DEF 14A 1 c94228_def14a.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A

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Breakthroughs
that change
patients’ lives

 

Proxy Statement for
2020 Annual Meeting
of Shareholders

 

2019 Financial Report1

 

1 The 2019 Financial Report is not included in this filing. The portions of the 2019 Financial Report that are incorporated by reference in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (the “2019 Form 10-K”) were filed, and the other portions of the 2019 Financial Report were furnished, solely for the information of the U.S. Securities and Exchange Commission, on Exhibit 13 to the 2019 Form 10-K. The 2019 Financial Report is contained in Appendix A to the Notice of 2020 Annual Meeting and Proxy Statement being mailed to our shareholders beginning on or about March 13, 2020. The Letter to Shareholders from our Chairman and Chief Executive Officer, the 2019 Patient Impact chart and the Corporate and Shareholder Information contained in the materials being mailed to our shareholders beginning on or about March 13, 2020 are not included in this filing.

 

Purpose
Blueprint

 

OUR PURPOSE

 

Breakthroughs that change patients’ lives

 

 

OUR BOLD MOVES

 

 

1. Unleash the power of our people

2. Deliver first-in-class science

3. Transform our go-to-market model

4. Win the digital race in pharma

5. Lead the conversation

         
         
OUR BIG IDEAS
         
         

1.1 Create room for meaningful work

 

1.2 Recognize both leadership and performance

 

1.3 Make Pfizer an amazing workplace for all

2.1 Source the best science in the world

 

2.2 Double our innovation success rate

 

2.3 Bring medicines to the world faster

3.1 Improve access through new payer partnerships

 

3.2 Address the patient affordability challenge

 

3.3 Transform the way we engage patients and physicians

4.1 Digitize drug discovery and development

 

4.2 Enhance health outcomes and patient experience

 

4.3 Make our work faster and easier

5.1 Be known as the most patient-centric company

 

5.2 Drive pro-innovation/pro-patient policies

 

5.3 Focus the narrative on the value of our science

         
         

 

OUR VALUES
       
       
       
Courage Excellence Equity Joy
       
 
A MESSAGE FROM PFIZER’S LEAD INDEPENDENT DIRECTOR

 

A message from Pfizer’s Lead Independent Director

 

 

Shantanu Narayen

 

Dear Shareholders:

 

On behalf of Pfizer’s Board of Directors, thank you for your investment and confidence in the company and the Board. I am pleased to continue to serve as Lead Independent Director and to work closely with my fellow Directors to carry out our fiduciary responsibilities to you, our shareholders, and our other stakeholders. As we approach the annual meeting, it is my pleasure to update you on the Board’s various activities over the past year.

 

Board Oversight of Strategy and Risk

 

2019 was an extremely productive and transformational year for Pfizer. As we enter our second year under Dr. Albert Bourla’s leadership as Chief Executive Officer, the company, guided by our Purpose Blueprint, including the five “bold moves,” has set a clearly defined roadmap that we expect to lead to a period of sustainable growth following the anticipated close of the transaction between Upjohn Inc. (Upjohn) and Mylan N.V. (Mylan) later this year.

 

The Board’s role is critical in overseeing Pfizer’s corporate strategy and operations, and we continue to work closely with Dr. Bourla and management on matters regarding the business and its performance. Throughout the year, our Board meeting agendas regularly included significant business and organizational initiatives, updates concerning our R&D pipeline, capital allocation strategies and business development opportunities.

 

Notably, these conversations included sessions focused on our commitment to explore strategic options for our businesses. In July 2019, Pfizer announced plans that Upjohn, Pfizer’s global, primarily off-patent branded and generic established medicines business, would combine with Mylan to form a new company. That company will be named Viatris upon the close of the transaction, which is anticipated in mid-2020, subject to Mylan shareholder approval and satisfaction of other customary closing conditions, including receipt of regulatory approvals.

 

During the year, the Board also was kept informed of developments that could affect our enterprise risk profile, including reputational risk or other aspects of our business, such as regulatory matters, trends, public policy developments, drug pricing, patient access and reimbursement, among other factors. In addition, the Board is fully aware that investors and other stakeholders are increasingly interested in how boards and companies address sustainability and in their disclosures on these topics.

 

Board Oversight of Sustainability

 

At Pfizer, corporate responsibility and sustainability remain integral to our business strategy and we remain committed to being a responsible corporate citizen. The company’s focus has always been on delivering strong financial results in a way that respects and benefits all of our stakeholder groups, including shareholders, patients, colleagues, communities and the environments in which we operate. Please see Pfizer’s 2019 Annual Review1 at www.pfizer.com/annual for details concerning our sustainability initiatives and programs.

 

Further, the Board has oversight for environmental, social and governance performance through the Governance & Sustainability Committee. The Committee is regularly updated on corporate social responsibility, sustainability and philanthropic efforts by management. The Committee recently changed its name to the Governance & Sustainability Committee to provide greater alignment with the full duties and responsibilities outlined in the Committee’s Charter and reflect the broad scope of its oversight responsibilities.

 

 

 

1 The 2019 Annual Review is not a part of our proxy solicitation materials.

 
A MESSAGE FROM PFIZER’S LEAD INDEPENDENT DIRECTOR

 

Board Leadership Structure

 

Turning to the Board’s leadership, one of our most important responsibilities is to evaluate and determine the Board’s optimal leadership structure and to ensure independent oversight of management, as well as a highly engaged and high-functioning Board. During the Board’s evaluation of its leadership structure, the independent Directors carefully consider whether to combine or separate the Chairman and CEO roles. 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 and will continue to take these factors into consideration when evaluating its leadership structure.

 

In September 2019, the Board unanimously elected Dr. Bourla as Chairman of the Board, effective January 1, 2020 upon the retirement of Mr. Ian C. Read as Executive Chairman and from Pfizer’s Board of Directors on December 31, 2019.

 

Dr. Bourla’s election was the result of a multi-year systematic and comprehensive succession planning process, led by the independent Directors. The Board recognizes that in circumstances where the positions of Chairman and CEO are combined or the Chairman is not independent, it is imperative that the Board elect a strong Lead Independent Director with a clearly defined role and set of responsibilities. In my role as Lead Independent Director, I will continue to ensure the independent Directors have robust leadership in the boardroom.

 

Board Succession Planning & Refreshment

 

Throughout the year, the Board continued its proactive assessment of board succession planning and refreshment. The Governance & Sustainability Committee and full Board strive to ensure that we maintain a Board that embodies a broad and diverse set of experiences, qualifications, attributes and skills to effectively oversee management and the company. When seeking new Director candidates, the current Directors consider a diverse pool of qualified candidates who could potentially serve as Board members. We view diversity in terms of skills, as well as gender, age, race, ethnicity, background, professional experience and perspectives.

 

Recently, the Board was pleased to announce the elections to the Board of Mr. James Quincey, the Chairman and Chief Executive Officer of The Coca-Cola Company and Dr. Susan Hockfield, Professor of Neuroscience and President Emerita, Massachusetts Institute of Technology and, in June 2019, the election to the Board of Dr. Scott Gottlieb, a former FDA Commissioner, physician and medical policy expert. These Directors are excellent additions to the Board. Their skills and perspectives further enhance our diversity and expertise in the boardroom. Their appointments were informed by the Board’s continued focus on its composition, as well as insights provided through the Board’s annual self-evaluation process.

 

As a result of the Board’s proactive refreshment efforts, since 2015, the Board has added six new Directors to the Board. Our average Director tenure is six years representing an appropriate balance of tenures.

 

Strong Commitment to Shareholder Engagement

 

In closing, on behalf of my fellow Directors, we would like to thank our shareholders and all of our stakeholders for the time they commit to engaging with us and sharing their feedback. The Board engaged in reviews of shareholder and stakeholder communications at each of our meetings and we were informed of shareholder feedback received during Pfizer’s year-round investor outreach. Members of senior management engaged with investors representing more than 30% of shares outstanding in 2019. The Chair of the Governance & Sustainability Committee, Mr. Joseph Echevarria, participated in discussions with several investors at their request. As detailed in this Proxy Statement, under “Shareholder Outreach”, we covered a range of topics and the Board continues to use your input to inform our practices and policies to ensure they remain industry-leading.

 

We are excited to oversee the company and management under its clearly defined roadmap and to be entering into an expected era of sustained growth following the anticipated close of the transaction between Upjohn and Mylan later this year. We look forward to serving your interests in 2020 and beyond. Thank you for your support.

 

Sincerely,

 

 

Shantanu Narayen

Lead Independent Director

 

Please refer to our Annual Report on Form 10-K for the year ended December 31, 2019, including the sections captioned “Risk Factors” and “Forward Looking Information and Factors that May Affect Future Results,” for a description of the substantial risks and uncertainties related to the forward-looking statements included herein.

 
 

 

Notice of 2020 Annual Meeting and Proxy Statement

 

Time and Date

9:00 a.m., Eastern Daylight Time (EDT),

on Thursday, April 23, 2020

 

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 25, 2020.

 

Audio Webcast

Available at www.pfizer.com, starting at 9:00 a.m., EDT, on Thursday, April 23, 2020. A replay will be available through May 29, 2020.

ITEMS OF BUSINESS

 

To elect 13 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 2020 fiscal year.
To conduct an advisory vote to approve our executive compensation.
To consider 5 shareholder proposals, if properly 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)

Internet*   www.investorvote.com/PFE   www.proxyvote.com
  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
Mail   Complete, sign and return the proxy card   Complete, sign and return the voting instruction form
* You may need to provide your control number that appears on the right-hand side of the proxy card or voting instruction form.

 

MATERIALS TO REVIEW

 

This booklet contains our Notice of 2020 Annual Meeting and Proxy Statement. Our 2019 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, the 2019 Patient Impact information on the back inside cover or the accompanying Letter from our Chairman and Chief Executive Officer, are a part of our proxy solicitation materials.

 

This Notice of 2020 Annual Meeting and Proxy Statement and a proxy card or voting instruction form are being mailed or made available to shareholders starting on or about March 13, 2020.

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR
THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 23, 2020

 

This Notice of 2020 Annual Meeting and Proxy Statement and the 2019 Financial Report and Corporate and Shareholder
Information are available on our website at https://investors.pfizer.com/financials/annual-reports/default.aspx. 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 13, 2020

 
 

 

2019 Pfizer At A Glance

 

  ~$51.8 Billion in Revenues in 2019
  8 Products with Direct Product and/or Alliance Revenues of Greater than $1 Billion in 2019
  3 Distinct Businesses in 2019* — Pfizer Biopharmaceuticals Group (Biopharma)
(~$39.4 Billion 2019 Revenues) / Upjohn (~$10.2 Billion 2019 Revenues) / Consumer Healthcare
  6 Primary Therapeutic Areas in Biopharma — Internal Medicine, Oncology, Hospital, Vaccines, Inflammation & Immunology and Rare Disease
  20 Globally Recognized Brands and the Greenstone generics platform in Upjohn
    >125 Countries Where We Sell Our Products
  95 Projects in Clinical Research & Development**
  ~$8.7 Billion 2019 R&D Expense
  42 Manufacturing Sites Worldwide Operated by Pfizer Global Supply;
7 Manufacturing Sites Worldwide Operated by Upjohn
  ~88,300 Employees Globally

 

Unless indicated otherwise, the information contained in this summary is as of December 31, 2019.

 

* On July 29, 2019, we announced that we entered into a definitive agreement to combine Upjohn Inc. with Mylan N.V., creating a new global pharmaceutical company, Viatris. On July 31, 2019, Pfizer’s Consumer Healthcare business, an over-the-counter medicines business, was combined with GlaxoSmithKline’s Consumer Healthcare business to form a new consumer healthcare joint venture.
** As of January 28, 2020.
 
 

 

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 2020 Director Nominees 8
      Director Nominees 9
    Governance 18
      Overview 18
      Board Information 18
        Board Leadership Structure 18
        The Board’s Role in Risk Oversight 21
        The Board’s Oversight of Company Strategy 22
        The Board’s Oversight of Company Culture 22
        The Board’s Role in Succession Planning 22
        Process for Selecting New Director Nominees 23
        Evaluation of Board Effectiveness 24
        Board and Committee Information 25
      Governance & Sustainability Committee Report 29
      Regulatory and Compliance Committee Report 30
      Shareholder Outreach 31
      Corporate Responsibility and Sustainability 33
      Public Policy Engagement and Political Participation 36
      Pfizer Policies on Business Conduct 38
      Other Governance Practices and Policies 39
    Non-Employee Director Compensation 41
      2019 Director Compensation Table 43
    Securities Ownership 44
      Beneficial Owners 45
    Related Person Transactions and Indemnification 46
        Item 2 — Ratification of Selection of Independent Registered Public Accounting Firm 47
      Audit and Non-Audit Fees 48
    Audit Committee Report 49
    Item 3 — 2020 Advisory Approval of Executive Compensation 50
      Results of 2019 Advisory Vote on Executive Compensation 50
      2019 Pay-for-Performance 50
      2020 Advisory Vote on Executive Compensation 51
    Compensation Committee Report 51
    Executive Compensation 52
      Compensation Discussion and Analysis 53
      Table of Contents 53
      Executive Summary 54
      Compensation Tables 83
      Financial Measures 100
    Shareholder Proposals 101
      Item 4 — Right to Act by Written Consent 101
      Item 5 — Enhancing Proxy Access 103
      Item 6 — Report on Lobbying Activities 105
      Item 7 — Independent Chair Policy 108
      Item 8 — Gender Pay Gap 111
    Annual Meeting Information 113
      Annual Meeting 113
      Voting 114
      Proxy Materials 116
      Other Questions 117
      Other Business 118
      Submitting Proxy Proposals and Director Nominations for the 2021 Annual Meeting 118
    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 Matters  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  47  
  Item 3 — 2020 Advisory Approval of Executive Compensation  FOR  50  
  Shareholder Proposals        
  Item 4 — Right to Act by Written Consent  AGAINST  101  
  Item 5 — Enhancing Proxy Access  AGAINST  103  
  Item 6 — Report on Lobbying Activities  AGAINST  105  
  Item 7 — Independent Chair Policy  AGAINST  108  
  Item 8 — Gender Pay Gap  AGAINST  111  

 

Our Director Nominees

 

You are being asked to vote on the election of the following 13 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(1)   Director
Since
   Occupation and Experience   Independent   Audit   Compensation   Governance &
Sustainability
   Regulatory &
Compliance
   Science &
Technology
   Other
Public
Boards
Ronald E. Blaylock  60  2017  Founder, Managing Partner of GenNx360 Capital Partners  Yes  l  l        l  3
Albert Bourla, DVM, Ph.D.  58  2018  Chairman & Chief Executive Officer, Pfizer Inc.  No                
W. Don Cornwell(2)  72  1997  Retired Chairman & Chief Executive Officer, Granite Broadcasting Corporation  Yes        l  CHAIR  l  2
Joseph J. Echevarria  63  2015  Retired Chief Executive Officer, Deloitte LLP  Yes  l     CHAIR     l  3
Scott Gottlieb, M.D.  47  2019  Special Partner of New Enterprise Associates, Inc.’s Healthcare Investment Team and Resident Fellow of the American Enterprise Institute  Yes           l  l  1
Helen H. Hobbs, M.D.  67  2011  Investigator, Howard Hughes Medical Institute & Professor, University of Texas Southwestern Medical Center  Yes        l  l  CHAIR 
Susan Hockfield, Ph.D.  69  2020  Professor of Neuroscience and President Emerita, Massachusetts Institute of Technology  Yes           l  l 
James M. Kilts(2)  72  2007  Founding Partner, Centerview Capital  Yes     l        l  4
Dan R. Littman, M.D., Ph.D.  67  2018  Helen L. and Martin S. Kimmel Professor of Molecular Immunology at the Skirball Institute of Biomolecular Medicine of NYU Langone Medical Center & Investigator, Howard Hughes Medical Institute  Yes        l  l  l 
Shantanu Narayen
Lead Independent Director
  56  2013  Chairman, President & Chief Executive Officer, Adobe Inc.  Yes                 1
Suzanne Nora Johnson  62  2007  Retired Vice Chairman, Goldman Sachs Group, Inc.  Yes  CHAIR        l  l  3
James Quincey  55  2020  Chairman and Chief Executive Officer, The Coca-Cola Company  Yes     l        l  1
James C. Smith(3)  60  2014  President & Chief Executive Officer, Thomson Reuters Corporation  Yes  l  CHAIR        l  1
   
(1) Age as of the date of the 2020 Annual Meeting
(2) In December 2019 and February 2020, respectively, Pfizer announced that each of Mr. Kilts and Mr. Cornwell agreed to join the Board of Directors of Viatris upon the closing of the planned combination of Upjohn Inc. and Mylan N.V., which is expected to occur in mid-2020. Each of Mr. Kilts and Mr. Cornwell will resign from Pfizer’s Board of Directors upon joining the Viatris Board of Directors.
(3) Mr. Smith will retire as President & Chief Executive Officer and as a Director of Thomson Reuters Corporation, effective March 15, 2020.

 

Pfizer  2020 PROXY STATEMENT      1
 
PROXY STATEMENT SUMMARY

 

Board and Committee Refreshment

 

To help ensure effective refreshment and proactively manage eventual vacancies on the Board due to upcoming retirements, the Governance & Sustainability Committee and the full Board consider a diverse pool of qualified Director candidates on an ongoing basis. This process resulted in the election of six new independent Directors over the past five years: Drs. Dan R. Littman, Scott Gottlieb and Susan Hockfield and Messrs. Joseph J. Echevarria, Ronald E. Blaylock and James Quincey. Their elections were informed by the Board’s continued focus on its composition and its annual evaluation process, which ensures the appropriate balance of skills, diversity, experience and tenure in light of our business needs. Further, over the past several years we have made several changes to the composition of our Board Committees, including rotating each of our Committee Chairs. Through periodic committee refreshment, we balance the benefits derived from continuity and depth of experience with the benefits of fresh perspectives and exposing our Directors to different aspects of our business.

 

Board Composition

 

Pfizer maintains a diverse Board, which represents a wide range of experience and perspectives important to enhancing the Board’s effectiveness in fulfilling its oversight role. Below we highlight the composition of our Director nominees.

