DEF 14A 1 d188558ddef14a.htm DEFINITIVE PROXY STATEMENT Definitive Proxy Statement
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a)

of the Securities Exchange Act of 1934

(Amendment No.      )

 

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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

August 26, 2016

Fellow Procter & Gamble Shareholders:

It is our pleasure to invite you to this year’s annual meeting of shareholders, which will be held at the Company’s headquarters. The meeting will take place on Tuesday, October 11, 2016, at 9:00 a.m. Eastern Daylight Time at The Procter & Gamble Company General Offices, 1 Procter & Gamble Plaza, Cincinnati, Ohio 45202. At the meeting, our shareholders will be asked to:

 

   

Elect the 10 Director nominees listed in the accompanying proxy statement;

 

   

Ratify the appointment of the independent registered public accounting firm;

 

   

Approve, on an advisory basis, the Company’s executive compensation (the “Say on Pay” vote);

 

   

Transact such other business, including voting on two shareholder proposals, as may properly come before the meeting.

Shareholders of record as of the close of business on August 12, 2016 are entitled to vote at the Annual Meeting and any postponement or adjournment thereof. Please see pages 65-68 for additional information regarding admission to the meeting and how to vote your shares. If you plan to attend the meeting in person, we encourage you to register for admission by Monday, October 10. If you are not able to attend the meeting in person, you may join a live webcast of the meeting on the Internet by visiting www.pginvestor.com at 9:00 a.m., Eastern Daylight Time, on October 11.

Your vote is important. Please vote your proxy promptly to ensure your shares are properly represented, even if you plan to attend the annual meeting. You can vote by Internet, by telephone, or by requesting a printed copy of the proxy materials and using the enclosed proxy card.

We appreciate your continued confidence in our Company and look forward to seeing you at The Procter & Gamble General Offices on October 11.

 

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DAVID S. TAYLOR

CHAIRMAN OF THE BOARD, PRESIDENT

AND CHIEF EXECUTIVE OFFICER

  

DEBORAH P. MAJORAS

CHIEF LEGAL OFFICER AND SECRETARY

 

REVIEW THE PROXY STATEMENT AND VOTE IN ONE OF FOUR WAYS:

 

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VIA THE INTERNET

Visit www.proxyvote.com.

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BY MAIL

Sign, date and return your proxy card or voting instruction form.

   
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BY TELEPHONE

Call the telephone number on your

proxy card, voting instruction form

or notice.

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IN PERSON

Attend the annual meeting in Cincinnati.

See pages 66-67 for additional details on how to preregister.

 

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to be held on October 11, 2016: This Notice of Annual Meeting and Proxy Statement and the 2016 Annual Report are available at www.proxyvote.com.


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Proxy Summary

       i   

Glossary of Terms

     1   

Election of Directors

     2   

Corporate Governance

     8   

Director Compensation

     18   

Report of the Compensation & Leadership Development Committee

     20   

Compensation Discussion & Analysis

     21   

Executive Compensation

     36   

Summary Compensation Table

     36   

Grants of Plan-Based Awards Table

     39   

Outstanding Equity at Fiscal Year-End Table

     40   

Option Exercises and Stock Vested Table

     43   

Pension Benefits Table

     44   

Nonqualified Deferred Compensation Table

     46   

Payments upon Termination or Change in Control Table

     50   

Security Ownership of Management and Certain Beneficial Owners

     52   

Section 16(a) Beneficial Ownership Reporting Compliance

     55   

Report of the Audit Committee

     56   

Board Proposal to Ratify Appointment of the Independent Registered Public Accounting Firm

     59   

Board Proposal to Approve, by Advisory Vote, the Company’s Executive Compensation (the Say on Pay vote)

     60   

Shareholder Proposal for Report on Lobbying Policies of Third Party Organizations

     61   

Shareholder Proposal for Report on Application of Company Non-Discrimination Policies in States with Pro- Discrimination Laws

     63   

Voting and Meeting Information

     65   

2017 Annual Meeting Date and Shareholder Proposals

     69   

Annual Meeting Advance Notice Requirements

     69   

Proxy Access Requirements

     69   

Other Matters

     69   


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Voting Matters and Board Recommendations

 

 

Voting Matter

  

Vote

Standard

  

Board Vote

Recommendation

  

See

Page

   

