommendation
  See Page  
  Item 1 — Election of Directors   FOR EACH NOMINEE   7  
  Item 2 — Ratification of Selection of Independent Registered Public Accounting Firm   FOR   40  
  Item 3 — 2017 Advisory Approval of Executive Compensation   FOR   43  
  Item 4 — Advisory Vote on Frequency of Future Advisory Votes on Executive Compensation   1 YEAR   45  
  Shareholder Proposals          
  Item 5 — The Holy Land Principles   AGAINST   99  
  Item 6 — Special Shareowner Meetings   AGAINST   101  
  Item 7 — Independent Chair Policy   AGAINST   103  
             

 

Our Director Nominees

 

You are being asked to vote on the election of the following 12 Directors. All Directors are elected annually by the affirmative vote of a majority of votes cast. For detailed information about each Director’s background, skill sets and areas of expertise please see Director Nomineeslater in this Proxy Statement.

 

               Committee Memberships   
Name  Age*  Director
Since
  Occupation and Experience  Independent  Audit  Compensation  Corporate Governance  Regulatory & Compliance  Science & Technology  Other
Public
Boards
Dennis A. Ausiello, M.D. Lead Independent Director  71  2006  Director, Center for Assessment Technology & Continuous Health, Physician-in-Chief, Emeritus, Massachusetts General Hospital & Jackson Distinguished Professor, Harvard Medical School  Yes              l  2
Ronald E. Blaylock  57  2017  Founder, Managing Partner of GenNx360 Capital Partners  Yes        l     l  3
W. Don Cornwell  69  1997  Retired Chairman & Chief Executive Officer, Granite Broadcasting Corporation  Yes  l  l     l  l  2
Joseph J. Echevarria  60  2015  Retired Chief Executive Officer, Deloitte LLP  Yes  l     l     l  3
Frances D. Fergusson, Ph.D.  72  2009  President Emeritus, Vassar College  Yes        l  CHAIR  l  1
Helen H. Hobbs, M.D.  64  2011  Investigator, Howard Hughes Medical Institute & Professor, University of Texas Southwestern Medical Center  Yes        l  l  CHAIR 
James M. Kilts  69  2007  Founding Partner, Centerview Capital  Yes     l        l  4
Shantanu Narayen  53  2013  Chairman, President & Chief Executive Officer, Adobe Systems Incorporated  Yes     l     l  l  1
Suzanne Nora Johnson  59  2007  Retired Vice Chairman, Goldman Sachs Group, Inc.  Yes  CHAIR        l  l  3
Ian C. Read
Chairman
  63  2010  Chairman & Chief Executive Officer, Pfizer Inc.  No                 1
Stephen W. Sanger  71  2009  Retired Chairman & Chief Executive Officer, General Mills, Inc.  Yes  l     CHAIR     l  1
James C. Smith  57  2014  President & Chief Executive Officer, Thomson Reuters Corporation  Yes  l  CHAIR        l  1

 

* As of the date of the 2017 Annual Meeting.

 

Pfizer 2017 Proxy Statement

1

 
PROXY STATEMENT SUMMARY

 

BOARD AND COMMITTEE REFRESHMENT

 

In June 2016, we made several changes to the composition of the Board Committees, including the election of:
  Ms. Suzanne Nora Johnson as the new Chair of the Audit Committee;
  Mr. James C. Smith as the new Chair of the Compensation Committee; and
  Dr. Helen H. Hobbs as the new Chair of the Science and Technology Committee.
In February 2017, as part of our ongoing commitment to proactive Board refreshment, Ronald E. Blaylock was elected to the Board and as a member of the Corporate Governance and Science and Technology Committees. Among other qualifications, Mr. Blaylock brings financial expertise, as well as risk management and business leadership skills to the Board.

 

Board Composition

 

Our goal is to maintain a diverse Board representing a wide range of experience and perspectives. Below we highlight the composition of our Director nominees.

 

 

2

Pfizer 2017 Proxy Statement
 
PROXY STATEMENT SUMMARY

 

Corporate Governance Highlights

 

Pfizer is committed to exercising and maintaining strong corporate governance practices. We believe that good governance promotes the long-term interests of our shareholders, strengthens Board and management accountability and improves our standing as a trusted member of society.

 

 

Pfizer 2017 Proxy Statement

3

 
PROXY STATEMENT SUMMARY

 

2016 SHAREHOLDER OUTREACH

 

We believe that a robust shareholder outreach program is an essential component of maintaining our strong corporate governance practices. In our discussions with investors, we seek their input on a variety of corporate governance topics and other issues that may impact our business or reputation. We strive for a collaborative approach with investors to solicit and understand a variety of perspectives. During 2016, we engaged with over 30 global institutional investors representing nearly 30% of our outstanding shares. Investors’ sentiment was generally positive with respect to our leadership, our corporate governance practices, the structure of our executive compensation plan and other issues specific to our industry. This information was summarized and shared with the Board of Directors.

 

In 2016, as a result of investor feedback on the company’s lobbying activities and Pfizer’s commitment to corporate governance excellence, the Corporate Governance Committee further strengthened its oversight of the company’s lobbying activities and amended the Committee’s Charter to clarify this responsibility. As a result, the Corporate Governance Committee maintains an informed status on the company’s lobbying priorities and activities through semi-annual reports from management.

 

For more information about our 2016 shareholder engagement program and the actions we took in response to shareholder feedback, see Governance – Shareholder Outreachand Corporate Governance Committee Reportlater in this Proxy Statement.

 

Executive Compensation Highlights

 

Pfizer’s pay-for-performance compensation philosophy is set by the Compensation Committee of the Board. Our goal is to align each executive’s compensation with Pfizer’s short-term and long-term performance and provide the compensation and incentives needed to attract, motivate and retain key executives crucial to Pfizer’s long-term success.

 

   

 

To achieve these objectives:

 

   We position total direct compensation and each compensation element at approximately the median of our pharmaceutical peer and general industry comparator companies.

•   We align annual short-term incentive awards with annual operating, financial and strategic objectives.

•   We align long-term incentive awards with the interests of our shareholders by delivering value based on operating results and absolute and relative shareholder return, encouraging stock ownership and promoting retention of key talent.

•   A significant portion of the total compensation opportunity for our executives is directly related to Pfizer’s total shareholder return (TSR) and our progress against the performance goals of our strategic and operating plans, as well as our performance against that of our peers.

 

 

Our Compensation Practices

 

Pfizer continues to implement and maintain leading practices in its compensation program, including:

 

Risk Mitigation   No Hedging or Pledging
Compensation Recovery (“Clawbacks”)   No “Gross-ups” for Perquisites
Stock Ownership Requirements   No Repricing
Minimum Vesting Required   No Employment Agreements
Robust Investor Outreach      
Independent Compensation Consultant      

 

4

Pfizer 2017 Proxy Statement
 
PROXY STATEMENT SUMMARY

 

2016 KEY ELEMENTS OF EXECUTIVE COMPENSATION

 

Direct compensation for our executives in 2016 consisted of the following key elements:

 

Element   Type/Description   Objective
Salary (Cash)   The fixed amount of compensation for performing day-to-day responsibilities is set based on market data, job scope and responsibilities and experience   Provides competitive level of fixed compensation
Annual Short-
Term Incentive
Compensation/
Global
Performance
Plan (GPP)
(Cash)
  Our annual incentive plan pool is funded based on performance against Pfizer’s short-term financial goals (revenue, adjusted diluted earnings per share (EPS) and cash flow from operations). Individual awards are based on business unit and individual performance measured over the current year   Provides short-term incentives tied to corporate performance against three operational metrics and links individual awards to both company and individual performance based on achievement of financial and strategic goals
         
     
         
Long-Term
Incentive
Compensation
(100% Performance
Based Equity)
  5-Year Total Shareholder Return Units (TSRUs)  

TSRUs provide direct alignment with shareholders as awards are tied to absolute total shareholder return over a five- or seven-year period

 

PSAs align executive compensation to operational goals through performance against a combination of operating income* over three one-year periods and TSR relative to the NYSE ARCA Pharmaceutical Index (DRG Index) over a three-year performance period

 

  7-Year Total Shareholder Return Units (TSRUs)  
  Performance Share Awards (PSAs)  
     
           
* Operating income as the PSA performance measure is based on Pfizer’s Non-GAAP Adjusted Operating Income stated at budgeted foreign exchange rates and is further refined to exclude other unbudgeted or non-recurring items.

 

2016 Named Executive Officer (NEO) Pay Mix

 

The illustration below uses year-end salary and target annual incentive and long-term awards for the active NEOs.

 

CEO - 2016 Target Direct Compensation   Other Active NEOs - 2016 Target Direct Compensation (Average)
     
 

 

Pfizer 2017 Proxy Statement

5

 
PROXY STATEMENT SUMMARY

 

2016 NEO PERFORMANCE-YEAR TOTAL DIRECT COMPENSATION (TDC)

 

The Compensation Committee evaluates pay and performance using TDC on a performance year basis for our NEOs rather than using the values shown in the 2016 Summary Compensation Table (SCT). The Committee believes its approach better reflects pay for performance during 2016. The table below provides 2016 performance-year TDC, which is comprised of year-end base salary, 2016 performance year annual incentive awards paid in 2017, and 2017 long-term equity incentive award values, which include the full value of the PSA approved by the Compensation Committee. For additional information, see Compensation Discussion and Analysis—2016 NEO Total Direct Compensation (TDC)later in this Proxy Statement.

 

NEO* Performance-Year Total Direct Compensation

 

Name  Year  Year-End
Salary
(A) ($)
  Annual Incentive
Award (paid in
2017)
(B) ($)
  Equity Award(1)
(granted in
February 2017)
(C) ($)
  Total Direct
Compensation(2)
(D=A+B+C) ($)
I. Read  2016  1,917,000  4,000,000  13,000,000  18,917,000
F. D’Amelio  2016  1,332,000  1,740,000  3,600,000  6,672,000
A. Bourla  2016  1,140,000  1,788,000  3,600,000  6,528,000
M. Dolsten  2016  1,245,000  1,740,000  3,600,000  6,585,000
J. Young  2016  1,140,000  1,788,000  3,600,000  6,528,000
(1)  The amounts represent the entire 2017 long-term incentive grant value, which includes the full PSA grant value. Consistent with historical practice, long-term incentive values are converted into units using the closing stock price/value on the first trading day of the week of grant and the accounting value is calculated based on the converted units valued using the closing stock price/value on the grant date, so these values usually differ (subject to rounding).
(2) The SCT total compensation includes equity awards valued on an accounting basis which reflects one-third of the PSA grant for each year of the performance term, change in pension benefits and the amounts included under All Other Compensation and, as such, will differ significantly from the 2016 performance year TDC amounts shown in column D.
* The table excludes former executive, Geno J. Germano, who ceased being an executive officer and serving as Group President, Global Innovative Pharma Business, effective February 8, 2016. For additional information, see Compensation Discussion and Analysis—Separation of Former NEOlater in this Proxy Statement.

 

 

It is important to note that the performance year compensation information in the table above for Mr. Read and the other NEOs is a tool the Compensation Committee uses to assess compensation and is not intended as a substitute for amounts reflected in the SCT. No guarantee exists that the NEOs will actually receive the full value of the total direct compensation noted above. The actual payout attributable to long-term incentive awards will be based on future performance, stock price and dividends.

 

For additional information about Pfizer, please view our 2016 Financial Report (see “Appendix A”) and our 2016 Annual Review at www.pfizer.com/annual. Please note that neither our 2016 Financial Report, nor our 2016 Annual Review is a part of our proxy solicitation materials.

 

6

Pfizer 2017 Proxy Statement
 
 

 

Item 1 – Election of Directors

 

Twelve members of our Board are standing for re-election, to hold office until the next Annual Meeting of Shareholders. A majority of the votes cast is required for the election of Directors in an uncontested election (which is the case for the election of Directors at the 2017 Annual Meeting). A majority of the votes cast means that the number of votes cast “for” a Director nominee must exceed the number of votes cast “against” that nominee. Our Corporate Governance Principles contain detailed procedures to be followed in the event that one or more Directors do not receive a majority of the votes cast “for” his or her election at the Annual Meeting.

 

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

 

We expect each nominee for election as a Director to be able to serve if elected. If any nominee is not able to serve, the persons appointed by the Board of Directors and named as proxies in the proxy materials or, if applicable, their substitutes (the Proxy Committee) may vote their proxies for substitute nominees, unless the Board chooses to reduce the number of Directors serving on the Board.

 

The Board has determined that all Director nominees (other than Mr. Ian C. Read) are independent of the company and management and meet Pfizer’s criteria for independence (see Director Independencebelow).

 

Criteria for Board Membership

 

The Corporate Governance Committee focuses on Board succession planning on a continuous basis. In performing this function, the Committee recruits and recommends the nominees for election as Directors to the full Board of Directors. The goal is to achieve a Board that provides effective oversight of the company through the appropriate balance of diversity of perspectives, experience, expertise, skills, specialized knowledge and other qualifications and attributes of the individual Directors.

 

Important general criteria and considerations for Board membership include:

 

 

 

General Criteria

 

•  Proven integrity and independence, with a record of substantial achievement in an area of relevance to Pfizer.

•  Generally should have prior or current leadership experience with major complex organizations, including within the scientific, government service, educational, finance, marketing, technology or not-for-profit sectors, with some members of the Board being widely recognized as leaders in the fields of medicine or biological sciences.

•  Commitment to enhancing Pfizer’s long-term growth.

•  Demonstrated ability, with broad experience, diverse perspectives, and the ability to exercise sound judgment, and should possess a judicious and critical temperament that will enable objective appraisal of management’s plans and programs.

•  Diversity with respect to gender, ethnicity, background and professional experience.

 

 

The Committee also considers, on an ongoing basis, the background, experience and skills of the incumbent Directors that are important to Pfizer’s current and future business needs, including, among others, experience and skills in the following areas:

 

  Director Skills Criteria    
             
 

 Business Leadership & Operations  Finance & Accounting  Government & Public Policy
   Medicine & Science  International Business  Academia
   Healthcare & Pharma  Risk Management    Technology
   Talent Management        

 

Pfizer 2017 Proxy Statement

7

 
ITEM 1 – ELECTION OF DIRECTORS

 

The Board and each Committee conduct annual rigorous self-evaluations to help ensure satisfaction of the criteria for Board membership (see “The Board’s Role in Evaluating Its Effectiveness” below). Based on these activities and their review of the current composition of the Board, the Corporate Governance Committee and the Board believe that the criteria for Board membership have been satisfied.

 

Selection of Candidates

 

In recruiting and selecting Board candidates, the Corporate Governance Committee takes into account the size of the Board and considers a “skills matrix.” This skills matrix helps the Committee determine whether a particular Board member or candidate possesses one or more of the “skill sets,” as well as whether those skills and/or other attributes qualify him or her for service on a particular committee. The Committee also considers a wide range of additional factors, including each Director’s and candidate’s projected retirement date, to assist in Board succession planning; other positions the Director or candidate holds, including other boards of directors on which he or she serves; and the independence of each Director and candidate, to ensure that a substantial majority of the Board is independent. While the company does not have a formal policy on Board diversity, we believe the composition of the Board should be diverse in terms of gender, ethnicity, background, professional experience and perspectives.

 

Potential Director Candidates

 

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

 

Shareholders who wish to recommend candidates may contact the Corporate Governance Committee as described in “How to Communicate with Our Directors.” All candidates are required to meet the criteria outlined above, as well as those discussed under Director Independencebelow and in our Corporate Governance Principles and other governing documents, as applicable, as determined by the Corporate Governance Committee. Shareholder nominations must be made according to the procedures required under our By-laws (including via our proxy access by-law) and described in this Proxy Statement under the heading “Submitting Proxy Proposals and Director Nominations for the 2018 Annual Meeting.” Shareholder-recommended candidates and shareholder nominees whose nominations comply with these procedures and who meet the criteria referred to above will be evaluated by the Corporate Governance Committee in the same manner as the Corporate Governance Committee’s nominees.

 

Retirement Policy

 

Under Pfizer’s Corporate Governance Principles, a Director is required to retire when he or she reaches age 73. A Director elected to the Board prior to his or her 73rd birthday may continue to serve until the annual shareholders meeting coincident with or next following his or her 73rd birthday. On the recommendation of the Corporate Governance Committee, the Board may waive this requirement as to any Director if it deems a waiver to be in the best interests of the company.

 

Our 2017 Director Nominees

 

The Corporate Governance Committee and the Board believe that each nominee for Director brings a strong and unique set of perspectives, experiences and skills to Pfizer. The combination of these nominees creates an effective and well-functioning Board that has an optimal balance of experience, leadership, competencies, qualifications and skills in areas of importance to Pfizer and serves the company and our shareholders well.

 

YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE ELECTION OF EACH OF THESE NOMINEES AS DIRECTOR.


 

8

Pfizer 2017 Proxy Statement
 
ITEM 1 – ELECTION OF DIRECTORS

 

Director Nominees

 

 

Lead Independent Director

 

DIRECTOR SINCE: 2006

 

AGE: 71

 

BOARD COMMITTEES:
Science and Technology

 

KEY SKILLS:

 

  Medicine & Science
  Healthcare & Pharma
  Academia
 Business Leadership &  Operations

 

OTHER CURRENT PUBLIC BOARDS:

Alnylam Pharmaceuticals, Inc.
and Seres Therapeutics, Inc.

 

Dennis A. Ausiello, M.D.

Director, Center for Assessment Technology and Continuous Health (CATCH). Physician-in-Chief, Emeritus at Massachusetts General Hospital and Chief of Medicine at Massachusetts General Hospital from 1996 until April 2013. Jackson Distinguished Professor of Clinical Medicine at Harvard Medical School.

 

President of the Association of American Physicians in 2006. Member of the National Academy of Medicine and a Fellow of the American Academy of Arts and Sciences. Director of Alnylam Pharmaceuticals, Inc., Seres Therapeutics, Inc. and TARIS BioMedical LLC.

KEY SKILLS & EXPERIENCE:

 

Medicine & Science/Healthcare & Pharma/Academia:

Dr. Ausiello’s experience and training as a practicing physician (Board-certified in nephrology), a scientist and a nationally recognized leader in academic medicine enable him to bring valuable insights to the Board, including through his understanding of the scientific nature of our business and the ability to assist us in prioritizing opportunities for drug development.

 

Business Leadership & Operations:

Dr. Ausiello oversaw a large research portfolio and an extensive research and education budget at Massachusetts General Hospital, giving him a critical perspective on drug discovery and development and providing a fundamental understanding of the potential pathways contributing to disease. Through his past experience as the Chief of Medicine at Massachusetts General Hospital, Dr. Ausiello also brings leadership, oversight and finance experience to the Board.

     

 

 

DIRECTOR SINCE: 2017

 

AGE: 57

 

BOARD COMMITTEES:
Corporate Governance and Science and Technology

 

KEY SKILLS:

 

Business Leadership &  Operations
  Risk Management
  Finance & Accounting

 

OTHER CURRENT PUBLIC BOARDS:

CarMax, Inc., Radio One, Inc.
and W.R. Berkley, Inc.

 

Ronald E. Blaylock

Founder, Managing Partner of GenNx360 Capital Partners, a private equity firm focused on investing in industrial and business services companies in the U.S. middle market, since 2006. Prior to launching GenNx360 Capital Partners, Mr. Blaylock founded and managed Blaylock & Company, an investment banking firm. Also held senior management positions at UBS, PaineWebber Group and Citicorp.

 

Director of CarMax, Inc., Radio One, Inc. and W.R. Berkley, Inc., an insurance holding company. Director of Syncreon U.S., a for-profit private company. Member of the Board of Trustees of Carnegie Hall. Member of the Board of Overseers of New York University Stern School of Business. Member of the Board of Trustees of Prep for Prep, a not-for-profit organization.

KEY SKILLS & EXPERIENCE:

 

Business Leadership & Operations/Risk Management:

Mr. Blaylock’s extensive experience in private equity and investment banking brings business leadership, financial expertise and risk management skills to the Board. In addition, Mr. Blaylock’s service on the nominating and corporate governance committee of another public company enables him to bring valuable insights to Pfizer’s Board and Corporate Governance Committee.

 

Finance & Accounting:

Mr. Blaylock’s significant financial background, including as the founder and managing partner of GenNx360 Capital Partners and the founder of Blaylock & Company, brings substantial financial expertise and a unique perspective on issues of importance relating to finance to the Board.

     
Pfizer 2017 Proxy Statement

9

 
ITEM 1 – ELECTION OF DIRECTORS

 

 

 

DIRECTOR SINCE: 1997

 

AGE: 69

 

BOARD COMMITTEES:
Audit, Compensation, Regulatory and Compliance and Science and Technology

 

KEY SKILLS:

 

Business Leadership &  Operations
  Talent Management
  Risk Management
  Finance & Accounting

 

OTHER CURRENT PUBLIC BOARDS:

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

 

W. Don Cornwell

Chairman of the Board and Chief Executive Officer of Granite Broadcasting Corporation (Granite) from 1988 until his retirement in August 2009, and served as Vice Chairman of the Board until December 2009.

 

Director of American International Group, Inc. and Avon Products, Inc. Director of the Edna McConnell Clark Foundation. Director of the Wallace Foundation from 2002 until 2012 and previously served as a Director of CVS Caremark (including two years as Chair of its Compensation Committee) for over 10 years. Trustee of Big Brothers Big Sisters of New York City.

KEY SKILLS & EXPERIENCE:

 

Business Leadership & Operations/Talent Management/Risk Management:

Through Mr. Cornwell’s 38-year career as an entrepreneur driving the growth of a consumer-focused media company, an executive in the investment banking industry and a director of several significant consumer product and healthcare companies, he has valuable business, leadership and management experience and brings important perspectives on the issues facing Pfizer. Mr. Cornwell founded and built Granite, a consumer-focused media company, through acquisitions and operating growth, enabling him to provide insight and guidance on strategic direction and growth.

 

Finance & Accounting:

Mr. Cornwell’s strong financial background, including his work at Goldman Sachs prior to co-founding Granite and his service and leadership on the audit, finance and investment committees of other companies, also provides financial expertise to the Board, including an understanding of financial statements, corporate finance, accounting and capital markets.

     

 

 

DIRECTOR SINCE: 2015

 

AGE: 60

 

BOARD COMMITTEES:
Audit, Corporate Governance and Science and Technology

 

KEY SKILLS:

 

Business Leadership &  Operations
  International Business
  Risk Management
  Finance & Accounting
  Government & Public Policy

 

OTHER CURRENT PUBLIC BOARDS:

The Bank of New York Mellon Corporation, Unum Group and Xerox Corporation

 

Joseph J. Echevarria

Chief Executive Officer of Deloitte LLP (Deloitte), a global provider of professional services, from 2011 until his retirement in 2014. During his 36-year tenure with Deloitte, served in various leadership roles, including Deputy Managing Partner, Southeast Region Audit Managing Partner and U.S. Managing Partner and Chief Operating Officer.