 

 

DIRECTOR TENURE

 

 

 

BOARD DIVERSITY

 

 

 

 

DIRECTOR INDEPENDENCE

 

 

 

Average Director tenure is 6 years   7 of 13 Directors are diverse
based on gender and ethnicity
  12 of 13 Directors are independent
         

 

KEY SKILLS AND EXPERIENCE

                               
                    
                               
   Business
Leadership
&
Operations
   International
Business
   Medicine
&
Science
   Risk
Management
   Healthcare
&
Pharma
   Government
&
Public
Policy
   Human
Capital
Management
   Technology   Finance
&
Accounting
   Academia
Ronald E. Blaylock  l        l              l   
Albert Bourla, DVM, Ph.D.  l  l  l     l     l         
W. Don Cornwell  l        l        l     l   
Joseph J. Echevarria  l  l     l     l        l   
Scott Gottlieb, M.D.        l     l  l            
Helen H. Hobbs, M.D.        l     l              l
Susan Hockfield, Ph.D.  l     l        l           l
James M. Kilts  l  l        l               
Dan R. Littman, M.D., Ph.D.        l     l              l
Shantanu Narayen  l  l     l        l  l  l   
Suzanne Nora Johnson  l  l     l  l           l   
James Quincey  l  l                 l  l   
James C. Smith  l  l              l     l   

 

2      Pfizer  2020 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 the communities we serve.

 

           
    Shareholder Rights and Accountability
    •   Annual election of all Directors
    Majority voting to elect Directors
    Shareholder ability to call Special Meetings (10% ownership threshold)
    Proxy access rights to holders owning at least 3% of outstanding shares for 3 years
    Robust shareholder engagement program
       

 

           
    Board and Committee Oversight
    •   Corporate strategy
    Corporate culture and human capital management
    Risk assessment and risk management
    Corporate political expenditures and lobbying activities
    Cybersecurity; drug pricing, access and reimbursement; and sustainability
       

 

           
    Independence
    •   12 of our 13 Director nominees are independent
    Our Chairman and CEO is the only non-independent Director
    All key Board Committee members are independent
       

 

           
    Lead Independent Director
    •   Presides at regular executive sessions of independent Directors
    Leads annual independent Director evaluation of Chairman and CEO
       
           
    Board Practices
    •   Annual Board and Committee evaluations
    Director orientation and continuing Director education on key topics and issues
    Mandatory Retirement Policy at age 73, absent special circumstances
    Code of Business Conduct and Ethics for Members of the Board of Directors
       

 

           
    Pay-for-Performance
    •   Executive compensation program strongly links pay and performance
    Compensation Committee reviews the goal-setting processes to ensure targets are rigorous, yet attainable, thereby incentivizing performance
    Significant percentage of total target compensation is “at-risk” through short- and long-term incentive awards
    Compensation Committee structures our compensation program to align targets and goals with our overall business strategy and objectives
       

 

             
    Robust Stock Ownership Requirements
    •   CEO, Named Executive Officers (NEOs) and Directors are subject to robust Pfizer common stock ownership requirements:
      o   CEO: 6x base salary
      o Other NEOs: 4x base salary
      o Non-employee Directors: 5x annual cash retainer
         


 

Our Corporate Governance and Executive Compensation practices are informed by our long-standing, comprehensive shareholder engagement program. In 2019, we solicited feedback from investors representing approximately 50% of our outstanding shares and engaged with more than 25 global institutional investors, representing over 30% of our shares outstanding. The Chair of the Governance & Sustainability Committee participated in these discussions when requested.

 

Pfizer  2020 PROXY STATEMENT      3
 
PROXY STATEMENT SUMMARY

 

2019 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 and sustainability 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 2019, we solicited feedback from investors representing approximately 50% of our outstanding shares and engaged with more than 25 global institutional investors, representing over 30% of our outstanding shares. Such engagement included the participation of the Chair of our Governance & Sustainability Committee when requested. Overall, investors’ sentiment was positive with respect to our Board of Directors, our corporate governance practices, including the frequency of our shareholder outreach, and our executive compensation program.

 

Areas of particular focus during our engagements with investors included board leadership, composition and succession planning, executive compensation, lobbying activities and sustainability practices, including human capital management, with a focus on pay parity, and corporate culture. Shareholder feedback was summarized and shared with the Board of Directors.

 

For more information about our 2019 shareholder engagement program and the actions we took in response to shareholder feedback, see “GovernanceBoard InformationGovernance & Sustainability Committee Report” and “GovernanceShareholder Outreach” later in this Proxy Statement.

 

Executive Compensation Highlights

 

Pfizer’s pay-for-performance compensation philosophy is set by the Compensation Committee. 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.
  We ensure that a significant portion of the total compensation opportunity for our executives is “at-risk” through both our short- and long-term incentive awards, the payout of which is directly related to the achievement of pre-established performance metrics directly tied to our business goals and strategies and, for long-term incentive awards, Pfizer’s total shareholder return (TSR).

 

4      Pfizer  2020 PROXY STATEMENT
 
PROXY STATEMENT SUMMARY

 

2019 KEY ELEMENTS OF EXECUTIVE COMPENSATION

 

Direct compensation for our executives in 2019 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 that helps to attract and retain high-performing executive talent
         
         
Annual Short-Term Incentive/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/operating unit and individual performance measured over the performance year   Provides incentives for achieving short-term results that create sustained future growth
         
       
         
         

Annual Long-Term Incentive Compensation

(100% Performance-Based Equity)

 

 

•  5-Year Total Shareholder Return Units (TSRUs)

•  7-Year Total Shareholder Return Units (TSRUs)

•  Performance Share Awards (PSAs)

 

 

 

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 Adjusted Net Income** over three one-year periods and TSR relative to the NYSE Arca Pharmaceutical Index (DRG Index) over a three-year performance period

   
* Effective for the 2020 performance year, the Compensation Committee approved adding a research and development pipeline achievement factor to the existing short-term incentive financial metrics.
** Effective with the 2019 performance year, the Adjusted Operating Income performance measure was replaced with an Adjusted Net Income performance measure for PSAs granted after 2017. Adjusted Net Income, as the PSA performance measure, is defined as U.S. GAAP Net Income excluding purchase accounting adjustments, acquisition-related costs, discontinued operations and certain significant items; and is adjusted to reflect budgeted foreign exchange rates for the year and further refined to exclude other unbudgeted or non-recurring items.

 

2019 NAMED EXECUTIVE OFFICER (NEO) PAY MIX

 

The illustration below uses year-end salary, target annual short-term and long-term incentive awards for the NEOs to show the percentage each pay element comprises of our NEOs’ target total direct compensation for 2019.

 

2019 Target Total Direct Compensation
for Albert Bourla (CEO)
  2019 Target Total Direct Compensation
(Average) for Other NEOs*
     
 
   
* Excludes Executive Chairman

 

Pfizer  2020 PROXY STATEMENT      5
 
PROXY STATEMENT SUMMARY

 

2019 KEY PLANNING CYCLE

 

The below graphic illustrates key elements of the annual compensation planning cycle:

 

APPROVE   REVIEW   ENGAGE

 

 

JANUARY – MARCH   APRIL – JUNE

•   Complete Executive Leadership Team (ELT) year-end performance assessments for prior year

•   Review and finalize prior year’s incentive plan performance results and funding level

•   Review and approve annual ELT compensation (salary, bonus and long-term incentive awards)

•   Conduct annual risk assessment on our executive compensation and global compensation programs and policies

•   Review and approve proxy materials

•   Review ELT goals for current performance period

•   Approve various incentive plan metrics and targets for current performance period

 

•   Consider shareholder feedback from outreach discussions and the results of the say-on-pay vote

•   Review year-to-date performance relating to the annual incentive plan and the equity-based performance awards

•   Conduct an annual proxy analysis of NEO pay of comparator companies

•   Review proxy advisory firms’ analyses of current proxy statement

     
OCTOBER – DECEMBER   JULY – SEPTEMBER

•   Commence ELT year-end performance assessments

•   Conduct annual executive stock ownership review

•   Review year-to-date performance relating to the annual incentive plan and the performance share plan

•   Review potential NEOs for the upcoming proxy statement

•   Engage in shareholder outreach discussions and consider shareholder feedback in decisions regarding plan components

•   Review and approve Compensation Committee Charter

 

•   Review year-to-date performance relating to the annual incentive plan and the equity-based performance awards

•   Conduct CEO mid-year performance assessment

•   Review the composition of the Pharmaceutical Peer and General Industry Comparator groups

 


 

OUR COMPENSATION PRACTICES

 

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

 

WHAT WE DO   WHAT WE DO NOT DO
ü Risk Mitigation   û Hedging or Pledging
ü Compensation Recovery (“Clawback”)   û Employment Agreements
ü Stock Ownership Requirements   û Change in Control Agreements
ü Minimum Stock Vesting Required   û Repricing
ü Robust Investor Outreach   û “Gross-ups” for Excise Taxes or Perquisites
ü Independent Compensation Consultation    

 

For additional information about Pfizer, please view our 2019 Financial Report (see “Appendix A”) and our 2019 Annual Review at www.pfizer.com/annual. Please note that neither our 2019 Financial Report, nor our 2019 Annual Review is a part of our proxy solicitation materials.

 

6      Pfizer  2020 PROXY STATEMENT
 
 

 

Item 1 – Election of Directors

 

Thirteen 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 2020 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.

 

Messrs. Kilts and Cornwell have agreed to join the Board of Directors of Viatris upon the closing of the planned combination of Upjohn Inc. (Upjohn) and Mylan N.V. (Mylan), which is expected to occur in mid-2020, subject to Mylan shareholder approval and satisfaction of other customary closing conditions, including receipt of regulatory approvals, and each will resign from Pfizer’s Board of Directors at that time. Other than Messrs. Kilts and Cornwell 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 Dr. Bourla) are independent of the company and management and meet Pfizer’s criteria for independence (see “Director Independence” below).

 

Criteria for Board Membership

 

The Governance & Sustainability 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.

 

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

•   Ability to make a meaningful contribution to the Board’s advising, counseling and oversight roles

•   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

•   Broad experience, diverse perspectives, and the ability to exercise sound judgment, and a judicious and critical temperament that will enable objective appraisal of management’s plans and programs

•   Diversity with respect to gender, age, race, ethnicity, background, professional experience and perspectives

 

 

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 skill in the following areas:

 

  Director Skills Criteria    
             
     Business Leadership & Operations  Healthcare & Pharma  Technology
   International Business  Government & Public Policy  Finance & Accounting
   Medicine & Science  Human Capital Management  Academia
   Risk Management        
               

 

Pfizer  2020 PROXY STATEMENT      7
 
ITEM 1 – ELECTION OF DIRECTORS

 

The Board and each Committee conduct rigorous annual evaluations to help ensure satisfaction of the criteria for Board membership (see Evaluation of Board Effectivenessbelow). Based on these activities and their review of the current composition of the Board, the Governance & Sustainability Committee and the Board determined that the criteria for Board membership have been satisfied.

 

Selection of Candidates

 

Director Skill Set Considerations; Use of Matrix; Commitment to Diversity

 

In recruiting and selecting Board candidates, the Governance & Sustainability 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 other positions the Director or candidate holds, including other boards of directors on which he or she serves; the results of the Board and Committee evaluations; each Director’s and candidate’s projected retirement date; the independence of each Director and candidate, to ensure that a substantial majority of the Board is independent; and the company’s current and future business needs. While the company does not have a formal policy on Board diversity, Pfizer’s Corporate Governance Principles provide that Directors should be selected so that the Board maintains its diverse composition, with diversity reflecting gender, age, race, ethnicity, background, professional experience and perspectives. Pursuant to its charter, the Governance & Sustainability Committee of the Board is responsible for considering a diverse pool of candidates to fill positions on the Board.

 

Consideration of Potential Director Candidates

 

On an ongoing basis, the Governance & Sustainability 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 Governance & Sustainability Committee as described in “How to Communicate with Our Directors” below. All candidates are required to meet the criteria outlined above, as well as those discussed under “Director Independence” below and in our Corporate Governance Principles and other governing documents, as applicable, as determined by the Governance & Sustainability 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 2021 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 Governance & Sustainability Committee in the same manner as the Governance & Sustainability 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 following his or her 73rd birthday. On the recommendation of the Governance & Sustainability 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 2020 Director Nominees

 

The Governance & Sustainability 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.

 

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


 

8      Pfizer  2020 PROXY STATEMENT
 
ITEM 1 – ELECTION OF DIRECTORS

 

Director Nominees

 

 Ronald E. Blaylock  AGE: 60

 

DIRECTOR SINCE: 2017

 

BOARD COMMITTEES: Audit, Compensation and Science and Technology

 

KEY SKILLS:     Business Leadership & Operations     Risk Management    Finance & Accounting

 

OTHER CURRENT PUBLIC BOARDS: CarMax, Inc., W.R. Berkley Corporation and Conyers Park II Acquisition Corp.


 

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. He also held senior management positions at UBS, PaineWebber Group and Citicorp.

 

Director of CarMax, Inc., W.R. Berkley, Corporation, an insurance holding company, and Conyers Park II Acquisition Corp. (a special purpose acquisition company and an affiliate of Centerview Capital). Director of Syncreon U.S., a for-profit private company. Former Director of Urban One, Inc. Member of the Board of Trustees of Carnegie Hall. Member of the Board of Overseers of New York University Stern School of Business. Board Member of Mebane Foundation.

 

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 compensation committees of other public companies enables him to bring valuable insights to Pfizer’s Board and Compensation 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  2020 PROXY STATEMENT      9
 
ITEM 1 – ELECTION OF DIRECTORS

 

 Albert Bourla, DVM., Ph.D.  AGE: 58

 

Chairman and Chief Executive Officer

 

DIRECTOR SINCE: 2018

 

KEY SKILLS:     Business Leadership & Operations     Human Capital Management    International Business
              Healthcare & Pharma     Medicine & Science    

 

OTHER CURRENT PUBLIC BOARDS: None


 

Chairman of the Board of Pfizer since January 2020; Chief Executive Officer of Pfizer since January 2019; Chief Operating Officer of Pfizer from January 2018 to December 2018; Group President, Pfizer Innovative Health from June 2016 until December 2017; Group President, Global Innovative Pharma Business of Pfizer from February 2016 until June 2016 (responsible for Vaccines, Oncology and Consumer Healthcare since 2014). President and General Manager of Established Products Business Unit of Pfizer from 2010 until 2013. Since joining Pfizer in 1993, Dr. Bourla has served in various leadership positions with increasing responsibility within Pfizer’s former Animal Health and global commercial organizations.

 

Board member of Pharmaceutical Research and Manufacturers of America (PhRMA). Board member of The Pfizer Foundation, which promotes access to quality healthcare. Member of the Board of the Partnership for New York City and Catalyst.

 

KEY SKILLS & EXPERIENCE:

 

Business Leadership & Operations/Human Capital Management/International Business/Healthcare & Pharma:

Dr. Bourla has over 25 years of leadership experience and a demonstrated track record for delivering strong business results. Dr. Bourla has deep knowledge of the healthcare industry as he has held a number of senior global positions across a range of businesses in five different countries (including eight different cities) over the course of his career, which enables him to provide important insights and perspectives to our Board on the company’s commercial, strategic, manufacturing and global product development functions. As Chairman and CEO, Dr. Bourla provides an essential link between management and the Board regarding management’s business perspectives. In addition, his experiences on the board of PhRMA enable him to bring a broad perspective on issues facing our industry to the Board.

 

Medicine & Science:

Dr. Bourla brings expertise in medicine and science to the Board as he is a Doctor of Veterinary Medicine and holds a Ph.D. in the Biotechnology of Reproduction from the Veterinary School of Aristotle University.

 

10      Pfizer  2020 PROXY STATEMENT
 
ITEM 1 – ELECTION OF DIRECTORS

 

 W. Don Cornwell*  AGE: 72

 

DIRECTOR SINCE: 1997

 

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

 

KEY SKILLS:     Business Leadership & Operations     Human Capital Management        Risk Management
              Finance & Accounting          

 

OTHER CURRENT PUBLIC BOARDS: American International Group, Inc. and Natura & Co. Holding Inc.


 

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 Natura & Co. Holding Inc. Director of Blue Meridian Partners and Trustee of Big Brothers Big Sisters of New York City. Former Director of Avon Products, Inc. (until its acquisition by Natura & Co. Holding Inc.). Former Director of CVS Caremark for over 10 years, including two years as Chair of its Compensation Committee.

 

* In February 2020, Pfizer announced that Mr. Cornwell agreed to join the Board of Directors of Viatris upon the closing of the planned combination of Upjohn and Mylan, which is expected to occur in mid-2020. He will resign from Pfizer’s Board of Directors upon joining the Viatris Board of Directors.

 

KEY SKILLS & EXPERIENCE:

 

Business Leadership & Operations/Human Capital 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.

 

 Joseph J. Echevarria  AGE: 63

 

DIRECTOR SINCE: 2015

 

BOARD COMMITTEES: Audit, Governance & Sustainability (Chair) 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


 

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.

 

Chairman of the Board of The Bank of New York Mellon Corporation. Director of Unum Group, a provider of financial protection benefits, and Director of Xerox Corporation. Member of the President’s Export Council and former member of the Presidential Commission on Election Administration. Former Chair of My Brother’s Keeper Alliance. Special Advisor to the President of the University of Miami and 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 committees of other public companies, is an asset to Pfizer’s Board and Audit Committee.

 

Government and 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.

 

Pfizer  2020 PROXY STATEMENT      11
 
ITEM 1 – ELECTION OF DIRECTORS

 

 Scott Gottlieb, M.D.  AGE: 47

 

DIRECTOR SINCE: 2019

 

BOARD COMMITTEES: Regulatory and Compliance and Science and Technology

 

KEY SKILLS:     Government & Public Policy      Medicine & Science       Healthcare & Pharma

 

OTHER CURRENT PUBLIC BOARDS: Illumina, Inc.


 

Special Partner, New Enterprise Associates, Inc.’s Healthcare Investment Team and Resident Fellow of the American Enterprise Institute. Served as the 23rd Commissioner of the U.S. Food and Drug Administration (FDA) from 2017 to 2019. Prior to serving as Commissioner of the FDA, Dr. Gottlieb held several roles in the public and private sectors, including serving as a Venture Partner to New Enterprise Associates, Inc. from 2007 to 2017.

 

Director of Illumina, Inc. Director of Aetion, Inc. a private healthcare data technology company, and Tempus, a private technology company. Member of the National Academy of Medicine.

 

KEY SKILLS & EXPERIENCE:

 

Government & Public Policy/Medicine & Science/Healthcare & Pharma:

Dr. Gottlieb’s expertise in health care, public policy and the biopharmaceutical industry is an asset to Pfizer. Through his work as a physician and his time at the FDA, Dr. Gottlieb has demonstrated an understanding of patient needs, the public policy environment and the rapidly changing dynamics of biopharmaceutical research and development.

 

 Helen H. Hobbs, M.D.  AGE: 67

 

DIRECTOR SINCE: 2011

 

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

 

KEY SKILLS:      Academia     Medicine & Science       Healthcare & Pharma

 

OTHER CURRENT PUBLIC BOARDS: None


 

Investigator, 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. Scientific Advisor of the Column Group. 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. Received the Pearl Meister Greengard Award (2015) and the Breakthrough Prize in Life Sciences (2015); the Passano Award (2016); the Harrington Prize for Innovation in Medicine (2018); the Lefoulon-Delalande Grand Prize in Science (2018); the Gerald D. Aurbach Award for Outstanding Translational Research (2019); and the Anitschkow Prize (2019).

 

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 30 years and is a leading geneticist in liver 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.

 

12      Pfizer  2020 PROXY STATEMENT
 
ITEM 1 – ELECTION OF DIRECTORS

 

 Susan Hockfield, Ph.D.  AGE: 69

 

DIRECTOR SINCE: 2020

 

BOARD COMMITTEES: Regulatory and Compliance and Science and Technology

 

KEY SKILLS:      Academia     Business Leadership & Operations      Government & Public Policy
              Medicine & Science         

 

OTHER CURRENT PUBLIC BOARDS: None


 

Professor of Neuroscience and President Emerita at the Massachusetts Institute of Technology (MIT). Served as MIT’s sixteenth president from 2004 to 2012. Member, Koch Institute for Integrative Cancer Research at MIT. Prior to joining MIT, she was the William Edward Gilbert Professor of Neurobiology, Dean of the Graduate School of Arts and Sciences from 1998 to 2002 and Provost from 2003 to 2004 at Yale University.