Item 1

   Election of Directors    Majority of

votes cast

   FOR

each nominee

     2
   

Item 2

   Ratification of Independent Registered Public Accounting Firm    Majority of

votes cast

   FOR    59
   

Item 3

   Advisory Approval of Executive Compensation    Majority of

votes cast

   FOR    60
   

Item 4

   Shareholder Proposal Requesting Report on Lobbying Policies of Third Party Organizations    Majority of

votes cast

   AGAINST    61
   

Item 5

   Shareholder Proposal Requesting Report on Application of Company Non-Discrimination Policies in States with Pro-Discrimination Laws    Majority of

votes cast

   AGAINST    63

Our Board of Directors

 

Board Snapshot

•    10 Director nominees; 9 are independent

 

•    Highly qualified Directors with a diversity of skills and experiences

 

•    5 of 10 nominees are women or ethnically diverse

 

•    Average age of Director nominees is 63

 

•    3 new Directors in the last 5 years

 

 

 

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Our Director Nominees

You are being asked to vote on the election of these 10 Directors. Additional information about each Director’s background and experience can be found beginning on page 4.

 

  Name    Position   Age  

Board

Tenure

  Committee
Memberships

*   Francis S. Blake

   Former Chairman of the Board and Chief Executive Officer of The Home Depot, Inc.   67   1 year  

Audit

G&PR

*   Angela F. Braly

   Former Chair of the Board, President and Chief Executive Officer of WellPoint, Inc. (now known as Anthem)   55   6 years   Audit
G&PR (Chair)

*   Kenneth I. Chenault

   Chairman and Chief Executive Officer of American Express Company   65   8 years   Audit
C&LD

*   Scott D. Cook

   Chairman of the Executive Committee of the Board of Intuit Inc.   64   15 years  

C&LD

I&T (Chair)

*   Terry J. Lundgren

   Chairman and Chief Executive Officer of Macy’s, Inc.   64   3 years  

C&LD

I&T

*   W. James McNerney, Jr. (Lead Director)

   Senior Advisor at Clayton, Dubilier & Rice, LLC   67   13 years  

C&LD (Chair)

G&PR

      David S. Taylor

   Chairman of the Board, President and Chief Executive Officer of the Company   58   1 year    

*   Margaret C. Whitman

   President and Chief Executive Officer of Hewlett Packard Enterprise   60   5 years  

C&LD

I&T

*   Patricia A. Woertz

   Retired Chairman and former Chief Executive Officer of Archer Daniels Midland Company   63   8 years  

Audit (Chair)

G&PR

*   Ernesto Zedillo

   Director of the Center for the Study of Globalization and Professor of International Economics and Politics at Yale University and former President of Mexico   64   15 years  

G&PR

I&T

 

*   Independent
 

C&LD

    

Compensation & Leadership Development

 

G&PR

    

Governance & Public Responsibility

 

I&T

    

Innovation & Technology

 

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Corporate Governance Highlights

 

Director Independence

  

•     9 of 10 Director nominees are independent

 

•     4 fully independent Board Committees: Audit, Compensation & Leadership Development, Governance & Public Responsibility, and Innovation & Technology

 

Board Accountability

  

•     Declassified Board – all Directors are elected annually

 

•     Simple majority voting standard for all uncontested Director elections

 

•     Shareholder right to call special meetings

 

Board Leadership

  

•     Annual assessment and determination of Board leadership structure

 

•     Annual election of independent Lead Director whenever Chairman/CEO roles are combined or when the Chairman is not independent

 

•     Lead Director has strong role and significant governance duties, including chair of Executive Sessions of all independent Directors

 

Board Evaluation and Effectiveness

 

  

•     Annual Board and Committee self-assessments

 

•     Annual independent Director evaluation of Chairman and CEO

 

Board Refreshment

  

•     Average tenure of current Directors is 8 years

 

•     3 new Directors in last 5 years

 

•     Specified retirement age and term limit for Directors

 

Director Engagement

  

•     Directors attended 96% of Board and Committee meetings in FY 2015-16

 

•     Board policy limits Director membership on other public company boards

 

•     Shareholder ability to contact Directors (as described beginning on page 16)

 

Director Access

  

•     Significant interaction with senior business leaders through regular business reviews

 

•     Directors have access to senior management and other employees

 

•     Directors have ability to hire outside experts and consultants and to conduct independent investigations