 

Director of The Bank of New York Mellon Corporation, Unum Group, a provider of financial protection benefits, and Xerox Corporation. Member of the President’s Export Council and former member of the Presidential Commission on Election Administration. Chair Emeritus of My Brother’s Keeper Alliance. Member of the Board of Trustees of the University of Miami.

KEY SKILLS & EXPERIENCE:

 

Business Leadership & Operations/International Business/Risk Management:

Mr. Echevarria’s 36-year career at Deloitte brings financial expertise and international business, leadership and risk management skills to the Board.

 

Finance & Accounting:

Mr. Echevarria’s financial acumen, including his significant previous audit experience, expertise in accounting issues and service on the audit committee of another public company, is an asset to Pfizer’s Board and Audit Committee.

 

Government & Public Policy:

Pfizer also benefits from Mr. Echevarria’s breadth and diversity of experience, which includes his public service on the President’s Export Council.

     

10

Pfizer 2017 Proxy Statement
 
ITEM 1 – ELECTION OF DIRECTORS

 

 

DIRECTOR SINCE: 2009

 

AGE: 72

 

BOARD COMMITTEES:
Corporate Governance, Regulatory and Compliance (Chair) and Science and Technology

 

KEY SKILLS:

 

Business Leadership &  Operations
  Academia
  Healthcare & Pharma
  Risk Management

 

OTHER CURRENT PUBLIC BOARDS:

Mattel, Inc.

 

Frances D. Fergusson, Ph.D.

President Emeritus of Vassar College since 2006 and President from 1986 to 2006. Served on the Mayo Clinic Board for 14 years, the last four years as its Chairman, and as President of the Board of Overseers of Harvard University from 2007 through 2008.

 

Director of Wyeth from 2005 until 2009. Director of Mattel, Inc. A Trustee of the J. Paul Getty Trust (executive committee), Director of the Second Stage Theatre, and Vice Chair of the Board of The John and Mable Ringling Museum of Art Foundation, Inc.

KEY SKILLS & EXPERIENCE:

 

Business Leadership & Operations/Academia:

Dr. Fergusson has strong leadership skills, having served as President of Vassar College for 20 years, where she developed a long-term financial plan and strengthened the College’s financial position. She has also headed strategic planning projects at Vassar College and other organizations.

 

Healthcare & Pharma:

Dr. Fergusson’s service on the boards of not-for-profit organizations, including the Mayo Clinic (which she chaired from 1998 to 2002), enables her to bring to the Board experience and knowledge of healthcare from various perspectives.

 

Risk Management:

Through Dr. Fergusson’s service as the Chair of our Regulatory and Compliance Committee, she has a strong understanding of and insight into healthcare risk management related areas.

     

 

 

DIRECTOR SINCE: 2011

 

AGE: 64

 

BOARD COMMITTEES:
Corporate Governance, Regulatory and Compliance and Science and Technology (Chair)

 

KEY SKILLS:

 

  Academia
  Medicine & Science
  Healthcare & Pharma

 

OTHER CURRENT PUBLIC BOARDS:

None

 

Helen H. Hobbs, M.D.

Investigator, the Howard Hughes Medical Institute since 2002, Professor of Internal Medicine and Molecular Genetics and Director of the McDermott Center for Human Growth and Development at the University of Texas Southwestern Medical Center.

 

Member of the American Society for Clinical Investigation and the Association of American Physicians. Elected to the National Academy of Medicine in 2004, the American Academy of Arts and Sciences in 2006, and the National Academy of Sciences in 2007. Received both the Clinical Research Prize (2005) and Distinguished Scientist Award (2007) from the American Heart Association. In 2012, received the inaugural International Society of Atherosclerosis Prize and in 2015, received both the Pearl Meister Greengard Award and the Breakthrough Prize in Life Sciences. In 2016, received the Passano Award and the Gill Award.

KEY SKILLS & EXPERIENCE:

 

Academia/Medicine & Science/Healthcare & Pharma:

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

     
Pfizer 2017 Proxy Statement

11

 
ITEM 1 – ELECTION OF DIRECTORS

 

 

DIRECTOR SINCE: 2007

 

AGE: 69

 

BOARD COMMITTEES:
Compensation and Science and Technology

 

KEY SKILLS:

 

Business Leadership &  Operations
  International Business
  Healthcare & Pharma

 

OTHER CURRENT PUBLIC BOARDS:

Conyers Park Acquisition Corporation, MetLife, Inc., Nielsen Holdings PLC and Unifi, Inc.

 

James M. Kilts

Founding Partner, Centerview Capital, a private equity firm, since 2006. Vice Chairman, The Procter & Gamble Company (Procter & Gamble), from 2005 to 2006. Chairman and Chief Executive Officer, The Gillette Company (Gillette), from 2001 to 2005 and President, Gillette, from 2003 to 2005. President and Chief Executive Officer, Nabisco Group Holdings Corporation (Nabisco), from 1998 until its acquisition in 2000.

 

Non-Executive Director of the Board of Nielsen Holdings PLC (Nielsen Holdings), Chairman of the Board of Nielsen Holdings (from January 2011 until December 2013) and Chairman of the Nielsen Company B.V. (from 2009 until 2014). Executive Chairman of the Board of Conyers Park Acquisition Corporation (a special purpose acquisition company and an affiliate of Centerview Capital). Director of MetLife, Inc. and Unifi, Inc. (a textile manufacturing company). Chairman of Big Heart Pet Brands until March 2015 and Director of Meadwestvaco Corporation until April 2014. Life Trustee of Knox College and Trustee of the University of Chicago, a member of the Board of Overseers of Weill Cornell Medicine, and Founder and Co-Chair, Steering Committee, of the Kilts Center for Marketing at the University of Chicago Booth School of Business.

KEY SKILLS & EXPERIENCE:

 

Business Leadership & Operations/ International Business:

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

 

Healthcare & Pharma:

Through his service on the board of MetLife, Inc., an insurance company, Mr. Kilts offers a view of healthcare from another perspective.

12

Pfizer 2017 Proxy Statement
 
ITEM 1 – ELECTION OF DIRECTORS

 

 

DIRECTOR SINCE: 2013

 

AGE: 53

 

BOARD COMMITTEES:

Compensation, Regulatory and Compliance and Science and Technology

 

KEY SKILLS:

 

Business Leadership & Operations
  International Business
  Finance & Accounting
  Talent Management
  Technology
  Risk Management

 

OTHER CURRENT PUBLIC BOARDS:

Adobe Systems Incorporated

 

Shantanu Narayen

President and Chief Executive Officer and Director (Chairman since February 2017) of Adobe Systems Incorporated (Adobe), a producer of creative and digital marketing software. Prior to his appointment as CEO in December 2007, held various leadership roles at Adobe, including President and Chief Operating Officer, Executive Vice President of Worldwide Products, and Senior Vice President of Worldwide Product Development.

 

Director of Dell Inc. from 2009 until October 2013 and Director of Metavante Technologies Inc. from 2007 until 2009. President of the Board of Adobe Foundation, which funds philanthropic initiatives around the world.

KEY SKILLS & EXPERIENCE:

 

Business Leadership & Operations/International Business/Finance & Accounting/Talent Management:

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

 

Technology/Risk Management:

Mr. Narayen also brings a strong technology background and risk management skills to Pfizer’s Board, as well as a diversity of experience that benefits Pfizer.

     

 

DIRECTOR SINCE: 2007

 

AGE: 59

 

BOARD COMMITTEES:

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

 

KEY SKILLS:

 

Business Leadership & Operations
  Risk Management
  International Business
  Finance & Accounting
  Healthcare & Pharma

 

OTHER CURRENT PUBLIC BOARDS:

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

 

Suzanne Nora Johnson

Retired Vice Chairman, Goldman Sachs Group, Inc. (Goldman Sachs), since 2007. During her 21-year tenure with Goldman Sachs, served in various leadership roles, including Chair of the Global Markets Institute, Head of Global Research, and Head of Global Health Care.

 

Director of American International Group, Inc., Intuit Inc. and Visa Inc. Vice Chair, Board of Trustees of The Brookings Institution; Co-Chair of the Board of Trustees of the Carnegie Institution of Washington; Co-Chair of the Board of Trustees of the University of Southern California; and member of the Global Agenda Council on the Future of Financial and Monetary Systems for the World Economic Forum.

KEY SKILLS & EXPERIENCE:

 

Business Leadership & Operations/Risk Management/International Business:

Ms. Nora Johnson’s careers in law and investment banking, including serving in various leadership roles at Goldman Sachs, provide valuable business experience and critical insights on the roles of the law, finance and strategic transactions to our business.

 

Finance & Accounting: Ms. Nora Johnson also brings financial expertise to the Board, providing an understanding of financial statements, corporate finance, accounting and capital markets.

 

Healthcare & Pharma: Ms. Nora Johnson’s extensive knowledge of healthcare through her role in healthcare investment banking and her involvement with not-for-profit organizations, such as in scientific research (The Carnegie Institution) and healthcare policy (RAND Corporation and The Brookings Institution) provides touchstones of public opinion and exposure to diverse, global points of view.

     
Pfizer 2017 Proxy Statement

13

 
ITEM 1 – ELECTION OF DIRECTORS

 

 

Chairman and Chief Executive Officer

 

DIRECTOR SINCE: 2010

 

AGE: 63

 

KEY SKILLS:

 

Business Leadership & Operations
  International Business
  Healthcare & Pharma
  Finance & Accounting
  Government & Public Policy
  Talent Management
  Risk Management

 

OTHER CURRENT PUBLIC BOARDS:

Kimberly-Clark Corporation

 

Ian C. Read

Chairman of the Board and Chief Executive Officer of Pfizer since December 2011. President and Chief Executive Officer from December 2010. Previously, he served as Senior Vice President and Group President of the Worldwide Biopharmaceutical Businesses, which he led from 2006 through December 2010. In that role, he oversaw five global business units—Primary Care, Specialty Care, Oncology, Established Products and Emerging Markets. Mr. Read began his career with Pfizer in 1978 as an operational auditor. He worked in Latin America through 1995, holding positions including Chief Financial Officer, Pfizer Mexico, and Country Manager, Pfizer Brazil. In 1996, he was appointed President of Pfizer’s International Pharmaceuticals Group, with responsibility for Latin America and Canada. He became Executive Vice President, Europe, in 2000, was named a Corporate Vice President in 2001, and assumed responsibility for Canada, in addition to Europe, in 2002. Mr. Read later became accountable for operations in both the Africa/Middle East region and Latin America as well.

 

Director of Kimberly-Clark Corporation. Mr. Read also serves on the Boards of Pharmaceutical Research and Manufacturers of America (PhRMA), International Federation of Pharmaceutical Manufacturers & Associations (IFPMA) and the Partnership of New York City.

KEY SKILLS & EXPERIENCE:

 

Business Leadership & Operations/ International Business/Healthcare & Pharma/Finance & Accounting/Government & Public Policy/Talent Management/Risk Management: Mr. Read brings over 35 years of business, operating and leadership experience to the Board. His extensive knowledge of the biopharmaceutical industry in general, including his service on PhRMA and IFPMA, and Pfizer’s worldwide biopharmaceutical business in particular, provides crucial insight to our Board on the company’s strategic planning and operations. Mr. Read provides an essential link between management and the Board on management’s business perspectives, and the combination of his knowledge of the business and his leadership skills make his role as Chairman and CEO optimal at this time. Further, his experience as a member of another public company board provides him with an enhanced perspective on issues applicable to public companies.

     

14

Pfizer 2017 Proxy Statement
 
ITEM 1 – ELECTION OF DIRECTORS

 

 

DIRECTOR SINCE: 2009

 

AGE: 71

 

BOARD COMMITTEES:

Audit, Corporate Governance (Chair) and Science and Technology

 

KEY SKILLS:

 

Business Leadership & Operations
  Talent Management
  Finance & Accounting
  Risk Management

 

OTHER CURRENT PUBLIC BOARDS:

Wells Fargo & Company

 

Stephen W. Sanger

Chairman of General Mills, Inc. (General Mills), a packaged food producer and distributor, from 1995 until his retirement in 2008 and its Chief Executive Officer from 1995 to 2007.

 

Former Chairman of the Grocery Manufacturers of America. Recipient of the Woodrow Wilson Award for Public Service in 2009. Chaired the Fiscal Policy Committee of the Business Roundtable and served as a director of Catalyst. Director of Wells Fargo & Company (Chairman since October 2016). Director of Target Corporation from 1996 until 2013.

KEY SKILLS & EXPERIENCE:

 

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

     

 

DIRECTOR SINCE: 2014

 

AGE: 57

 

BOARD COMMITTEES:

Audit, Compensation (Chair) and Science and Technology

 

KEY SKILLS:

 

Business Leadership & Operations
  Finance & Accounting
  Talent Management
  International Business

 

OTHER CURRENT PUBLIC BOARDS:

Thomson Reuters Corporation

 

James C. Smith

President and Chief Executive Officer and Director of Thomson Reuters Corporation, a provider of intelligent information for businesses and professionals, since January 2012 and its Chief Operating Officer from September 2011 to December 2011 and Chief Executive Officer, Thomson Reuters Professional Division, from 2008 to 2011. Prior to the acquisition of Reuters Group PLC by The Thomson Corporation (Thomson) in 2008, served as Chief Operating Officer of Thomson and as President and Chief Executive Officer of Thomson Learning’s Academic and Reference Group.

 

Member of the International Business Council of the World Economic Forum, the International Advisory Boards of British American Business and the Atlantic Council.

KEY SKILLS & EXPERIENCE:

 

Business Leadership & Operations/Finance & Accounting/Talent Management/International Business:

Mr. Smith’s experience as President and CEO of Thomson Reuters Corporation brings valuable leadership, finance and management skills. Pfizer benefits from Mr. Smith’s organizational expertise and leadership experience, honed during the merger and subsequent integration of two of the information industry’s preeminent firms, as well as his strong operational and international expertise from his experience as Chief Operating Officer.

     
Pfizer 2017 Proxy Statement

15

 
 

 

Governance

 

Overview

 

Pfizer is committed to exercising strong corporate governance practices. We believe that good governance promotes the long-term interests of our shareholders, strengthens Board and management accountability and improves our standing as a trusted member of society. We maintain and enhance our long record of excellence in corporate governance by regularly refining our corporate governance policies and procedures to reflect evolving practices and issues raised by our shareholders and other stakeholders.

 

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

 

Board Information

 

Board Leadership Structure

 

The Board recognizes that one of its key responsibilities is to evaluate and determine its optimal leadership structure to provide independent oversight of senior management and a highly engaged and high-functioning Board. Based on its experience, considerable engagement with shareholders, and an assessment of research on this issue, the Board understands that numerous viewpoints concerning a board’s optimal leadership structure exist.

 

Given the dynamic and competitive environment in which we operate, the Board believes that the right leadership structure may vary as circumstances warrant. Under our By-laws and Corporate Governance Principles, the Board can and will change its leadership structure if it determines that doing so is appropriate and in the best interest of Pfizer and its shareholders at any given time. Consistent with this understanding, the independent Directors do not view any particular Board leadership structure as preferred and consider the Board’s leadership structure on at least an annual basis. This consideration includes the evaluation of alternative leadership structures in light of the company’s current operating and governance environment, a review of empirical data on the topic, and investor feedback, with the goal of achieving the optimal model for Board leadership and effective oversight of senior leaders by the Board.

 

16

Pfizer 2017 Proxy Statement
 
GOVERNANCE BOARD INFORMATION

 

The Board recognizes that in circumstances where the positions of Chairman and CEO are combined, investors believe it is imperative that the Board elect a strong Lead Independent Director with a clearly defined role and responsibilities. Our Corporate Governance Principles aligns with the Board’s goal of achieving the optimal model for Board leadership and investor preferences.

         
    2016 Annual Review of Leadership Structure  
     
  Following thorough reviews by the Corporate Governance Committee, the independent Directors most recently reconsidered the Board’s leadership structure in December 2016 and determined to maintain the current leadership structure, with Mr. Read as Chairman. The independent Directors believe that this unified structure provides Pfizer with strong and consistent leadership.
       
  These determinations were based on the independent Directors’ continued strong belief that Mr. Read:
       
  has extensive experience in and knowledge of the research-based biopharmaceutical industry and regulatory environment;
  continues to demonstrate the leadership and vision necessary to lead the Board and the company in our challenging industry and macroeconomic environments;
  possesses a fundamentally investor-driven viewpoint; and
  exercises leadership that has generated strong operational performance and strengthened colleague engagement in our ownership culture.
       
  Given the regulatory and market environment in which we operate, having one clear leader in both roles, with deep industry expertise and company knowledge, provides decisive and effective leadership internally and externally.
     
  OUR BOARD LEADERSHIP STRUCTURE IS FURTHER STRENGTHENED BY:
       
  the strong, independent oversight function exercised by our Board—which consists entirely of independent Directors other than Mr. Read (see “Director Independence” below);
  the independent leadership provided by Pfizer’s Lead Independent Director;
  the independence of all members of our Board Committees—Audit, Compensation, Corporate Governance, Regulatory and Compliance and Science and Technology;
  the company’s corporate governance principles, policies and practices; and
  Board and committee processes and procedures that provide substantial independent oversight of our CEO’s performance, including regular executive sessions of the independent Directors, an annual evaluation of our CEO’s performance against pre-determined goals, and a separate evaluation that, among other things, assesses the CEO’s interactions with the Board in his role as Chairman.
       
 
       
 

EXECUTIVE SESSIONS

Executive sessions of the independent Directors generally take place at every regular Board meeting. Led by our Lead Independent Director, the independent Directors review and discuss, among other things, the criteria to evaluate the performance of the CEO and other senior management, the performance of the CEO against those criteria, and the compensation of the CEO and other senior management.

DIRECTOR INDEPENDENCE

 

     

 

Pfizer 2017 Proxy Statement

17

 
GOVERNANCE BOARD INFORMATION

 

OUR LEAD INDEPENDENT DIRECTOR

 

At Pfizer, the Lead Independent Director position has a clearly defined role and responsibilities and entails significant responsibility for independent Board leadership. Dr. Dennis A. Ausiello has served as our Lead Independent Director since the 2015 Annual Meeting of Shareholders. Upon becoming Lead Independent Director, Dr. Ausiello also became an ex-officio member of each of the Board’s Committees and remains a member of the Science and Technology Committee.

 

During his tenure as Lead Independent Director, Dr. Ausiello has demonstrated strong leadership skills and independent thinking, a deep understanding of the business, a high level of scientific expertise and a willingness to meet with investors. The independent Directors are confident in Dr. Ausiello’s ability to continue to serve as Lead Independent Director.

 

The Role of the Lead Independent Director

 

The position of Lead Independent Director at Pfizer has a clear mandate, significant authority and well-defined responsibilities under a Board-approved Charter. These responsibilities and authority include the following:

 

presiding at executive sessions of the independent Directors and at other Board meetings at which the Chairman and CEO is not present;
serving as an ex-officio member of each Committee and attending meetings of the various Committees regularly;
calling meetings of the independent Directors;
leading the evaluation by the independent Directors of the CEO’s effectiveness as the Chairman and CEO, including an annual evaluation of his interactions with the Directors and ability to provide leadership and direction to the full Board;
serving as liaison between the independent Directors and the Chairman and CEO;

 

approving information sent to the Board, including the quality, quantity and timeliness of such information;
contributing to the development of and approving meeting agendas;
facilitating the Board’s approval of the number and frequency of Board meetings and approving meeting schedules to ensure that there is sufficient time for discussion of all agenda items;
authorizing the retention of outside advisors and consultants who report directly to the Board;
being regularly apprised of inquiries from shareholders and involved in correspondence responding to these inquiries when appropriate; and
if requested by shareholders or other stakeholders, ensuring that he is available, when appropriate, for consultation and direct communication.


 

The Charter of the Lead Independent Director can be found on our website at www.pfizer.com/about/corporate-governance/board-policies.

 

18

Pfizer 2017 Proxy Statement
 
GOVERNANCE BOARD INFORMATION

 

The Board’s Role in Risk Oversight

 

Management is responsible for assessing and managing risk, including through the Enterprise Risk Management (ERM) program, subject to oversight by the Board. The ERM program provides a framework for risk identification and management. Each risk is assigned to a member or members, as appropriate, of our Executive Leadership Team (ELT)—the heads of our principal businesses and corporate functions. The Board believes that its leadership structure and the ERM program support the risk oversight function of the Board.

 

The Board executes its oversight responsibility for risk assessment and risk management directly and through its Committees:

 

     
 

THE BOARD

 

The Board considers specific risk topics, including risks associated with our strategic plan, our capital structure and our R&D activities. In addition, the Board receives regular reports from members of our ELT that include discussions of the risks involved in their respective areas of responsibility. The Board is routinely informed of developments that could affect our risk profile or other aspects of our business.

 

The Board is kept informed of its Committees’ risk oversight and other activities through reports of the Committee Chairs to the full Board. These reports are presented at every regular Board meeting.

 
     
 

AUDIT COMMITTEE

 

The Audit Committee has primary responsibility for overseeing Pfizer’s ERM program. Pfizer’s Chief Internal Auditor, who reports to the Committee, facilitates the ERM program in coordination with the Legal Division and Compliance Division and helps ensure that ERM is integrated into our strategic and operating planning process. The Committee’s meeting agendas throughout the year include discussions of individual risk areas, as well as an annual summary of the ERM process.

 

The Audit Committee also reviews and receives regular briefings concerning Pfizer’s information security and technology risks (including cybersecurity), including discussions of the company’s information security and risk management programs. Pfizer’s Chief Information Officer leads our cybersecurity risk management program, which is fully integrated into the overall ERM program and overseen by the Committee.

 

 

REGULATORY AND COMPLIANCE COMMITTEE

 

The Regulatory and Compliance Committee is responsible for reviewing and overseeing Pfizer’s compliance program, including but not limited to evaluating its effectiveness. They receive information about current and emerging risks and regulatory and enforcement trends that may affect our business operations, performance, or strategy. The Committee has primary responsibility for overseeing and reviewing significant risks associated with Pfizer’s healthcare law compliance programs and the status of compliance with applicable laws, regulations and internal procedures.

 

From time to time, the Regulatory and Compliance Committee and the Audit Committee hold joint sessions to discuss risks relevant to both Committees’ areas of risk oversight.

 

 

OTHER BOARD COMMITTEES:

 

Compensation

Corporate Governance

Science and Technology

 

The Board’s other Committees oversee risks associated with their respective areas of responsibility. For example, the Compensation Committee considers the risks associated with our compensation policies and practices for both executive compensation and compensation generally.

 

 
             

 

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GOVERNANCE BOARD INFORMATION

 

Board Oversight of Company Strategy

 

The Board and its Committees are involved in overseeing our corporate strategy, including major business and organizational initiatives, capital allocation priorities and potential business development opportunities. The Board engages in discussions regarding our corporate strategy at nearly every Board meeting and, at least annually, receives a formal update on the company’s short- and long-term objectives, including the company’s operating plan and long-term corporate strategic plan. The Board’s Committees oversee elements of our strategy associated with their respective areas of responsibility.