 

Served as Science Envoy with the U.S. Department of State and as a member of a Congressional Commission evaluating the Department of Energy laboratories. Founding co-chair of the Advanced Manufacturing Partnership. Member of the American Academy of Arts and Sciences and the Society for Neuroscience.

 

Recipient of the Charles Judson Herrick Award from the American Association of Anatomists, the Wilbur Lucius Cross Award from Yale University, the Meliora Citation from the University of Rochester, the Golden Plate Award from the Academy of Achievement, the Amelia Earhart Award from the Women’s Union, the Edison Achievement Award, the Pinnacle Award for Lifetime Achievement from the Greater Boston Chamber of Commerce and the Geoffrey Beene Builders of Science Award from Research!America.

 

She previously served as a Director of General Electric Company from 2006 until 2018 and a Director of Qualcomm from 2012 until 2016.

 

KEY SKILLS & EXPERIENCE:

 

Academia/Business Leadership & Operations/Medicine & Science:

Dr. Hockfield has strong leadership skills, having served as the first woman and first life scientist President of MIT from 2004 to 2012 and as Dean of the Graduate School of Arts and Sciences from 1998 to 2002 and Provost from 2003 to 2004 at Yale University. Her background also reflects significant achievements in academia and science as she has served as a professor of Neuroscience at MIT since 2004. Pfizer benefits from her experience, expertise, achievements and recognition in both medicine and science.

 

Government & Public Policy:

Pfizer also benefits from Dr. Hockfield’s breadth and depth of experience in the public policy space, which includes her public service as Science Envoy with the U.S. Department of State, co-chair of the Advanced Manufacturing Partnership, as a member of a Congressional Commission evaluating the Department of Energy laboratories, and as President-elect, President, and Chair of the American Association for the Advancement of Science.

 

Pfizer  2020 PROXY STATEMENT      13
 
ITEM 1 – ELECTION OF DIRECTORS

 

 James M. Kilts*  AGE: 72

 

DIRECTOR SINCE: 2007

 

BOARD COMMITTEES: Compensation and Science and Technology

 

KEY SKILLS:     Business Leadership & Operations     International Business       Healthcare & Pharma

 

OTHER CURRENT PUBLIC BOARDS: MetLife, Inc., The Simply Good Foods Company, Unifi, Inc. and Conyers Park II Acquisition Corp.

 


 

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.

 

Director of MetLife, Inc., The Simply Good Foods Company and Unifi, Inc. Executive Chairman of the Board of Conyers Park II Acquisition Corp. (a special purpose acquisition company and an affiliate of Centerview Capital). Executive Chairman of the Board of Conyers Park Acquisition Corporation from 2016 until its merger with The Simply Good Foods Company in 2017. Non-Executive Director of the Board of Nielsen Holdings PLC from 2006 until 2017. Chairman of Big Heart Pet Brands until 2015. Life Trustee of Knox College and Trustee of the University of Chicago and Founder and Co-Chair, Steering Committee, of the Kilts Center for Marketing at the University of Chicago Booth School of Business.

 

* In December 2019, Pfizer announced that Mr. Kilts agreed to join the Board of Directors of Viatris upon the closing of the planned combination of Upjohn and Mylan, which is expected to occur in mid-2020. He will resign from Pfizer’s Board of Directors upon joining the Viatris Board of Directors.

 

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 into reaching consumers and 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.

 

14      Pfizer  2020 PROXY STATEMENT
 
ITEM 1 – ELECTION OF DIRECTORS

 

 Dan R. Littman, M.D., Ph.D.  AGE: 67

 

DIRECTOR SINCE: 2018

 

BOARD COMMITTEES: Governance & Sustainability, Regulatory and Compliance and Science and Technology

 

KEY SKILLS:     Medicine & Science     Healthcare & Pharma     Academia

 

OTHER CURRENT PUBLIC BOARDS: None


 

Helen L. and Martin S. Kimmel Professor of Molecular Immunology at the Skirball Institute of Biomolecular Medicine of NYU Langone Medical Center since 1995 and an Investigator, Howard Hughes Medical Institute, since 1987. Professor of Microbiology and Immunology at the University of California, San Francisco from 1985 to 1995.

 

Member of the National Academy of the Sciences and the Institute of Medicine. Fellow of the American Academy of Arts and Sciences and the American Academy of Microbiology. Founding Scientific Advisory Board Member of Vedanta Biosciences. Member of Scientific Advisory Boards at ChemoCentryx, Inc., the Cancer Research Institute and the Ragon Institute of MGH, MIT and Harvard. Member of the Scientific Steering Committee of Parker Institute of Cancer Immunotherapy. Founder and a scientific advisor to Orca Pharmaceuticals. Awarded the New York City Mayor’s Award for Excellence in Science and Technology (2004), the Ross Prize in Molecular Medicine (2013) and the Vilcek Prize in Biomedical Science (2016).

 

KEY SKILLS & EXPERIENCE:

 

Medicine & Science/Healthcare & Pharma/Academia:

Dr. Littman’s background reflects significant achievements in medicine, healthcare and academia. He has served as a faculty member at the NYU Langone Medical Center for more than 20 years and is a renowned immunologist and molecular biologist. Pfizer benefits from his experience, expertise, achievements and recognition in both medicine and science. In addition, his experiences as a member of the National Academy of the Sciences and the Institute of Medicine enable him to bring a broad perspective of the scientific and medical community to the Board.

 

 Shantanu Narayen  AGE: 56

 

Lead Independent Director

 

DIRECTOR SINCE: 2013

 

KEY SKILLS:     Business Leadership & Operations     International Business       Finance & Accounting
               Human Capital Management      Technology    Risk Management 

 

OTHER CURRENT PUBLIC BOARDS: Adobe Inc.


 

Chairman, President and Chief Executive Officer of Adobe Inc. (Adobe), a producer of creative and digital marketing software. Prior to his appointment as CEO in 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.

 

Vice Chairman of US-India Strategic Partnership Forum. Named one of the world’s best CEOs by Barron’s magazine in 2016, 2017, 2018 and 2019.

 

KEY SKILLS & EXPERIENCE:

 

Business Leadership & Operations/International Business/Finance & Accounting/Human Capital Management:

Mr. Narayen’s experience as Chairman, President and CEO of Adobe brings strong leadership and human capital management skills to the Board, and his past roles in worldwide product development provide valuable global operations experience. He also serves as a member and Vice Chairman of US-India Strategic Partnership Forum. Through his experiences as a director on another public board, he provides a broad perspective on issues facing public companies and governance matters.

 

Technology/Risk Management:

Pfizer benefits from Mr. Narayen’s extensive knowledge in technology, product innovation and leadership in the digital marketing category through his experience in the technology industry. In addition, his deep knowledge and understanding of business risks through his leadership at a global technology company provide further insight and perspective to the Board.

 

Pfizer  2020 PROXY STATEMENT      15
 
ITEM 1 – ELECTION OF DIRECTORS

 

 Suzanne Nora Johnson  AGE: 62

 

DIRECTOR SINCE: 2007

 

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.


 

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

 

Director of American International Group, Inc., Intuit Inc. and Visa Inc. Co-Chair, Board of Trustees of The Brookings Institution; Member of the Board of Trustees of the Carnegie Institution of Washington and Co-Chair of the Investment Committee of the Board of Trustees of the University of Southern California.

 

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 into the roles of the law and finance when evaluating strategic transactions.

 

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 (The Brookings Institution) provide touchstones of public opinion and exposure to diverse, global points of view.

 

 James Quincey  AGE: 55

 

DIRECTOR SINCE: 2020

 

BOARD COMMITTEES: Compensation and Science and Technology

 

KEY SKILLS:     Business Leadership & Operations     International Business    Finance & Accounting
               Technology         

 

OTHER CURRENT PUBLIC BOARDS: The Coca-Cola Company


 

Chairman and Chief Executive Officer of The Coca-Cola Company, the world’s largest nonalcoholic beverage company. He was appointed Chairman of the Board in 2019 and CEO in 2017. Prior to his appointment as CEO in 2017, he held various leadership roles at The Coca-Cola Company, including President and Chief Operating Officer from 2015 to 2017, President of the Europe Group, President of the Northwest Europe and Nordics business unit and President of the Mexico division.

 

KEY SKILLS & EXPERIENCE:

 

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

Mr. Quincey’s experience as Chairman and CEO of The Coca-Cola Company brings strong business and leadership skills, including extensive experience in leading business operations in international markets, such as Latin America and Europe, to the Board. He also brings a high level of financial experience acquired through his various leadership positions at The Coca-Cola Company, managing complex financial transactions, mergers and acquisitions, business strategy and international operations.

 

Technology:

Mr. Quincey also brings expertise in information technology to Pfizer’s Board. In his leadership position at The Coca-Cola Company, he is responsible for the company’s information technology function.

 

16      Pfizer  2020 PROXY STATEMENT
 
ITEM 1 – ELECTION OF DIRECTORS

 

 James C. Smith  AGE: 60

 

DIRECTOR SINCE: 2014

 

BOARD COMMITTEES: Audit, Compensation (Chair) and Science and Technology

 

KEY SKILLS:     Business Leadership & Operations     Finance & Accounting       Human Capital Management
               International Business         

 

OTHER CURRENT PUBLIC BOARDS: Thomson Reuters Corporation


 

President, Chief Executive Officer and Director of Thomson Reuters Corporation, a provider of intelligent information for businesses and professionals since 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.

 

* Mr. Smith will retire as President & Chief Executive Officer and as a Director of Thomson Reuters Corporation, effective March 15, 2020.

 

KEY SKILLS & EXPERIENCE:

 

Business Leadership & Operations/Finance & Accounting/Human Capital Management/International Business:

Through Mr. Smith’s experience as President and CEO of Thomson Reuters he brings valuable leadership, finance, international business, and human capital management skills to our Board. Pfizer benefits from Mr. Smith’s organizational expertise and leadership experience, honed in numerous senior management roles and on notable merger and acquisition activities, including the acquisition and subsequent integration of two of the information industry’s preeminent firms, as well as his strong operational and international expertise. Mr. Smith’s previous experience running global Human Resources for the Thomson Corporation informs his strong advocacy for culture and talent development.

 

Pfizer  2020 PROXY STATEMENT      17
 
 

 

Governance

 

Overview

 

Pfizer is committed to exercising strong corporate governance practices. Good governance promotes the long-term interests of our shareholders, strengthens Board and management accountability and improves our standing as a trusted member of the communities we serve. 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 Governance & Sustainability 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 ensure both 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 peer company leadership structures, and investor feedback, with the goal of achieving the optimal model for Board leadership and effective oversight of senior leaders by the Board.

 

The Board recognizes that in circumstances where the positions of Chairman and CEO are combined or the Chairman is not independent, it is imperative that the Board elect a strong Lead Independent Director with a clearly defined role and set of responsibilities. Our Corporate Governance Principles align with the Board’s goal of achieving the optimal model for Board leadership and investor preferences. See “Our Lead Independent Director” below.

 

18      Pfizer  2020 PROXY STATEMENT
 
GOVERNANCE BOARD INFORMATION

 

 

2019 Annual Review of Leadership Structure

 

In September 2019, following the annual review by the Governance & Sustainability Committee and the other independent Directors, all of the independent Directors determined that the leadership structure that would best support the creation of long-term, sustainable value for our shareholders would be to combine the positions of Chairman and Chief Executive Officer, and for Mr. Narayen to continue to hold the role of Lead Independent Director. The independent Directors determined that having one leader in both the Chairman and CEO roles, with deep industry expertise and company knowledge, provides decisive and effective leadership. As a result, Dr. Bourla, the company’s Chief Executive Officer, was unanimously elected as Chairman of the Board, effective January 1, 2020. Dr. Bourla’s election was the result of a multi-year systematic and comprehensive succession planning process, led by the independent Directors. Dr. Bourla succeeded Mr. Read, who retired from the role of Executive Chairman and from Pfizer’s Board of Directors on December 31, 2019.

 

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 Dr. Bourla (see Director Independencebelow);
    the independent leadership provided by Pfizer’s Lead Independent Director, who has robust, well-defined responsibilities under a Board-approved charter;
    the independence of all members of our key Board Committees — Audit, Compensation, Governance & Sustainability, 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 predetermined 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, management succession planning, the criteria to evaluate the performance of the CEO and other senior management, the performance of the CEO against those criteria, the compensation of the CEO and other members of senior management and, in 2019, the performance of the Executive Chairman.

 

Pfizer  2020 PROXY STATEMENT      19
 
GOVERNANCE BOARD INFORMATION

 

OUR LEAD INDEPENDENT DIRECTOR

 

At Pfizer, the Lead Independent Director has a clearly defined set of responsibilities and provides significant independent Board leadership. Mr. Shantanu Narayen has served as our Lead Independent Director since the 2018 Annual Meeting of Shareholders. Upon becoming Lead Independent Director, Mr. Narayen also became an ex-officio member of each of the Board’s Committees.

 

During Mr. Narayen’s nearly seven years of service on Pfizer’s Board and two years as Pfizer’s Lead Independent Director, he has consistently demonstrated strong leadership skills and risk oversight abilities in addition to deep expertise in technology and innovative product development. The independent Directors are confident in Mr. Narayen’s ability to continue to serve as Lead Independent Director.

 

 

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:

  Lead Board meetings when the Chairman is not present
  Lead executive sessions of the independent Directors
  Serve as an ex-officio member of each Committee and regularly attend meetings of the various Committees
  Call meetings of the independent Directors
  Lead the independent Directors’ evaluation of the Chairman and CEO’s effectiveness, including assessing his ability to provide leadership and direction to the full Board
    Serve as liaison between the independent Directors and the Chairman and CEO
    Approve information sent to the Board, including the quality, quantity and timeliness of such information
    Contribute to the development of, and approve meeting agendas
    Facilitate the Board’s approval of the number and frequency of Board meetings and approve meeting schedules to ensure sufficient time for discussion of all agenda items
    Authorize the retention of outside advisors and consultants who report directly to the Board
    Keep apprised of inquiries from shareholders and involved in correspondence responding to those inquiries, when appropriate
    If requested by shareholders or other stakeholders, ensure 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
https://investors.pfizer.com/corporate-governance/the-pfizer-board-policies/default.aspx.

 

20      Pfizer  2020 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 significant enterprise risk topics, including, among others, risks associated with our strategic plan, our capital structure, our research and development activities, drug pricing, access and reimbursement and sustainability-related practices, including human capital management. 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 by 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, including areas posing potential reputational risk to Pfizer, as well as an annual summary of the ERM process. As part of the ERM discussions, the Committee reviews and receives information and briefings concerning risks to Pfizer associated with drug pricing, access and reimbursement.

 

The Committee also oversees the company’s information security (including cybersecurity) and technology risk management programs, which are fully integrated into the overall ERM program. The Committee receives regular briefings concerning Pfizer’s information security and technology risks and risk management practices, which are led by Pfizer’s Chief Digital and Technology Officer.

     

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. The Committee reviews and receives information and briefings about current and emerging compliance and quality risks and regulatory, enforcement and other external environment factors that may affect our business operations, risk management, performance, or strategy. The Committee has primary responsibility for overseeing and reviewing significant risks associated with Pfizer’s healthcare law compliance and quality programs and the status of compliance with applicable laws, regulations and internal procedures.

 

Periodically, the Regulatory and Compliance Committee and the Audit Committee hold joint sessions to discuss risks relevant to both Committees’ areas of risk oversight, including an annual discussion of the ERM program.

   

OTHER BOARD COMMITTEES

 

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.

•   The Governance & Sustainability Committee considers risks relating to: (i) the company’s lobbying priorities and activities; (ii) company issues related to public policy, including political spending policies and practices; (iii) company issues related to corporate social responsibility and sustainability; and (iv) emerging issues potentially affecting the reputation of the pharmaceutical industry and the company.

•   The Science and Technology Committee evaluates the soundness/risks associated with the technologies in which the company is investing.

 
                       

 

Please refer to our Annual Report on Form 10-K for the year ended December 31, 2019, including the sections captioned “Risk Factors” and “Forward Looking Information and Factors that May Affect Future Results,” for more information.

 

Pfizer  2020 PROXY STATEMENT      21
 
GOVERNANCE BOARD INFORMATION

 

The Board’s 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 robust 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 Oversight of Company Culture

 

Management establishes and reinforces the company’s culture, which the Board and its Committees oversee. The Board recognizes the value of Pfizer’s colleagues and the need for the company to build and sustain a culture where colleagues of diverse backgrounds and abilities contribute their unique viewpoints and perspectives related to all aspects of the business. Following a pilot program in 2019, the company is implementing a new performance management program in 2020, focusing on performance and leadership. Performance goals will be set and assessed on a six-month cycle, designed to enhance colleague focus and accountability. Leadership capabilities will be based on the company’s new “values” — courage, excellence, equity, and joy. In addition, we intend to conduct an annual survey to measure the engagement of all colleagues. The results of this survey will be reported to the Board annually and, once available, compared with results from prior years. The Board also meets with colleagues during annual site visits.

 

The Board’s Committees oversee elements of our culture associated with their respective areas of responsibility. The Compensation Committee is kept informed of Pfizer’s compensation practices, including pay equity, through regular updates. In addition, matters involving company culture, including steps taken to appropriately address matters such as inappropriate workplace behavior, harassment and retaliation, are routinely reported to the Audit Committee. The Regulatory and Compliance Committee, responsible for oversight of the company’s Compliance Program, receives updates on the company’s culture of integrity and the tone set by leaders throughout the organization.

 

The Board’s Role in Succession Planning

 

MANAGEMENT SUCCESSION PLANNING

 

Succession planning for Pfizer’s senior management positions, which ensures continuity of leadership over the long-term, is critical to the company’s success. The Board is responsible for planning for CEO succession, as well as certain other senior management positions. The topic is discussed regularly in executive sessions. To assist the Board, the CEO annually provides the Board with an assessment of other senior managers and their potential to succeed him. The CEO also provides the Board with an assessment of persons considered potential successors to certain senior management positions. The Board also has the opportunity to meet with these individuals.

 

In addition, the Governance & Sustainability Committee will review periodically with the CEO 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 Governance & Sustainability 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 Board of Directors. The goal is to achieve a Board that provides effective oversight of the company with the appropriate diversity of perspectives, experience, expertise, skills and specialized knowledge.

 

22      Pfizer  2020 PROXY STATEMENT
 
GOVERNANCE BOARD INFORMATION

 

Process for Selecting New Director Nominees

 

Throughout 2019 and early 2020, in connection with its commitment to maintain the Board’s diverse composition, with diversity reflecting gender, age, race, ethnicity, background and perspectives, the Governance & Sustainability Committee identified and reviewed a comprehensive list of Director candidates and followed the rigorous process set forth below:

 

 

1. NEEDS ASSESSMENT

 

Define skills & diversity criteria based on:

 

•   Gaps to fill from board turnover/succession planning

 

•   Evolving company demands

 

•   Results of Board evaluation

 

•   Management Team priorities

 

 

2. IDENTIFICATION OF QUALIFIED
CANDIDATES

 

Identify a list of candidates through:

 

•   Board member nominations

 

•   ELT nominations

 

•   Search agencies and recruiters

 

•   Shareholders and other sources

 

 

3. DUE DILIGENCE SCREENING

 

Review of qualifications:

 

•   Skills matrix

 

•   Integrity and independence requirements

 

•   Past experience and perspectives

 

•   Other positions the candidate holds

 

•   Diversity

 

 

5. DECISION, NOMINATION, AND
ONBOARDING

Select Director nominees best suited to serve the interests of the company and its shareholders. Following election, all new independent Directors undergo a comprehensive onboarding process, which includes:

•   meetings with members of the ELT and other senior leaders; and

•   an in-depth review of a broad set of materials that provide information on the company and Board-related matters.