 

Clawback and Anti-Hedging Policies

  

•     Clawback policy permits the Company to recoup certain compensation payments in the event of a significant restatement of financial results for any reason

 

•     Insider Trading Policy prohibits Directors, senior executives and other designated employees from engaging in any pledging, short sales or hedging investments involving Company stock

 

Share Ownership

  

•     CEO required to hold shares equivalent to 8x salary

 

•     All senior executives required to hold shares equivalent to 4x or 5x salary, depending on role

 

•     Directors required to hold shares equivalent to 6x the cash portion of their annual retainer

 

•     Any executive who has not met the requirements of the Executive Share Ownership Program is subject to the Share Holding Requirement for any net shares resulting from stock option exercises or settlement of PSUs or RSUs

 

Proxy Access

  

•     Proactive adoption in 2016 of proxy access for Director nominees

 

•     Available to a shareholder, or group of up to 20 shareholders, holding 3% of Company’s common stock for at least 3 years

 

•     May nominate candidates for the greater of two seats or 20% of Board nominees

 

 

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Executive Compensation Highlights

We Emphasize Pay for Performance by aligning incentives with business strategies to reward executives who achieve or exceed Company, business unit and individual goals, while discouraging excessive risk-taking by removing any incentive to focus on a single performance goal to the detriment of others.

Average Mix of Key Components1 of NEO Compensation by Type, Length, and Form

 

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1 Components are salary, Short-Term Achievement Reward, Performance Stock Program, and Key Manager Stock Grant.

We Pay Competitively by setting target compensation opportunities to be competitive with other multinational corporations of similar size, value, and complexity.

We Focus on Long-Term Success by including equity as a cornerstone of our executive pay programs and by using a combination of short-term and long-term incentives to ensure a strong connection between Company performance and actual compensation realized.

 

  Total NEO Compensation for FY 2015-16
  Compensation Element  

% of

Total

     Description   Cash   Equity
   

Salary

 

   

 

13%

 

  

 

  

Annual Base Pay

 

 

ü

 

   
   

STAR Bonus1

 

   

 

17%

 

  

 

  

Annual Performance-Based Bonus

Based on 1-year Results

 

 

ü

 

   
   

Performance Stock Program

 

   

 

33%

 

  

 

  

Performance-Based Stock Program Based on 3-year Results

 

   

ü

 

   

Key Manager Stock Grant

 

   

 

26%

 

  

 

  

Annual Long-Term Equity Award

 

   

ü

 

   

Retirement, Expatriate Expenses, Other

 

   

 

11%

 

  

 

  

Retirement Plan Contributions, Expatriate Expenses, Benefits

 

 

ü

 

 

ü

 

 

1 The STAR Bonus is considered a cash program. However, participants may elect to receive their bonus in stock options or deferred compensation instead of cash.

 

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Commonly Used Terms in This Proxy Statement

 

   
C&LD        

 

  

Compensation & Leadership Development

 

   
CEO

 

  

Chief Executive Officer

 

   
CFO

 

  

Chief Financial Officer

 

   
CHRO

 

  

Chief Human Resources Officer

 

   
EDCP

 

  

Executive Deferred Compensation Plan

 

   
EGLIP

 

  

Executive Group Life Insurance Program

 

   
EPS

 

  

Earnings Per Share

 

   
FY

 

  

Fiscal Year

 

   
G&PR

 

  

Governance & Public Responsibility

 

   
GBU

 

  

Global Business Unit

 

   
I&T

 

  

Innovation & Technology

 

   
IRA

 

  

International Retirement Arrangement

 

   
IRP

 

  

International Retirement Plan

 

   
NEO

 

  

Named Executive Officer

 

   
NYSE

 

  

New York Stock Exchange

 

   
PSP

 

  

Performance Stock Program

 

   
PST

 

  

Profit Sharing Trust and Employee Stock Ownership Plan

 

   
PSU

 

  

Performance Stock Unit

 

   
RSU

 

  

Restricted Stock Unit

 

   
SEC

 

  

Securities and Exchange Commission

 

   
SMO

 

  

Selling and Market Operations

 

   
STAR

 

  

Short-Term Achievement Reward

 

   
TSR

 

  

Total Shareholder Return

 

 

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ITEM 1. ELECTION OF DIRECTORS

Our Board of Directors has general oversight responsibility for the Company’s affairs pursuant to Ohio’s General Corporation Law, the Company’s Amended Articles of Incorporation, the Code of Regulations, and the By-Laws of the Board of Directors. In exercising its fiduciary duties, the Board represents and acts on behalf of the Company’s shareholders and is committed to strong corporate governance, as reflected through its policies and practices. The Board is deeply involved in the Company’s strategic planning process, leadership development, succession planning, and oversight of risk management.