 

The Board’s Role in Succession Planning

 

MANAGEMENT SUCCESSION PLANNING

 

Succession planning for Pfizer’s senior management positions to help ensure continuity of leadership over the long-term is critical to the company’s success. The Board is responsible for planning for succession to the position of Chief Executive Officer, as well as certain other senior management positions. The topic is discussed regularly in executive sessions. To assist the Board, the Chief Executive Officer annually provides the Board with an assessment of other senior managers and their potential to succeed him. The Chief Executive Officer also provides the Board with an assessment of persons considered potential successors to certain senior management positions.

 

In addition, the Corporate Governance Committee will review periodically with the Chief Executive Officer the succession plans relating to positions held by elected corporate officers and will make recommendations to the Board with respect to the selection of individuals to hold these positions.

 

BOARD SUCCESSION PLANNING

 

The Corporate Governance Committee focuses on Board succession planning on a continuous basis. In performing this function, the Committee is responsible for recruiting and recommending nominees for election as Directors to the full Board of Directors. The goal is to achieve a Board that provides effective oversight of the company through the appropriate balance of diversity of perspectives, experience, expertise, skills, specialized knowledge and other qualifications and attributes of the individual Directors.

 

The Board’s Role in Evaluating Its Effectiveness

 

The Board and each Committee conduct a rigorous annual self-evaluation of their performance and effectiveness. The Corporate Governance Committee oversees the process, which is conducted in the early part of the calendar year. During the evaluation, the Committee assesses several factors, including Director independence and qualifications to serve on various Committees. Committee Chair assignments and membership rotations are also considered, which, in 2016, resulted in changes to the composition of certain Board Committees (see “Committee Refreshment” below). The Committee also reviews the overall evaluation process, including whether to also incorporate individual Director evaluations into the process or conduct the evaluation through an external third-party provider and, in 2016, the Committee determined to maintain the evaluation process in its current form.

 

The results of the evaluation are presented, in executive session, at a subsequent Board meeting. The results of each Committee evaluation are presented at subsequent Committee meetings for the relevant Committee. Any results requiring additional consideration are addressed at future Board and Committee meetings, as appropriate.

 

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Pfizer 2017 Proxy Statement
 
GOVERNANCE BOARD INFORMATION

 

Board and Committee Information

 

During 2016, the Board of Directors met nine times. Each of our incumbent Directors attended at least 75% of the total meetings of the Board and the Board Committees on which he or she served that were held during the time he or she was a Director in 2016. In accordance with our Corporate Governance Principles, all Directors then in office attended our 2016 Annual Meeting.

 

The table below provides membership and meeting information for each of the standing Board Committees for 2016.*

 

Name Audit Compensation Corporate
Governance
Regulatory &
Compliance
Science & Technology
Dennis A. Ausiello, M.D.         l
W. Don Cornwell l l   l l
Joseph J. Echevarria l   l   l
Frances D. Fergusson, Ph.D.     l CHAIR l
Helen H. Hobbs, M.D.     l l CHAIR
James M. Kilts   l     l
Shantanu Narayen   l   l l
Suzanne Nora Johnson CHAIR     l l
Ian C. Read          
Stephen W. Sanger l   CHAIR   l
James C. Smith l CHAIR     l
Meetings in 2016 14 9 5 4 3

 

* In February 2017, Ronald E. Blaylock was elected to the Board and as a member of the Corporate Governance and Science and Technology Committees.

 

COMMITTEE REFRESHMENT

 

The Board, upon recommendation from the Corporate Governance Committee, reviews and determines the composition of the Committees and Committee Chairs. Through periodic committee refreshment, we aim to balance the benefits derived from continuity and depth of experience with the benefits gained from fresh perspectives and enhancing our Directors’ understanding of different aspects of our business.

 

The table above reflects, among other things, changes to the composition of certain Board Committees, effective as of June 23, 2016, including, among other changes, the election of Ms. Nora Johnson as the new Chair of the Audit Committee, the election of Mr. Smith as the new Chair of the Compensation Committee and the election of Dr. Hobbs as the new Chair of the Science and Technology Committee.

 

Pfizer 2017 Proxy Statement

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GOVERNANCE BOARD INFORMATION

 

BOARD COMMITTEES

 

THE AUDIT COMMITTEE

 

Chair:

Suzanne Nora Johnson

 

 

 

Additional Committee Members:

W. Don Cornwell

Joseph J. Echevarria

Stephen W. Sanger

James C. Smith

 

 

Meetings Held in 2016: 14

 

All Members are Independent, Financially Literate and Qualify as “Audit Committee Financial Experts”
   
Governed by a Board-approved Charter

The Audit Committee is primarily responsible for:

 

reviewing and discussing, with the independent registered public accounting firm, Internal Audit and management, the adequacy and effectiveness of internal control over financial reporting;
reviewing and consulting with management, Internal Audit and the independent registered public accounting firm on matters related to the annual audit, the published financial statements, earnings releases, and the accounting principles applied;
reviewing reports from management relating to the status of compliance with laws, regulations and internal procedures and policies;
reviewing and approving, based on discussion with the Chief Financial Officer, the appointment, replacement, dismissal and annual performance of the Chief Internal Auditor;
reviewing and discussing the scope and results of the internal audit program; and
reviewing and discussing with management the company’s policies with respect to risk assessment and risk management.
   
The Audit Committee also is directly responsible for the appointment, compensation, retention and oversight of our independent registered public accounting firm.
   
The Audit Committee has established policies and procedures for the pre-approval of all services provided by the independent registered public accounting firm. The Audit Committee also has established procedures for the receipt, retention and treatment, on a confidential basis, of complaints received by Pfizer regarding its accounting, internal controls and auditing matters. Further details of the role of the Audit Committee, as well as the Audit Committee Report, may be found in “Item 2—Ratification of Selection of Independent Registered Public Accounting Firm” on page 40.
   
The Audit Committee Charter is available on our website at
www.pfizer.com/about/corporate-governance/board-committees-charters.


 

THE COMPENSATION COMMITTEE

 

Chair:

James C. Smith

 

 

 

Additional Committee Members:

W. Don Cornwell

James M. Kilts

Shantanu Narayen

 

 

Meetings Held in 2016: 9

 

All Members are Independent
   
Governed by a Board-approved Charter

The Compensation Committee reviews and approves the company’s overall compensation philosophy and oversees the administration of Pfizer’s executive compensation and benefit programs, policies and practices. Its responsibilities also include:

 

establishing annual and long-term performance goals and objectives for the CEO and reviewing the goals approved by the CEO for our executive officers, including the NEOs identified in the 2016 Summary Compensation Table;
evaluating the performance and setting compensation for the CEO;
annually reviewing and approving Pfizer’s peer companies and data sources for purposes of evaluating our compensation competitiveness and mix of compensation elements;
reviewing and assessing annually potential risk to the company from its compensation program and policies;
reviewing and approving annually all compensation decisions for the company’s executive officers, including the NEOs; and
overseeing the administration of the company’s cash-based and equity-based compensation plans that are shareholder approved and/or where participants include executive officers or other members of senior management (including reviewing and approving equity grants), including pay equality and non-discrimination by gender or against protected groups.
   
Each Committee member is a “non-employee director” as defined in Rule 16b-3 under the Securities Exchange Act of 1934 and an “outside director” as defined in Section 162(m) of the Internal Revenue Code.
   
The Compensation Committee has the authority to delegate any of its responsibilities to another committee, officer and/or subcommittees, as the Committee may deem appropriate in its sole discretion, subject to applicable law, rules, regulations and New York Stock Exchange (NYSE) listing standards.
   
The Compensation Committee Charter is available on our website at
www.pfizer.com/about/corporate-governance/board-committees-charters.
   
Compensation Committee Interlocks and Insider Participation. During 2016 and as of the date of this Proxy Statement, none of the members of the Compensation Committee was or is an officer or employee of Pfizer, and no executive officer of the company served or serves on the compensation committee or board of any company that employed or employs any member of Pfizer’s Compensation Committee or Board of Directors.


 

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Pfizer 2017 Proxy Statement
 
GOVERNANCE BOARD INFORMATION

 

THE CORPORATE GOVERNANCE COMMITTEE

 

Chair:

Stephen W. Sanger

 

 

 

Additional Committee Members:

Ronald E. Blaylock

Joseph J. Echevarria

Frances D. Fergusson

Helen H. Hobbs

 

 

Meetings Held in 2016: 5

 

All Members are Independent
   
Governed by a Board-approved Charter

The Corporate Governance Committee oversees the practices, policies and procedures of the Board and its committees. Responsibilities include:

 

developing criteria for Board membership and Board succession planning;
recommending and recruiting Director candidates and ensuring the appropriate balance of diversity of experience, skills, specialized knowledge and attributes of the Directors;
assessing Director and candidate independence;
considering possible conflicts of interest of Board members and senior executives;
reviewing related person transactions; and
monitoring the functions of the various Committees of the Board.
   
The Committee advises on the structure of Board meetings, recommends matters for consideration by the Board and also reviews, advises on and recommends Director compensation, which is approved by the full Board.
   
The Committee is directly responsible for:
   
overseeing the self-evaluations of the Board and its Committees;
reviewing our Corporate Governance Principles and Director Qualification Standards;
establishing and overseeing compliance with Director retirement policies;
assisting management by reviewing the functions and outside activities of senior executives; and
overseeing the company’s lobbying priorities and activities.
   
The Committee also maintains an informed status on: (i) company issues related to public policy, including political spending policies and practices and (ii) company issues related to corporate social responsibility, sustainability and philanthropy.
   

The Corporate Governance Committee Charter is available on our website at

www.pfizer.com/about/corporate-governance/board-committees-charters.


 

THE REGULATORY AND COMPLIANCE COMMITTEE

 

Chair:

Frances D.

Fergusson, Ph.D.

 

 

 

Additional Committee Members:

W. Don Cornwell

Helen H. Hobbs

Shantanu Narayen

Suzanne Nora Johnson

 

 

Meetings Held in 2016: 4

 

All Members are Independent
   
Governed by a Board-approved Charter

The Regulatory and Compliance Committee’s primary responsibilities include:

 

assisting the Board of Directors with overseeing and reviewing Pfizer’s significant healthcare-related regulatory and compliance issues, including its compliance programs and the status of compliance with applicable laws, regulations and internal procedures;
consulting with management and evaluating information and reports on compliance-related activities and matters;
overseeing the integration and implementation of the company’s compliance programs in acquired entities; and
receiving information about current and emerging risks and regulatory and enforcement trends in healthcare-related areas that may affect the company’s business operations, performance or strategy.
   
The Committee, in consultation with the Compensation Committee, also makes recommendations regarding the extent to which, if any, incentive-based compensation of any executive, senior manager, compliance personnel and/or attorney involved in any significant misconduct resulting in certain government or regulatory action, or other person with direct supervision over such employee, should be reduced, cancelled or recovered.
   
The Regulatory and Compliance Committee Charter is available on our website at
www.pfizer.com/about/corporate-governance/board-committees-charters.


 

 

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GOVERNANCE BOARD INFORMATION

 

THE SCIENCE AND TECHNOLOGY COMMITTEE

 

Chair:

Helen H. Hobbs, M.D.

 

 

Additional Committee Members:

Dennis A. Ausiello

Ronald E. Blaylock

W. Don Cornwell

Joseph J. Echevarria

Frances D. Fergusson

James M. Kilts

Shantanu Narayen

Suzanne Nora Johnson

Stephen W. Sanger

James C. Smith

 

 

Meetings Held in 2016: 3

 

All Members are Independent
   
Governed by a Board-approved Charter

The Science and Technology Committee is responsible for periodically examining management’s strategic direction of and investment in the company’s biopharmaceutical R&D and technology initiatives.

 

Responsibilities include:

 

monitoring progress of Pfizer’s R&D pipeline;
evaluating the quality, direction and competitiveness of the company’s R&D programs; and
reviewing Pfizer’s approach to acquiring and maintaining key scientific technologies and capabilities.
   
The Committee also identifies emerging issues, assesses the performance of R&D leaders, and evaluates the sufficiency of review by external scientific experts.
 
The Science and Technology Committee Charter is available on our website at
www.pfizer.com/about/corporate-governance/board-committees-charters.


 

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Pfizer 2017 Proxy Statement
 
GOVERNANCE BOARD INFORMATION

 

Corporate Governance Committee Report

 

The Corporate Governance Committee seeks to maintain and enhance Pfizer’s record of excellence in corporate governance by continually refining Pfizer’s corporate governance policies, procedures and practices. The following are examples of how we worked to achieve these objectives in 2016.

 

Board and Committee Matters; Director Evaluations: During 2016, we assessed Director qualifications for serving on various committees and recommended changes to the composition of certain committees, including certain committee Chairs; assessed Director independence; conducted a comprehensive self-evaluation process for the Board and its Committees; evaluated whether to use a third-party provider to conduct all or a portion of the evaluation process; reviewed and, where appropriate, recommended changes to our governing documents, including certain Committee Charters; and continued to review the functioning of the Board and Committees in developing areas.

 

Board Leadership Structure: We conducted a thorough annual review of the Board’s leadership structure and recommended to the independent Directors that they retain the current leadership structure consisting of a combined Chairman and CEO and a Lead Independent Director.

 

Recruitment and Assessment of Potential New Directors: In 2016, we continued an ongoing Board succession planning process to assess candidates for election as Directors, based upon a “skills matrix” and other criteria. Resulting from this process, in February 2017, the Committee recommended and the Board elected Mr. Ronald E. Blaylock as a Director and a member of the Corporate Governance and Science and Technology Committees. Among other qualifications, Mr. Blaylock brings financial expertise, as well as risk management and business leadership skills to the Board. The Committee considered the election of Mr. Blaylock as a Director upon recommendation by our Chairman and CEO and evaluation by a third-party search firm. The Committee also reviewed outside requests to join the Board, as well as suggestions presented by external advisors.

 

Corporate Social Responsibility: Under our Charter, the Committee maintains an informed status on company issues related to corporate social responsibility, sustainability and philanthropy, and monitors emerging issues potentially affecting the reputation of the pharmaceutical industry and Pfizer specifically. The Committee received an update on Pfizer’s corporate social responsibility initiatives at year-end.

 

Public Policy and Corporate Political Spending: Under our Charter, the Committee is also responsible for maintaining an informed status on company issues related to public policy, including political spending practices, we were informed of Pfizer’s public policy and corporate political spending practices through periodic discussions and reviews of the company’s semi-annual Political Action Committee and Corporate Political Contributions Report.

 

Lobbying Activities: In 2016, as a result of investor feedback on the company’s lobbying activities and Pfizer’s commitment to corporate governance excellence, the Committee further strengthened its oversight of the company’s lobbying priorities and activities and amended the Committee’s Charter to clarify this responsibility. As a result, the Committee maintains an informed status on the company’s lobbying priorities and activities through semi-annual reports from management.

 

Legislative and Regulatory Developments: We continued to monitor and evaluate corporate governance and executive compensation developments and best practices, including U.S. Securities and Exchange Commission (SEC) rules and NYSE listing standards.

 

Shareholder Engagement: We engaged in reviews of shareholder and stakeholder communications at each of our meetings and periodic reviews of shareholder feedback received during Pfizer’s year-round investor outreach.

 

Leadership Planning: During 2016, the Committee reviewed long-term and emergency succession scenarios for Pfizer’s management.

 

The Corporate Governance Committee*

 

Stephen W. Sanger, Chair Joseph J. Echevarria
   
Frances D. Fergusson Helen H. Hobbs

 

* In February 2017, Ronald E. Blaylock was elected to the Corporate Governance Committee.

 

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GOVERNANCE BOARD INFORMATION

 

Regulatory and Compliance Committee Report

 

The Committee assists the Board of Directors with the oversight of significant healthcare-related regulatory and compliance issues. Under the terms of its Charter, the Committee receives reports regarding Pfizer’s compliance program, for which management has primary responsibility.

 

In 2016, we received reports and discussed with management, including the Chief Compliance and Risk Officer, significant healthcare-related regulatory and compliance risks and related compliance program initiatives and functions.

 

Among the matters considered were:

 

potential healthcare-related regulatory or compliance risks in connection with the development, manufacture and marketing of Pfizer products, and efforts to mitigate those risks;
certain compliance-related government investigations and other legal proceedings involving Pfizer;
certain internal investigations of potential healthcare-related compliance or regulatory matters;
results of internal audits conducted in areas within the Committee’s oversight;
updates regarding FDA Warning Letters and other significant regulatory communications;
the integration of acquired companies into Pfizer’s compliance program;
Pfizer’s anti-retaliation policies and procedures, and the retaliation claims received by Pfizer;
Pfizer’s incentive compensation practices for sales and marketing personnel; and
external reviews of Pfizer policies and practices for compliance with federal healthcare laws and regulations.

 

In our activities, we considered potential risks and steps Pfizer has taken to mitigate risk in areas within our oversight.

 

The Regulatory and Compliance Committee

 

Frances D. Fergusson, Chair W. Don Cornwell
   
Helen H. Hobbs Shantanu Narayen
   
 
Suzanne Nora Johnson  

 

 

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Pfizer 2017 Proxy Statement
 
GOVERNANCE SHAREHOLDER OUTREACH

 

Shareholder Outreach

 

CONNECT

 

We view investor engagement as fundamental to good governance and essential to maintaining our industry-leading practices.

COLLABORATE

 

We aim for a collaborative approach with our shareholders and value the variety of investor perspectives we receive.

COMMUNICATE

 

We share investor feedback directly with our full Board. Investors can communicate their concerns to the Lead Independent Director or Audit Committee Chair by e-mail or letter.

 

Connect

 

Engaging with investors is fundamental to our commitment to good governance and essential to maintaining our industry-leading practices. Throughout the year, we seek opportunities to connect with our investors to gain and share valuable insights into current and emerging global governance trends.

 

During 2016, we engaged with over 30 global institutional investors representing nearly 30% of shares outstanding to discuss various key corporate governance-related matters, including executive compensation, as well as our long-term business strategy and other issues specific to our industry. We conduct these meetings in person, via teleconference or one-on-one at conferences throughout the year. Although shareholder outreach is primarily a function of management, members of our Board also participate when appropriate. In addition to speaking with our institutional investors, we respond to inquiries from our retail investors and other stakeholders.

 

Collaborate

 

We strive for a collaborative approach to shareholder outreach and value the variety of investors’ perspectives received, which helps deepen our understanding of their interests and motivations. Items on the meeting agendas cover a range of topics, including, but not limited to, those listed below.

 

Summary of 2016 Shareholder Discussions

 

Board-related: Many of our discussions addressed the subject of board composition and director recruitment as investors remain focused on Director skills, diversity and refreshment. Certain of our shareholders had a particular desire to understand how the Board considers renewal and the evolution of its composition in connection with current and future business needs. In general, investors expressed minimal concerns about our Board’s composition, individual Directors, our Board policies or our overall approach to shareholder engagement. Investors provided positive feedback with respect to the addition of several new Directors in recent years and the Board’s overall diversity.

 

With respect to risk oversight, investors inquired about our overall ERM program. Several investors sought further clarity about the specific roles of the Board and the Audit and Regulatory and Compliance Committees, as well as management, in the risk oversight process.

 

Action taken: See enhanced disclosures regarding Board composition, Board Committee refreshment, Director skills and risk oversight throughout this Proxy Statement.

 

Executive Compensation: During our discussions, investors continued to show support for our overall executive compensation program and viewed it as well-structured and aligned with performance. Investors were particularly interested in discussing the disclosure around setting our year-over-year short-term incentive plan targets, as well as the long-term components of our program, including the use of operating income as a financial metric and the DRG Index as a comparator for evaluating performance for our PSAs.

 

Action taken: See “Compensation Discussion and Analysis” section later in this Proxy Statement.

 

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GOVERNANCE SHAREHOLDER OUTREACH

 

Sustainability/Reporting of Non-Financial Metrics: Investor interest has generally increased regarding how companies view sustainability and how they are integrating these factors into their business objectives and corporate cultures. Investors inquired about Pfizer’s practices, our views on certain reporting methodologies and the types of non-financial Environmental, Social and Governance (ESG) issues that may impact our business and/or create reputational risks. We measure our performance and provide data on four non-financial key performance indicators: Access to Medicines, Colleague Safety, Environmental Sustainability Goals and Supply Chain Environmental Sustainability Goal. See the inside back cover for additional information.

 

Action taken: Pfizer continues to assess appropriate next steps relating to disclosure of ESG metrics, and will continue to engage with investors on this topic.

 

Lobbying Activities: Although it did not pass, in response to the vote received on the 2016 lobbying activities shareholder proposal and our commitment to enhancing our governance practices, we elicited investor feedback on the company’s current practices and disclosures concerning our lobbying activities. Most investors indicated little or no concern with our current disclosures and the general level of Board oversight, and conveyed an understanding of the company’s need to engage in public policy issues. However, some investors suggested that we include more specific information about the Corporate Governance Committee’s oversight role of our lobbying activities and management’s role in the approval process.

 

Action taken: In 2016, the Corporate Governance Committee further strengthened its oversight of the company’s lobbying activities and amended the Committee’s Charter to clarify this responsibility. As a result, the Corporate Governance Committee maintains an informed status on the company’s lobbying priorities and activities through semi-annual reports from management.

See www.pfizer.com/about/corporate-governance/board-committees-charters.

 

Communicate

 

Our goal is to communicate with our shareholders through various platforms—via our website, in print and in person at shareholder meetings or investor presentations. In 2016, in addition to meeting with institutional investors, we responded to more than 1,000 retail investor inquiries sent to our Board of Directors or Corporate Secretary about governance or other company matters. We share investor and other stakeholder feedback directly with our Corporate Governance Committee and full Board at least quarterly. We view communication between our shareholders and the Board as a dialogue and, when appropriate, members of our Board engage directly with our shareholders.

 

HOW TO COMMUNICATE WITH OUR DIRECTORS

 

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

 

By mail: Write to the Corporate Secretary, Pfizer Inc., 235 East 42nd Street, New York, New York 10017-5755; or

By e-mail: Go to Pfizer’s website at www.pfizer.com/about/corporate-governance/contact-directors.

 

Shareholder communications are distributed to the Board, or to any individual Director or Directors, as appropriate, depending on the facts and circumstances outlined in the communication. The Board has requested that certain items that are unrelated to the duties and responsibilities of the Board be redirected or excluded, as appropriate.

 

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Pfizer 2017 Proxy Statement
 
GOVERNANCE CORPORATE RESPONSIBILITY AND SUSTAINABILITY

 

Corporate Responsibility and Sustainability

 

Corporate responsibility and sustainability are integral to Pfizer’s business strategy and help guide our actions as a company. We have always focused on delivering strong financial results, but we are committed to doing so in a way that respects the communities and environments in which we operate.

 

We are actively engaged in a dialogue with socially responsible and mainstream investors around their growing interest in environmental, social and governance (ESG) performance and the impact on financial results. Today, we strive to have these principles permeate Pfizer at every level – including our Board of Directors – which maintains oversight for these issues through the Corporate Governance Committee. The Committee oversees our corporate social responsibility, sustainability and philanthropic efforts and progress.