 

4. INTERVIEWS OF SHORTLISTED CANDIDATES

Committee members, and, as appropriate, other Board members and management interview the shortlisted candidates.


Resulting from this process, the Committee recommended, and the Board elected:

 

Dr. Scott Gottlieb as a Director and a member of the Regulatory and Compliance Committee and the Science and Technology Committee in June 2019;
Mr. James Quincey as a Director and a member of the Compensation Committee and the Science and Technology Committee in February 2020; and
Dr. Susan Hockfield as a Director and a member of the Regulatory and Compliance Committee and the Science and Technology Committee in March 2020.

 

Pfizer  2020 PROXY STATEMENT      23
 
GOVERNANCE BOARD INFORMATION

 

Evaluation of Board Effectiveness

 

The Board is committed to continuous improvement and utilizes annual evaluations to evaluate performance and improve effectiveness.

 

2019 EVALUATION PROCESS

 

 

INITIATION OF PROCESS
FEBRUARY

 

The Governance & Sustainability Committee initiates and oversees the process, which consists of each Director’s evaluation of the Board as a whole, and an evaluation of each Committee by its members.

 

EVALUATION OUTCOME
DECEMBER

 

The Governance & Sustainability Committee determined that the current process was effective and that no modifications to the existing process were warranted for 2020.

 

FOLLOW-UP
JUNE – DECEMBER

 

Any results requiring additional consideration are addressed at future Board and Committee meetings.

EVALUATION FORMAT
FEBRUARY

 

During the Board and Committees’ evaluations, the Governance & Sustainability Committee reviews the effectiveness of the overall evaluation process and considers whether to:

 

•   incorporate individual Director evaluations into the process; or

 

•   conduct the evaluation through an external third-party provider.

 

The Committee also assesses other factors, including:

 

•   Director independence and qualifications to serve on various Committees; and

 

•   Committee Chair assignments and membership rotations.

 

PRESENTATION OF
EVALUATION RESULTS

BOARD: APRIL; COMMITTEES: JUNE

 

•   The results of the full Board evaluation are presented by the Chair of the Governance & Sustainability Committee, and discussed in executive session at a subsequent Board meeting.

 

•   The results of each Committee evaluation are presented and discussed at subsequent Committee meetings for the relevant Committee.


 

24      Pfizer  2020 PROXY STATEMENT
 
GOVERNANCE BOARD INFORMATION

 

Board and Committee Information

 

During 2019, 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 2019. In accordance with our Corporate Governance Principles, all Directors then in office attended our 2019 Annual Meeting.

 

The table below provides the current membership of each of the standing Board Committees and the number of meetings held in 2019(1):

 

Name Audit Compensation Governance &
Sustainability
Regulatory &
Compliance
Science &
Technology
Ronald E. Blaylock l l     l
Albert Bourla, DVM, Ph.D.          
W. Don Cornwell     l CHAIR l
Joseph J. Echevarria l   CHAIR   l
Scott Gottlieb, M.D.       l l
Helen H. Hobbs, M.D.     l l CHAIR
James M. Kilts   l     l
Dan R. Littman, M.D., Ph.D.     l l l
Shantanu Narayen(2)          
Suzanne Nora Johnson CHAIR     l l
James C. Smith l CHAIR     l
Meetings in 2019 11 6 5 5 3

 

(1) In February 2020, Mr. Quincey was elected to the Board and as a member of the Compensation Committee and the Science and Technology Committee. In March 2020, Dr. Hockfield was elected to the Board and as a member of the Regulatory and Compliance Committee and the Science and Technology Committee.
(2) As Lead Independent Director, Mr. Narayen serves as an ex-officio member of each Committee and regularly attends meetings of the various Committees.

 

COMMITTEE REFRESHMENT

 

The Board, upon recommendation from the Governance & Sustainability Committee, reviews and determines the composition of the Committees and Committee Chairs. Through periodic committee refreshment, we 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.

 

Pfizer  2020 PROXY STATEMENT      25
 
GOVERNANCE BOARD INFORMATION

 

BOARD COMMITTEES

 

THE AUDIT COMMITTEE

 

Chair:
Suzanne Nora Johnson

 

Additional Committee Members:

Ronald E. Blaylock
Joseph J. Echevarria
James C. Smith

 

 

Meetings Held in 2019: 11

 

All Members Are Independent and Financially Literate
All members 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 or dismissal of the Chief Internal Auditor and reviewing, with the Chief Financial Officer, the 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, including with respect to information security and technology risks (including cybersecurity).

 

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 Firmon page 47.

 

The Audit Committee Charter is available on our website at
https://investors.pfizer.com/corporate-governance/board-committees-and-charters/default.aspx.


 

THE COMPENSATION COMMITTEE

 

Chair:
James C. Smith

 

Additional Committee Members:

Ronald E. Blaylock
James M. Kilts
James Quincey*

 

 

Meetings Held in 2019: 6

 

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 2019 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 risks 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 (including recommendations to the Board with respect to any new 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 consideration of pay equity 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 subcommittee, 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
https://investors.pfizer.com/corporate-governance/board-committees-and-charters/default.aspx.

 

Compensation Committee Interlocks and Insider Participation. During 2019 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.


 

* In February 2020, Mr. James Quincey was elected to the Compensation Committee.

 

26      Pfizer  2020 PROXY STATEMENT
 
GOVERNANCE BOARD INFORMATION

 

THE GOVERNANCE & SUSTAINABILITY COMMITTEE

 

Chair:
Joseph J. Echevarria

 

Additional Committee Members:

W. Don Cornwell
Helen H. Hobbs, M.D.
Dan R. Littman, M.D., Ph.D.

 

 

Meetings Held in 2019: 5

 

All Members Are Independent
Governed by a Board-Approved Charter

The Governance & Sustainability 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 so that the Board maintains its diverse composition, with diversity reflecting gender, age, race, ethnicity, background, professional experience and perspectives;
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 evaluations of the Board and its Committees;
reviewing our Corporate Governance Principles and Director Qualification Standards;
establishing and overseeing compliance with Director retirement policies; and
assisting management by reviewing the functions and outside activities of senior executives.
   
The Committee is also directly responsible for maintaining an informed status on:
 
the company’s lobbying priorities and activities;
company issues related to public policy, including political spending policies and practices; and
company issues related to corporate social responsibility, sustainability and philanthropy.

 

The Governance & Sustainability Committee Charter is available on our website at
https://investors.pfizer.com/corporate-governance/board-committees-and-charters/default.aspx.


 

THE REGULATORY AND COMPLIANCE COMMITTEE

 

Chair:
W. Don Cornwell

 

Additional Committee Members:

Scott Gottlieb, M.D.
Helen H. Hobbs, M.D.
Susan Hockfield, Ph.D.*
Dan R. Littman, M.D., Ph.D.
Suzanne Nora Johnson

 

 

Meetings Held in 2019: 5

 

All Members Are Independent
Governed by a Board-Approved Charter

The Regulatory and Compliance Committee’s primary responsibilities include:

 

assisting the Board 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;
overseeing Pfizer’s compliance with the obligations of the May 2018 U.S. Corporate Integrity Agreement;
consulting with management and evaluating information and reports on compliance-related activities and matters;
overseeing the company’s quality and compliance governance framework and risk management;
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 makes recommendations to the Compensation Committee 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
https://investors.pfizer.com/corporate-governance/board-committees-and-charters/default.aspx.


 

* In March 2020, Dr. Susan Hockfield was elected to the Regulatory and Compliance Committee.

 

Pfizer  2020 PROXY STATEMENT      27
 
GOVERNANCE BOARD INFORMATION

 

THE SCIENCE AND TECHNOLOGY COMMITTEE

 

Chair:
Helen H.
Hobbs, M.D.
 

 

Additional Committee Members:

Ronald E. Blaylock
W. Don Cornwell
Joseph J. Echevarria
Scott Gottlieb, M.D.
Susan Hockfield, Ph.D.*
James M. Kilts
Dan R. Littman, M.D., Ph.D.
Suzanne Nora Johnson
James Quincey*
James C. Smith

 

 

Meetings Held in 2019: 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
https://investors.pfizer.com/corporate-governance/board-committees-and-charters/default.aspx.


 

* In February 2020 and March 2020, respectively, Mr. James Quincey and Dr. Susan Hockfield were elected to the Science and Technology Committee.

 

28      Pfizer  2020 PROXY STATEMENT
 
GOVERNANCE GOVERNANCE & SUSTAINABILITY COMMITTEE REPORT

 

Governance & Sustainability Committee Report

 

The Governance & Sustainability Committee seeks to maintain and enhance Pfizer’s record of excellence in corporate governance by regularly reviewing and refining, when appropriate, Pfizer’s corporate governance policies and practices. The following are examples of how we worked to achieve these objectives in 2019 and early 2020.

 

Committee Name Change: In early 2020, we changed the name of the Committee to the “Governance & Sustainability Committee” to more prominently reflect our oversight responsibility for sustainability and corporate responsibility matters.

 

Board Leadership Structure: In connection with the multi-year systematic and comprehensive succession planning process, the Committee and the independent Directors conducted a thorough annual review of the Board’s leadership structure. In connection with Mr. Read’s retirement as Executive Chairman and as a Director of the company, the Directors unanimously elected Dr. Bourla, the company’s CEO, to succeed Mr. Read as Chairman of the Board, effective January 1, 2020, and determined that Mr. Narayen should continue in his role as Lead Independent Director.

 

Board and Committee Matters; Director Evaluations: During 2019, we assessed Director qualifications for serving on various committees, assessed Director independence, conducted a comprehensive evaluation process for the Board and its Committees and recommended changes to the composition of certain committees. In addition, the Committee reviewed and, where appropriate, recommended changes to our governing documents. The Committee continued to review the functioning of the Board and Committees and discussed its annual Board and Committee evaluation process. We considered whether to modify the existing process, including the potential use of a third-party advisor to conduct the evaluation process. We determined that the current process was effective and that no modifications to the existing process were warranted for 2020.

 

Recruitment and Assessment of Potential New Directors: In 2019, we continued an ongoing Board succession planning process to identify and assess potential Director candidates, based upon a skills matrix and other criteria. We considered a diverse pool of potential Director candidates based on recommendations provided by our then Executive Chairman and our CEO, the independent Directors, management, external advisors and other resources. Resulting from this process, in June 2019, the Committee recommended and the Board elected Dr. Gottlieb as a Director and a member of the Regulatory and Compliance and Science and Technology Committees. The Committee considered the election of Dr. Gottlieb as a Director upon recommendation by our CEO, Dr. Bourla, and evaluation by a third-party search firm. Among other qualifications, Dr. Gottlieb brings significant depth of experience in medicine and science, healthcare and pharma and government and public policy to the Board. In addition, in February 2020 and March 2020, respectively, the Committee recommended, and the Board elected, Mr. James Quincey as a Director and a member of the Compensation Committee and the Science and Technology Committee and Dr. Susan Hockfield as a Director and a member of the Regulatory and Compliance Committee and the Science and Technology Committee. The Committee considered the election of Mr. Quincey as a Director upon recommendation by our Chairman and CEO and evaluation by a third-party search firm and Dr. Hockfield as a Director upon recommendation by one of our Board members and evaluation by a third-party search firm. Among other qualifications, Mr. Quincey brings significant depth of experience in business leadership & operations, international business, finance & accounting and technology to the Board and Dr. Hockfield brings significant depth of experience in academia, business leadership & operations, government & public policy and medicine & science to the Board.

 

Corporate Social Responsibility: At year-end, we received an update concerning the company’s social investment strategy, progress on sustainability initiatives and external non-financial reporting trends. Further, we discussed Pfizer’s environmental sustainability initiatives and position on climate change with management.

 

Public Policy/Corporate Political Spending/Lobbying Activities: Under our Charter, we also maintain an informed status on company issues related to public policy, including political spending policies and practices. We were informed of Pfizer’s public policy and corporate political spending policies and practices through periodic discussions and reviews of the company’s annual Political Action Committee and Corporate Political Contributions Report. The Committee also received a report from company Government Relations leaders regarding the company’s federal and state lobbying priorities and activities, including an overview of the benefits derived from the company’s association with certain trade and other organizations, in accordance with our Charter.

 

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

 

Pfizer  2020 PROXY STATEMENT      29
 
GOVERNANCE REGULATORY AND COMPLIANCE COMMITTEE REPORT

 

Shareholder Engagement: We engaged in reviews of shareholder and stakeholder communications at each of our meetings and were informed of shareholder feedback received during Pfizer’s year-round investor outreach. The Chair of the Governance & Sustainability Committee, Mr. Echevarria, participated in discussions with several investors at their request. The Committee was also kept apprised of all shareholder proposals received and discussions with the proponents.

 

The Governance & Sustainability Committee

 

Joseph J. Echevarria, Chair
W. Don Cornwell
Helen H. Hobbs, M.D.
Dan R. Littman, M.D., Ph.D.

 

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 2019, we received reports and discussed with management, including the Chief Compliance, Quality and Risk Officer and the General Counsel, significant healthcare-related regulatory and compliance risks and related compliance program initiatives, functions and risk management.

 

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 Food and Drug Administration (FDA) Warning Letters and other significant regulatory communications;
updates on the company’s quality and compliance risk management;
updates regarding compliance with the requirements of Pfizer’s Corporate Integrity Agreement;
the integration of acquired companies into Pfizer’s compliance program;
Pfizer’s anti-retaliation policies and procedures and any retaliation claims received by Pfizer; and
Pfizer’s incentive compensation practices for sales and marketing personnel.

 

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*

 

W. Don Cornwell, Chair
Scott Gottlieb, M.D.
Helen H. Hobbs, M.D.
Dan R. Littman, M.D., Ph.D.
Suzanne Nora Johnson

 

* On March 3, 2020, Dr. Susan Hockfield was elected to the Regulatory and Compliance Committee.

 

30      Pfizer  2020 PROXY STATEMENT
 
GOVERNANCE SHAREHOLDER OUTREACH

 

Shareholder Outreach

 

 

CONNECT   COLLABORATE   COMMUNICATE
Investor engagement
is fundamental to
good governance.
  A collaborative
approach fosters a
mutual understanding
of governance priorities.
  Investor feedback
keeps the Board
informed of shareholder sentiment.


Connect

 

To maintain our strong corporate governance practices and ensure that we regularly receive shareholder feedback, we must engage with investors. Throughout the year, we seek opportunities to connect with our investors to gain and share valuable insights into current and emerging global governance trends and Pfizer’s corporate governance policies and practices.

 

During 2019, we solicited feedback from investors representing approximately 50% of our outstanding shares, and we engaged with more than 25 global institutional investors representing over 30% of shares outstanding to discuss various corporate governance and related matters, including our business strategy, executive compensation, lobbying activities, sustainability initiatives, including human capital management, and other industry-specific issues. We also engaged with major proxy advisory firms. Those meetings were conducted in person, via teleconference or one-on-one at conferences throughout the year. Although shareholder outreach is primarily a function of management, members of the Board also participate when appropriate. In early 2020, Mr. Echevarria, Chair of the Governance & Sustainability Committee, met with several institutional investors to discuss, among other things, Board composition and succession planning, oversight of risk related to drug pricing and lobbying activities, as well as executive compensation. In addition to speaking with our institutional investors, we remain responsive to individual investors’ and other stakeholders’ inquiries.

 

Collaborate

 

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

 

Summary of Certain 2019 Shareholder Discussions

 

Business and Strategy Update: Investors inquired about Pfizer’s strategy and innovative business model following the closing of the planned combination of Upjohn and Mylan, which is expected to occur in mid-2020. We discussed Pfizer’s strategic direction, including our “bold moves” (see the inside front cover of this Proxy Statement), our “values” — courage, excellence, equity and joy, our innovative, pipeline-driven business model and views on business development opportunities and capital allocation priorities. Investors were generally pleased with Pfizer’s strategic direction and renewed focus on innovation and corporate culture.

 

Action taken: This feedback was shared with the Board. Information concerning Pfizer’s business performance and strategy is available on the company’s website at www.pfizer.com.

 

Board-related: Board composition remains an area of significant interest. Investors inquired about the Board’s plans and processes to ensure effective Board refreshment, including identifying desired skill sets and qualified diverse, especially female, director nominees. We provided details about the Board succession planning process, including the election of Dr. Gottlieb in June 2019, and our strong commitment to identifying qualified women and ethnically diverse candidates. We also received inquiries about the Board’s annual evaluation process, including its consideration of third-party providers and use of individual Director evaluations in the process. Several investors inquired about Pfizer’s policy regarding outside directorships and provided feedback on the maximum number of outside directorships they believe to be optimal. In general, investors were positive about the Board, including its mix of skill sets, tenure, diversity and process for identifying new Director candidates.

 

Action taken: This feedback was shared with the Board. See disclosures regarding Board composition, Board Committee refreshment and Director skills throughout this Proxy Statement.

 

 

Pfizer  2020 PROXY STATEMENT      31
 
GOVERNANCE SHAREHOLDER OUTREACH

 

New Leadership Structure: The election of Dr. Bourla as Chairman, effective January 1, 2020, was a topic of interest for investors. Investors sought details with respect to the Board’s rationale for, and provided a variety of viewpoints regarding, recombining the roles of CEO and Chairman. Throughout these discussions, we addressed the thorough review by the Governance & Sustainability Committee and the independent Directors and the strong corporate governance structures in place to support this optimal leadership structure.

 

Action taken: These discussions were shared with the Board. See disclosures concerning the Board’s leadership structure in the “Board Leadership Structure” section earlier in this Proxy Statement.

 

Human Capital: Investors were interested in learning about Pfizer’s corporate culture under Dr. Bourla’s leadership. We explained the importance of Pfizer’s colleagues to our business as evidenced by our first “bold move” to “Unleash the Power of our People” (see the inside front cover of this Proxy Statement). This initiative illustrates the company’s continued focus on culture, diversity and inclusion, and commitment to pay parity. During 2019, we shared the positive results from our global gender pay equity and the U.S. minorities’ pay equity studies. In addition, we discussed our new focus on creating opportunity parity throughout the organization and mechanisms to measure employee satisfaction. Investors were pleased with this information and our plans to expand our human capital disclosures in the 2019 Annual Review.

 

Action taken: This feedback was shared with the Governance & Sustainability Committee and full Board. For additional information concerning the results of our pay equity studies and opportunity parity, see the “Corporate Responsibility and Sustainability” section later in this Proxy Statement and please view Pfizer’s 2019 Annual Review at www.pfizer.com/annual. Please note that our 2019 Annual Review is not a part of our proxy solicitation materials. We also provide disclosure regarding Board and Committee oversight of company culture in “The Board’s Oversight of Company Culture” section earlier in this Proxy Statement.

 

Risk Oversight: With respect to risk oversight, certain investors inquired about our overall ERM program. Several investors sought clarity about the specific roles of the Board and the Audit Committee and the Regulatory and Compliance Committee, as well as management, in the risk oversight process. Investors were interested in discussing Board and Committee oversight of risks related to drug pricing, lobbying activities, human capital management and executive compensation. Questions were also asked about regular and emerging risk factors that the company considers most significant.

 

Action taken: This feedback was shared with the Board. See disclosures regarding risk oversight throughout this Proxy Statement.