Our Board of Directors nominated the 10 Directors listed on pages 4 to 7 for election at the 2016 annual meeting. Each of the Director nominees currently serves on the Board and was elected for a one-year term at the 2015 annual meeting. The current terms of all nominees for Director will expire at the 2016 annual meeting, and the Board has nominated each of these individuals for a new one-year term that will expire at the 2017 annual meeting. Susan Desmond-Hellmann, who currently serves on the Board, has chosen not to stand for re-election, but will complete her current term.

Each of the Director nominees has accepted the nomination and agreed to serve as a Director if elected by the Company’s shareholders. If any nominee becomes unable or unwilling to serve between the date of the proxy statement and the annual meeting, the Board may designate a new nominee, and the persons named as proxies will vote on that substitute nominee.

Director Skills, Qualifications, and Diversity

Procter & Gamble is a global consumer products company, serving consumers around the world with sales in more than 180 countries and territories. A company of our size must have strong governance, as well as leadership with an understanding of our diverse consumers and global needs. The composition of the Board reflects an appropriate mix of skill sets, experience, and qualifications that are relevant to the business and governance of the Company. Each individual Director epitomizes the Company’s Purpose, Values and Principles, possesses the highest ethics and integrity, and demonstrates commitment to representing the long-term interests of the Company’s shareholders. Each Director also has individual experiences that provide practical wisdom and foster mature judgment in the boardroom. Collectively, the Directors bring business, international, government, technology, marketing, retail consumer products, and other experiences that are relevant to the Company’s global operations. The chart on the following page provides additional detail regarding some of the key experiences and skills of our Director nominees. Skills and experiences are one aspect of diversity highly valued by the Board. In fact, this desired combination of skills and diversity is reflected in our Corporate Governance Guidelines (“Governance Guidelines”), which set forth the minimum qualifications for Board members and specify that the Board “seeks to achieve a mix of Board members that represents a diversity of background and experience, including with respect to age, gender, international background, race and specialized experience.”

Although the Board does not establish specific goals with respect to diversity, the Board’s overall diversity is a significant consideration in the Director nomination process. The Governance & Public Responsibility (“G&PR”) Committee reviews the Director nominees (including any shareholder nominees) and ascertains whether, as a whole, the group meets the Governance Guidelines in this regard. For this year’s election, the Board has nominated 10 individuals who bring tremendous diversity to the Board. Their collective experience covers a wide range of countries, geographies, and industries. These 10 Director nominees range in age from 55 to 67, and three of these 10 Directors, or 30% of our current Board, are women; one is African-American; and one is Mexican.

The Board also believes that tenure diversity should be considered in order to achieve an appropriate balance between the detailed Company knowledge and wisdom that comes with many years of service and the fresh perspective of newer Board members. Our current Board has an average tenure of 8 years.

 

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Director Skills And Experience
 

Leadership, strategy and risk management experience

 

Directors with significant leadership experience over an extended period, including current and former chief executive officers, provide the Company with special insights. These individuals demonstrate a practical understanding of how large organizations operate, including the importance of talent management and how employee and executive compensation are set. They understand strategy and risk management, and how these factors impact the Company’s operations and controls. They possess recognized leadership qualities and are able to identify and develop leadership qualities in others.

 

 

Consumer industry/retail experience

 

Directors with experience in dealing with consumers, particularly in the areas of marketing and selling products or services to consumers, provide valuable insights to the Company. They understand consumer needs, recognize products and marketing campaigns that might resonate with consumers, and identify potential changes in consumer trends and buying habits. Given the continuously evolving retail landscape, Directors with consumer and retail experience are essential.

 

 

International experience

 

Directors who work in global companies have experience in markets outside of the United States and bring valuable knowledge to the Company, including exposure to different cultural perspectives and practices. Because we do business in over 180 countries and territories, and business in international markets accounts for the majority of the Company’s revenue, having Directors on our Board with this experience is critical.