 

We continue to evolve our approach to issues relevant to our business strategy, reputation and key stakeholders. For example, we are committed to helping achieve the 17 Sustainable Development Goals (SDGs) established by the United Nations (UN) in January 2016. The UN has called for broad-based support of the SDGs, including active involvement by the private sector. Pfizer is committed to helping facilitate industry engagement and aligning our corporate objectives to advance health and development for individuals and patients across the globe.

 

ACCESS TO MEDICINES

 

As a company, we are committed to discovering, developing and delivering vaccines and therapies that help people live healthier lives. We believe all individuals deserve access to quality healthcare and we have an important role to play in positively impacting global health by making our therapies more accessible. We combine creative commercial strategies with philanthropic approaches and strive to create a sustainable and meaningful impact on global health. Pfizer is also focused on addressing the top 21 global burdens of disease, as identified by the World Health Organization, through our products and pipeline.

 

ENVIRONMENT, HEALTH AND SAFETY

 

We believe that a sustainable future is essential to ensuring the health and well-being of our colleagues, the people who use our products and the communities we touch. By striving for environmental sustainability across all aspects of our organization, we aim to add additional value to society and our business by reducing our carbon emissions in line with our public science-based goal, minimizing the environmental impact of our products and managing water resources.

 

Our environmental sustainability goals focus on three areas: reducing carbon emissions, reducing the water used in our operations and looking for innovative ways to minimize waste. While these goals were established for our internal operations, we also recognize the need to drive sustainability performance across our extended environmental footprint. Therefore, in 2016, we implemented an additional environmental sustainability public goal for a subset of our suppliers meeting certain criteria.

 

We recognize the growing interest from governmental and hospital procurement organizations, retailers and pharmacies, investors, advocacy groups, our colleagues and other stakeholders for Pfizer to provide information on our sustainability programs and the environmental impacts of products. Establishing clear commitments in these areas supports Pfizer’s ability to respond to these interests.

 

We leverage our OWNIT! Culture to encourage long-term success, as well as growth and development, of colleagues worldwide and to help protect employees’ health and safety, the environment and the communities in which we operate.

 

REPORTING ON OUR PROGRESS

 

We understand that some of our investors and other stakeholders are interested in evaluating Pfizer’s performance on a holistic level to include financial, social and environmental perspectives. We provide information on Pfizer’s progress on the following non-financial key performance indicators:

 

Access to Medicines
Colleague Safety
Environmental Sustainability Goals
Supply Chain Environmental Sustainability Goal

 

See the inside back cover for additional information.

 

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GOVERNANCE PUBLIC POLICY ENGAGEMENT AND POLITICAL PARTICIPATION

 

Further, we continue to evaluate our overall approach to non-financial reporting, including adherence to several existing, globally recognized external frameworks. These include the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB) and the International Integrated Reporting Council (IIRC).

 

Please view Pfizer’s 2016 Annual Review at www.pfizer.com/annual for further information about the company’s corporate responsibility and sustainability efforts. Please note that our 2016 Annual Review is not a part of our proxy solicitation materials.

 

Public Policy Engagement and Political Participation

 

ENGAGING IN PUBLIC POLICY

 

We operate in a highly regulated and competitive industry. It is fundamental to our business, our patients and our shareholders that we engage on public policy issues that may affect our ability to meet patients’ needs and enhance shareholder value. These issues include advancing biomedical research; healthcare innovation; advocating for protecting intellectual property rights; comprehensive tax reform; and patient access to care. We regularly work with policy makers to help create and maintain an innovative environment where we can cultivate new medicines, bring them to market and ensure that patient health and safety remain a priority.

 

Pfizer is also a member of several industry and trade groups, including the Pharmaceutical Research and Manufacturers of America, the National Association of Manufacturers, the Biotechnology Industry Association, the U.S. Chamber of Commerce and the Business Roundtable. These organizations, along with the others to which we belong, represent both the pharmaceutical industry and the business community at large in an effort to bring about consensus on broad policy issues that can impact our business. Our support of these organizations is evaluated annually by the company’s Government Affairs leaders based on these organizations’ expertise in healthcare policy and advocacy and support of key issues of importance to Pfizer. In addition to their positions on healthcare policy issues, these organizations may engage in a broad range of other issues that extend beyond the scope of issues of primary importance to Pfizer. If concerns arise about a particular issue, we are able to voice our concerns, as appropriate, through our colleagues who serve on the boards and committees of these groups. Pfizer’s participation as a member of these groups comes with the understanding that we may not always agree with the positions of the organization and/or its members.

 

CORPORATE POLITICAL CONTRIBUTIONS

 

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

 

We regularly discuss our political contributions reporting practices with investors and other stakeholders to ensure that our disclosures continue to meet their needs. Shareholder engagement has helped us expand our level of disclosure and create or modify corporate policies related to political expenditures.

 

INDEPENDENT EXPENDITURES

 

Our company does not make direct independent expenditures. An independent expenditure is the use of corporate treasury funds to pay for a television, print or social media communication that expressly advocates the election or defeat of a clearly identified candidate. We have adopted a strict policy precluding Pfizer from making direct independent expenditures in connection with any federal or state election.

 

POLICIES AND PROCEDURES FOR APPROVAL AND OVERSIGHT OF CORPORATE AND PAC POLITICAL EXPENDITURES

 

The PAC is a non-partisan employee-run organization that provides opportunities for employees to participate in the American political process. All corporate and PAC political spending decisions undergo a rigorous review process conducted by the PAC Steering Committee. The PAC Steering Committee is comprised of colleagues from various divisions throughout the company to ensure that each contribution we make advances our business objectives and is not based on the political preferences or views of any individual colleague within Pfizer.

 

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Pfizer 2017 Proxy Statement
 
GOVERNANCE PFIZER POLICIES ON BUSINESS ETHICS AND CONDUCT

 

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

 

FEDERAL AND STATE LOBBYING ACTIVITY

 

The company’s U.S. Government Relations leaders are responsible for the company’s lobbying activities, with oversight by the Corporate Governance Committee. All colleague communications with government and regulatory officials are governed by Pfizer’s internal policies and procedures, which include guidelines published in “Pfizer Policies on Business Conduct.”

 

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

 

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

 

BOARD OVERSIGHT

 

The Corporate Governance Committee is responsible for maintaining an informed status on public policy and corporate political spending practices through periodic discussions and reviews of the company’s semi-annual PAC and Corporate Political Contributions report. It is also informed of the company’s lobbying priorities and activities through semi-annual reports from management, including a year-end report on lobbying priorities for the coming year.

 

Pfizer Policies on Business Ethics and Conduct

 

All of our employees, including our Chief Executive Officer, Chief Financial Officer and Controller, are required to abide by Pfizer’s policies on business conduct to help ensure that our business is conducted in a consistently legal and ethical manner. Pfizer’s policies form the foundation of a comprehensive process that includes compliance with corporate policies and procedures, an open relationship among colleagues to foster good business conduct, and a high level of integrity. Our policies and procedures cover all major areas of professional conduct, including employment practices, conflicts of interest, intellectual property and the protection of confidential information, and require strict adherence to laws and regulations applicable to the conduct of our business. Code of Conduct training is assigned to all colleagues every other year. In addition, the Pfizer Integrity Pledge is issued annually to all colleagues with computer access to confirm that colleagues are familiar with the Code of Conduct and agree to uphold Pfizer’s core values and follow Pfizer’s policies.

 

Employees are required to report any conduct that they believe in good faith to be an actual or apparent violation of Pfizer’s policies on business conduct. Retaliation against any employee who in good faith seeks advice, raises a concern, reports misconduct, or provides information in an investigation is strictly prohibited. Our Audit Committee has procedures to receive, retain and treat complaints received regarding accounting, internal accounting controls, or auditing matters and to allow for confidential and anonymous submissions by employees with concerns regarding questionable accounting or auditing matters.

 

The full text of our Code of Conduct, including information regarding how to report conduct, is posted on our website at www.pfizer.com/about/compliance/code-of-conduct. We will disclose any future amendments to, or waivers from, provisions of these ethics policies and standards affecting our Chief Executive Officer, Chief Financial Officer and Controller on our website as promptly as practicable, as may be required under applicable SEC and NYSE rules.

 

Code of Conduct for Directors

 

Our Directors are required to comply with a Code of Business Conduct and Ethics for Members of the Board of Directors (the Director Code). The Director Code is intended to focus the Board and the individual Directors on areas of ethical risk, help Directors recognize and deal with ethical issues, provide mechanisms to report unethical conduct, and foster a culture of honesty and accountability. The Director Code covers all areas of professional conduct relating to service on the Pfizer Board, including conflicts of interest, unfair or unethical use of corporate opportunities, strict protection of confidential information, compliance with applicable laws and regulations, and oversight of ethics and compliance by employees of the company.

 

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31

 
GOVERNANCE OTHER GOVERNANCE PRACTICES AND POLICIES

 

The full text of the Code of Business Conduct and Ethics for Members of the Board of Directors is posted on our website at www.pfizer.com/about/corporate-governance/board-policies.

 

Other Governance Practices and Policies

 

Director Independence

 

Our Board of Directors has adopted Director Qualification Standards (Standards) to evaluate and determine Director independence. Our Standards meet, and in some respects exceed, the independence requirements of the NYSE.

 

Director Qualification Standards. To qualify as independent under our Standards, a non-employee Director must have no material relationship with Pfizer other than as a Director. The Standards include strict guidelines for Directors and their immediate families regarding employment or affiliation with Pfizer or its independent registered public accounting firm; prohibitions against Audit Committee members having any direct or indirect financial relationship with Pfizer; considerations for evaluation of Compensation Committee member independence; and restrictions on both commercial and not-for-profit relationships between non-employee Directors and Pfizer. Directors may not receive personal loans or extensions of credit from Pfizer, must deal at arm’s length with Pfizer and its subsidiaries, and must disclose any circumstance that might be perceived as a conflict of interest. Our Director Qualification Standards can be found on our website at www.pfizer.com/about/corporate-governance/board-policies.

 

Under our Standards, certain relationships and transactions are not considered to be material transactions that would impair a Director’s independence, including the following:

 

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

 

In 2016, there was no indebtedness between Pfizer and any entity of which a Director or an immediate family member of a Director was an executive officer.

 

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

 

Under our Standards, contributions to not-for-profit entities in which a Director of the company, or a Director’s spouse, serves as an executive officer, amounting to less than 2% of that organization’s latest publicly available total revenues (or $1 million, whichever is greater), will not serve as a bar to the Director’s independence. None of our Directors or their spouses is an executive officer of a not-for-profit organization to which Pfizer contributed in 2016. Nonetheless, a summary of charitable contributions to not-for-profit organizations with which our Directors or their spouses are affiliated was made available to the Committee. None of the contributions approached the levels set forth in our Standards.

 

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

 

The Board has determined that all of our current Directors (other than Mr. Ian C. Read) are independent of the company and its management and meet Pfizer’s criteria for independence. The independent Directors are Drs. Dennis A. Ausiello, Frances D. Fergusson and Helen H. Hobbs; Ms. Suzanne Nora Johnson; and Messrs. Ronald E. Blaylock, W. Don Cornwell, Joseph J. Echevarria, James M. Kilts, Shantanu Narayen, Stephen W. Sanger and James C. Smith. The Board has determined that Mr. Ian C. Read is not independent because of his employment as Pfizer’s CEO.

 

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GOVERNANCE OTHER GOVERNANCE PRACTICES AND POLICIES

 

In making these determinations, the Board considered that, in the ordinary course of business, relationships and transactions may occur between Pfizer and its subsidiaries on the one hand and entities with which some of our Directors are or have been affiliated on the other.

 

Governance Materials Available on our Website

 

Our Corporate Governance Principles and the following Board policies and other corporate governance materials are published on our website at www.pfizer.com/about/leadership-and-structure/meet-board and www.pfizer.com/about/corporate-governance:

 

Meet the Pfizer Board of Directors
Board Committees and Charters
By-laws
Restated Certificate of Incorporation
Charter of the Lead Independent Director
Director Qualification Standards
Pfizer Policies on Business Conduct
Code of Business Conduct and Ethics for Members of the Board of Directors
Board Policy on Pension Benefits for Executives
Related Person Transaction Approval Policy
Policy on Prohibition of Pledging of Pfizer Stock
Policy—Criteria for the Selection of a Compensation Committee Consultant
Contact Our Directors
Corporate Governance FAQs

 

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

 

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33

 
 

 

Non-Employee Director Compensation

 

Our non-employee Directors receive cash compensation, as well as equity compensation in the form of Pfizer stock units, for their Board service. Mr. Read does not receive any compensation for his service as a Director or as Chairman.

 

NON-EMPLOYEE DIRECTOR COMPENSATION

 

In 2016, compensation for our non-employee Directors consisted of the following:

 

Position  Cash Retainers    Pfizer Stock Units  
Board Member   $137,500    $187,500 
Chair of Each Board Committee   $30,000      
Lead Independent Director   $50,000      

 

In April 2016, the Board, on recommendation of the Corporate Governance Committee in consultation with its independent compensation consultant, approved modifications to the non-employee Director compensation program to increase the value of the annual grant of Pfizer stock units to non-employee Directors from $162,500 to $187,500. Under the Pfizer Inc. Nonfunded Deferred Compensation and Unit Award Plan for Non-Employee Directors (Unit Award Plan), during 2016, each Director received Pfizer stock units with a value of $187,500 (as of the date of grant) upon election at the 2016 Annual Meeting of Shareholders, provided the Director continued to serve as a Director following the Meeting. In 2017, each Director will receive Pfizer stock units with a value of $187,500 (as of the date of grant) upon election at the 2017 Annual Meeting of Shareholders, provided the Director continues to serve as a Director following the Meeting. A new Director also receives Pfizer stock units in a like amount when first elected to the Board. In 2017, Ronald E. Blaylock received Pfizer stock units with a value of $187,500 as of the date of grant upon his election to the Board.

 

DIRECTOR STOCK OWNERSHIP

 

Non-employee Directors are required to own shares of Pfizer common stock having a value of at least five times their annual cash retainer, which is currently $687,500 worth of Pfizer stock. For purposes of satisfying this requirement, a Director’s holdings include, in addition to shares held outright, units granted to the Director as compensation for Board service and shares or units held under a deferral or similar plan. A Director has five years from (a) the date of his or her first election as a Director, or (b) if later, the date of an increase in the amount of Pfizer stock required to be held, to satisfy this ownership requirement. We maintain policies that prohibit Directors from pledging Pfizer stock or engaging in activities considered to be hedging of our common stock, and none of our Directors have pledged Pfizer stock as collateral for personal loans or other obligations.

 

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Pfizer 2017 Proxy Statement
 
NON-EMPLOYEE DIRECTOR COMPENSATION

 

 

2016 Non-Employee Director Stock Ownership

 

Shares held as a multiple of Annual Cash Retainer (dollar value of shares determined using Pfizer’s closing stock price as of December 30, 2016)

 

 

(1) Mr. Echevarria became a member of our Board in June 2015 and Mr. Blaylock became a member of our Board in February 2017. Directors have five years from (a) the date of his or her first election as a Director or (b), if later, the date of an increase in the amount of Pfizer stock required to be held, to satisfy the stock ownership requirement.

 

DEFERRED COMPENSATION

 

Cash Compensation. Non-employee Directors may defer all or a part of their annual cash retainers under the Unit Award Plan until they cease to be members of the Board. At a Director’s election, the cash retainer fees held in the Director’s account can be credited with Pfizer stock units or deemed invested in the same investments available to Pfizer employees under certain deferred compensation plans. The number of Pfizer stock units is calculated by dividing the amount of the deferred fee by the closing price of Pfizer’s common stock on the last business day of the fiscal quarter in which the fee is earned. If fees are deferred as Pfizer stock units, the number of stock units in a Director’s account is increased by crediting additional stock units based on the value of any dividends on the common stock. When a Director ceases to be a member of the Board, the amount attributable to stock units held in his or her account is paid in cash or in shares of Pfizer stock, at the Director’s election. The amount of any cash payment is determined by multiplying the number of Pfizer stock units in the account by the closing price of our common stock on the last business day before the payment date.

 

Equity Compensation. Directors who have met the stock ownership requirements as of December 31 of the prior year are permitted each year to elect to defer units granted that year or to receive the units in shares. All units granted in 2017 will be deferred. The number of deferred stock units in a Director’s account is increased by crediting additional stock units based on the value of any dividends on the common stock. Units deferred are not payable until the Director ceases to be a member of the Board, at or after which time they are paid in cash or in shares of Pfizer stock, at the Director’s election. The amount of any cash payment is determined by multiplying the number of Pfizer stock units in the account by the closing price of our common stock on the last business day before the payment date.

 

MATCHING GIFT PROGRAM

 

Our non-employee Directors may participate in Pfizer’s matching gift program, which is also available to all Pfizer employees. Under this program, the Pfizer Foundation1 will match contributions to eligible non-profit organizations, up to a maximum of $15,000 per year, per director; contributions to religious and certain other types of non-profit organizations, as well as to individuals and others in need, are not eligible and are not matched. In addition, the Pfizer Foundation will match contributions made to the United Way Campaign, up to a maximum of $15,000 per year, per director. The matching contributions made by the Pfizer Foundation with respect to our non-employee Directors are included in the 2016 Director Compensation Table below.

 

1The Pfizer Foundation is a charitable organization established by Pfizer Inc. It is a separate legal entity from Pfizer Inc. with distinct legal restrictions.

 

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NON-EMPLOYEE DIRECTOR COMPENSATION 2016 DIRECTOR COMPENSATION TABLE

 

2016 Director Compensation Table

 

The following table shows 2016 compensation for our non-employee Directors who served as non-employee Directors in 2016.

 

Name  Fees Earned
or Paid in Cash
($)
   Equity/Stock
 Awards(1)
($)
   All Other
Compensation(2)
($)
   Total
($)
 
Dennis A. Ausiello, M.D.   201,676    187,500    11,450(2)   400,626 
W. Don Cornwell   151,676    187,500    15,000    354,176 
Joseph J. Echevarria   137,500    187,500        325,000 
Frances D. Fergusson, Ph.D.   167,500    187,500    14,925(2)   369,925 
Helen H. Hobbs, M.D.   153,324    187,500    3,840(2)   344,664 
James M. Kilts   151,676    187,500    15,000    354,176 
Shantanu Narayen   137,500    187,500    15,000    340,000 
Suzanne Nora Johnson   153,324    187,500    14,000(2)   354,824 
Stephen W. Sanger   167,500    187,500    30,000(2)   385,000 
James C. Smith   153,324    187,500        340,824 

 

(1) The number of units granted was determined by dividing the grant date value of the award, $187,500, by $32.91, the closing price of Pfizer’s common stock on April 28, 2016. At the end of 2016, the aggregate number of stock units (including dividend equivalents) held by each current non-employee Director was as follows: Dr. Ausiello, 36,584; Mr. Cornwell, 114,419; Mr. Echevarria, 17,436; Dr. Fergusson, 49,777; Dr. Hobbs, 44,565; Mr. Kilts, 129,612; Mr. Narayen, 36,628; Ms. Nora Johnson, 53,091; Mr. Sanger, 110,644; and Mr. Smith, 28,159.
(2) The amounts in this column represent charitable contributions made in 2016 under our matching gift program. Drs. Ausiello’s and Hobbs’, Ms. Nora Johnson’s and Mr. Sanger’s amounts reflect matching contributions made in 2016 in respect of 2015 contributions. Dr. Fergusson’s amount reflects matching contributions made in 2016 in respect of 2015 and 2016 contributions. Certain charitable contributions by our Directors are not eligible for matching contributions under the program and, therefore, the amounts in the above table may not reflect all such contributions made by our Directors.

 

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Pfizer 2017 Proxy Statement
 
 

 

Securities Ownership

 

The table below shows the number of shares of our common stock beneficially owned (as of the close of business on January 31, 2017) by each of our Directors and each NEO listed in the 2016 Summary Compensation Table, as well as the number of shares beneficially owned by all of our current Directors and executive officers as a group. Together, these individuals beneficially own less than one percent (1%) of our common stock outstanding.

 

The table and footnotes also include information about stock options, TSRUs, stock units, restricted stock units (RSUs) and deferred performance-related share awards credited to the accounts of our Directors and executive officers under various compensation and benefit plans.

 

           Options 
   Number of Shares or Units  Exercisable 
Beneficial Owners  Common Stock   Stock Units   Within 60 Days 
Dennis A. Ausiello, M.D.   2,362(1)   36,584(2)    
Albert Bourla, DVM, Ph.D.   112,489(3)   30,653(4)    
Ronald E. Blaylock            
W. Don Cornwell   1,759(1)   114,419(2)    
Frank A. D’Amelio   342,176(3)   76,009(4)    
Mikael Dolsten, M.D., Ph.D.   50,820(3)   191,189(4)    
Joseph J. Echevarria       17,436(2)    
Frances D. Fergusson, Ph.D.       49,777(2)    
Geno J. Germano*   115,712(1)(3)   35,546(4)    
Helen H. Hobbs, M.D.       44,565(2)    
James M. Kilts   2,259(1)   129,612(2)    
Shantanu Narayen       36,628(2)    
Suzanne Nora Johnson   10,000    53,091(2)    
Ian C. Read   645,370(3)(5)   317,117(4)    
Stephen W. Sanger   85(1)   110,644(2)    
James C. Smith   2,000    28,159(2)    
John D. Young   92,434(3)   78,559(4)    
All Directors and Executive Officers as a Group (24)   1,935,231    1,624,967     
* Mr. Germano ceased being an executive officer and serving as Group President, Global Innovative Pharma Business, effective February 8, 2016. See “Compensation Discussion and Analysis—Separation of Former NEO”.
(1) Includes the following shares held in the names of family members: Dr. Ausiello, 2,362 shares; Mr. Cornwell, 300 shares; Mr. Germano, 1,961 shares; Mr. Kilts, 2,259 shares; and Mr. Sanger, 85 shares. Dr. Ausiello and Messrs. Cornwell, Germano and Kilts disclaim beneficial ownership of such shares.
(2) Represents units (each equivalent to a share of Pfizer common stock) under our Director compensation program (see “Non-Employee Director Compensation” above).
(3) Includes shares credited under the Pfizer Savings Plan and/or deferred shares relating to previously vested awards under Pfizer’s share award programs. These plans are described later in this Proxy Statement. Also includes 1,373 shares in the Pfizer Share Ownership Plan for Mr. Young.
(4) In the case of Messrs. D’Amelio, Read and Young and Drs. Bourla and Dolsten, includes units (each equivalent to a share of Pfizer common stock) to be settled in cash following the officer’s separation from service, held under the Pfizer Inc. Supplemental Savings Plan (PSSP) and the Pfizer Inc. Deferred Compensation Plan (DCP), and for Mr. Germano includes 4,572 units held under the Wyeth Supplemental Employee Savings Plan. The PSSP and the DCP are described later in this Proxy Statement. Also includes the following RSUs (each equivalent to a share of Pfizer common stock) as of January 31, 2017: Dr. Bourla, 12,905; Mr. D’Amelio, 36,566; Dr. Dolsten, 31,833; Mr. Germano, 30,974; Mr. Read, 110,127; and Mr. Young, 30,974. These units were unvested as of January 31, 2017, except that in the cases of Messrs. Read, Bourla and Germano, in view of their respective ages and years of service with Pfizer, units granted and held for one year would continue to vest into retirement in accordance with their vesting schedule. This column does not include the following stock appreciation rights in the form of TSRUs as of January 31, 2017: Dr. Bourla, 748,721, of which 42,476 settled on February 23, 2017; Mr. D’Amelio, 1,847,616, of which 218,447 settled on February 23, 2017; Dr. Dolsten, 1,785,093, of which 218,447 settled on February 23, 2017; Mr. Germano, 1,294,701, of which 169,903 settled on February 23, 2017; Mr. Read, 6,483,138, of which 788,835 settled on February 23, 2017; and Mr. Young, 1,197,420, of which 51,578 settled on February 23, 2017. See “Compensation Tables—2016 Outstanding Equity Awards at Fiscal Year-End Table” and “— Estimated Benefits upon Termination” for a discussion of the vesting of RSUs, PSAs and TSRUs and the settlement price for the TSRUs that settled on February 23, 2017. Information regarding PSAs is not included in the above table.
(5) Includes 410,762 shares held in a grantor trust.