 

Executive Compensation: During 2019, we engaged with investors to solicit comments and answer questions on our executive compensation program, our disclosures regarding the Compensation Committee’s decision-making processes and recent trends/events related to executive compensation. Overall, investors continued to show support for our program and generally commented that they viewed it as aligned with performance and shareholder interests. Investors were interested to know if the Compensation Committee had considered additional operational performance metrics that measure our executives’ achievement of goals related to our pipeline. They were also interested in understanding how environmental, social and governance (ESG) factors may be considered when determining executive pay.

 

Action taken: The Compensation Committee reviewed various operational metrics and considered whether it would be appropriate to integrate them into our short-term and long-term incentive programs. Effective with the 2020 performance year, the Committee approved adding a research and development pipeline achievement factor to the existing short-term incentive financial metrics. The Committee is aware of the importance of ESG factors, and continues to evaluate the possibility of including ESG metrics into Pfizer’s executive pay programs. These factors are already incorporated, when appropriate, into Pfizer colleagues’ performance goals. Additionally, the Committee continues to take a rigorous, holistic approach to ensure goals set in our incentive programs drive strong performance without encouraging excessive risk taking. We have included additional disclosures in this Proxy Statement to explain how the Committee sets short-term incentive targets and year-over-year target variances. See the “Compensation Discussion and Analysis” section later in this Proxy Statement.

 

32      Pfizer  2020 PROXY STATEMENT

 
GOVERNANCE CORPORATE RESPONSIBILITY AND SUSTAINABILITY

 

Lobbying Activities: During 2019, we also elicited investor feedback on the company’s practices and existing disclosures regarding our lobbying activities. Most investors were satisfied with our current disclosures and practices, including Board and Committee oversight, however, several investors indicated that additional disclosures may be useful.

 

Action taken: In early 2020, Pfizer enhanced its lobbying activities disclosures on its website. See
https://www.pfizer.com/purpose/contributions-partnerships/political-partnerships.

 

Communicate

 

At least quarterly, we share investor and other stakeholder feedback directly with the Governance & Sustainability Committee. We view communication between our shareholders and the Board as a dialogue and, when appropriate, members of our Board engage directly with our shareholders.

 

We communicate with our shareholders through various platforms, including via our website, in print and in person at shareholder meetings or investor presentations. In 2019, in addition to meeting with institutional investors, we responded to more than 880 inquiries from individual shareholders sent to the Board of Directors or Corporate Secretary.

 

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; or

 

By e-mail: Go to Pfizer’s website at https://investors.pfizer.com/corporate-governance/contact-our-directors/default.aspx.

 

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.

 

Corporate Responsibility and Sustainability

 

Our Purpose

 

We began 2019 by launching our Purpose Blueprint – the roadmap that will guide our company for the foreseeable future and help us deliver on our purpose: Breakthroughs that change patients’ lives. Our purpose fuels everything we do and reflects our passion for building on our legacy as one of the greatest contributors of good to the world.

 

Each word in our purpose has meaning and reflects the value we strive to bring to patients and society.

 

“Breakthroughs” – These are the innovations, scientific and commercial, that we seek to deliver every day. All colleagues, regardless of role, level or location, strive for breakthroughs every day.
“Change” – We want to do more than simply improve patients’ medical conditions; we want to dramatically change their lives for the better.
“Patients’ lives” – We consider not only patients, but everyone they touch, including their friends, families and caregivers, and everything they love to do. It is an intentionally holistic view.

 

Our purpose ensures that patients remain at the center of all we do. We live our purpose by sourcing the best science in the world; partnering with others in the health care system to improve access to our medicines; using digital technologies to enhance our drug discovery and development, as well as patient outcomes; and leading the conversation to advocate for pro-innovation/pro-patient policies.

 

Every decision we make and every action we take is done with the patient in mind and to nurture an environment where breakthroughs can thrive.

 

Pfizer  2020 PROXY STATEMENT      33

 
GOVERNANCE CORPORATE RESPONSIBILITY AND SUSTAINABILITY

 

Corporate Responsibility and Sustainability

 

Corporate responsibility and sustainability are integral to Pfizer’s business strategy and our commitment to be a responsible corporate citizen. We have always focused on delivering strong financial results, and we remain 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 investors around their interest in corporate responsibility and sustainability, including discussions concerning ESG performance and the impact on financial results. Today, we strive to continue to support an environment where these principles permeate Pfizer at every level — including on our Board of Directors, which maintains oversight for these issues through the Governance & Sustainability Committee. The Committee monitors our corporate social responsibility, sustainability and philanthropic efforts through regular updates from management. At the management level, we established in 2018 a cross-functional Sustainability Reporting Steering Committee comprised of leaders representing different divisions within the organization to advise on key ESG issues and guide the integration and implementation of Pfizer’s non-financial reporting processes.

 

In the 2019 Annual Review, which is not a part of our proxy solicitation materials, we reported on our progress on the following three priorities related to our corporate responsibility and sustainability initiatives:

 

1 Access to Medicines
  As a global biopharmaceutical company, we are committed to discovering, developing and bringing to market medicines and vaccines that change patients’ lives while helping to ensure that individuals have and maintain uninterrupted access to our products. 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 most of the top 21 global burdens of disease, as identified by the World Health Organization, through our products and pipeline.
2 Environment, Health and Safety
  Our focus and passion for environmental sustainability mean that, for the third year running, we remain on target to meet our 2020 reduction goals for greenhouse gas (GHG) emissions, waste and water. Since 2012, when these goals were set, we have continued on our Green Journey and globally implemented more than 1,000 sustainability projects, nearly 100 of which were completed in 2019, delivering positive environmental performance and more than $5 million in savings annually. As we continue to implement emission and resource reduction projects, we expect that fluctuations in our business may challenge our ability to meet our performance targets.
   
  We appreciate the expectations of stakeholders, including the investor community, regarding our environmental impacts, transparency and ability to manage business risks associated with a changing climate. In 2019, we began incorporating the Task Force on Climate-Related Financial Disclosures (TCFD) framework into our business risk management system, and this year, we are expanding our voluntary reporting to include information aligned with TCFD recommendations.
   
  We continue to encourage key suppliers to implement GHG, water and waste reduction goals. In 2020, we will look for opportunities to accelerate progress toward our Supply Chain Environmental Sustainability goals. We have also begun to develop our next generation of goals aligning with our strategic objectives. As a science-based company, we are committed to setting these goals based on good science. In parallel, we continue to work with the Pharmaceutical Supply Chain Initiative to explore opportunities for member companies to drive sustainability improvements in the pharmaceutical supply chain collectively.

 

 

34      Pfizer  2020 PROXY STATEMENT

 

GOVERNANCE CORPORATE RESPONSIBILITY AND SUSTAINABILITY

 

3 Culture and Human Capital
  We strive to foster a culture that allows our colleagues to discover career success and, at the same time, drive positive business results. We strive to attract the best and brightest talent, and ensure each colleague can do their best work in an environment and culture where diversity and inclusion (D&I) are championed. We find inspiration for the work we do within the diverse communities of patients we serve.
   
  In 2019, we performed our first comprehensive pay equity study and publicly reported our top line results. The study confirmed equitable pay practices after accounting for employee role, education, experience, performance and location. More specifically, the top line results indicate that on an adjusted basis, Pfizer compensates female colleagues greater than 99% of what male colleagues are paid in both base pay and total compensation across the globe. Additionally, in the U.S., minority colleagues earn the same as non-minority colleagues. In addition, we are also committed to creating greater opportunities for women and minorities to advance to senior roles at Pfizer and to building a pipeline of qualified diverse talent throughout the organization – we refer to this as opportunity parity. Our goals for opportunity parity include representation goals of 47% for women (globally) and 25% for ethnic minorities (U.S.) for Vice President roles and above.
   
  The results of our study also indicated that representation of women at the Vice President level and above is currently 33% globally and representation of minorities in the U.S. at the Vice President level and above is 19%. Please view Pfizer’s 2019 Annual Review at www.pfizer.com/annual for further information. Please note that our 2019 Annual Review is not a part of our proxy solicitation materials.
   
  For information regarding Board and Committee oversight of company culture, see The Board’s Oversight of Company Culturesection earlier in this Proxy Statement.

 

Reporting on Our Progress

 

We understand that our investors and other stakeholders may be interested in evaluating Pfizer’s performance on a broader level to include social, environmental, and governance perspectives. We provide information on Pfizer’s activities in the following areas:

 

           
  Access to Medicines   Culture and Human Capital
  Colleague Safety   United Nations Sustainable Development Goals
  Environmental Sustainability Goals   Manufacturing and Supply Chain
  Supply Chain Environmental Sustainability Goal   Governance and Ethics
           

 

Additionally, we continue to evaluate our overall approach to non-financial reporting, including reference to several existing, globally recognized external frameworks. These include the Sustainability Accounting Standards Board (SASB), the TCFD, Global Reporting Initiative (GRI), and the International Integrated Reporting Council (IIRC). As a signatory to the UN Global Compact, a document that asks companies to embrace universal principles and to partner with the UN, we submit an annual communication to the UN on our progress made toward achieving the UN Sustainable Development Goals.

 

Please view Pfizer’s 2019 Annual Review at www.pfizer.com/annual for further information about the company’s corporate responsibility and sustainability efforts. Please note that our 2019 Annual Review is not a part of our proxy solicitation materials.

 

Pfizer  2020 PROXY STATEMENT      35

 

GOVERNANCE PUBLIC POLICY ENGAGEMENT AND POLITICAL PARTICIPATION

 

Public Policy Engagement and Political Participation

 

BOARD OVERSIGHT

 

The Governance & Sustainability 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 annual Political Action Committee (PAC) and Corporate Political Contributions report. Management also informs the Committee of the company’s lobbying priorities and activities through semi-annual reports, including a year-end report on lobbying priorities for the coming year.

 

ENGAGING IN PUBLIC POLICY

 

We operate in a highly regulated and competitive industry. Fundamental to our business, our patients and our shareholders is engagement on public policy issues that may affect our ability to meet patients’ needs and enhance shareholder value. These issues include advancing biomedical research and healthcare innovation; advocating for protecting intellectual property rights; and improving 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.

 

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.

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 Innovation Organization, 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, we realize these organizations may engage in a broad range of other issues that extend beyond the scope of issues of primary importance to Pfizer. 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. If concerns arise about a particular issue, we are able to convey our concerns, as appropriate, through our colleagues who serve on the boards and committees of these groups. We believe value exists in making sure our positions on issues important to Pfizer and our industry are communicated and understood within those organizations.

 

To view Pfizer’s policy positions on key topics, please view https://www.pfizer.com/purpose/health-policy/policy-positions.

 

36      Pfizer  2020 PROXY STATEMENT

 

GOVERNANCE PUBLIC POLICY ENGAGEMENT AND POLITICAL PARTICIPATION

 

           
           
      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 annually in the PAC and Corporate Political Contributions report in compliance with Pfizer corporate policy. WithumSmith & Brown, PC, 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 influenced our level of disclosure and helped us create or modify corporate policies related to political expenditures.  
               
             
             
      INDEPENDENT EXPENDITURES      
               
      We have adopted a strict policy precluding Pfizer from making direct independent expenditures in connection with any federal or state election.   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.  
               
             
             
      POLICIES AND PROCEDURES FOR APPROVAL AND OVERSIGHT OF CORPORATE AND PAC POLITICAL EXPENDITURES  
               
      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.   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 composed 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.  
           
      All PAC and corporate contribution requests are shared with the Pfizer Political Contributions Policy Committee (PCPC), which is co-chaired by the Chief Corporate Affairs Officer and the Chief Compliance Officer and composed of senior leaders from different divisions in the organization.  
               
               

 

Pfizer  2020 PROXY STATEMENT      37

 

GOVERNANCE PFIZER POLICIES ON BUSINESS CONDUCT

 

Federal and State Lobbying Activity

 

The company’s U.S. Government Relations leaders are responsible for the company’s lobbying activities, and the Governance & Sustainability Committee maintains an informed status on the company’s lobbying priorities and activities through periodic reports from management. All colleague communications with government and regulatory officials are governed by Pfizer’s internal policies and procedures, which include guidelines available on our website at https://www.pfizer.com/purpose/transparency/code-of-conduct.

 

REPORTING AND COMPLIANCE FEATURES:

 

FEDERAL LOBBYING

 

Compliant with Honest Leadership and Open Government Act of 2007

   

•   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 may be viewed at https://soprweb.senate.gov/index.cfm?event=selectfields.

       

STATE LOBBYING

 

Compliant with state registration and reporting requirements

   

•   In all states where we operate, we are fully compliant with state registration and reporting requirements.

 

•   Links to states’ reporting entities, where state lobbying reports are filed, may be accessed via the company’s website at: https://www.pfizer.com/purpose/contributions- partnerships/political-partnerships.

 

Pfizer Policies on Business 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 ethical 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 new colleagues upon hire and to existing colleagues regularly. The Code of Conduct training includes a certification to confirm that colleagues are familiar with and agree to abide by the Code of Conduct and that they have reported, pursuant to the provisions of the Code of Conduct, any suspected or potential violations of law or Pfizer policy.

 

Employees are required to report any conduct that they believe to be an actual or apparent violation of Pfizer’s policies on business conduct. Retaliation against any employee who 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 allegations of misconduct, is posted on our website at https://www.pfizer.com/purpose/transparency/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, Controller and executive officers 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.

 

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

 

38      Pfizer  2020 PROXY STATEMENT

 

GOVERNANCE OTHER GOVERNANCE PRACTICES AND 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 https://investors.pfizer.com/corporate-governance/the-pfizer-board-policies/default.aspx.

 

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 2019, no indebtedness existed between Pfizer and any entity of which a Director or an immediate family member of a Director was an executive officer.

 

Drs. Hobbs, Hockfield and Littman, and former Director Dr. Dennis A. Ausiello, 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 Inc., Mr. Smith is the chief executive officer of Thomson Reuters Corporation and Mr. Quincey is the chief executive officer of The Coca-Cola Company, 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 2019. 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 Governance & Sustainability Committee. None of the contributions approached the levels set forth in our Standards.

 

Independence Assessment. Together with Pfizer’s legal counsel, the Governance & Sustainability 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 Dr. Albert Bourla) are independent of the company and its management and meet Pfizer’s criteria for independence. The independent Directors are Drs. Scott Gottlieb, Helen H. Hobbs, Susan Hockfield and Dan R. Littman; Ms. Suzanne Nora Johnson; and Messrs. Ronald E. Blaylock, W. Don Cornwell, Joseph J. Echevarria, James M. Kilts, Shantanu Narayen, James Quincey and James C. Smith. The Board has determined that Dr. Albert Bourla is not independent because of his employment as Pfizer’s CEO. In addition, the Board previously determined that former Director Dr. Dennis A. Ausiello was independent and that former Director Mr. Ian C. Read was not independent because of his employment as Pfizer’s Executive Chairman.

 

Pfizer  2020 PROXY STATEMENT      39

 

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.

 

Derivatives Trading/Hedging Policy

 

We have a policy that prohibits employees, including the NEOs, and Directors from purchasing or selling options on Pfizer common stock or engaging in short sales of Pfizer common stock. In addition, the policy prohibits trading in puts, calls, straddles, equity swaps or other derivative securities that are directly linked to Pfizer common stock (sometimes referred to as “hedging”).

 

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:

 

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

 

Please view these materials at: https://www.pfizer.com/people/leadership/board-of-directors,
https://investors.pfizer.com/corporate-governance/default.aspx and https://www.pfizer.com/purpose/transparency/code-of-conduct.

 

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. The information on our website is not a part of this Proxy Statement.

 

40      Pfizer  2020 PROXY STATEMENT
 
 

 

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.

 

NON-EMPLOYEE DIRECTOR COMPENSATION

 

In 2019, we provided the following compensation to our non-employee Directors:

 

Position Cash Retainers   Pfizer Stock Units  
Board Member $142,500   $192,500  
Chair of Each Board Committee $30,000    
Lead Independent Director $50,000    

 

Our Governance & Sustainability Committee is responsible for reviewing and advising on the compensation of our non-employee Directors. To assist with this duty, they have engaged an independent compensation consultant, FW Cook & Co., and specifically George Paulin, its Chairman, to perform periodic reviews of our non-employee Director compensation program, which includes an analysis of market trends and best practices and a comparison versus our Pharmaceutical Peer group and General Industry Comparator companies. The compensation program for our non-employee directors was last revised in April 2018 upon recommendation of the Governance & Sustainability Committee in consultation with FW Cook & Co.

 

In addition to the compensation set forth in the above chart, any new Director first elected to the Board after April 2018 will receive a pro-rata grant of Pfizer stock units having a value equal to the ratio of service as a Director during the 12-month period beginning as of the most recent Annual Meeting multiplied by $192,500, as of the date of grant. Accordingly, Dr. Gottlieb received Pfizer stock units upon his election to the Board in June 2019 with a value of $159,183 as of the date of grant; Mr. Quincey received Pfizer stock units upon his election to the Board in February 2020 with a value of $29,615 as of the date of grant; and Dr. Hockfield received Pfizer stock units upon her election to the Board in March 2020 with a value of $26,971 as of the date of grant. In 2020, each non-employee Director will receive Pfizer stock units with a value of $192,500, as of the date of grant, upon election at the 2020 Annual Meeting of Shareholders, provided the Director continues to serve as a Director following the meeting.

 

Under the Pfizer Inc. 2019 Stock Plan, the aggregate value of Pfizer stock units granted, plus cash retainer paid to a non-employee Director during a 12-month period, may not exceed $800,000.

 

Dr. Bourla does not receive any compensation for his service as a Director. Since Mr. Read remained an employee of the company in 2019, he did not receive the non-employee Director Compensation described above. For additional information regarding Dr. Bourla and Mr. Read’s compensation, see the Compensation Discussion and Analysissection later in this Proxy Statement.

 

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, currently $712,500 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 has pledged Pfizer stock as collateral for personal loans or other obligations.

 

Pfizer  2020 PROXY STATEMENT      41
 
NON-EMPLOYEE DIRECTOR COMPENSATION

 

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 31, 2019).

 

 

 

(1) Dr. Littman became a member of our Board in March 2018, Dr. Gottlieb became a member of our Board in June 2019, Mr. Quincey became a member of our Board in February 2020 and Dr. Hockfield became a member of our Board in March 2020. Directors have five years from (a) the date of their 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 Pfizer Inc. Nonfunded Deferred Compensation and Unit Award Plan for Non-Employee Directors (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 in the immediately following year or to receive the units in shares. All of the eligible non-employee Directors will defer Pfizer stock units granted in 2020. 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. Deferred stock units are not payable until the Director ceases to be a member of the Board, at or after which time they are paid in cash or in shares of Pfizer stock, at the Director’s election. 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 the Pfizer Foundation Matching Gift Program, which is also available to all Pfizer employees. In 2019, under this program, the Pfizer Foundation(1) matched contributions to eligible Internal Revenue Code 501(c)(3) tax-exempt organizations, up to a maximum of $20,000 per year, per Director, inclusive of matched contributions made through the Annual Giving Campaign. Contributions to religious organizations, private foundations and organizations that do not accept donations from the Pfizer Foundation, as well as to individuals, are not eligible for a match.

 

The matching contributions made by the Pfizer Foundation with respect to our non-employee Directors are included in the 2019 Director Compensation Table below.