 

Pfizer 2017 Proxy Statement

37

 
SECURITIES OWNERSHIP

 

Beneficial Owners

 

Based on filings made under Sections 13(d) and 13(g) of the Securities Exchange Act of 1934, as amended, as of December 31, 2016, the only persons or entities known by us to be a beneficial owner of more than 5% of our common stock were as follows:

 

Name and Address of Beneficial Owner  Shares of Pfizer
Common Stock
   Percent of Class  
BlackRock, Inc.(1)            
55 East 52nd Street            
New York, NY 10055   447,701,806(1)   7.40%  
The Vanguard Group(2)            
100 Vanguard Boulevard            
Malvern, PA 19355   402,108,792(2)   6.62%  
State Street Corporation(3)            
State Street Financial Center            
One Lincoln Street            
Boston, MA 02111   322,395,016(3)   5.31%  

 

(1)The information regarding BlackRock, Inc. is based solely on a Schedule 13G/A filed by BlackRock, Inc. with the SEC on January 25, 2017 (the BlackRock 13G/A). According to the BlackRock 13G/A, includes sole voting power with respect to 392,518,713 shares, shared voting power with respect to 118,521 shares, sole dispositive power with respect to 447,583,285 shares, and shared dispositive power with respect to 118,521 shares.
(2) The information regarding The Vanguard Group is based solely on a Schedule 13G/A filed by The Vanguard Group with the SEC on February 13, 2017 (the Vanguard 13G/A). According to the Vanguard 13G/A, includes sole voting power with respect to 9,553,224 shares, shared voting power with respect to 1,157,178 shares, sole dispositive power with respect to 391,656,580 shares, and shared dispositive power with respect to 10,452,212 shares.
(3) The information regarding State Street Corporation is based solely on a Schedule 13G filed by State Street Corporation with the SEC on February 8, 2017 (the State Street 13G). According to the State Street 13G, includes shared voting power with respect to 263,276,705 shares and shared dispositive power with respect to 322,395,016 shares. According to the State Street 13G, 263,276,705 shares are held in various capacities and 59,118,311 shares are held as investment manager for the Pfizer Savings Plans, Wyeth Union Savings Plan and the Pfizer Savings Plan for Employees Resident in Puerto Rico.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our Directors and certain of our officers to file reports of holdings and transactions in Pfizer equity with the SEC and the NYSE. Based on our records and other information, we believe that in 2016 our Directors and our officers who were subject to Section 16(a) met all applicable filing requirements, except as follows: In June 2016, Alexander R. MacKenzie, Executive Vice President, filed a Form 3 with the SEC on a timely basis, reporting, among other things, the number of shares directly owned. Due to an inadvertent administrative error by the company, the number of shares directly owned included on the Form 3 (152,244) was not correct. Upon being informed of the error, Dr. MacKenzie filed an amendment to the Form 3 in October 2016, reporting the correct number of shares directly owned (161,099).

 

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Pfizer 2017 Proxy Statement
 
 

 

Related Person Transactions and Indemnification

 

RELATED PERSON TRANSACTION APPROVAL POLICY

 

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

 

Transactions requiring review are referred to the Corporate Governance Committee for approval, ratification or other action. Based on its consideration of all of the relevant facts and circumstances, the Corporate Governance Committee decides whether or not to approve such transactions and approves only those transactions that are deemed to be in the best interests of the company. If the company becomes aware of an existing transaction with a related person that has not been approved under this Policy, the matter is referred to the Corporate Governance Committee. The Corporate Governance Committee evaluates all options available, including ratification, revision or termination of such transaction. The Corporate Governance Committee then provides a summary of such transactions, including their terms, structure and business purpose, as well as the Corporate Governance Committee’s approval decision, to the Audit Committee for their information.

 

TRANSACTIONS WITH RELATED PERSONS

 

We have no related person transactions to report.

 

INDEMNIFICATION

 

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

 

Pfizer 2017 Proxy Statement

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Item 2 – Ratification of Selection of Independent Registered Public Accounting Firm

 

The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of Pfizer’s independent registered public accounting firm. The Committee conducts a comprehensive annual evaluation of the independent registered public accounting firm’s qualifications, performance and independence. The Committee considers whether the independent registered public accounting firm should be rotated and considers the advisability and potential impact of selecting a different independent registered public accounting firm. In evaluating and selecting the company’s independent registered public accounting firm, the Audit Committee considers, among other things, historical and recent performance of the current independent audit firm, an analysis of known significant legal or regulatory proceedings related to the firm, external data on audit quality and performance, including recent Public Company Accounting Oversight Board (PCAOB) reports, industry experience, audit fee revenues, firm capabilities and audit approach, and the independence and tenure of the audit firm.

 

The Audit Committee selected, and the Board of Directors ratified the selection of, KPMG LLP (KPMG) to serve as our independent registered public accounting firm for 2017. Pfizer’s auditors have been KPMG and its predecessor firm, Peat, Marwick, Mitchell & Co., since 1987. Prior to that, Pfizer’s auditors were Main Hurdman (until its acquisition by Peat, Marwick, Mitchell & Co. in 1987) and its predecessors.

 

In accordance with SEC rules and KPMG policies, audit partners are subject to rotation requirements to limit the number of consecutive years an individual partner may provide audit service to our company. For lead and concurring review audit partners, the maximum number of consecutive years of service in that capacity is five years. The process for selection of the lead audit partner under this rotation policy involves a meeting between the Chair of the Audit Committee and the candidate for the role, as well as discussion by the full Committee and with management.

 

The Audit Committee and the Board of Directors believe that the continued retention of KPMG as our independent registered public accounting firm is in the best interest of Pfizer and our shareholders, and we are asking our shareholders to ratify the selection of KPMG as our independent registered public accounting firm for 2017. Although ratification is not required by our By-laws or otherwise, the Board is submitting the selection of KPMG to our shareholders for ratification because we value our shareholders’ views on Pfizer’s independent registered public accounting firm and as a matter of good corporate practice. In the event that our shareholders fail to ratify the selection, it will be considered a recommendation to the Board of Directors and the Audit Committee to consider the selection of a different firm. Even if the selection is ratified, the Audit Committee may in its discretion select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of Pfizer and our shareholders.

 

See Governance—Board and Committee Information—The Audit Committeefor additional information on selection of the independent registered public accounting firm.

 

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

YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
RATIFICATION OF KPMG LLP AS INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM FOR 2017.

 

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ITEM 2 - RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AUDIT AND NON-AUDIT FEES

 

Audit and Non-Audit Fees

 

The following table shows the fees for professional services rendered by KPMG for the audit of the company’s annual financial statements for the years ended December 31, 2016 and December 31, 2015, and fees billed for other services rendered by KPMG during those periods.

 

   2016   2015 
Audit fees:(1)  $44,452,000   $42,408,000 
Audit-related fees:(2)   1,176,000    2,148,000 
Tax fees:(3)   4,297,000    3,791,000 
All other fees:(4)   0    0 
Total  $49,925,000    $48,347,000 

 

(1) Audit fees were principally for audit work performed on the consolidated financial statements and internal control over financial reporting, as well as statutory audits. The increase in audit fees in 2016 versus 2015 is primarily due to the audit of the Hospira Infusion Systems carve-out financial statements.
(2) Audit-related fees were principally for the audits of employee benefit plans and due diligence in connection with acquisition activities.
(3) Tax fees were principally for services related to tax compliance and reporting and analysis services.
(4) KPMG did not provide any “other services” during the period.

 

Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm

 

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

 

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

 

1.Audit services include audit work performed on the financial statements and internal control over financial reporting, as well as work that generally only the independent registered public accounting firm can reasonably be expected to provide, including comfort letters, statutory audits, and discussions surrounding the proper application of financial accounting and/or reporting standards.
2.

Audit-related services are for assurance and related services that are traditionally performed by the independent registered public accounting firm, including due diligence related to mergers and acquisitions, employee benefit plan audits, and special procedures required to meet certain regulatory requirements.

3.

Tax services include all services, except those services specifically related to the audit of the financial statements, performed by the independent registered public accounting firm’s tax personnel, including tax analysis; assisting with coordination of execution of tax-related activities, primarily in the area of corporate development; supporting other tax-related regulatory requirements; and tax compliance and reporting.

4.

All other services are those services not captured in the audit, audit-related or tax categories. Pfizer generally does not request such services from the independent registered public accounting firm.

 

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

 

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

 

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Audit Committee Report

 

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

 

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

 

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

 

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

 

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

 

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

 

In reliance on the reviews and discussions referred to above, the Committee has recommended to the Board of Directors, and the Board has approved, that the audited financial statements be included in Pfizer’s Annual Report on Form 10-K for the year ended December 31, 2016, for filing with the U.S. Securities and Exchange Commission. The Committee has selected, and the Board of Directors has ratified, the selection of Pfizer’s independent registered public accounting firm for 2017.

 

The Audit Committee    
     
   
Suzanne Nora Johnson, Chair   W. Don Cornwell
     
     
Joseph J. Echevarria   Stephen W. Sanger
     
     
James C. Smith    

 

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

 

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Item 3 – 2017 Advisory Approval of Executive Compensation

 

The Compensation Committee believes that Pfizer’s executive compensation program is consistent with the goals of our executive compensation philosophy and that it drives performance, encourages an appropriate sensitivity to risk and increases shareholder value. This pay-for-performance philosophy is set by the Compensation Committee and is intended to align each executive’s compensation with Pfizer’s short-term and long-term performance and to provide the compensation and incentives needed to attract, motivate and retain high-caliber executives who are crucial to Pfizer’s long-term success.

 

A significant portion of the total compensation opportunity for each of our executives directly relates to Pfizer’s total shareholder return and to other performance factors that measure our progress against the goals of our strategic and operating plans, as well as our pay levels compared with those of our pharmaceutical peer group and general industry comparators. In making such comparisons, we consider company market capitalization and complexity as indicated by revenues, range of products, international operations and other factors because we use such factors in setting target levels of compensation and determining the value and levels of award opportunities.

 

We implement our pay-for-performance philosophy and achieve our program goals by following three key principles:

 

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

 

Results of 2016 Advisory Vote on Executive Compensation

 

Pfizer’s executive compensation program received substantial shareholder support and was approved, on an advisory basis, by 94.4% of the votes cast at the 2016 Annual Meeting. Our Compensation Committee and the other members of our Board believe that this level of approval of our executive compensation program is indicative of our shareholders’ strong support of our compensation philosophy and goals and the decisions made by the Compensation Committee in 2015 and early 2016. We also believe that the consistent high level of support from our shareholders for our executive compensation program over the past several years is a result of our Compensation Committee’s commitment to compensating our executives in a manner that provides a strong link between pay and performance. We believe it is also reflective of our philosophy and goals, market best practices and strong shareholder engagement.

 

2016 Pay for Performance

 

2016 marked a year of strong financial performance, positive strategic business development activity, an expansion of product access and pipeline advancement. The Compensation Committee believes that the compensation of our Named Executive Officers for 2016 is reasonable and appropriate, is aligned with the performance of our company and is working to ensure that our management’s interests align with increasing shareholder value.

 

In deciding how to cast your vote on this proposal, the Board requests that you consider the structure of Pfizer’s executive compensation program in connection with our 2016 performance, which is more fully discussed in the Compensation Discussion and Analysis section. The Compensation Discussion and Analysis section also contains more details about how we implement our philosophy and goals, and how we apply these principles to our compensation program. In particular, we discuss how we set compensation targets and other objectives and evaluate performance against those targets and objectives to ensure that performance is appropriately rewarded.

 

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43

 
ITEM 3 – 2017 ADVISORY APPROVAL OF EXECUTIVE COMPENSATION

 

2017 Advisory Vote on Executive Compensation

 

The Board is presenting this proposal, which gives shareholders the opportunity to endorse or not endorse our executive pay program, on an advisory basis, by voting “FOR” or “AGAINST” the following resolution:

 

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

 

Although the advisory vote is non-binding, the Board values shareholders’ opinions. The Compensation Committee will review the results of the vote. Consistent with Pfizer’s record of shareholder responsiveness, the Committee will consider shareholders’ concerns and take into account the outcome of the vote when considering future decisions concerning our executive compensation program.

 

YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
APPROVAL, ON AN ADVISORY BASIS, OF THE COMPENSATION OF
THE COMPANY’S NAMED EXECUTIVE OFFICERS.

 

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Pfizer 2017 Proxy Statement
 
 

 

Item 4 – Advisory Vote on Frequency of Future Advisory Votes on Executive Compensation

 

In addition to seeking our shareholders’ advisory vote on the compensation of our Named Executive Officers, we are presenting the following proposal, which gives shareholders the opportunity to vote, on a non-binding, advisory basis, for their preference as to how frequently we should seek future advisory votes on the compensation of our Named Executive Officers. Through voting on this proposal, shareholders may indicate whether they would prefer that we conduct future advisory votes on executive compensation every year, every two years or every three years. For the reasons discussed below, the Board of Directors recommends that advisory votes on executive compensation take place every year.

 

Since 2011, we have held our advisory vote on executive compensation annually, consistent with the views of our shareholders expressed at that time. The Board recommends that the advisory vote on executive compensation continue to be held every year so that shareholders may continue to provide timely, direct input on our executive compensation program. The Board believes that an annual vote is consistent with the company’s efforts to engage in an ongoing dialogue with shareholders on executive compensation and corporate governance matters.

 

Although the frequency vote is non-binding, the Compensation Committee and the Board will review the results of the vote. Consistent with Pfizer’s record of shareholder responsiveness, they will consider shareholders’ views and take them into account in determining the frequency of future advisory votes on executive compensation.

 

YOUR BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE IN FAVOR OF 1 YEAR ON THE PROPOSAL CONCERNING THE
FREQUENCY OF FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION.

 

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45

 
 

 

Compensation Committee Report

 

The Compensation Committee has reviewed and discussed with management the following Compensation Discussion and Analysis section of Pfizer’s 2017 Proxy Statement. Based on our review and discussions, we have recommended to the Board of Directors that the Compensation Discussion and Analysis be included in Pfizer’s 2017 Proxy Statement.

 

The Compensation Committee

 

   
James C. Smith, Chair   W. Don Cornwell
     
     
James M. Kilts   Shantanu Narayen

 

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Pfizer 2017 Proxy Statement
 
 

 

Executive Compensation

 

Key Terms

 

The following acronyms are used for certain terms that appear in the Compensation Discussion and Analysis section:

 

Adjusted Diluted EPS:   Non-GAAP Adjusted Diluted Earnings Per Share
CD&A:   Compensation Discussion and Analysis included in this Proxy Statement
Committee:   Compensation Committee of the Board of Directors
DCP:   Pfizer Inc. Deferred Compensation Plan
DRG Pharmaceutical Index or DRG Index:   NYSE ARCA Pharmaceutical Index – An index of publicly traded companies
EH:   Essential Health – Includes legacy brands that have lost or will soon lose market exclusivity in both developed and emerging markets, branded generics, generic sterile injectable products, biosimilars and, through February 2, 2017, infusion systems
ELT:   Executive Leadership Team – The CEO and his direct reports
GAAP:   Generally Accepted Accounting Principles in effect in the U.S.
IH:   Innovative Health – Focuses on developing and commercializing novel, value-creating medicines and vaccines that significantly improve patients’ lives, as well as products for consumer healthcare
GPP:   Global Performance Plan – Annual Incentive Award Program (bonus), reported in the SCT as “Non-Equity Incentive Plan Compensation”
IBT:   Income Before Taxes
IRC/Internal Revenue Code:   The Internal Revenue Code of 1986, as amended
LOE:   Loss of Exclusivity – Loss of patent rights
Named Executive Officers or NEOs:   CEO and CFO, and the three most highly compensated Executive Officers during fiscal 2016
OI:   Non-GAAP Adjusted Operating Income
OTC:   Over-the-Counter
PCPP:   Pfizer Consolidated Pension Plan – A qualified defined benefit pension plan; closed to new entrants January 1, 2011 and will be frozen as of December 31, 2017
PRAP:   Pfizer Retirement Annuity Plan – A sub-plan of the PCPP
PSA:   Performance Share Award – A long-term incentive award tied to performance
PSP:   Pfizer Savings Plan – A qualified defined contribution plan that includes a 401(k) feature
PSSP:   Pfizer Supplemental Savings Plan – A non-qualified savings plan
RSC:   Retirement Savings Contribution – Annual employer retirement contribution based on age and service to the PSP and PSSP, if applicable, for colleagues not participating in the PRAP
RSU:   Restricted Stock Unit – A long-term incentive award
Section 16:   Section 16 of the Securities Exchange Act of 1934, as amended
SEC:   U.S. Securities and Exchange Commission
SCT:   Summary Compensation Table – An SEC-required table showing compensation, as defined by the SEC regulations, of the NEOs for the most recently completed and prior two years
TDC:   Total Direct Compensation
TSR:   Total Shareholder Return
TSRU:   Total Shareholder Return Unit – A long-term incentive award tied to absolute TSR

 

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EXECUTIVE COMPENSATION COMPENSATION DISCUSSION AND ANALYSIS

 

Compensation Discussion and Analysis

 

This Compensation Discussion and Analysis, or “CD&A,” describes Pfizer’s executive compensation program for 2016 and certain elements of our 2017 program. We use this program to attract, motivate and retain the executives who lead our business. In particular, this CD&A explains how the Compensation Committee (the Committee) of the Board of Directors (the Board) made 2016 compensation decisions for our executives, including the Named Executive Officers (NEOs) identified in this CD&A:

 

Ian C. Read

Chairman and Chief Executive Officer (CEO)

 

Frank A. D’Amelio

EVP, Business Operations and Chief Financial Officer (CFO)

 

Albert Bourla, DVM, Ph.D.*

Group President, Pfizer Innovative Health

 

Mikael Dolsten, M.D., Ph.D.

President, Worldwide Research and Development

 

John D. Young

Group President, Pfizer Essential Health

 

Geno J. Germano**

Former Group President, Global Innovative Pharma Business through February 8, 2016

 

* Effective February 8, 2016, Dr. Bourla who was Group President, Vaccines, Oncology and Consumer Healthcare, also became Group President, Global Innovative Pharma (GIP) Business, which were later combined to form Pfizer Innovative Health.
** On February 8, 2016, we announced that Mr. Germano would leave Pfizer. Mr. Germano ceased serving as an executive officer, including his role as Group President, GIP Business effective with the announcement.
  Table of Contents  
       
  49 Executive Summary  
  60 Section 1: Our Compensation Philosophy  
  61 Section 2: Elements of Our Executive Compensation Program  
  61   2016 Salaries  
  61   Annual Incentive Award Program/Global Performance Plan (GPP)  
  64   Long-Term Incentive Award Program  
  69 Section 3: How We Determine Executive Compensation  
  69   Roles of the Compensation Committee and the Independent Compensation Consultant  
  69   How We Establish Targets  
  70   Our 2016 Peer Groups – Competitive Pay Positioning  
  72 Section 4: How We Evaluate Performance: 2016 Compensation Decisions  
  73   2016 NEO Pay and Performance Summaries  
  76 Section 5: 2017 Compensation Actions  
  77 Section 6: Post-Employment Compensation and Benefits  
  78 Section 7: Other Compensation Programs and Policies  
  82 Compensation Tables  
  82   Summary Compensation Table  
  84   Grants of Plan-Based Awards Table  
  85   Outstanding Equity Awards at Fiscal Year-End Table  
  89   Option/TSRU Exercises and Stock Vested Table  
  90   Pension Benefits Table  
  92   Pension Plan Assumptions  
  93   Non-Qualified Deferred Compensation Table  
  95   Estimated Benefits Upon Termination  
  97   Equity Compensation Plan Information  
  98 Financial Measures  


 

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Pfizer 2017 Proxy Statement
 
EXECUTIVE COMPENSATION EXECUTIVE SUMMARY

 

Executive Summary

 

About Pfizer

 

Pfizer Inc. is a research-based, global biopharmaceutical company. We apply science and our global resources to bring therapies to people that extend and significantly improve their lives through the discovery, development and manufacture of healthcare products. Our global portfolio includes medicines and vaccines, as well as many of the world’s best-known consumer healthcare products. We work across developed and emerging markets to advance wellness, prevention, treatments and cures that challenge the most feared diseases of our time. We collaborate with healthcare providers, governments and local communities to support and expand access to reliable, affordable healthcare around the world.

 

OUR NAMED EXECUTIVE OFFICERS — ADVANCING OUR STRATEGIC IMPERATIVES

 

Our active NEOs provide strong management leadership for Pfizer’s global businesses. Together with the other members of Pfizer’s Executive Leadership Team (ELT), these top leaders focus on our major financial, strategic and operational activities to build shareholder value and advance the goals of our strategic imperatives.

 

Ian C. Read PFIZER TENURE: 38 years

 

Chairman and Chief Executive Officer

 

RESPONSIBLE FOR: leading our global biopharmaceutical company with approximately 96,500 colleagues worldwide and revenues of approximately $52.8 billion in 2016. Mr. Read provides leadership, strategic vision and drive towards achieving Pfizer’s Purpose: Innovate to bring therapies to patients that significantly improve their lives and Pfizer’s Mission: To be the premier innovative biopharmaceutical company.

 

More detailed biographical information about our Chairman and CEO is included in “Item 1: Election of Directors — Director Nominees”

 

Frank D’Amelio PFIZER TENURE: 9 years

 

EVP, Business Operations and Chief Financial Officer

 

RESPONSIBLE FOR: finance, business development and business operations, including IT, procurement and real estate. Mr. D’Amelio led the acquisition and integration of Medivation, Inc., Anacor Pharmaceuticals, Inc. and Hospira, Inc.

 

Albert Bourla, DVM, Ph.D. PFIZER TENURE: 23 years

 

Group President, Pfizer Innovative Health

 

RESPONSIBLE FOR: Pfizer Innovative Health: consists of six business groups: Consumer Healthcare, Inflammation & Immunology, Internal Medicine (neuroscience and pain, and cardiovascular and metabolic), Oncology, Rare Disease and Vaccines. Pfizer Innovative Health is committed to transforming health with our innovative products from prevention to treatment to wellness – at every stage of life, in communities across the globe. Pfizer Innovative Health also includes Pfizer’s Patient & Health Impact organization, which is focused on demonstrating the value of innovation to support access to all Pfizer medicines and vaccines and exploring bold, new approaches for Pfizer to lead the way.

 

Mikael Dolsten, M.D., Ph.D. PFIZER TENURE: 8 years

 

President, Worldwide Research and Development

 

RESPONSIBLE FOR: advancing Pfizer’s leadership in small-molecule science and medicines, as well as its leadership, expertise, and innovation in the areas of biologics and vaccines. Worldwide R&D combines Research Units with deep disease-area expertise, and broad multidisciplinary scientific expertise to discover innovative therapeutic programs in biotherapeutics, vaccines and small molecules. Dr. Dolsten has responsibility for innovative research at Pfizer, including development of all compounds through proof of concept (POC), and provides safety and regulatory support to the R&D pipeline.

 

John D. Young PFIZER TENURE: 29 years

 

Group President, Pfizer Essential Health

 

RESPONSIBLE FOR: Pfizer Essential Health: guided by a steadfast commitment to the patients and customers it serves, this business consists of a broad portfolio of more than 600 products with global reach in 125-plus countries.  Pfizer Essential Health is focused on growing its core Sterile Injectables, Biosimilars and Global Brands portfolios, including its industry leading anti-infective portfolio, through a dedicated R&D organization, that includes a reliance on “open science” to acquire new molecules developed outside of Pfizer, and an innovative go to market model.  

 

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EXECUTIVE COMPENSATION EXECUTIVE SUMMARY

 

Our Strategic Imperatives for Building Value

 

Pfizer’s Strategic Imperatives
                     
IMPROVING THE PERFORMANCE OF OUR INNOVATIVE CORE
by generating a portfolio of differentiated medicines and vaccines creating a culture of ownership and decisiveness in research.
  MAXIMIZING VALUE
by making the right capital allocation decisions across the business portfolio and achieving targeted growth on core assets.
  EARNING GREATER RESPECT FROM SOCIETY
by continuing to maintain and improve Pfizer’s reputation with our customers, the communities in which we operate, our shareholders and the investor community.
  CREATING A CULTURE OF OWNERSHIP
by instilling a culture of confidence and accountability and making Pfizer a great place to work.

 

Our Commercial Operations

 

We manage our commercial operations through two distinct business segments: Pfizer Innovative Health (IH) and Pfizer Essential Health (EH), which was previously known as Established Products. Beginning in the second quarter of 2016, we reorganized our operating segments to reflect that we now manage our innovative pharmaceutical and consumer healthcare operations as one business segment, IH. From the beginning of our fiscal year 2014 until the second quarter of 2016, these operations were managed as two business segments: the Global Innovative Products segment and the Vaccines, Oncology and Consumer Healthcare segment. The IH and EH operating segments are each led by a single manager. Each operating segment has responsibility for its commercial activities and for certain in-process research and development (IPR&D) projects for new investigational products and additional indications for in-line products that generally have achieved proof of concept. Each business has a geographic footprint across developed and emerging markets.

 

Some additional information about our business segments:

 

Pfizer Innovative Health (IH)   Pfizer Essential Health (EH)

IH focuses on developing and commercializing novel, value-creating medicines and vaccines that significantly improve patients’ lives, as well as products for consumer healthcare.

 

Key therapeutic areas include internal medicine, vaccines, oncology, inflammation & immunology, rare diseases, and consumer healthcare.

   

EH includes legacy brands that have lost or will soon lose market exclusivity in both developed and emerging markets, branded generics, generic sterile injectable products, biosimilars and, through February 2, 2017, infusion systems. EH also includes an R&D organization, as well as our contract manufacturing business.

 

Leading brands include:

 

•   Prevnar 13

•   Xeljanz

•   Eliquis

•   Lyrica (U.S., Japan and certain other markets)

•   Enbrel (outside the U.S. and Canada)

•   Viagra (U.S. and Canada)

•   Ibrance

•   Xtandi

•   Several OTC consumer products (e.g., Advil and Centrum)

   

Leading brands include:

 

•   Lipitor

•   Premarin family

•   Norvasc

•   Lyrica (Europe, Russia, Turkey, Israel and Central Asia countries)

•   Celebrex

•   Pristiq

•   Several sterile injectable products

 

The structure of our commercial business, together with its solid execution against our strategy, enabled us to deliver on our commitments to our shareholders, our patients and our consumers. We have made steady progress in support of our imperatives, improved shareholder value through capital allocation, and delivered important medicines and vaccines to our patients and consumers to improve their lives.

 

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EXECUTIVE COMPENSATION EXECUTIVE SUMMARY

 

Our Performance Overview

 

2016 marked a year of strong financial performance, positive strategic business development activity and an expansion of product access and pipeline advancement.

 

FINANCIAL HIGHLIGHTS AND STRATEGIC ACQUISITIONS TO ACCELERATE GROWTH AND EXPAND OUR LEADERSHIP POSITION

 

Pfizer had strong financial performance in 2016, generating operational revenue growth of 11% (excluding the impact of foreign exchange rates).(1)
  Pfizer Innovative Health and Pfizer Essential Health each recorded 11% year-over-year operational revenue growth in 2016.(2)
Added Eucrisa for mild to moderate atopic dermatitis through the acquisition of Anacor Pharmaceuticals, Inc. 
Bolstered anti-infective portfolio through the acquisition of AstraZeneca’s small molecule anti-infectives.
Accelerated our leadership in oncology with the acquisition of Medivation, Inc. and its flagship product, Xtandi, an important medicine for men with prostate cancer.

 

EXPANDING PRODUCT ACCESS

 

Delivered the 250 millionth dose of Prevenar 13 to Gavi, the Vaccine Alliance, helping to protect infants in 45 Gavi countries.
Expanded our Access Program to make Prevenar 13 available at the lowest price for humanitarian emergencies and donated the sales proceeds to organizations supporting the refugee crisis.
Sayana Press, an injectable contraceptive, received approval for self-injection in three countries and new registrations in five countries in the developing world.

 

ADVANCING OUR PIPELINE

 

As of January 31, 2017, we had a total of 96 programs in clinical development including 41 in late-stage development or registration. While we continue to experience a challenging macroeconomic environment and absorb the negative effect of product losses of exclusivity (LOEs), we created value for our shareholders and achieved significant milestones across our strategic imperatives (see “Our Strategic Imperatives for Building Value”).

 

  96 programs in development pipeline (as of January 31, 2017)
   
 

PHASE 1

35

   

PHASE 2

20

   

PHASE 3

34

   

IN REGISTRATION

7

  Experimental medicine tested for first time in human clinical trials     Trials focus on medicine’s effectiveness; determine ideal dosage and delivery method     Test results of earlier trials on larger populations in randomized trials; analyze risks/benefits     When trial results warrant, file application with the appropriate regulatory authorities

 

Additional significant milestone achievements are listed below:

 

Achieved 6 regulatory submissions, including:
  Inotuzumab for acute lymphoblastic leukemia in the U.S. and the EU.
  Avelumab for Merkel cell carcinoma in the U.S. and the EU.
Working with IBM Watson to accelerate immuno-oncology research by identifying potential new targets and combination therapies.
Received breakthrough designation from the FDA for our investigational Hemophilia B Gene Therapy in partnership with Spark Therapeutics.
Approval and launch of Inflectra in the U.S.
Recent approval of Eucrisa by the U.S. FDA for treatment of mild to moderate atopic dermatitis, often called eczema.

 

(1) For additional information on the company’s 2016 revenues, see the “Overview of Our Performance, Operating Environment, Strategy and Outlook – Our 2016 Performance - Revenues – 2016” in the Company’s 2016 Financial Report.
(2) For additional information on the company’s operating segment revenues, see the “Analysis of Operating Segment Information” in the Company’s 2016 Financial Report.

 

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EXECUTIVE COMPENSATION EXECUTIVE SUMMARY

 

OUR SHAREHOLDER RETURN

 

Quarterly
Dividends
One-year TSR Three-year TSR Five-year TSR Capital Returned
to Shareholders
7%  4.5%  17.8%  79.1%  $12.3B
Compared to 2015 Year-End 2016 Year-End 2016 Year-End 2016 in 2016

 

During 2016, progress against our strategic goals, managing LOEs, continued operational revenue growth in emerging markets, strong business results and effective execution, resulted in:

 

  Increased quarterly dividend payment by approximately 7% from $0.28 to $0.30 per share, as compared to 2015.
  Our one-, three- and five-year TSR was 4.5%, 17.8% and 79.1%, respectively, outperforming the DRG Index for the periods ending December 31, 2016.
  The return of $12.3 billion to shareholders through dividends ($7.3 billion) and share repurchases ($5 billion) in 2016.
  Closing stock price as of year-end 2016 of $32.48, up from $32.28, on December 31, 2015.

 

Pfizer’s Pay-for-Performance Philosophy

 

The Committee believes that Pfizer’s executive compensation program drives performance and increases shareholder value.

 

Our executive compensation pay-for-performance principles include:

 

•  positioning total direct compensation and each compensation element at approximately the median of our peer and general industry comparator companies, with consideration of relative company market capitalization and complexity;

•  aligning annual incentive awards with annual operating, financial and strategic objectives; and

•  rewarding absolute and relative performance in TSR through long-term equity incentive awards.

 

Consistent with Pfizer’s pay-for-performance philosophy, the executive compensation program was designed to strengthen the link between pay and performance. We deliver the majority of our NEOs’ compensation in the form of performance-based awards. A significant percentage of total target compensation is ‘at-risk’ through both our short- and long-term incentive awards. These awards are linked to actual performance and include a substantial percentage in performance-based equity awards.

 

2016 NEO Pay Mix

 

Our program consists of three key components: salary, annual incentive award and long-term incentive awards.

 

The illustration below uses year-end salary and target annual incentive and long-term awards for the active NEOs.

 

CEO – 2016 Target Direct Compensation   Other Active NEOs – 2016 Target Direct Compensation (Average)
     
 

 

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EXECUTIVE COMPENSATION EXECUTIVE SUMMARY

 

2016 NEO Total Direct Compensation (TDC)

 

TDC is the sum of base salary, annual bonus earned for the performance year, and long-term incentive grants attributable to the performance year. This “performance-year” approach is used by our Committee to determine TDC competitiveness versus peers, and to evaluate the alignment of annual pay and performance. However, performance-year TDC is different than the corresponding amount reported in the Summary Compensation Table (SCT), which reflects the timing of accruals under GAAP that are normalized in the performance-year calculations.

 

PERFORMANCE-YEAR TDC VERSUS SUMMARY COMPENSATION TABLE

 

The table below defines the compensation differences between performance-year TDC versus the Summary Compensation Table:

 

Compensation  

Performance-Year TDC

(Compensation Committee Approach)

  Summary Compensation Table
Salary:   Year-end base salary   Salary earned during the year
Annual Incentive Award (bonus):   Annual incentive award for the performance year; paid in March of the following year   Annual incentive award for the performance year; paid in March of the following year
Long-Term Incentive Award:   Long-Term Incntive (LTI) (TSRUs and PSAs) award grant value made on a performance-year basis and granted in February of the following year   Long-Term Incentive (LTI) award grant value made during the year, based on accounting rules for TSRUs and PSAs, which includes the TSRUs and the value of one-third of the 2015 and 2016 PSA grants

 

2016 CEO COMPENSATION AT A GLANCE

 

The graph below illustrates and compares the three main components of Mr. Read’s 2015 and 2016 performance year TDC and the amounts reflected in the SCT. The graph is not intended as a substitute for the SCT.

 

2016 Performance Year. The TDC ($18.9 million) represents an approximate 1.6% decrease year-over-year from the 2015 performance-year TDC ($19.2 million), reflecting a decrease in the annual incentive award.

 

2016 SCT. The $16.5 million total includes the value of the LTI award which consists of TSRUs and one-third of each of the 2015 and 2016 PSA grants because accounting rules provide that one-third of the award is included in each of the three performance years as a result of the use of three, separately established annual goals. In addition, the SCT includes grants made during the year, rather than on a performance-year basis. Therefore, the SCT equity award of $10.6 million on an accounting basis differs from the 2016 Performance-Year TDC amounts shown below at $13.0 million.

 

 

 

(1) The SCT TDC noted in this chart does not include the Change In Pension value and All Other Compensation in order to compare like elements taken into account under the TDC approach.
(2) Consistent with the accounting rules, PSAs are accounted for one-third per year due to the use of three one-year goals (set annually); therefore, the 2016 SCT amounts include the TSRUs and the value of one-third of the 2015 and 2016 PSAs, when the annual goal is set, calculated in accordance with FASB ASC Topic 718.

 

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EXECUTIVE COMPENSATION EXECUTIVE SUMMARY

 

Impact of LTI Accounting Rules. If accounting rules did not provide that one-third of the PSA grant should be disclosed in each of the three performance years, Mr. Read’s SCT TDC would have increased by approximately 6.2% as compared to 2015. The 2016 SCT TDC full performance year would have been $19.150 million (salary $1.905 million, bonus paid in 2017 $4.000 million and 2016 LTI $13.245 million). This is 6.2% higher than the 2015 SCT TDC of $18.037 million (salary $1.859 million, bonus paid in 2016 $4.300 million and 2015 LTI $11.878 million).

 

The graph below illustrates the components of Mr. Read’s 2015 and 2016 SCT TDC with full LTI award value (subject to rounding).

 

 

(1) 2015 LTI award (full value) was $11.878 million ($5.843 million of 5- and 7-year TSRUs and $6.035 million of PSAs).
(2) 2016 LTI award (full value) was $13.245 million ($6.628 million of 5- and 7-year TSRUs and $6.617 million of PSAs).

 

2016 NEO PERFORMANCE-YEAR TDC AND SUMMARY COMPENSATION TABLE

 

The compensation decisions for the NEOs reflect their contributions to the company’s overall performance and that of their respective businesses or functions. The table below provides the 2016 performance-year TDC versus the 2016 SCT TDC for the active NEOs and is not intended as a substitute for the SCT.

 

            Performance Year Compensation   Summary Compensation Table(1)
                        Total Direct   Total
                        Compensation   (Total
                        (Salary + Non-Equity   Direct Compensation
            Annual   Equity Award(2)       Incentive (bonus) + equity   (E) + Change in
        Year -End   Incentive Award   (granted in   Total Direct   awards valued on   Pension Value + All
        Salary   (paid in 2017)   February 2017)   Compensation   accounting basis)   Other Compensation)
Name(3)   Year   (A) ($)   (B) ($)   (C) ($)   (D=A+B+C) ($)   (E) ($)   (F) ($)
I. Read   2016   1,917,000   4,000,000   13,000,000   18,917,000   16,518,254   17,321,470
F. D’Amelio   2016   1,332,000   1,740,000   3,600,000   6,672,000   6,044,053   7,694,353
A. Bourla   2016   1,140,000   1,788,000   3,600,000   6,528,000   5,678,000   8,870,445
M. Dolsten   2016   1,245,000   1,740,000   3,600,000   6,585,000   5,957,553   8,227,973
J. Young   2016   1,140,000   1,788,000   3,600,000   6,528,000   5,898,053   7,395,741

 

(1) SCT TDC column E includes salary, non-equity incentive compensation and equity awards valued based on accounting rules (which reflects the TSRUs and the value of one-third of the 2015 and 2016 PSAs). The “Total” (column F) is comprised of Total Direct Compensation (column E), plus the increase in pension value and the All Other Compensation included in the SCT and, as such, differs from the 2016 performance-year TDC amounts shown in column D.
(2) Equity Award column C amounts represent the entire 2017 long-term incentive grant value, which includes the TSRUs and the full PSA grant value.
(3) Effective February 8, 2016, Mr. Germano ceased being a member of the ELT and serving as Group President, Global Innovative Pharma Business. Therefore, his compensation data is not reported in this supplementary table.

 

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EXECUTIVE COMPENSATION EXECUTIVE SUMMARY

 

SEPARATION OF FORMER NEO

 

Geno J. Germano

 

On February 8, 2016, Pfizer announced an organizational change in its commercial business segments and that Mr. Germano would leave Pfizer. In connection with his separation on May 31, 2016, he received the following compensation and benefits under the terms of the Executive Severance Plan (see further description under Executive Severance Planlater in this Proxy Statement) and related severance provisions of other plans and programs in which Mr. Germano participated:

 

A cash severance payment of $4,375,260 under the Executive Severance Plan. The amount was determined using the severance formula equal to the sum of his annual base salary plus his target bonus for 2016, multiplied by the factor provided under the plan. This payment was made on or around December 1, 2016, consistent with the terms of the Executive Severance Plan.
A cash payment of $486,109, which represents a prorated annual incentive award at target for 2016 performance. This payment was made on or before March 15, 2017.

 

Outstanding equity awards were treated in accordance with the terms of the grants.

 

The benefits provided, including pension and retiree medical, are consistent with the terms of the plans and programs and no enhanced treatment was provided in connection with his separation.

 

Compensation Practices

 

COMPENSATION RISK ASSESSMENT

 

Pfizer continues to implement and maintain leading practices in its compensation program, shareholder outreach and related areas. We annually conduct a comprehensive assessment of potential risks related to our compensation program, policies and practices.

 

Executive Compensation Program. An assessment is conducted annually by FW Cook & Co., the Committee’s independent advisor. The assessment focuses on (1) having an appropriate balance in our program structure to mitigate compensation-related risk with cash versus stock, short-term versus long-term measurement and financial versus non-financial goals; and (2) best-practice policies to mitigate compensation-related risk including clawbacks, stock ownership guidelines, equity administration rules, and insider-trading and hedging prohibitions.

 

Global Compensation Programs. The assessment process for our compensation programs around the world was designed with outside counsel and is conducted annually by management and reviewed by the Committee’s independent advisor. The assessment includes the evaluation of the global incentive plans and commission plans, and takes into consideration the plan metrics, plan participation rates, clawback/recovery provisions and other risk-mitigation factors, as well as the maximum potential payouts.

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EXECUTIVE COMPENSATION EXECUTIVE SUMMARY

 

LEADING COMPENSATION PRACTICES

 

WHAT WE DO

 

ü Risk Mitigation. Our executive compensation program includes a number of controls that mitigate risk, including executive stock ownership and holding requirements and our ability to recover compensation paid to executives in certain circumstances.
ü Compensation Recovery. To the extent permitted by law, we can recover cash- or equity-based compensation paid to executives and certain other colleagues in various circumstances, including where the compensation is based upon the achievement of specified financial results that are the subject of a subsequent restatement.
ü Stock Ownership Requirements. We require our executive officers and Directors to meet stock ownership requirements, and we prohibit them from selling any shares (except to meet tax withholding obligations) if doing so would cause them to fall below required levels.
ü Minimum Vesting. Our annual equity awards generally provide for minimum three-year vesting, except in limited circumstances involving certain terminations of employment or grants in certain countries.
ü Robust Investor Outreach. We maintain a robust investor outreach program that enables us to obtain ongoing feedback concerning our compensation program, as well as how we disclose that program.
ü Independent Compensation Consultant. The Committee and the Corporate Governance Committee have engaged an independent compensation consultant that has no other ties to the company or its management and that meets stringent selection criteria.

 

WHAT WE DON’T DO

 

û No Hedging or Pledging. We prohibit our executives and Directors from pledging, hedging, or engaging in any derivatives trading with respect to company shares.
û No “Gross-Ups.” We do not provide tax “gross-ups” for perquisites or other benefits provided to our executive officers, other than in the case of certain relocation expenses, consistent with our relocation policy for U.S.-based employees.
û No Repricing. Our equity incentive plan prohibits the repricing or exchange of equity awards without shareholder approval.
û No Employment Agreements. No executive officer has an employment agreement with the company.

 

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EXECUTIVE COMPENSATION EXECUTIVE SUMMARY

 

2016 Advisory Vote on Executive Compensation and Shareholder Outreach Program

 

HISTORICAL ADVISORY VOTES

 

Pfizer’s executive compensation program has received strong shareholder support over the past five years. At the 2016 and 2015 Annual Meetings, Pfizer’s executive compensation program received support of 94.4% and 94.2% of the votes cast, respectively. Our Compensation Committee and the other members of our Board believe this consistent high level of support from our shareholders is a result of our commitment to ensure a strong link between pay and performance. We also believe our shareholders’ votes reflect support for our compensation philosophy and goals, market best practices and focus on shareholders’ interests.

 

   

 

Robust 2016 Shareholder Outreach Program

 

In 2016, we continued our longstanding robust investor outreach program to solicit valuable feedback, which we shared with the Compensation Committee and the Board. During 2016, we engaged with over 30 global institutional investors representing nearly 30% of our outstanding shares. Investor feedback was generally positive regarding our executive compensation program and the link between pay and performance. Shareholders voiced support for our compensation program and provided important feedback on program design and disclosure.

 

The Committee and Board value our shareholders’ insights and consider shareholder feedback, evolving business needs, and a desire to further link executive pay to performance, when evaluating our compensation program. The Committee has taken a number of actions, such as enhancing our proxy statement disclosure specifically to address GPP (bonus) target setting and the rationale for the PSA program design and additional detail.

 

 

2016 CHANGES TO THE EXECUTIVE COMPENSATION PROGRAM

 

Annually, the Committee’s independent compensation consultant provides the Committee with a review of executive compensation trends and best practices, as well as any relevant regulatory updates that may impact our short- and long-term executive compensation programs. The Committee uses this information to form decisions on executive compensation and to validate the link between pay and performance.

 

Based on this annual review and in response to changing business need and market best practice, the Committee took actions to enhance our executive compensation program. We introduced several changes during 2016 as follows:

 

Topic Action Rationale
Modification to Pharmaceutical Peer Group and General Industry Comparator Group Approved a change in the composition of the Pharmaceutical Peer Group and General Industry Comparator Group used to measure performance and benchmark compensation Ensure that the Pharmaceutical Peer Group aligns more closely with the companies that we compete against.

Removed companies due to corporate reorganization actions.
    o   Added Gilead Sciences to the Pharmaceutical Peer Group.
    o   Replaced Dow Chemical, DuPont and Hewlett-Packard, with 3M, Lockheed Martin and Microsoft in the General Industry Comparator Group.
Long-Term Incentive Awards Effective November 1, 2016, annual grants were modified to allow an exercisability feature for vested Total Shareholder Return Units (TSRUs). This feature applies to recipients who are retirement eligible (at least age 55 with at least 10 years of service).

Upon exercising, the TSRUs are converted into Profit Units (PTUs) that will be settled in Pfizer common stock on their original settlement date.

The PTUs will be subject to all of the terms and conditions of the original TSRU grant including the forfeiture provisions.

This exercisability provision will also apply to future TSRU grants.
Provides for retirement planning while maintaining alignment with shareholders for the original 5- or 7-year term.
   