 

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

 

42      Pfizer  2020 PROXY STATEMENT
 
NON-EMPLOYEE DIRECTOR COMPENSATION 2019 DIRECTOR COMPENSATION TABLE

 

2019 Director Compensation Table

 

The following table shows 2019 compensation for our non-employee Directors who served in 2019.

 

Name   Fees Earned
or Paid in Cash
($)
  Equity/Stock
Awards(1)
($)
  All Other
Compensation(2)
($)
  Total
($)
Dennis A. Ausiello, M.D.(3)   45,412     136,200   181,612
Ronald E. Blaylock   142,500   192,500   15,000   350,000
W. Don Cornwell   172,500   192,500   20,000   385,000
Joseph J. Echevarria   172,500   192,500     365,000
Scott Gottlieb, M.D.(1) (3)   72,438   159,183     231,621
Helen H. Hobbs, M.D.   172,500   192,500   18,600   383,600
James M. Kilts   142,500   192,500   20,000   355,000
Dan R. Littman, M.D., Ph.D.   142,500   192,500   9,700   344,700
Shantanu Narayen   192,500   192,500   15,000   400,000
Suzanne Nora Johnson   172,500   192,500   15,000   380,000
James C. Smith   172,500   192,500   15,000   380,000

 

(1) For all directors, except Dr. Gottlieb, the number of units granted was determined by dividing the grant date value of the award, $192,500, by $39.61, the closing price of the company’s common stock on April 25, 2019. In the case of Dr. Gottlieb, the number of units granted on his election date of June 27, 2019, was determined by dividing the pro-rated value of the 2019 award, $159,183, by $43.43, the closing price of Pfizer’s common stock on June 27, 2019. At the end of 2019, the aggregate number of stock units (including dividend equivalents) held by each current non-employee Director was as follows: Mr. Blaylock, 22,729, Mr. Cornwell, 132,591, Mr. Echevarria, 48,972, Dr. Gottlieb, 3,737, Dr. Hobbs, 66,275, Mr. Kilts, 172,338, Dr. Littman, 16,064, Mr. Narayen, 70,927, Ms. Nora Johnson, 68,712, and Mr. Smith, 61,717.
(2) The amounts in this column represent charitable contributions made in 2019 under our matching gift program. The amounts shown for Dr. Ausiello, Mr. Blaylock, Dr. Littman, Mr. Narayen, Ms. Nora Johnson and Mr. Smith include certain amounts that reflect matching contributions made in 2019 in respect of their eligible 2018 contributions and for Dr. Ausiello also includes $125,000 received under a consulting arrangement entered into with the company following his retirement from the Board in 2019. 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.
(3) Dr. Ausiello retired as a Director, effective at the 2019 Annual Meeting of Shareholders. Dr. Gottlieb was elected as a Director, effective June 27, 2019.

 

Pfizer  2020 PROXY STATEMENT      43
 
 

 

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, 2020) by each of our Directors and each NEO listed in the 2019 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 TSRUs, performance total shareholder return units (PTSRUs), 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. For additional information, see the Compensation Discussion and Analysissection later in this Proxy Statement.

 

   Number of Shares or Units
Beneficial Owners   Common Stock    Stock Units 
Ronald E. Blaylock       22,729(3)
Albert Bourla, DVM, Ph.D.   189,273(1)   254,308(4)
W. Don Cornwell       132,591(3)
Frank A. D’Amelio   337,392    (4)
Mikael Dolsten, M.D., Ph.D.   59,612(1)   358,170(4)
Joseph J. Echevarria       48,972(3)
Scott Gottlieb, M.D.   4,000    3,737(3)
Helen H. Hobbs, M.D.       66,275(3)
Susan Hockfield, Ph.D.        
James M. Kilts   2,259(2)   172,388(3)
Dan R. Littman, M.D., Ph.D.       16,064(3)
Shantanu Narayen       70,927(3)
Suzanne Nora Johnson   10,000    68,712(3)
James Quincey        
Ian C. Read   690,095(1)   654,340(4)
James C. Smith   3,542(2)   61,717(3)
John D. Young   322,482(1)   130,429(4)
All Directors and Executive Officers as a Group (25)   2,065,069    2,249,694 
           
(1) 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 1,522 shares in the Pfizer Share Ownership Plan for Mr. Young.
(2) Includes the following shares held in the names of family members or trust: Mr. Kilts, 2,259 shares; and Mr. Smith; 1,542 shares. Messrs. Kilts and Smith disclaim beneficial ownership of such shares.
(3) Represents units (each equivalent to a share of Pfizer common stock) under our Director compensation program (see Non-Employee Director Compensationabove).
(4) Includes units (each equivalent to a share of Pfizer common stock) to be settled in cash following the officer’s separation from service, held under the Pfizer Supplemental Savings Plan (PSSP) and/or the Pfizer Inc. Deferred Compensation Plan (DCP). The PSSP and the DCP are described later in this Proxy Statement. Also includes the following RSUs and stock units (each equivalent to a share of Pfizer common stock) as of January 31, 2020, which are unvested: Dr. Dolsten, 242,262 stock units; Mr. Read, 453,353 stock units; and Mr. Young, 39,928 RSUs. This column does not include the following stock appreciation rights in the form of TSRUs as of January 31, 2020: Dr. Bourla, 1,970,631, of which 121,702 settled in February 2020; Mr. D’Amelio, 1,743,697 of which 318,603 settled in February 2020; Dr. Dolsten, 1,069,336; Mr. Read, 5,544,413; and Mr. Young, 1,880,551, of which 245,746 settled in February 2020. The settlement amounts described in the previous sentence include dividend equivalents in the settlement calculations. See “Compensation Tables—2019 Outstanding Equity Awards at Fiscal Year-End Table” and “—Estimated Benefits upon Termination Table” for a discussion of the vesting of RSUs, TSRUs and PTSRUs.

 

44      Pfizer  2020 PROXY STATEMENT
 
SECURITIES OWNERSHIP BENEFICIAL OWNERS

 

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, 2019, the only persons or entities known by us to be a beneficial owner of more than 5% of our common stock were as follows:

 

   Shares of Pfizer    
Name and Address of Beneficial Owner  Common Stock   Percent of Class
The Vanguard Group(1)         
100 Vanguard Boulevard         
Malvern, PA 19355   449,959,230(2)    8.13%
BlackRock, Inc.(2)         
55 East 52nd Street         
New York, NY 10055   426,228,360(1)    7.7%
State Street Corporation(3)         
State Street Financial Center         
One Lincoln Street         
Boston, MA 02111   292,628,794(3)    5.28%
   
(1) The information regarding The Vanguard Group is based solely on a Schedule 13G/A filed by The Vanguard Group with the SEC on February 12, 2020 (the Vanguard 13G/A). According to the Vanguard 13G/A, includes sole voting power with respect to 8,223,805 shares, shared voting power with respect to 1,589,236 shares, sole dispositive power with respect to 440,641,714 shares, and shared dispositive power with respect to 9,317,516 shares.
(2) The information regarding BlackRock, Inc. is based solely on a Schedule 13G/A filed by BlackRock, Inc. with the SEC on February 5, 2020 (the BlackRock 13G/A). According to the BlackRock 13G/A, includes sole voting power with respect to 371,001,352 shares, shared voting power with respect to 0 shares, sole dispositive power with respect to 426,228,360 shares, and shared dispositive power with respect to 0 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 13, 2020 (the State Street 13G). According to the State Street 13G, includes shared voting power with respect to 209,839,518 shares and shared dispositive power with respect to 292,478,152 shares.

 

Pfizer  2020 PROXY STATEMENT      45
 
 

 

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 Governance & Sustainability 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 Governance & Sustainability Committee.

 

Transactions requiring review are referred to the Governance & Sustainability Committee for approval, ratification or other action. Based on its consideration of all of the relevant facts and circumstances, the Governance & Sustainability 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 Governance & Sustainability Committee. The Governance & Sustainability Committee evaluates all options available, including ratification, revision or termination of such transaction. The Governance & Sustainability Committee then provides a summary of such transactions, including their terms, structure and business purpose, as well as the Governance & Sustainability Committee’s approval decision, to the Audit Committee for their information.

 

TRANSACTIONS WITH RELATED PERSONS

 

In December 2019, the company entered into a consulting arrangement with Mr. Read, dated December 16, 2019 and effective January 1, 2020 (the Consulting Agreement). The Consulting Agreement is related to the planned combination of Upjohn and Mylan to create Viatris, which is expected to occur in mid-2020. During the term of the Consulting Agreement, Mr. Read’s duties include keeping apprised of and providing consulting services to Pfizer management related to the Upjohn business, remaining available to be one of the persons designated by the company to serve on the Board of Directors of Viatris as of the completion of the combination, and such other consulting support the company’s Board or CEO may request from time to time. For these services, the Consulting Agreement provides for the payment of consulting fees of $100,000 per month to Mr. Read, subject to certain termination provisions. In December 2019, the company announced that Mr. Read will join the Board of Directors of Viatris upon the completion of the planned combination. The Consulting Agreement was approved by the Governance & Sustainability Committee, pursuant to the Policy.

 

Following Dr. Ausiello’s retirement from the Board in April 2019, the company entered into a consulting agreement with Dr. Ausiello for his service as a science, medicine and biotech advisor to our Worldwide Research, Development and Medical organization from time to time. The consulting agreement was approved by the Governance & Sustainability Committee, pursuant to the Policy. The company paid Dr. Ausiello $125,000 during 2019 for consulting services under the consulting agreement.

 

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 that contractually obligate us to provide this indemnification to them.

 

46      Pfizer  2020 PROXY STATEMENT
 
 

 

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 2020. 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. We have not been able to determine the specific year that Main Hurdman and its predecessor firms began serving as our auditor, however, we are aware that Main Hurdman and its predecessor firms have served as our auditor since at least 1942.

 

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 2020. 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 GovernanceBoard InformationBoard CommitteesThe Audit Committeefor additional information on the 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.

 

 

Vote   YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
RATIFICATION OF KPMG LLP AS INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM FOR 2020.
 

 

Pfizer  2020 PROXY STATEMENT      47
 
ITEM 2—RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Audit and Non-Audit Fees

 

The following table shows the fees for professional services rendered by KPMG for the audit of the company’s annual financial statements for the years ended December 31, 2019 and December 31, 2018, and fees billed for other services rendered by KPMG during those periods.

 

   2019  2018
Audit fees(1)  $41,022,000  $33,138,000
Audit-related fees(2)  999,000  1,153,000
Tax fees(3)  4,510,000  3,920,000
All other fees(4)  0  0
Total  $46,531,000  $38,211,000

 

(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 2019 versus 2018 is primarily due to an increase in audit work related to non-recurring strategic projects.
(2) Audit-related fees were principally related to audits of employee benefit plans.
(3) Tax fees were principally for services related to tax compliance and reporting and analysis services. The increase in tax fees in 2019 versus 2018 is primarily due to tax services in connection with strategic initiatives.
(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 (including financial statements prepared in connection with strategic transactions) 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.

 

48      Pfizer  2020 PROXY STATEMENT
 
 

 

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, and critical audit matters addressed during the audit. 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) and U.S. Securities and Exchange Commission 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, Quality 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, 2019, 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 2020.

 

The Audit Committee

 

Suzanne Nora Johnson, Chair
Ronald E. Blaylock
Joseph J. Echevarria
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 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.

 

Pfizer  2020 PROXY STATEMENT      49
 
 

 

Item 3 – 2020 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 and General Industry Comparator groups. 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.

 

Our executive compensation program:

 

aligns interests of participants including key executives with the long-term interests of our shareholders;
attracts, retains and motivates participants including 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.

 

Results of 2019 Advisory Vote on Executive Compensation

 

Pfizer’s executive compensation program received substantial shareholder support and was approved, on an advisory basis, by 94.9% of the votes cast at the 2019 Annual Meeting. Our Compensation Committee and the other members of our Board believe that this level of approval of our executive compensation program indicates our shareholders’ strong support of our compensation philosophy and goals, and the decisions made by the Compensation Committee in 2018 and early 2019. 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.

 

2019 Pay-for-Performance

 

2019 was a successful, purpose-driven and transformational year for Pfizer. We began the year by launching our Purpose Blueprint, which includes our renewed corporate purpose — Breakthroughs that change patients’ lives, and our new corporate values of courage, excellence, equity and joy. We began the second half of the year with a series of actions designed to strengthen each of our businesses and transform Pfizer into a singularly focused, science-driven company. Overall, we continued to strengthen our pipeline, advancing several significant pipeline programs and receiving ten regulatory approvals for either new drugs or new indications, and delivered solid financial results. The Compensation Committee believes that the compensation of our Named Executive Officers for 2019 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 2019 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.

 

50      Pfizer  2020 PROXY STATEMENT
 
ITEM 3—2020 ADVISORY APPROVAL OF EXECUTIVE COMPENSATION

 

2020 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 of the Company’s Named Executive Officers, as disclosed pursuant to Item 402 of Securities and Exchange Commission Regulation S-K, including the Compensation Discussion and Analysis, the compensation tables and narrative disclosures.”

 

Although the advisory vote is non-binding, the 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.

 

 

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

 

Compensation Committee Report

 

The Compensation Committee has reviewed and discussed with management the following Compensation Discussion and Analysis section of Pfizer’s 2020 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 2020 Proxy Statement.

 

The Compensation Committee*

 

James C. Smith, Chair
Ronald E. Blaylock
James M. Kilts

 

* On February 27, 2020, Mr. James Quincey was elected to the Compensation Committee.

 

Pfizer  2020 PROXY STATEMENT      51
 
 

 

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 pharmaceutical companies
ELT  Executive Leadership Team – CEO and the other Executive Officers
FDA  U.S. Food and Drug Administration
GAAP  Generally Accepted Accounting Principles in effect in the U.S.
GBP  British pound
GPP  Global Performance Plan – Annual Incentive Award Program (bonus), reported in the SCT as “Non-Equity Incentive Plan Compensation”
GRD  Greek drachma
GSK  GlaxoSmithKline plc
IRC or the Code  The Internal Revenue Code of 1986, as amended
LOE  Loss of Exclusivity – Loss of patent rights
LTI  Long-Term Incentive
Mylan  Mylan N.V.
Named Executive Officers or NEOs  CEO and CFO, and the three most highly compensated Executive Officers during fiscal 2019
NI  Non-GAAP Adjusted Net Income (also known as Adjusted Income)
OI  Non-GAAP Adjusted Operating Income
PBG/Biopharma  Pfizer Biopharmaceuticals Group
PCPP  Pfizer Consolidated Pension Plan – A qualified defined benefit pension plan; closed to new entrants January 1, 2011 and 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 based on an operating metric and relative TSR performance
PSP  Pfizer Savings Plan – A qualified defined contribution plan that includes an IRC 401(k) feature
PSSP  Pfizer Supplemental Savings Plan – A non-qualified savings plan that provides the same benefits as the PSP for amounts over the qualified plan limits
PTSRU  Performance Total Shareholder Return Unit – a TSRU with an additional performance feature
PTU  Profit Unit – A unit issued upon the “exercise” of vested TSRUs
R&D  Research and Development
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 prior to 2018, and all PSP and PSSP participants beginning in 2018
RSU  Restricted Stock Unit – A long-term incentive award
SEC  U.S. Securities and Exchange Commission
Section 16  Section 16 of the Securities Exchange Act of 1934, as amended
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
U.K.  United Kingdom
U.S.  United States
USD  United States dollars
WRDM  Worldwide Research, Development and Medical

 

52      Pfizer  2020 PROXY STATEMENT
 
EXECUTIVE COMPENSATION COMPENSATION DISCUSSION AND ANALYSIS

 

Compensation Discussion and Analysis

 

This Compensation Discussion and Analysis (CD&A) describes Pfizer’s executive compensation program for 2019 and certain elements of our 2020 program. This CD&A explains how the Compensation Committee (the Committee) of the Board of Directors (the Board) made 2019 compensation decisions for our executives, including the Named Executive Officers (NEOs) identified in this CD&A.

 

NAMED EXECUTIVE OFFICERS

 

Albert Bourla, DVM, Ph.D.*

Chief Executive Officer (CEO)

 

Ian C. Read**

Executive Chairman of the Board

 

Frank A. D’Amelio

Chief Financial Officer (CFO), Executive Vice President (EVP), Business Operations and Global Supply

 

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

Chief Scientific Officer, President, Worldwide Research, Development and Medical (WRDM)

 

John D. Young

Chief Business Officer, Group President

 

* Dr. Albert Bourla retained his CEO role and was elected Chairman of the Board of Directors, effective January 1, 2020.
** Mr. Ian Read retired as Executive Chairman of the Board of Directors on December 31, 2019.
Table of Contents
       
54   Executive Summary
64   Section 1: Elements of Our Executive Compensation Program
64     2019 Salaries
65     2019 Annual Incentive Award Program/Global Performance Plan (GPP)
68     2019 Annual Long-Term Incentive Award Program (Equity)
71   Section 2: How We Determine Executive Compensation
71     Roles of the Compensation Committee and the Independent Compensation Consultant
71     How We Establish Targets
72     Our 2019 Peer Groups – Competitive Pay Positioning
74   Section 3: How We Evaluate Performance: 2019 Compensation Decisions
75     2019 NEO Performance Summaries
77   Section 4: 2020 Compensation Actions
78   Section 5: Post-Employment Compensation and Benefits
79   Section 6: Other Compensation Programs and Policies
83   Compensation Tables
83     Summary Compensation Table
85     Grants of Plan-Based Awards Table
86     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 Table
98     CEO Pay Ratio
99     Equity Compensation Plan Information
100   Financial Measures


 

Pfizer  2020 PROXY STATEMENT      53
 
EXECUTIVE COMPENSATION EXECUTIVE SUMMARY

 

Executive Summary

 

Our Business

 

We apply science and our global resources to bring therapies to people that extend and significantly improve their lives through the discovery, development, manufacture and distribution of healthcare products, including innovative medicines and vaccines. 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. For 170 years, we have worked to make a difference for our patients.

 

Our commercial business operations are managed through a new global organizational structure (effective 2019), consisting of three distinct business segments: Pfizer Biopharmaceuticals Group (Biopharma), Upjohn, and through July 31, 2019, Consumer Healthcare*:

 

             
   

PFIZER

BIOPHARMACEUTICALS GROUP (BIOPHARMA)

 

Biopharma is a science-based medicines business that includes six business units: Oncology, Inflammation & Immunology, Rare Disease, Vaccines, Internal Medicine and Hospital.

 

In 2019, we incorporated our biosimilar portfolio into the Oncology and Inflammation & Immunology business units and certain legacy established products into the Internal Medicine business unit. Each business unit is committed to our purpose:

Breakthroughs that change patients’ lives.

 

   

UPJOHN**

 

Upjohn is a global, primarily off-patent branded and generic medicines business, which includes a portfolio of 20 globally recognized solid oral dose brands, as well as a U.S.- based generics platform, Greenstone.

 

 
             

 

* On July 31, 2019, Pfizer’s Consumer Healthcare business, an over-the-counter medicines business, was combined with GlaxoSmithKline’s (GSK) Consumer Healthcare business to form a new consumer healthcare joint venture, in which Pfizer owns a 32% equity stake.
   
** On July 29, 2019, we announced that we entered into a definitive agreement to combine Upjohn with Mylan, to create a new global pharmaceutical company, Viatris. Pfizer shareholders will own 57% of the combined new company.