 

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EXECUTIVE COMPENSATION EXECUTIVE SUMMARY

 

2016 Executive Compensation Program Summary

 

Element/Type Performance Measure Terms Objectives
Salary (Cash) Fixed cash compensation; reviewed annually and adjusted as appropriate The fixed amount of compensation for performing day-to-day responsibilities is set based on market data, job scope, responsibilities and experience. Generally reviewed annually for potential increase based on a number of factors, including market levels, performance and internal equity Provides competitive level of fixed compensation that helps attract and retain high-performing executive talent
     
Annual Short-Term Incentive/Global Performance Plan (GPP) (Cash)

Company, Business/Operating Unit and Individual Performance

 

Plan funded based on Pfizer’s performance and weighted as follows:

– 40% Revenue,

– 40% Adjusted Diluted EPS, and

– 20% Cash Flow from Operations

Aggregate pool is funded based on performance against Pfizer’s short-term financial goals. Individual awards based on business/operating unit and individual performance measured over the performance year Provides short-term incentives tied to corporate performance against three operational metrics and links individual awards to both company, business/operating unit and individual performance based on achievement of financial and/or strategic goals
       
Long-Term Incentive Compensation
(100% Performance-Based Equity)

 

5- and 7-Year Total Shareholder Return Units (TSRUs)

 

Each represents 25% of total annual grant value (50% in total)

Absolute TSR 5- and 7-Year TSRUs generally vest three years from the grant date and are settled on the fifth or seventh anniversary of the grant date, respectively

 

The value earned for each TSRU is equal to the difference between the settlement price (the 20-day average of the closing prices of Pfizer common stock ending on the settlement date) and the grant price (the closing price of Pfizer common stock on the date of grant), plus the value of dividend equivalents accumulated over the term. This value, if any, is converted into shares by dividing it by the settlement price; no value is received if the TSR is negative

Provides direct alignment with shareholders as awards are tied to absolute TSR
       
Performance Share Awards (PSAs)

 

Representing 50% of total annual grant value

Operating Income* and relative TSR PSAs have a three-year performance period starting on January 1st of the year of grant and generally vest on the third anniversary of the grant based on performance

 

PSAs granted after 2014 are paid based on the company’s performance against a combination of an operating income* goal, set annually, over three one-year periods and relative TSR, as compared to the DRG Index, over a three-year period

 

Dividend equivalents are applied to the number of shares actually earned under the award, if any, at the end of the performance period

 

Earned PSAs and dividend equivalents are paid in shares of Pfizer common stock

Provides alignment with shareholders by aligning compensation to operational goals and relative TSR over a three-year performance period
     

 

* Operating income, as the PSA performance measure, is based on Pfizer’s Non-GAAP Adjusted Operating Income stated at budgeted foreign exchange rates and is further refined to exclude other unbudgeted or non-recurring items.

 

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EXECUTIVE COMPENSATION EXECUTIVE SUMMARY

 

2016 Executive Compensation Program Summary (cont’d)

 

Element/Type   Terms Objectives
Retirement Pension Plan Provides retirement income for eligible participants based on years of service and average earnings up to IRC limitations. (Plan ceased accepting new participants effective 1/1/11 and is being frozen on 12/31/17) Provides retirement income based on tenure and compensation
       
  Supplemental Pension Plan Provides retirement income relating to compensation in excess of tax code limitations under the same formula as the qualified pension plan noted above. (Plan ceased accepting new participants effective 1/1/11 and is being frozen on 12/31/17) Provides retirement income based on tenure and compensation without regard to tax code limitations
       
  Savings Plan A qualified 401(k) savings plan that provides participants with the opportunity to defer a portion of their eligible compensation, up to the tax code limitations, and a company matching contribution (defer 6.0% to receive a 4.5% matching contribution) Provides employees with a 401(k) plan savings feature and company matching contributions
   
  Retirement Savings Contribution (RSC) An age- and service-weighted company contribution (5%-9%) to the Savings Plan and Supplemental Savings Plan for those not participating in the Pension Plan Provides retirement savings in a defined contribution format consistent with market trends
     
  Supplemental Savings Plan Provides savings opportunity relating to eligible compensation in excess of the tax code limitations under the same formula (matching contributions and RSC) as the qualified savings plan noted above Allows for deferrals, matching contributions and RSC without regard to tax code limitations
   
Other Perquisites Certain other benefits provided to executives by the company consisting of limited reimbursement for personal financial planning services, home security and certain personal travel benefits for the CEO and other NEOs Provides additional benefits consistent with competitive practices. Increases efficiencies and allows more productive use of NEOs’ time and therefore greater focus on Pfizer related activities
     

 

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EXECUTIVE COMPENSATION SECTION 1 – OUR COMPENSATION PHILOSOPHY

 

SECTION 1 – Our Compensation Philosophy

 

The Committee believes Pfizer’s pay-for-performance executive compensation program is consistent with the goals of its executive compensation philosophy to drive performance and increase shareholder value. This philosophy, set by the Committee, is to align each executive’s compensation with Pfizer’s short- and long-term performance and to provide the compensation and incentives needed to attract, motivate and retain key executives who are crucial to Pfizer’s long-term success.

 

 

 

Our executive compensation program:

 

   aligns interests of key executives with the long-term interests of our shareholders;

   attracts, retains and motivates key executives to drive our business and financial performance; and

   links a significant amount of executive compensation to the achievement of pre-established performance metrics directly tied to our business goals and strategies.

 

 

Consistent with Pfizer’s pay-for-performance philosophy, the executive compensation program is designed to strengthen the link between pay and performance. We deliver the majority of our NEOs’ compensation in the form of performance-based awards. A significant percentage of total target compensation is ‘at-risk’ through both our short- and long-term incentive awards. These awards are linked to actual performance and include a substantial percentage in performance-based equity.

 

A significant portion of the total compensation opportunity for each of our executives (including the NEOs) is directly related to Pfizer’s total shareholder return and to other performance factors that measure our progress against the goals of our strategic and operating plans. We also benchmark our performance against that of our pharmaceutical peer group and general industry comparators with consideration of company market capitalization and complexity as indicated by revenues, range of products, international operations and other factors. We use these factors in setting target levels of compensation and determining the value and level of award opportunities.

 

 

Our three executive compensation pay-for-performance principles are:

 

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

   aligning annual incentive awards with annual operating, financial and strategic objectives; and

   rewarding absolute and relative performance in TSR through long-term equity incentive awards.

 

 

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EXECUTIVE COMPENSATION SECTION 2 – ELEMENTS OF OUR EXECUTIVE COMPENSATION PROGRAM

 

SECTION 2 – Elements of Our Executive Compensation Program

 

2016 Salaries

 

Salary is a fixed amount of compensation for performing day-to-day responsibilities. Salary represented approximately 11% of total direct compensation (year-end salary, target bonus and target long-term incentive) for the CEO and approximately 20% for the other active NEOs in 2016. Base salaries for the NEOs are reviewed on an annual basis, and in connection with a promotion and/or other changes in responsibilities.

 

The table below shows the annual salaries for our NEOs set by the Committee, effective April 1, 2016.

 

Name April 1, 2016 Salary
($)
 
I. Read   1,917,000  
F. D’Amelio   1,332,000  
A. Bourla   1,140,000  
M. Dolsten   1,245,000  
J. Young   1,140,000  
G. Germano*   1,175,000  
*   No change from April 1, 2015 salary.  

 

Annual Incentive Award Program/Global Performance Plan (GPP)

 

The Committee determines the bonus funding percentage based on performance against three financial metrics (within the funding ranges), and takes into consideration certain other factors influencing performance, including a qualitative assessment of Pfizer’s performance related to the pipeline.

 

ANNUAL INCENTIVE POOL FUNDING

 

The annual incentive program is funded based on the company’s achievement of pre-established financial goals determined by the company’s annual budget. The annual budget and established targets in a given year can fluctuate reflecting increases or decreases from the prior year targets. This can occur based on a number of factors including: fluctuations in foreign exchange rates, business development activity, planned capital allocation activities, or other operational factors, as well as certain other qualitative criteria. For annual incentive purposes, the weighted financial goals are:

 

  Total Revenue   Adjusted Diluted EPS   Cash Flow from Operations  
  40%   40%   20%  
             
             

 

 

 

Key features include:

 

•   Bonus pool funding is based on performance against pre-set weighted financial goals based on the annual operating plan;

•   Achievement versus our pre-set financial goals is measured using the same key operating assumptions as those in our annual budget, which take into account budgeted foreign exchange rates, business development activity (e.g., acquisitions or divestitures), planned capital allocation activities, such as share repurchases and dividend payments (share repurchases in excess of budgeted amounts are removed from the calculation of the financial results for GPP purposes), or other operational factors (e.g., losses of exclusivity), as well as certain other qualitative criteria;

•   Funding for the achievement of each financial goal is determined, within a range, based on performance and allows for limited consideration of other market factors that may have influenced performance; and

•   Award opportunity is limited to a range from 0% for below threshold performance (the pool is not funded unless threshold performance is met) to 200% at maximum.

 

 

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EXECUTIVE COMPENSATION SECTION 2 – ELEMENTS OF OUR EXECUTIVE COMPENSATION PROGRAM

 

FINANCIAL PERFORMANCE METRICS FOR ANNUAL INCENTIVE POOL FUNDING AND AWARDS

 

Each year, the Committee evaluates the continued use of the selected financial measures (and/or whether different or additional measures should be used) that are used to fund the GPP pool, to ensure that these measures:

 

support the achievement of Pfizer’s annual operating plan;
are appropriate and balanced to promote decisions and behaviors aligned with maximizing near-term business results while supporting the achievement of the company’s long-term goals without encouraging unnecessary or excessive risk-taking;
exhibit a strong line of sight (i.e., are clearly understood and can be affected by the performance of our executives and employees); and
are consistent with best practices and are prevalent within our industry.

 

2016 Annual Incentive Financial Metrics

 

Financial Performance Metric* Weighting Supports Basic Principles
Total Revenue 40%
Is a leading indicator of performance and value creation; provides a clear focus on growth; is an important measure in a sales industry; and is understandable with a clear line of sight and employee impact.
     
Adjusted Diluted EPS 40%
Is a measure of income; provides focus on profitable growth; also focuses managers on expense control; is viewed as a strong indicator of sustained performance over the long term; and is understandable with a clear line of sight and employee impact.
     
Cash Flow from Operations 20%
Provides focus on generating cash in the short term to fund operations and research and to return funds to shareholders in the form of dividends and share repurchases; focuses managers on expense control and on improving working capital; and is a strong link to long-term shareholder value creation.
* See Financial Measureson page 98 for a comparison of U.S. Generally Accepted Accounting Principles (GAAP) and non-GAAP numbers to these objectives for annual incentive purposes and Financial Results for Annual Incentive Purposeson page 63.

 

 

QUALITATIVE CONSIDERATION/OTHER FACTORS

 

Pfizer’s financial performance is the primary factor for determining the GPP pool funding. The pool funding uses a matrix of varying performance levels for financial results, subject to the Committee’s limited qualitative review. This qualitative review is an evaluation and consideration of other factors to determine the funding within an applicable range determined by financial performance. The Committee may exercise limited discretion within the range, as it deems appropriate. The Committee believes this approach provides the appropriate limited flexibility to determine the final GPP pool funding based upon a holistic view of Pfizer’s performance and not just solely on financial performance against the three metrics being measured.

 

The Committee may consider the following qualitative factors when assessing results for the final GPP pool funding:

 

a qualitative assessment of Pfizer’s performance with respect to the product pipeline;
business performance as compared to goals in other areas as well as the management of the impact of LOEs; and
relative market data/peer performance.

 

FINAL GPP FUNDING ALLOCATION

 

Once the GPP funding is approved by the Committee, the CEO, in collaboration with the ELT, uses a “top-down” approach to allocate the annual incentive pool to the various business/operating units based on relative performance, considering:

 

the relative financial performance of the business/operating unit measured by revenue and income before adjustments; and
the achievement of selected strategic and operational goals for the business/operating unit.

 

The business/operating unit leaders have the ability to allocate the funding among their units/geographies based on each unit’s relative performance.

 

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EXECUTIVE COMPENSATION SECTION 2 – ELEMENTS OF OUR EXECUTIVE COMPENSATION PROGRAM

 

TARGET SETTING FOR ANNUAL INCENTIVE AWARDS

 

The target annual incentive award opportunity for our NEOs represents a percentage of a salary grade midpoint, which is set based on market data. The use of midpoints provides uniformity of annual bonus targets as all individuals in the same salary grade have the same target bonus. This reduces the impact of compounding the differences in salary when bonus targets are a percentage of actual salary. Target annual incentive award levels are:

 

reviewed annually to ensure alignment with our compensation philosophy of targeting each compensation element and total direct compensation at approximately the market median; and
benchmarked using competitive market data and internal equity among our ELT members to ensure appropriateness.

 

For 2016, target annual incentive opportunities for the NEOs, ranged from 100% to 150% of salary grade midpoint

 

Financial Results for Annual Incentive Purposes

 

Pfizer outperformed the 2016 target goals for total revenue, adjusted diluted EPS and cash flow. The Committee set these target goals for annual incentive purposes in the first quarter of 2016, utilizing a budgeting approach that considered prior year’s performance, expected growth, the impact of business development activity, losses of exclusivity and fluctuations in foreign exchange rates. The Committee then determined that there was a sufficient degree of stretch in the targets (See “Annual Incentive Pool Funding” on page 61 for additional information).

 

These results are different from our results under GAAP. See “Financial Measures” on page 98 for a comparison of U.S. GAAP numbers to these objectives for annual incentive purposes.

 

2016 Financial Objectives (for Annual Incentive Purposes)

 

The table below provides a comparison of 2015 Results with 2016 Threshold, Target and Results.

           
Financial Objectives 2015 Results(1) 2016 Threshold 2016 Target 2016 Results(1)  
(For Annual Incentive Purposes) ($) ($) ($) ($)  
Total Revenue(2) 48.4 billion 45.8 billion 49.8 billion 51.9 billion  
Adjusted Diluted EPS(3) 2.20 2.04 2.24 2.37  
Cash Flow from Operations(4) 14.6 billion 11.0 billion 14.5 billion 16.2 billion  
(1) The 2015 amounts shown in the table exclude the results from legacy Hospira, Inc., which Pfizer acquired on September 3, 2015. The 2016 amounts shown in the table exclude the results from Medivation, Inc., which Pfizer acquired on September 28, 2016.
(2) Total Revenue for annual incentive purposes is based on budgeted foreign exchange rates assumed in each respective year and excludes certain non-recurring items. Therefore, 2016 and 2015 results differ from U.S. GAAP revenues of $52.8 billion and $48.9 billion, respectively.
(3) Adjusted Diluted EPS for annual incentive purposes is based on budgeted foreign exchange rates assumed in each respective year and excludes certain non-recurring items. See “Financial Measures” for a comparison of U.S. GAAP diluted EPS and non-GAAP adjusted Diluted EPS for 2016 and 2015 for annual incentive purposes.
(4) 2015 and 2016 Targets and Results exclude certain tax and other discretionary timing items for compensation purposes (non-GAAP amounts).

 

Note: See “Financial Measures” for a comparison of 2016 and 2015 U.S. GAAP revenues and U.S. GAAP diluted EPS and non-GAAP total revenue and non-GAAP adjusted diluted EPS for annual incentive purposes, respectively. Adjusted diluted EPS is defined as U.S. GAAP Diluted EPS excluding purchase accounting adjustments, acquisition-related costs, discontinued operations and certain significant items. Non-GAAP total revenue and non-GAAP adjusted diluted EPS for annual incentive purposes are not, and should not be viewed as substitutes for U.S. GAAP revenues and U.S. GAAP diluted EPS, respectively.

 

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EXECUTIVE COMPENSATION SECTION 2 – ELEMENTS OF OUR EXECUTIVE COMPENSATION PROGRAM

 

2016 ANNUAL INCENTIVE AWARDS

 

In February 2017, the Committee determined the annual incentives for the NEOs for 2016 performance:

 

The Committee reviewed Mr. Read’s performance for 2016, and with input from the other members of the Board, and with advice from the Committee’s independent consultant, determined his 2016 annual incentive award.
Mr. Read submitted 2016 annual incentive award recommendations to the Committee for each of the NEOs (as well as the other ELT members) based on his evaluation of their individual performance and the performance of their respective business/operating unit.
The Committee, with input from the other members of the Board and the Committee’s independent consultant, reviewed these recommendations and considered the evaluation of each executive’s performance and his or her relative contribution to Pfizer’s overall performance, to determine the amounts awarded.
The independent members of the Board ratified the 2016 annual incentive awards for the CEO and other NEOs (as well as the other ELT members), as approved by the Committee.

 

Based on Pfizer’s financial performance against the pre-established goals for 2016 and the Committee’s assessment and consideration of other factors including progress on the product pipeline and the business environment, the Committee approved funding the GPP Pool for 2016 at 150% of target

 

Actual annual incentive awards were determined based on objective performance measures for the Company and adjusted for individual and business/operating unit performance. Annual incentive award targets and payout ranges for 2016, as well as the actual annual incentive award payouts for each of the NEOs, are:

 

   2016 Salary    Target Payout    Payout Range     
   Grade Midpoint    as a % of    as a % of  Target Award    Maximum Award    Actual Award  
Name  ($)(1)    Salary Midpoint    Salary Midpoint  ($)    ($)(2)    ($)  
I. Read  1,794,700   150%   0-300%  2,692,100   5,384,200   4,000,000 
F. D’Amelio  1,170,500   100%   0-200%  1,170,500   2,341,000   1,740,000 
A. Bourla  1,170,500   100%   0-200%  1,170,500   2,341,000   1,788,000 
M. Dolsten  1,170,500   100%   0-200%  1,170,500   2,341,000   1,740,000 
J. Young  1,170,500   100%   0-200%  1,170,500   2,341,000   1,788,000 
G. Germano(3)  1,170,500   100%   0-200%  486,109   972,218   486,109 

 

(1) See “Target Setting for Annual Incentive Awards” for an explanation of how we use salary grade midpoints to determine target annual incentive awards.
(2) Maximum award is 200% of target award.
(3) Full year target award was $1,170,500; Mr. Germano left Pfizer effective May 31, 2016; accordingly his prorated target award was $486,109.

 

Long-Term Incentive Awards Program (Equity)

 

Our long-term incentive awards are structured to align our executives’ interests with the interests of our shareholders. The Committee expects our executive officers to focus their efforts on improving Pfizer’s long-term performance and its shareholder value creation:

 

on an absolute basis through TSRUs, as the value realized from the TSRUs is consistent with the value received by Pfizer’s shareholders; and
on a relative basis through PSAs, which are earned based on both operating income performance against internal goals and Pfizer’s relative TSR as compared with the DRG Index.

 

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EXECUTIVE COMPENSATION SECTION 2 – ELEMENTS OF OUR EXECUTIVE COMPENSATION PROGRAM

 

Pfizer’s long-term incentive compensation for our NEOs (and the other ELT members) is delivered entirely in the form of performance-based equity awards using two vehicles that incentivize long-term value creation:

 

Long-Term Performance Incentive Awards % Allocation of Grant Value Objective/Performance Measure

5- and 7-Year Total Shareholder

Return Units (TSRUs)

50% in total (25% each) Provides absolute long-term alignment with shareholders by linking rewards to absolute TSR over a five- or seven-year period
Performance Share Awards (PSAs) 50% Aligns rewards to both strategic financial performance metrics (operating income*) and relative TSR performance as compared to the DRG Index, over a three-year period

 

PSAs are tied to performance against a combination of operating income over three one-year periods and relative TSR over a three-year period as compared to the DRG Index

 

2016 Grant Value of Long-Term Incentive Awards

 

The 2016 grant value of each NEO’s long-term incentive award was set by the Committee based on competitive market data (targeted to median), relative duties and responsibilities, the individual’s future advancement potential, and his impact on Pfizer’s results; the awards were also used for retention purposes.

 

These grant values, which differ significantly from the accounting values shown in the 2016 Summary Compensation Table, were as follows:

 

Performance Equity
Awards Type(1)
      NEOs 2016 LTI Grant Value (granted in February 2016) ($)(3)
  Allocation %  I. Read  F. D’Amelio  A. Bourla  M. Dolsten  J. Young
5-Year TSRUs  25%  3,250,000  900,000  900,000  900,000  900,000
7-Year TSRUs  25%  3,250,000  900,000  900,000  900,000  900,000
PSAs  50%  6,500,000  1,800,000  1,800,000  1,800,000  1,800,000
Total Grant Value of                        
LTI Awards(2)      13,000,000  3,600,000  3,600,000  3,600,000  3,600,000

 

(1) Consistent with historical practice, the grant value is converted into TSRUs and PSAs using the value/closing stock price on the first trading day of the week of grant. The actual value of the grant may differ due to the change in the value of the TSRUs/PSAs between the conversion date and the date of grant. In addition, based on the PSA design, accounting rules provide that the value of one-third of the PSA grant for each of the 2015 and 2016 PSA grants is reported in the “2016 Summary Compensation Table”.
(2) The amounts shown represent the full value of the grant, which is significantly different from the 2016 amount reported in the “2016 Summary Compensation Table”, which reports the value of TSRUs and of one-third of each of the 2015 and 2016 PSA grants, in accordance with applicable accounting rules. The Committee considers the full value in its determination of annual compensation.
(3) Mr. Germano did not receive a 2016 long-term incentive award.

 

Total Shareholder Return Units (TSRUs)

 

TSRUs, which deliver value based on absolute total shareholder return, vest on the third anniversary of the date of grant and settle on the fifth or seventh anniversary of the grant date, as applicable. The settlement value equals the difference between the settlement price and the grant price (both as described below), plus dividend equivalents accumulated during the term. The grant price is the closing stock price on the date of grant ($30.59 for the TSRUs granted on February 25, 2016), and the settlement price is the 20-day average of the closing prices ending on the fifth or seventh anniversary of the grant. The settlement value is delivered in shares of Pfizer common stock.

 

Performance Share Awards (PSAs)

 

Effective with the 2015 annual grant, we modified the PSA performance measure from a three-year relative TSR (compared to our pharmaceutical peer group) to two measures:

 

1. operating income* (OI) over three one-year periods; and
   
2. relative TSR as compared to the DRG Index over the three-year performance period.

 

* Operating income, as the PSA performance measure, is based on Pfizer’s Non-GAAP Adjusted Operating Income stated at budgeted foreign exchange rates and is further refined to exclude other unbudgeted or non-recurring items.