 

54      Pfizer  2020 PROXY STATEMENT
 
EXECUTIVE COMPENSATION EXECUTIVE SUMMARY

 

Our 2019 Performance Overview

 

Throughout 2019, we remained diligent in strengthening our performance by focusing on advancing our pipeline and enhancing shareholder value through a combination of prudent decision making that supports Pfizer’s growth strategy, dividends and share repurchases. The foundation of our strategic priorities is to simplify and grow, a priority that focuses on innovation, patients, pipeline growth and colleagues. We remain firmly committed to fulfilling our company’s purpose — Breakthroughs that change patients’ lives. By doing so, we expect to create value for the patients we serve, our colleagues and our shareholders.

 

While Pfizer has undergone significant change, we ended the year with solid performance, as highlighted below.

 

KEY HIGHLIGHTS

 

  Achieved full-year 2019 revenues totaling $51.8 billion, with 8% operational growth* in the Biopharma business, primarily driven by:
    ¡ Ibrance, Eliquis and Xeljanz globally;
    ¡ Prevenar 13 in emerging markets; and
    ¡ Inlyta in the U.S.
  Completed the acquisition of Therachon Holding AG on July 1, 2019, a privately-held clinical-stage biotechnology company focused on rare diseases, with assets in development for the treatment of achondroplasia, a genetic condition and the most common form of short-limb dwarfism;
  Announced on July 29, 2019 that we entered into a definitive agreement to combine Upjohn with Mylan, to create a new global pharmaceutical company, Viatris;
  Completed the acquisition of Array BioPharma Inc. on July 30, 2019, a commercial stage biopharmaceutical company focused on the discovery, development and commercialization of targeted small molecule medicines to treat cancer and other diseases of high unmet need;
  Completed the joint venture transaction on July 31, 2019 with GSK, which combined our respective consumer healthcare businesses into a new consumer healthcare joint venture that operates globally under the GSK Consumer Healthcare name;
  Obtained 10 regulatory approvals for either new drugs or new indications; and
  Expanded access to quality healthcare, medicines and vaccines through various programs in partnership with organizations across the globe.

 

* For additional information on the company’s operating segment revenues, see the “Analysis of Operating Segment Information” in our 2019 Financial Report.

 

ADVANCING OUR R&D PIPELINE

 

As of January 28, 2020, we had the following number of projects in various stages of R&D:

 

 

Pfizer  2020 PROXY STATEMENT      55
 
EXECUTIVE COMPENSATION EXECUTIVE SUMMARY

 

OUR SHAREHOLDER RETURN

 

Quarterly Dividends One-year TSR Three-year TSR Five-year TSR Capital Returned
to Shareholders
(dividends and share
repurchases)
6% 6.9% 34.6% 50.6% $16.9B
Compared to 2018 Year-End 2019 Year-End 2019 Year-End 2019 in 2019

 

 

LEADERSHIP TRANSITION

 

Effective January 1, 2019, our Board appointed Dr. Albert Bourla as our CEO and Mr. Ian Read, our former CEO, as Executive Chairman of Pfizer’s Board of Directors, who served in this role from January 1, 2019 to December 31, 2019.

 

Mr. Read’s key responsibilities as Executive Chairman included Board leadership, input on key matters that related to Pfizer’s long-term growth strategy, government affairs, shareholder engagement (as requested by the CEO) and acting as an advisor to Dr. Bourla to help ensure an orderly and successful business transition. During the leadership transition period, Mr. Read’s deep knowledge of the business and governmental affairs, as well as the relationships he has built with our shareholders, patients and policy makers, ensured leadership continuity. The following are Mr. Read’s key accomplishments in 2019:

 

  Successfully transitioned both his executive duties and Chairmanship of the full Board;
  Served as Pfizer’s representative for select key customer and external engagements;
  Provided overall leadership to Pfizer’s Board at Board Meetings and Executive sessions;
  Oversaw selection of a new Board member; and
  Served as Chair of the Pfizer Foundation.*

 

Upon Mr. Read’s retirement as Executive Chairman on December 31, 2019, Dr. Bourla retained the CEO role and was elected Chairman of the Board of Directors, effective January 1, 2020.

 

Effective January 1, 2020, the company entered into a consulting arrangement with Mr. Read. In light of Mr. Read’s extensive experience with, and knowledge of, the healthcare industry, the Upjohn business and the markets in which Upjohn operates, his consulting services will focus on providing guidance and continuity to Pfizer’s senior management regarding the existing operations of the Upjohn business. The consulting agreement is for a maximum term of one-year, subject to earlier termination provisions. For additional details related to the terms of the consulting agreement, see Related Person Transactions and Indemnificationearlier in this Proxy Statement.

 

2019 Executive Compensation Highlights

 

Annually, the Compensation Committee performs a comprehensive review of our executive compensation program to ensure it is aligned with our long-term business strategy, drives performance and reflects shareholder engagement and feedback, as appropriate. As part of this review, FW Cook & Co., 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.

 

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

 

56      Pfizer  2020 PROXY STATEMENT
 
EXECUTIVE COMPENSATION EXECUTIVE SUMMARY

 

Based on the Committee’s annual review and in response to changing business needs and market best practices, the Committee took the following actions relating to the leadership transition and to enhance our executive compensation program in 2019:

 

2019/2020 KEY EXECUTIVE COMPENSATION COMMITTEE ACTIONS

LEADERSHIP TRANSITION The Compensation Committee approved compensation actions relating to:
    o Dr. Bourla as CEO (effective January 1, 2019).
    o Dr. Bourla as Chairman of the Board of Directors and CEO (effective January 1, 2020) as noted in the 2020 Compensation Actionssection of this Proxy Statement.
To strengthen the alignment between pay and performance, the Committee made design changes to both the short- and long-term incentive plans for 2019/2020.
ANNUAL SHORT-TERM INCENTIVE Effective for the 2020 performance year, the Committee approved adding an R&D pipeline achievement factor to the existing short-term incentive financial metrics.
Adding Pipeline Modifier The pipeline achievement factor will provide for shared accountability and better strategic focus on the growth of our pipeline, which will become even more critical to our core innovative business after the completion of the proposed combination of Upjohn and Mylan. This provides a holistic approach in funding the GPP, which means both the company’s financial health and pipeline growth are measured.

LONG-TERM INCENTIVE AWARDS

Financial Operating Metric Change for PSAs

 

The Committee changed the financial operating metric for the PSAs to NI(1) from OI(2), effective in 2019(3). The change in the metric does not impact the degree of rigor represented by this component, but provides for better alignment to the long-term business strategy. NI(1) is a more appropriate measure of the company’s annual operating performance as it includes earnings from investments accounted for under equity method accounting, such as income from the Consumer Healthcare joint venture with GSK.
(1) Adjusted Net Income, as the PSA performance measure, is defined as U.S. GAAP Net Income excluding purchase accounting adjustments, acquisition-related costs, discontinued operations and certain significant items; and is adjusted to reflect budgeted foreign exchange rates for the year and further refined to exclude other unbudgeted or non-recurring items.
(2) Adjusted Operating Income, as the 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 2019 Financial Report), adjusted to reflect budgeted foreign exchange rates for the year and further refined to exclude other unbudgeted or non-recurring items.
(3) Except for the 2017 PSAs, see PSAs Featuresin this Proxy Statement.

 

Pfizer’s Executive Compensation: Pay-for-Performance Philosophy and Program Objectives

 

The Committee believes that 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.

 

Our philosophy (set by the Committee):

 

•   Aligns each executive’s compensation with Pfizer’s short- and long-term performance and to provide the compensation and incentives needed to attract, motivate and retain key executives who are crucial to Pfizer’s long-term success.

•   A significant portion of the total compensation opportunity for each of our executives (including the NEOs), delivered as long-term compensation is directly related to Pfizer’s TSR and to other performance factors that measure our progress against the goals of our strategic and operating plans.

•   In addition, we benchmark our performance and compensation 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.

 

Pfizer’s executive compensation program is designed to strengthen the link between pay and performance.

 

Our executive compensation program:

 

•   Aligns interests of participants including key executives with the long-term interests of our shareholders;

•   Attracts, retains and motivates participants including 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.

 

Pfizer  2020 PROXY STATEMENT      57
 
EXECUTIVE COMPENSATION EXECUTIVE SUMMARY

 

2019 NEO Pay Mix

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

 

2019 Target Total Direct Compensation

(CEO)

 

 

2019 Target Total Direct Compensation

(Average) for Other NEOs*

 

     

 

* Excludes Executive Chairman

 

2019 NEO Total Direct Compensation (TDC)

 

The Committee uses a “performance-year” TDC approach to determine TDC competitiveness versus peers, and to evaluate the alignment of annual pay and performance. The performance-year TDC differs from the amount reported in the Summary Compensation Table (SCT) TDC. The main difference between the performance-year TDC and SCT TDC, as illustrated below, is the equity grant amount.

 

 

* Consists of Total Shareholder Return Units (TSRUs) (granted in 2019) and one-third of each of the 2017, 2018 and 2019 PSA grants (deemed granted for accounting purposes in 2019 when the 2019 goal was set).

 

The performance-year TDC calculation includes the value of the annual long-term incentive grant, attributable to and in consideration of the individual’s performance in the performance year (made in February following the performance year), without regard to when the annual LTI performance goal is set (for PSAs).

 

This is in contrast to the SCT TDC which reflects the grants made during the year for which applicable performance goals have been set under GAAP rules. The accounting rules provide that PSAs are included when applicable goals are set, so one-third of the PSAs is included in the SCT TDC in each of the three performance years as a result of the use of three, separately established annual goals.

 

58      Pfizer  2020 PROXY STATEMENT
 
EXECUTIVE COMPENSATION EXECUTIVE SUMMARY

 

2019 NEO PERFORMANCE-YEAR TDC AND SUMMARY COMPENSATION TABLE TDC

 

As illustrated in the chart below, Dr. Bourla’s performance-year TDC is $18.23 million compared to his 2019 SCT TDC value of $15.60 million. The difference in the values is attributed largely to the LTI value included for the performance-year ($13.00 million) versus the accounting value required for reporting in the Summary Compensation Table ($10.37 million). Accounting rules recognize our 2017, 2018 and 2019 PSA grants on a prorata basis.

 

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 2019 Performance-Year TDC versus the 2019 SCT TDC for the NEOs (other than the Executive Chairman), and is not intended as a substitute for the SCT.

 

        Performance-Year Compensation   Summary Compensation Table(1)
                        Total Direct Compensation   Total
(Total
Name(2)   Year   Year-End
Salary
(A) ($)
  Annual
Short-Term
Incentive Award
(paid in 2020)
(B) ($)
  Annual LTI
Award(3)
(granted in
February 2020)
(C) ($)
  Total Direct
Compensation
(D=A+B+C) ($)
  (Salary + Non-Equity
Incentive (bonus) + equity
awards valued on
accounting basis)
(E) ($)
  Direct Compensation
(E) + Change in
Pension Value + All
Other Compensation)
(F) ($)
A. Bourla   2019   1,600,000   3,630,000   13,000,000   18,230,000   15,596,246   17,928,963
F. D’Amelio   2019   1,500,000   1,820,000   6,000,000   9,320,000   8,940,095   11,075,730
M. Dolsten   2019   1,400,000   1,820,000   5,000,000   8,220,000   8,166,101   9,598,045
J. Young   2019   1,255,000   1,675,000   4,000,000   6,930,000   7,192,097   8,959,383

 

(1) SCT TDC (column E) includes salary, non-equity incentive compensation and equity awards made during 2019 with their value based on accounting rules (which reflects the TSRUs granted in 2019, and the value of one-third of each of the 2017, 2018 and 2019 PSAs). The SCT “Total” (column F) is composed of Total Direct Compensation (column E), plus the change in pension value (frozen pension benefits as of December 31, 2017; change is attributed to decline in interest rates) and the All Other Compensation.
(2) Mr. Read retired on December 31, 2019 and as such, did not receive a February 2020 annual LTI award and is not included in the chart above.
(3) Annual LTI Award (column C) amounts represent the 2020 annual LTI award value, which includes the value of the TSRUs and the full PSA grant value, and is reflective of LTI awards associated with the NEO’s respective roles.

 

Pfizer  2020 PROXY STATEMENT      59
 
EXECUTIVE COMPENSATION EXECUTIVE SUMMARY

 

2019 KEY PLANNING CYCLE

 

The below graphic illustrates key elements of the annual compensation planning cycle:

 

APPROVE   REVIEW   ENGAGE

 

 

JANUARY – MARCH   APRIL – JUNE

•   Complete Executive Leadership Team (ELT) year-end performance assessments for prior year

•   Review and finalize prior year’s incentive plan performance results and funding level

•   Review and approve annual ELT compensation (salary, bonus and long-term incentive awards)

•   Conduct annual risk assessment on our executive compensation and global compensation programs and policies

•   Review and approve proxy materials

•   Review ELT goals for current performance period

•   Approve various incentive plan metrics and targets for current performance period

 

•   Consider shareholder feedback from outreach discussions and the results of the say-on-pay vote

•   Review year-to-date performance relating to the annual incentive plan and the equity-based performance awards

•   Conduct an annual proxy analysis of NEO pay of comparator companies

•   Review proxy advisory firms’ analyses of current proxy statement

     
OCTOBER – DECEMBER   JULY – SEPTEMBER

•   Commence ELT year-end performance assessments

•   Conduct annual executive stock ownership review

•   Review year-to-date performance relating to the annual incentive plan and the performance share plan

•   Review potential NEOs for the upcoming proxy statement

•   Engage in shareholder outreach discussions and consider shareholder feedback in decisions regarding plan components

•   Review and approve Compensation Committee Charter

 

•   Review year-to-date performance relating to the annual incentive plan and the equity-based performance awards

•   Conduct CEO mid-year performance assessment

•   Review the composition of the Pharmaceutical Peer and General Industry Comparator groups


 

 

60      Pfizer  2020 PROXY STATEMENT
 
EXECUTIVE COMPENSATION EXECUTIVE SUMMARY

 

Compensation Practices

 

COMPENSATION RISK ASSESSMENT

 

Pfizer continues to implement and maintain leading practices in its compensation program and conducts an annual comprehensive assessment of the potential risks related to our compensation program, policies and practices.

 

Executive Compensation Program. The Committee’s independent advisor conducts an annual risk assessment on behalf of, and subject to review by, the Committee. The assessment focuses on (1) ensuring an appropriate balance in our program structure to mitigate compensation-related risk with cash versus stock, short-term versus long-term measurements and financial versus non-financial goals; and (2) best-practice policies to mitigate compensation-related risk including recovery/clawbacks, stock ownership guidelines, equity administration rules, and insider-trading and hedging prohibitions.

 

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

 

LEADING COMPENSATION PRACTICES

 

WHAT WE DO   WHAT WE DO NOT DO
ü Risk Mitigation   û Hedging or Pledging
ü Compensation Recovery (“Clawback”)   û Employment Agreements
ü Stock Ownership Requirements   û Change in Control Agreements
ü Minimum Stock Vesting Required   û Repricing
ü Robust Investor Outreach   û “Gross-Ups” for Excise Taxes or Perquisites
ü Independent Compensation Consultation    

 

2019 Advisory Vote on Executive Compensation and Shareholder Outreach Program

 

Pfizer’s executive compensation program has received strong shareholder support over the past several years. At the 2019 and 2018 Annual Meetings, Pfizer’s executive compensation program received support of 94.9% and 92.6% of the votes cast, respectively. Our Committee and the other members of our Board view this consistent high level of support from our shareholders as a result of our commitment to ensure a strong link between pay and performance. The feedback we received during our extensive shareholder outreach, as well as our shareholders’ votes, reflects support for our pay-for-performance compensation philosophy and goals, market best practices and focus on shareholders’ interests.

 

Pfizer is committed to open and continued communication with our shareholders and has a robust outreach program. For additional discussion regarding our shareholder outreach related to executive compensation, see Shareholder Outreachearlier in this Proxy Statement.

 

Pfizer  2020 PROXY STATEMENT      61
 
EXECUTIVE COMPENSATION EXECUTIVE SUMMARY

 

The following chart identifies key executive compensation topics discussed during our shareholder outreach discussions along with our Committee’s response.

 

HIGHLIGHTED KEY EXECUTIVE COMPENSATION PROGRAM TOPICS

 

Shareholder Feedback   Committee’s Response
Consider adding pipeline metrics and environmental, social and governance (ESG) metrics to the short- or long-term incentive programs.  

The Committee annually reviews the components of the short- and long-term incentive programs to ensure a strong link between pay and performance. Subsequent to its review, effective in 2020, the Committee approved the addition of a R&D pipeline achievement factor to the short-term incentive plan. This change further aligns the link to performance-based pay and shared accountability, especially given the importance of pipeline achievement to Pfizer’s mission. (See page 57 for details regarding the pipeline modifier.)

 

In addition, the company views corporate responsibility and sustainability as integral to our business strategy and we remain committed to being a responsible corporate citizen. The Committee is aware of the importance of ESG factors to investors, and continues to evaluate the possibility of including ESG metrics into Pfizer’s executive pay programs. These factors are already incorporated, when appropriate, into colleagues’ performance goals.

Ensure that targets set for the short-term incentive program are challenging, and provide disclosures to explain why targets are set lower than prior year’s actual results, if applicable.  

The Committee continues to take a rigorous, holistic approach to ensure goals set in our incentive programs drive strong performance without encouraging excessive risk taking.

 

The Committee annually sets performance targets for bonus funding utilizing a budgeting approach that considers prior year’s performance, expected growth, the impact of business development activity, impact of losses of exclusivity and fluctuations in foreign exchange rates. The Committee then determines whether a sufficient degree of stretch exists in the targets.

 

Given how certain factors can change in any given period, the Committee believes that in its determination of whether performance goals are challenging and rigorous, it should include all relevant factors and not merely year-over-year comparisons.

 

In addition, the Committee may use its discretion to adjust the calculated bonus pool funding to minimize the impact (positive or negative) of events outside the ordinary course of business, such as shorter or longer than expected periods of exclusivity, unplanned drug price increases or decreases, new drug approvals (which have unpredictable timing) and purchases or dispositions of business units or assets.

To what extent does drug pricing impact short-term incentive compensation?  

Our executive compensation program is not designed to encourage decisions that would create short-term financial gains at the expense of long-term value creation.

 

The financial metrics used for our short-term incentive program in 2019 were revenue, adjusted earnings per share and cash flow from operations. While the prices of medicines have some impact on our operating and financial results, our short-term incentive program is based on our performance versus targets approved by the Committee. The targets for these metrics are based on our business plans for the year and include any planned increase in the pricing of our medicines. Therefore, planned drug price increases or decreases generally have no impact on our short-term incentive compensation.

 

Pfizer’s executive compensation program is aligned with long-term performance and shareholder value. Moreover, our internal processes ensure that we take a thoughtful approach to drug pricing and monitor risks associated with our compensation program, including those risks associated with drug pricing.

 

62      Pfizer  2020 PROXY STATEMENT
 
EXECUTIVE COMPENSATION EXECUTIVE SUMMARY

 

2019 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 annual financial goals.