 

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EXECUTIVE COMPENSATION SECTION 2 – ELEMENTS OF OUR EX\ECUTIVE COMPENSATION PROGRAM

 

The chart below provides the details of the PSA program and the Committee’s rationale for its decisions regarding the features of the PSAs:

 

 

 

PSA Formula:

 

Average of the three annual Operating Income (OI)(1) % Performance Factors

+ 1.5 x the first 20 percentage point differential between Pfizer’s TSR % and DRG Index TSR %(2)

+ 2.0 x the differential over 20 percentage points(2)

 

 

= PSA percentage earned

 

Performance Share Award Features The Committee’s Rationale
How are PSAs earned? PSAs deliver value based on both a strategic financial measure OI and relative TSR against the DRG Index. See below for a step-by-step table.
Why use Operating Income(1) as a PSA metric? The Committee reviewed several metrics, and selected operating income as a financial metric because of its expected correlation with long-term company performance and the view that it serves as a key indicator of the company’s financial health.
Why is Operating Income(1) measured annually for three years? Given the nature of our business, we expect future shareholder value growth to be largely driven by: new drug approvals (which have unpredictable timing), losses of exclusivity on existing drugs, as well as the impact of foreign exchange fluctuations, acquisitions and divestitures.
Why use relative TSR as a PSA metric? Continuing the use of the relative TSR metric over the three-year performance period provides balance that is intended to drive performance over the three-year period and beyond and to ensure that pay delivery and long-term growth in the value of Pfizer are now even more closely aligned.
How will the TSR be calculated? The TSR calculation will be based on the average of 30 trading days immediately prior to the start and end of each three-year performance period.
Why is the 3-Year relative TSR compared to the DRG Index? Use of an objectively determined publicly traded index consisting of major market-capitalized pharmaceutical companies, provides greater transparency and ease of tracking by investors and participants.

 

(1) Operating income, as PSA performance measure, is based on Pfizer’s Non-GAAP Adjusted Operating Income stated at budgeted foreign exchange rates and is further refined to exclude other unbudgeted or non-recurring items.
(2) Positive or negative adjustment.

 

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EXECUTIVE COMPENSATION SECTION 2 – ELEMENTS OF OUR EXECUTIVE COMPENSATION PROGRAM

 

How We Determine Performance Share Awards (PSAs) Earned

 

For the 2016 PSAs, the number of PSAs earned at the end of the three-year performance period will be determined as follows:

 

2016 PSAs (2016-2018)

 

               
  STEP 1   STEP 2     STEP 3  
               
 

2016-2018

Target PSAs

 

 

Actual OI(1):

$18.220B

Target: $17.714B

Threshold: $16.964B

2016 Performance Factor

140%

(Approved February 2017)

 

 

Final Payout(2):
(To be approved
February 2019)

 

To determine this final payout, the three-year average OI performance factor will be determined and adjusted by the relative TSR including the application of the 1.5x / 2.0x leveraging of the TSR differential.

 
           
   

Actual OI:

TBD

Target and Threshold:

(Approved February 2017, to be disclosed in the 2018
Proxy Statement)

2017 Performance Factor

TBD

(To be approved
February 2018)

 

   
           
   

Actual OI:

TBD

Target and Threshold: TBD
(February 2018)

2018 Performance Factor

TBD

(To be approved
February 2019)

   
               

 

2015 PSAs (2015-2017)

 

In February 2015, the newly designed PSAs were granted for the first time. Prior to the grant and at each of the two subsequent February Compensation Committee meetings, the operating income goals were set and approved by the Committee. The final payout for the February 2015 grant will be determined in early 2018, when the three-year average operating income performance and relative TSR will be calculated. The payout will be determined using the operating income results and the three-year relative TSR performance.

 

 

(1) Operating income, as PSA performance measure, is based on Pfizer’s Non-GAAP Adjusted Operating Income (as calculated using the “Reconciliation of GAAP Reported to Non-GAAP Adjusted Information – Certain Line Items” table in our 2016 Financial Review), adjusted to reflect budgeted foreign exchange rates for the year and further refined to exclude other unbudgeted or non-recurring items.
(2) Payout ranges from 0% to maximum of 200%.
(3) For 2015 and 2016, excludes legacy Hospira, Inc. and Medivation, Inc., respectively.

 

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EXECUTIVE COMPENSATION SECTION 2 – ELEMENTS OF OUR EXECUTIVE COMPENSATION PROGRAM

 

2014 PSAs (PRE-2015 AWARDS)

 

On February 27, 2017, the PSAs granted on February 27, 2014 vested. The vesting of the 2014 PSAs was linked to Pfizer’s cumulative relative TSR (including reinvested dividends) over a three-year period (2014-2016) as compared to that of our then pharmaceutical peer group. For this award, our pharmaceutical peer group consisted of AbbVie, Amgen, AstraZeneca, Bristol-Myers Squibb, Eli Lilly, GlaxoSmithKline, Johnson & Johnson, Merck, Novartis, Roche and Sanofi. The potential payout ranged from 0% to 200% of target. However, the payout would be capped at target if TSR was negative in the absolute (i.e., the decrease in the value of the stock exceeded the total dividend equivalents), regardless of Pfizer’s relative ranking.

 

Based on Pfizer’s relative TSR ranking, the payout range was determined. The actual payout, within the range, was then determined by the Committee, which considered (but did not need to do so) other factors influencing performance both positively and negatively including factors outside of management’s control. The Committee cannot approve a payout outside of the range under any circumstance.

 

2014-2016 Performance Share Award Payout Matrix

 

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

 

Our 2014 long-term incentive grants to our NEOs included PSAs that were earned during the performance period ending in 2016 based on the above matrix. Pfizer’s performance over the three-year period (2014-2016) resulted in a relative performance ranking of 7th (Tier 4). This resulted in a payout ranging from 66% to 100% of target. In February 2017, the Committee approved a payout at 100% of target as shown below due to relative performance compared to peers and, in particular, the companies that ranked 6th and 8th. Pfizer’s TSR performance was close to the company in the 6th position (by 2.5%) and more distant from the 8th position (by 10.8%).

 

Performance Share Award Payout for the 2014-2016 Performance Award Cycle

 

  Target Award Actual Award Actual Award Value at
Name at Grant (#) Shares(1) (#) $34.28 Per Share(2) ($)
I. Read 100,031 110,011 3,771,177
F. D’Amelio 33,214 36,528 1,252,180
A. Bourla(3) 11,722 12,891 441,903
M. Dolsten 28,915 31,800 1,090,104
J. Young 28,134 30,941 1,060,657
G. Germano 28,134 30,941 1,060,657

 

(1) These amounts include accumulated dividends on 100% of the target award for the three-year period, converted into shares at $34.28 per share.
(2) This column represents the actual award value based on a stock price of $34.28 on February 27, 2017.
(3) Deferred 100% of the PSAs into the Deferred Compensation Plan.

 

2014 PERFORMANCE RESTRICTED STOCK UNITS

 

The vesting of RSUs granted in 2014 to our NEOs was contingent upon the achievement of certain performance criteria during the three-year performance period commencing in 2014 and ending December 2016. The program was designed to comply with the requirements of IRC Section 162(m), so that such awards may be considered as performance-based for tax purposes. The payout of 2014 RSUs was 100% of target. For additional information on the performance-based 2014 RSUs, see Tax Policieslater in this Proxy Statement.

 

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EXECUTIVE COMPENSATION SECTION 3 – HOW WE DETERMINE EXECUTIVE COMPENSATION

 

SECTION 3 – How We Determine Executive Compensation

 

Role of the Compensation Committee

 

The Compensation Committee, comprised solely of independent directors, is responsible for determining the compensation for our NEOs and overseeing the design and administration of Pfizer’s executive compensation program. Each year, the Committee reviews and considers a comprehensive assessment and analysis of the executive compensation program, including the elements of each NEO’s compensation, with input from the Committee’s independent compensation consultant. The independent members of the Board review all decisions by the Committee relating to the compensation of our executives.

 

Role of the Independent Compensation Consultant

 

In 2016, the Committee continued to retain the firm of FW Cook & Co., represented by George Paulin, its Chairman, as the Committee’s independent compensation consultant. Its role is to advise the Committee on executive compensation matters in accordance with our policy on criteria and assessment of the firm’s independence. Generally, these services can include: advising the Committee on our executive compensation program, philosophy and evolving industry practices; providing market information and analysis regarding the competitiveness of our program design; reviewing our peer group; evaluating management proposals and our specific awards; and other compensation values for appropriateness and in relationship to company performance.

 

In 2016, as part of his ongoing services to the Committee, Mr. Paulin attended nine Committee meetings held during the year.

 

During 2016, Mr. Paulin:

reviewed agenda in advance of Committee meetings and meeting minutes afterwards;
performed a risk analysis of the company’s executive compensation policies and programs, which concluded that no “potential material risk” existed to Pfizer in their design or administration;
reviewed executive pay relative to peers and corporate performance, including the use of tally sheets and analysis of realizable pay;
advised on executive pay issues related to significant mergers, acquisitions, divestitures and other financial transactions;
advised the Committee on the executive compensation peer groups and competitive benchmarking of executive positions; and
reviewed the executive pay structure.

 

He also advised the Committee on:

the composition of the long-term incentive program, including changes to the design of the TSRUs;
the appropriateness of the design of the Portfolio Performance Share Awards for eligible employees working in research and development in support of the company’s long-term portfolio strategy;
legislative and regulatory developments related to compensation policies and programs and compensation-related disclosure, including voting policies of proxy advisory firms and the company’s major institutional investors;
market trends and developments;
severance benefits and matters related to changes to the company’s pension and savings plans; and
shareholder engagement.

 

Fees Paid. The total amount of fees paid to FW Cook & Co. in 2016 for services provided to the Compensation Committee was $320,873. Also, the Committee reimburses FW Cook & Co. for Mr. Paulin’s reasonable travel and business expenses. In addition, FW Cook & Co. serves as the independent advisor to the Corporate Governance Committee and received fees of $38,699 in 2016 for this work.

 

How We Establish Targets

 

We set total target direct compensation at approximately the 50th percentile of the market as defined by our pharmaceutical peers and general industry comparators. A significant portion of the total compensation opportunity for each of our executives (including the NEOs) is directly related to Pfizer’s total shareholder return and to other performance factors that measure our progress against the goals of our strategic and operating plans, as well as our performance against that of our pharmaceutical peer group and general industry comparators. In making such comparisons, we consider company market capitalization and complexity, as indicated by revenues, range of products, international operations and other factors, because we use such factors in setting target levels of compensation and determining the value and level of award opportunities.

 

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EXECUTIVE COMPENSATION SECTION 3 – HOW WE DETERMINE EXECUTIVE COMPENSATION

 

On an annual basis, the Committee reviews the total compensation opportunity of each NEO (as well as the other ELT members). This includes cash compensation (salary and target annual incentive) and long-term incentive compensation (target long-term incentive value), as well as perquisites, retirement benefits and health and insurance benefits. The Committee, with the advice of its independent compensation consultant, then sets each NEO’s compensation target for the current year. This generally involves establishing an annual incentive opportunity and a long-term incentive award. Regular salary adjustments, if any, typically become effective on April 1 of each year. The Committee’s decisions are reviewed and ratified by the independent members of the Board.

 

This chart explains the Compensation Committee’s process for determining our executive pay targets.

 

Analysis/Tools How We Use This Information Purpose

Peer and Comparator Group Pay Analysis

 

Data source: Publicly available financial and compensation information as reported by our Peer and GI Comparator Group companies

 

(Typically from surveys and public filings)

•    We target the median compensation values of our peer and comparator groups to help determine an appropriate total level and pay mix for our executives.

 

•    Each compensation target is assigned a numbered salary grade to simplify our compensation administration process.

 

–   Each salary grade has a range of salary levels: including minimum, midpoint and maximum salary levels.

 

–   Minimum and maximum salary range levels for each grade are set 25% below and above the salary range midpoint to approximate the bottom and top pay quartiles for positions assigned to that grade.

 

•    We review this framework/salary grade as a guide to determine the preliminary salary recommendation, target annual incentive award opportunity, and target long-term incentive value for each executive position.

 

Note: The actual total compensation and/or amount of each compensation element for an individual executive may be more or less than this median.

Establishes a competitive pay framework using comparator groups’ median compensation values, to help determine an optimum pay mix of base pay, annual and long-term incentive targets

Tally Sheets

 

Data source:

Internal compensation and benefits data

•    We review a “tally sheet” for each ELT member that includes target and actual total compensation elements, as well as benefits information, accumulated deferred compensation, and outstanding equity awards. The Committee believes that tally sheets are a useful tool in evaluating total compensation and internal pay equity. Provides additional information that assists the Committee in evaluating total compensation in relation to competitive market practice and performance

 

Our 2016 Peer Groups – Competitive Pay Positioning

 

We target the median compensation values of both a peer group of large multinational pharmaceutical companies and a general industry comparator group to determine an appropriate total level and mix of pay for our executives. We believe that the use of both groups is valuable as the general industry comparators are more similar to Pfizer in size, revenue, scope and market capitalization while the pharmaceutical peers are within our industry.

 

Changes to Peer Group: In 2016, with the assistance of the independent compensation consultant, the Committee approved the following changes to our peer groups: (1) Gilead Sciences was added to the Pharmaceutical Peer group; and (2) 3M, Lockheed Martin, and Microsoft were added to the General Industry Comparator group replacing Dow Chemical, DuPont and Hewlett-Packard.

 

We recognize that while some information is available on the performance of our non-U.S.-based peer companies, the compensation data can be limited in terms of comparable benchmarks and other information compared to peers with U.S. pay models. Using the companies in both groups provides a good balance and increases the amount of comparable compensation data available to perform our annual benchmarking analysis. Both groups are used as they are also a source of talent for Pfizer, and have complex businesses, as well as the availability of comparative data. We review these groups annually to determine if any changes are necessary.

 

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EXECUTIVE COMPENSATION SECTION 3– HOW WE DETERMINE EXECUTIVE COMPENSATION

 

2016 PHARMACEUTICAL PEER AND GENERAL INDUSTRY COMPARATOR GROUPS

 

Our peer group for 2016 consisted of the companies listed in the charts below.

         
2016 Pharmaceutical Peer Group
AbbVie Bristol-Myers Squibb GlaxoSmithKline Novartis*
Amgen Eli Lilly Johnson & Johnson Roche*
AstraZeneca Gilead Sciences+ Merck Sanofi*

*    The Committee recognizes that while data are available on the performance of our non-U.S.-based peer companies, the compensation data in some cases are limited in terms of comparable benchmarks and may use different pay models as compared to Pfizer’s pay model.

+   Added in 2016

         

2016 General Industry Comparator Group
3M+ Comcast Lockheed Martin+ United Technologies
AT&T ConocoPhillips Microsoft+ UnitedHealth Group
Boeing Express Scripts Mondelez Verizon
Caterpillar General Electric PepsiCo  
Chevron Honeywell Procter & Gamble  
Coca-Cola IBM United Parcel Service  
+   Added in 2016
         

PFIZER COMPARISON TO PEER GROUP MEDIANS

 

The chart below compares Pfizer’s 2016 revenue, net income and market capitalization to the median 2016 revenue, net income and market capitalization for our Pharmaceutical Peer group and General Industry Comparator group.

 

In Billions Pfizer ($) Pharmaceutical Peer
Group Median ($)
General Industry
Comparator Group Median ($)
Revenue* 52.8 25.6 65.3
Reported Net Income* 7.2 4.5 5.3
Market Capitalization* 203.1 98.6 157.3

 

*   Revenue and Net Income based on published earnings releases. Market Capitalization as of February 28, 2017.

 

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EXECUTIVE COMPENSATION SECTION 4 – HOW WE EVALUATE PERFORMANCE: 2016 COMPENSATION DECISIONS

 

SECTION 4  –   How We Evaluate Performance: 2016 Compensation Decisions

 

Linking Pay and Performance

 

This section highlights the Committee’s key compensation decisions for 2016 based on the Committee’s review of each NEO’s performance and annual assessment and advice from its independent compensation consultant, FW Cook & Co.

 

SETTING PERFORMANCE OBJECTIVES

 

The performance objectives for our NEOs reflect the goals the Committee believes our executives should focus on during the year in order to achieve Pfizer’s business goals, including operating, financial and/or strategic plans. Progress against these objectives is monitored and reviewed during the year. The Committee recognizes that increasing total shareholder return should be emphasized; however, they also acknowledge that performance against this objective may not be reflected in a single 12-month period.

 

Summary of Financial, Operating and Strategic Factors Used in Determining NEO Total Direct Compensation

       
  Achievement of key financial and non-financial objectives
     
  Total Revenue
  Adjusted Diluted EPS
  Cash Flow from Operations
  Operating Income
  Total Shareholder Return
  Key business/operating unit financial performance metrics such as Revenues and Income Before Taxes
  Individual performance
       

DETERMINING 2016 AWARDS

 

For 2016, the Committee reviewed the annual incentive funding matrix, which sets funding ranges based on performance, and found that the relationship between the funding levels at the varying performance levels and the performance was appropriate. The Committee also concluded that the degree of difficulty of the targets (and other points on the matrix) was significant although reasonable given the business environment and related factors. The Committee also reviewed the target levels for the annual long-term incentive awards and concluded that they were appropriate and do not encourage unnecessary or excessive risk-taking.

 

PAYING FOR PERFORMANCE

 

The Committee made decisions about individual compensation elements and total compensation using its judgment, advice from its independent compensation consultant, and input from the CEO (in the case of the other NEOs), focusing primarily on each NEO’s performance against his individual financial and strategic objectives, as well as Pfizer’s overall performance. The Committee also considered a variety of qualitative factors, including the business environment in which the results were achieved. Therefore, the Committee determined each NEO’s compensation based on multiple factors, including the competitive market, individual performance, internal equity and affordability. The Committee took into consideration the key individual accomplishments described below, which were important factors in assessing the respective NEO’s performance for 2016.

 

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2016 NEO Pay and Performance Summaries

 

The tables below provide a summary of each NEO’s individual accomplishments for 2016 and the Committee’s compensation actions (year-end salary, 2016 performance year bonus/GPP and the full value of the LTI grant awarded in February 2017, see 2016 NEO Performance-Year TDC and Summary Compensation Table), as follows:

 

Ian C. Read  

CHAIRMAN AND CEO  

 

2016

Year-End Salary:

Bonus/GPP:

LTI Grant:

(Full value)

$1.917M

$4.000M

$13.000M

 

KEY ACCOMPLISHMENTS

 

Imperative 1: Improving the Performance of Our Innovative Core

 

• Advanced 39 programs across all therapeutic areas in the pipeline; Received 5 regulatory approvals including Ibrance recurrent advanced breast cancer (U.S.), Xalkori for ROS1-positive advanced non-small cell lung cancer in the U.S. and EU, and Eucrisa for mild to moderate atopic dermatitis in the U.S.

• Achieved significant progress in establishing a robust Immuno-oncology portfolio with 11 novel compounds now in the clinic. Initiated 30 clinical programs for avelumab with our partner Merck KGaA, 10 of which are potentially registration enabling; Regulatory submissions for avelumab in Merkel cell carcinoma have been accepted for review in the U.S. and EU.

• Established scientific collaborations to further strengthen R&D capabilities and secure next generation technologies in key areas of clinical focus including gene therapy, immuno-oncology, and metabolic disease.

 

Imperative 2: Making the Right Capital Allocation Decisions

 

• Accelerated the growth potential of the Innovative Health and Essential Health businesses through targeted acquisitions:

o Advanced leadership positions in Oncology and Inflammation & Immunology through the Medivation, Inc. (September 28, 2016) and Anacor Pharmaceuticals, Inc. (June 24, 2016) acquisitions, respectively.

o Established Essential Health as an industry leader in anti-infectives with addition of the AstraZeneca small-molecule anti-infectives business (December 22, 2016).

• Achieved robust revenue performance from newer and mature brands, including continued growth from Ibrance, Xeljanz, and Eliquis and solid performance from Chantix, Prevenar 13, and the Sterile Injectable portfolio.

• Returned $12.3 billion to shareholders through dividends and share repurchases.

 

Imperative 3: Earning Greater Respect from Society

 

• Preserved Pfizer’s position as an industry leader through meaningful stakeholder engagement and continued investment in public health initiatives:

o Advocated for strengthening protections for intellectual property, value-based decision making in healthcare, and other policies supportive of the biopharmaceutical business model with government leaders domestically and internationally.

o Launched well-received corporate campaign, “Driven to Discover the Cure”, further demonstrating our commitment to research and innovation.

o Significantly extended reach of key public health programs, Get Old, Get Healthy / Stay Healthy, and the Chief Medical Officer platform, aimed at encouraging consumers to take an active part in their healthcare.

o Delivered our 250 millionth dose of Prevenar 13 to Gavi, the Vaccine Alliance, and continued our commitment to the International Trachoma Initiative, donating more than 120 million doses of the antibiotic Zithromax.

 

Imperative 4: Creating a Culture of Ownership

 

• Continued to advance our ownership culture by introducing a focus on accountability; sustained improvements in key culture areas in our annual colleague engagement survey.

• Held 4th annual OWNIT! Day to emphasize the importance of a strong culture as a competitive advantage in achieving Pfizer’s business objectives.

 

 

Pfizer 2017 Proxy Statement

73

 
EXECUTIVE COMPENSATION SECTION 4 – HOW WE EVALUATE PERFORMANCE: 2016 COMPENSATION DECISIONS

 

Frank A. D’Amelio

EVP, BUSINESS OPERATIONS AND CFO  

 

2016

Year-End Salary:

Bonus/GPP:

LTI Grant:

(Full value)

$1.332M

$1.740M

$3.600M

 

KEY ACCOMPLISHMENTS

 

• Achieved 2016 Revenue and Adjusted Diluted EPS guidance.

• Reduced outstanding shares by approximately 154 million through $5.0 billion in share repurchases.

• Generated $800 million of operating cash flow and $400 million in savings incremental to the annual operating plan through various finance and business operations initiatives.

 

 

• Successfully closed the acquisitions of Anacor Pharmaceuticals, Inc. on June 24, 2016, and Medivation, Inc. on September 28, 2016.

• Returned $12.3 billion to shareholders through dividends and share repurchases.

 

 

Albert Bourla, DVM, Ph.D.  

GROUP PRESIDENT, PFIZER INNOVATIVE HEALTH  

 

2016

Year-End Salary:

Bonus/GPP:

LTI Grant:

(Full value)

$1.140M

$1.788M

$3.600M

 

KEY ACCOMPLISHMENTS

 

• Achieved $29.2 billion in revenue and $15.9 billion in income before taxes (IBT) for Pfizer Innovative Health.

• Achieved 5 product approvals and 6 regulatory submissions including the following:

o Ibrance approvals in a total of 58 countries.

o Eucrisa for mild to moderate atopic dermatitis, approval in the U.S.

o Chantix aid to smoking-cessation treatment, approval of new label.

o Avelumab filing for Merkel cell carcinoma in the U.S./EU.

• Key approvals in Emerging Markets with Prevenar 13 in China and Xeljanz in Brazil.

 

• Successfully closed the acquisitions of Anacor Pharmaceuticals, Inc. on June 24, 2016 and Medivation, Inc. on September 28, 2016 improving the leadership positions of our Inflammation & Immunology and Oncology businesses.

• Completed the organizational design of Pfizer Innovative Health as six, global, independent business groups with distinct therapeutic area focus and increased patient centricity.

• Served on BIO (Biotechnology Innovation Organization) and Pfizer Foundation Boards.

 

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Pfizer 2017 Proxy Statement