Individual awards are based on business/operating unit and individual performance measured over the performance year

Provides incentive to executives for achieving short-term results that create sustained future growth

Annual 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)

 

Represents 50% of total annual grant value

Adjusted Net 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 are paid based on the company’s performance against a combination of an adjusted net income* goal, set annually, over three one-year periods and relative TSR, as compared to the DRG Index, over a three-year period. The payout is capped at target if TSR for the performance period is negative

 

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 cash or shares of Pfizer common stock

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

 

* Adjusted Net Income, as the PSA performance measure, is defined as U.S. GAAP Net Income excluding purchase accounting adjustments, acquisition-related costs, discontinued operations and certain significant items; and is adjusted to reflect budgeted foreign exchange rates for the year and further refined to exclude other unbudgeted or non-recurring items. Effective in 2019, the Adjusted Operating Income performance measure was replaced with an Adjusted Net Income performance measure for PSAs granted after 2017.

 

Pfizer  2020 PROXY STATEMENT      63
 
EXECUTIVE COMPENSATION SECTION 1 – ELEMENTS OF OUR EXECUTIVE COMPENSATION PROGRAM

 

2019 Executive Compensation Program Summary (cont’d)

 

Element/Type Plan/Program Terms Objectives
Retirement Pension Plan** Provides retirement income for eligible participants based on years of service and frozen final average earnings through December 31, 2017 Provides retirement income based on tenure and compensation, up to IRC limits
  Supplemental Pension Plan** Provides retirement income relating to compensation in excess of the IRC limitations under the same formula as the qualified pension plan noted above Provides retirement income based on tenure and compensation, without regard to IRC limits
  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 IRC limitations and receive a company matching contribution (i.e., defer 6.0% to receive a 4.5% matching contribution). In addition, since 2018, all participants receive an age- and service-weighted company-provided Retirement Savings Contribution (RSC) (5%-9%) Provides retirement income through 401(k) deferrals, company matching contributions and an RSC, up to IRC limits
  Supplemental Savings Plan Provides savings opportunity relating to eligible compensation in excess of the IRC limitations under the same formula (matching contributions and RSC) as the qualified savings plan noted above Allows for deferrals, company matching contributions and RSC without regard to IRC limits
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

 

** Plans were closed to new participants effective January 1, 2011 and were frozen on December 31, 2017.

 

SECTION 1 – Elements of Our Executive Compensation Program

 

2019 Salaries

 

Salary is a fixed amount of compensation for performing day-to-day responsibilities. Salary represented approximately 10% of target total direct compensation (year-end salary, target annual short-term incentive and target annual long-term incentive) for the CEO and approximately 19% for the other NEOs (excluding the Executive Chairman). 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:

 

Name   April 1, 2019 Salary
($)
* 
A. Bourla   1,600,000  
I. Read   1,200,000  
F. D’Amelio   1,500,000  
M. Dolsten   1,400,000  
J. Young   1,255,000  

 

* Salary as of January 1, 2019 as a result of the change to the individual’s role (excluding Mr. Young’s salary which was effective April 1, 2019).

 

64      Pfizer  2020 PROXY STATEMENT
 
EXECUTIVE COMPENSATION SECTION 1 – ELEMENTS OF OUR EXECUTIVE COMPENSATION PROGRAM

 

2019 Annual Incentive Award Program/Global Performance Plan (GPP)

 

The Compensation Committee determined the annual incentive bonus percentage funding based on performance against three pre-set weighted financial goals that are based on Pfizer’s annual operating plan. Achievement versus our pre-set goals is measured using the same key operating assumptions as those in our annual budget.*

 

Process for Determining Annual Incentive Pool Funding

 

Step
1
Step
2
Step
3
Step
4
          

Determine Financial Performance Metrics

 

Annually, the Committee evaluates the previously selected financial measures and determines whether different or additional measures should be used to fund the GPP pool.

 

Metrics selected should support Pfizer’s annual operating plan, 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; and be consistent with best practices prevalent within our industry.

 

Evaluate Financial Performance and Review Other Qualitative 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 against the selected metrics, subject to the Committee’s limited discretion when considering its qualitative review.

 

This qualitative review is an evaluation of other factors (such as product pipeline) considered in determining funding within the applicable range corresponding to financial performance.

 

Approve GPP Funding

 

The Committee believes its evaluation process provides the appropriate limited flexibility to determine the final GPP pool funding based upon a holistic view of Pfizer’s performance and not just on financial performance against the three metrics being measured.

 

Upon completion of its review, the Committee approves the GPP pool funding.

 

Allocate Final GPP Funding

 

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 financial performance and achievements of selected strategic and operational goals.

 

   
* Includes budgeted foreign exchange rates, business development activity (e.g., acquisitions or divestitures), planned increases in the pricing of our medicines, 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. Normal, ongoing defense costs of the company or settlements of and accruals for legal matters made in the normal course of our business would be included in the calculation.

 

Pfizer  2020 PROXY STATEMENT      65
 
EXECUTIVE COMPENSATION SECTION 1 – ELEMENTS OF OUR EXECUTIVE COMPENSATION PROGRAM

 

2019 ANNUAL INCENTIVE FINANCIAL METRICS*

 

For annual incentive purposes, the weighted financial goals were:

 

Total Revenue

 

A leading indicator of performance and value creation; provides a clear focus on growth; an important measure in our industry; understandable with a clear line of sight and employee impact.

Adjusted Diluted EPS

 

A measure of income that provides focus on profitable growth and expense control; viewed as a strong indicator of sustained performance over the long term; understandable with a clear line of sight and employee impact.

Cash Flow from Operations

 

A measure that 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; a strong link to long-term shareholder value creation.

 

* See Financial Measureson page 100 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 Purposesas noted below.

 

For 2019, target annual incentive opportunities for the NEOs ranged from 100% to 150% of salary grade midpoint.

 

Financial Results for Annual Incentive Purposes

 

The annual incentive program was funded at 140% as we exceeded the 2019 target goals for all three metrics. The Committee set the target goals for annual incentive purposes in the first quarter of 2019, utilizing a budgeting approach that considered prior year’s performance, expected growth, the impact of business development activity, impact of losses of exclusivity and fluctuations in foreign exchange rates. See Highlighted Key Executive Compensation Program Topicson page 62 of this Proxy Statement. The Committee then determined that a sufficient degree of stretch existed in the targets (see Process for Determining Annual Incentive Pool Fundingon page 65 for additional information).

 

These results are different than our results under GAAP. See Financial Measureson page 100 for a comparison of U.S. GAAP numbers to these objectives for annual incentive purposes.

 

2019 Financial Objectives (for Annual Incentive Purposes)

 

The table below provides a comparison of 2018 Results with 2019 Threshold, Target and Results.

 

Weighting   Financial Objectives
(For Annual Incentive Purposes)
  2018 Results
($)
      2019 Threshold(4)
($)
  2019 Target(4)
($)
  2019 Results(4)
($)
 
40%   Total Revenue(1)   54.3 billion       47.7 billion   51.7 billion   52.4 billion  
40%   Adjusted Diluted EPS(2)   3.00       2.59   2.81   3.00  
20%   Cash Flow from Operations(3)   16.2 billion       8.1 billion   11.6 billion   12.9 billion  

 

(1) 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, 2019 and 2018 results differ from U.S. GAAP revenues of $51.8 billion and $53.6 billion, respectively.
(2) 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 Measuresfor a comparison of U.S. GAAP diluted EPS and non-GAAP Adjusted Diluted EPS for 2019 and 2018 for annual incentive purposes. See “Non-GAAP Financial Measure (Adjusted Income) – Certain Significant Items” in the 2019 Financial Report for information about significant substantive and/or unusual items that are evaluated on an individual basis.
(3) 2018 and 2019 Results exclude certain discretionary timing items for compensation purposes (non-GAAP amounts).
(4) The 2019 amounts shown in the table are adjusted to reflect the partial year impact from Consumer Healthcare and Array BioPharma Inc.

 

Note: See Financial Measuresfor a comparison of 2019 and 2018 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.

 

For more information on revenues, see “Revenues–Overview” in the 2019 Financial Report.

 

66      Pfizer  2020 PROXY STATEMENT
 
EXECUTIVE COMPENSATION SECTION 1 – ELEMENTS OF OUR EXECUTIVE COMPENSATION PROGRAM

 

2019 TARGET SETTING FOR ANNUAL INCENTIVE AWARD OPPORTUNITY

 

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.

 

Target annual incentive award levels are reviewed annually to ensure alignment with our compensation philosophy of targeting each compensation element and total direct compensation to approximately the market median, with consideration of internal equity among our ELT members. For more information on target setting see How We Establish Targetson page 71 in this Proxy Statement.

 

2019 ANNUAL INCENTIVE AWARDS

 

In February 2020, the Committee determined the annual incentive awards for the NEOs for 2019 performance:

 

The Committee reviewed Mr. Read’s and Dr. Bourla’s performance as Executive Chairman and CEO, respectively, for 2019, with input from the other independent Directors and advice from the Committee’s independent compensation consultant, to determine their respective 2019 annual incentive award.
Dr. Bourla submitted 2019 annual incentive award recommendations to the Committee for each of the other 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.
  o The Committee, with input from the other independent Directors and the Committee’s independent compensation 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 Directors reviewed and ratified the 2019 annual incentive awards for the CEO and other NEOs (as well as the other ELT members), including the Executive Chairman, as approved by the Committee.

 

Annual incentive award targets and payout ranges for 2019, as well as the actual annual incentive award payouts for each of the NEOs, are:

 

Name 2019 Salary
Grade Midpoint
($)(1)
Target Payout
as a % of
Salary Midpoint
Payout Range
as a % of
Salary Midpoint
Target Award
($)
Maximum Award
($)(2)
Actual Award
($)
A. Bourla 1,729,800 150% 0-300% 2,594,700 5,189,400 3,630,000
I. Read 1,200,000 150% 0-300% 1,800,000 3,600,000 2,520,000
F. D’Amelio 1,300,000 100% 0-200% 1,300,000 2,600,000 1,820,000
M. Dolsten 1,300,000 100% 0-200% 1,300,000 2,600,000 1,820,000
J. Young 1,193,900 100% 0-200% 1,193,900 2,387,800 1,675,000

 

(1) See 2019 Target Setting for Annual Incentive Award Opportunityfor an explanation of how we use salary grade midpoints to determine target annual incentive awards.
(2) Maximum award is 200% of target award.

 

Pfizer  2020 PROXY STATEMENT      67
 
EXECUTIVE COMPENSATION SECTION 1 – ELEMENTS OF OUR EXECUTIVE COMPENSATION PROGRAM

 

2019 Annual Long-Term Incentive Award Program (Equity)

 

Pfizer’s annual 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:

 

    5- and 7-Year Total Shareholder Return Units (TSRUs)   Performance Share Awards (PSAs)
Objective/ Performance Measure   Provides absolute long-term alignment with shareholders by linking rewards to absolute TSR over a five- or seven-year period   Aligns rewards to both a strategic financial performance metric NI(1) over three one-year periods and relative TSR* performance as compared to the DRG Index over a three-year period
Weighting   50% of value at grant in total (25% each)   50% of value at grant
Metric   TSR   NI(1) and relative TSR*
Comparator     DRG Index
Vesting Period   Three-Year   Three-Year
Formula   (# of TSRUs granted   Average of the three annual NI(1) Performance Factors %
    x [Settlement Price – Grant Price   + 1.5 x the first 20 percentage point differential between
    + Dividend Equivalents])   Pfizer’s TSR* % and DRG Index TSR* %(2)
    / Settlement Price(4)   + 2.0 x the differential over 20 percentage points(2)
    = Shares delivered   = PSA percentage earned(3)

 

* 30-day TSR
(1) Adjusted Net Income, as the PSA performance measure, is defined as U.S. GAAP Net Income excluding purchase accounting adjustments, acquisition-related costs, discontinued operations and certain significant items; and is adjusted to reflect budgeted foreign exchange rates for the year and further refined to exclude other unbudgeted or non-recurring items. Effective in 2019, the Adjusted Operating Income performance measure was replaced with an Adjusted Net Income performance measure for PSAs granted after 2017.
(2) Positive or negative adjustment.
(3) Payout is capped at target if TSR is negative.
(4) 20-day average of Pfizer’s closing stock prices ending on the settlement date of the TSRUs.

 

2019 Grant Value of Annual Long-Term Incentive Awards

 

The 2019 grant value of each NEO’s annual 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, the individual’s impact on Pfizer’s results and for retention purposes.

 

These grant values, which differ from the accounting values shown in the 2019 Summary Compensation Table,” were as follows:

 

Name 5-Year TSRUs
Value ($)(1)
(25%)
7-Year TSRUs
Value ($)(1)
(25%)
PSAs
Value ($)(1)
(50%)
Total Grant
Value of
Annual LTI
Awards(2) ($)
A. Bourla 3,000,000 3,000,000 6,000,000 12,000,000
I. Read 2,000,000 2,000,000 4,000,000 8,000,000
F. D’Amelio 1,500,000 1,500,000 3,000,000 6,000,000
M. Dolsten 1,250,000 1,250,000 2,500,000 5,000,000
J. Young 1,000,000 1,000,000 2,000,000 4,000,000

 

(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 due to the use of three separately established annual goals, the value of one-third of the PSA grant for each of the 2017, 2018 and 2019 PSA grants is reported in the 2019 Summary Compensation Table.”
(2) The amounts shown represent the full value of the annual grant, which is different from the 2019 amount reported in the 2019 Summary Compensation Table,” which reports the value of TSRUs granted in 2019, and the value of one-third of each of the 2017, 2018 and 2019 PSA grants, in accordance with applicable accounting rules. The Committee considers the full value in its determination of annual compensation.

 

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 ($43.35 for the TSRUs granted on February 28, 2019), 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.

 

68      Pfizer  2020 PROXY STATEMENT
 
EXECUTIVE COMPENSATION SECTION 1 – ELEMENTS OF OUR EXECUTIVE COMPENSATION PROGRAM

 

Performance Share Awards (PSAs)

 

The number of PSAs earned at the end of the three-year performance period will be determined as set forth below for the 2017, 2018 and 2019 grants. Effective with the 2019 performance year, the OI(1) performance measure was replaced with an NI(2) performance measure for PSAs granted after 2017. The relative TSR metric as compared to the DRG Index and the other features of the award remain unchanged, as illustrated in the How We Determine Performance Share Awards (PSAs) Earnedtable.

 

PSAs Features

 

The table below provides the details of the PSA program and the Committee’s rationale for its decisions regarding the features of the PSAs granted in 2017 and paid in 2020:

 

Performance Share Award Features   Committee’s Rationale
How are PSAs earned?   PSAs deliver value based on both a strategic financial measure, OI(1), and relative TSR against the DRG Index. See the following table.
Why use OI(1) as a PSA metric?   The Committee reviewed several metrics, and selected OI 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 OI(1) measured annually for three years?   In determining the measurement period for the OI metric, the Committee decided that, given the nature of our business in which operating metrics can be impacted positively or negatively by events outside of the control of executives, such as shorter or longer than expected periods of exclusivity, new drug approvals (which have unpredictable timing) and purchases or dispositions of business units (all or part) or assets, the design of the PSA program would be based on the use of three one-year metrics, as they determined that a three-year metric may likely need to be adjusted to reflect unplanned positive or negative events that might affect OI. Also, the Committee incorporated the full three-year period in the relative TSR modifier and capped the OI metric at 150% of target with the overall maximum of 200% (after the application of the TSR modifier(3)).
Why use relative TSR as a PSA metric?   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 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.
Why has the PSA metric changed from OI(1) to NI(2) beginning with the 2019 performance year?   The Committee concluded that the change was appropriate in light of changes in our business reflected by the Consumer Healthcare joint venture. NI is similar to OI as a key indicator of the company’s financial health. The major difference is that Other Income and Deductions are included in determining NI but not for OI. Given the equity method of accounting for investments (including the Consumer Healthcare joint venture), the Committee concluded that these investments should be included in the PSA metric and as such determined NI was more appropriate. For more information, see page 57.
Why did the 2017 PSAs continue to use OI(1) as the metric for the 2019 performance year?   Management believes that the 2017 PSAs are grandfathered for purposes of the performance compensation exception under Section 162(m) (relating to the deduction of compensation over $1 million). Management believes that changing the metric could jeopardize the “grandfathering” treatment, and the Committee decided to maintain the metric for the 2017 PSAs to avoid this risk of losing a tax deduction.

 

(1) Adjusted Operating Income, as the 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 2019 Financial Report), adjusted to reflect budgeted foreign exchange rates for the year and further refined to exclude other unbudgeted or non-recurring items. Effective in 2019, the Adjusted Operating Income performance measure was replaced with an Adjusted Net Income performance measure for PSAs granted after 2017.
(2) Adjusted Net Income, as the PSA performance measure, is defined as U.S. GAAP Net Income excluding purchase accounting adjustments, acquisition-related costs, discontinued operations and certain significant items; and is adjusted to reflect budgeted foreign exchange rates for the year and further refined to exclude other unbudgeted or non-recurring items.
(3) Positive or negative adjustment. PSA payout is capped at target if TSR is negative.

 

Pfizer  2020 PROXY STATEMENT      69
 
EXECUTIVE COMPENSATION SECTION 1 – ELEMENTS OF OUR EXECUTIVE COMPENSATION PROGRAM

 

How We Determine Performance Share Awards (PSAs) Earned

 

The number of PSAs earned at the end of the three-year performance period will be determined as follows for the 2017, 2018 and 2019 PSAs:

 

  FY 2017 FY 2018 FY 2019* FY 2020* FY 2021*
2017 PSAs (2017-2019)    
Metric Adjusted
Operating Income
Adjusted
Operating Income
Adjusted
Operating Income
   
  Thres-
hold
Target Max Thres-
hold
Target Max Thres-
hold
Target Max    
Performance Factor 0% 100% 150% 0% 100% 150% 0% 100% 150%    
Adj. Operating Income(1)
Goals ($B)
18.89 19.89 >  19.74 20.74 >  17.99 18.99 >     
Adj. Operating Income(1)
Results
$19.50B = 68.85% $20.33B = 66.92% $19.64B = 146.00%    
Three-year Average(2) 93.92% = (68.85% + 66.92% + 146.00%) / 3    
Relative TSR** Modifier(3)(4) -17.88% = ((PFE TSR 34.14% - DRG Index TSR 46.07%) x 1.5)    
Final 2017 PSA Payout(4) 76.04% = 93.92% + (–17.88%)

(range: 0–200%)
   
       
           
2018 PSAs (2018-2020)  
Metric   Adjusted
Operating Income
Adjusted Net Income Adjusted Net Income      
    Thres-
hold
Target Max Thres-
hold
Target Max Thres-
hold
Target Max      
Performance Factor   0% 100% 150% 0% 100% 150% 0% 100% 150%  
Adj. Operating Income/Adj.
Net Income(1) Goals ($B)
  19.74 20.74 >  15.08 16.08 >  TBD TBD  
Adj. Operating Income/Adj.
Net Income(1) Results
  $20.33B = 66.92% $17.00B = 150.00% TBD  
Three-year Average(2)   TBD  
Relative TSR** Modifier(3)(4)   TBD  
Final 2018 PSA Payout(4)   TBD

(range: 0–200%)
 
       
   
2019 PSAs (2019-2021)
Metric     Adjusted Net Income Adjusted Net Income Adjusted Net Income
      Thres-
hold
Target Max Thres-
hold
Target Max Thres-
hold
Target Max
Performance Factor     0% 100% 150% 0% 100% 150% 0% 100% 150%
Adj. Net Income(1) Goals ($B)     15.08 16.08 >  TBD TBD TBD TBD
Adj. Net Income(1) Results     $17.00B = 150.00%   TBD   TBD
Three-year Average(2)