 

 

Marketing experience

 

Directors with experience identifying, developing, and marketing new products, as well as identifying new areas for existing products, can positively impact the Company’s operational results. As one of the world’s largest advertisers, this is a particularly important attribute.

 

 

Finance experience

 

Directors with an understanding of accounting and financial reporting processes, particularly in large, global businesses, provide an important oversight role. The Company employs a number of financial targets to measure its performance, and accurate financial reporting is critical to the Company’s legal compliance and overall success. Directors with financial experience are essential for ensuring effective oversight of the Company’s financial measures and processes.

 

 

Government/regulatory experience

 

Directors with government experience, whether as members of the government or through extensive interactions with government and government agencies, are able to recognize, identify, and understand the key issues that the Company faces in an economy increasingly affected by the role of governments around the world. This experience is especially helpful during times of increased volatility and uncertainty in global politics and economics.

 

 

Technology and innovation experience

 

Innovation is one of the Company’s core strengths and is critical in helping us translate our consumer understanding into new and successful products. Directors with an understanding of technology and innovation help the Company focus its efforts in these important areas, as well as track progress against strategic goals and benchmarks. As one of the few companies with an Innovation & Technology Committee of the Board, this is particularly important to the Company’s overall success.

 

 

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The Board of Directors recommends a vote FOR each of the following Director nominees to hold office until the 2017 annual meeting of shareholders and until their successors are elected.

 

 

Francis S. Blake

(Frank)

 

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Director since 2015

Age 67

 

 

Mr. Blake is the former Chairman of the Board and Chief Executive Officer of The Home Depot, Inc. (a national retailer). He served as the Chairman of the Board from 2007 until his retirement in February 2015 and as Chief Executive Officer from 2007 to November 2014. He previously served as a Director of Southern Company (a super-regional energy company) from 2004 to 2009. Mr. Blake has been a Director of Delta Airlines since July 2014 and was appointed Lead Director in May 2016. He has been a Director at Macy’s, Inc. since November 2015.

 

Mr. Blake brings extensive leadership, strategy, risk management and marketing experience to the Board. He contributes his deep knowledge of the retail consumer industry and evolving marketing practices to the Board. Mr. Blake also brings an extensive amount of government experience, having previously served as General Counsel for the U.S. Environmental Protection Agency, Deputy Counsel to Vice President George H. W. Bush, and Deputy Secretary for the U.S. Department of Energy.

 

Member of the Audit and Governance & Public Responsibility Committees.

 

   

 

Angela F. Braly

 

LOGO

 

Director since 2009

Age 55

 

 

Ms. Braly is the former Chair of the Board, President and Chief Executive Officer of WellPoint, Inc. (a healthcare insurance company), now known as Anthem. She served as Chair of the Board from 2010 until August 2012 and as President and Chief Executive Officer from 2007 through August 2012. She previously served as Executive Vice President, General Counsel, and Chief Public Affairs Officer of WellPoint from 2005 to 2007, and President and Chief Executive Officer of Blue Cross Blue Shield of Missouri from 2003 to 2005. Ms. Braly has been a Director of Lowe’s Companies, Inc. since November 2013, Brookfield Asset Management since May 2015, and ExxonMobil Corporation since May 2016.

 

Ms. Braly has a vast amount of leadership, consumer industry, and marketing experience. She also brings a significant amount of government experience, given her prior role as General Counsel and Chief Public Affairs Officer for WellPoint, where she was responsible for the company’s government relations efforts, among other areas.

 

Chair of the Governance & Public Responsibility Committee and member of the Audit Committee.

 

    

 

Kenneth I. Chenault

(Ken)

 

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Director since 2008

Age 65

 

 

 

Mr. Chenault is Chairman and Chief Executive Officer of American Express Company (a global services, payments, and travel company), where he has served in various roles of increasing responsibility since joining the company in 1981. Mr. Chenault assumed his current responsibilities as Chairman and Chief Executive Officer in 2001. He has been a Director of International Business Machines Corporation since 1998.

 

Mr. Chenault has significant leadership, strategy, risk management, and financial experience. With more than 35 years of experience delivering products and services to consumers and businesses all across the world, he brings consumer and business insights, marketing and digital expertise, as well as a global perspective, to the Board.

 

Member of the Audit and Compensation & Leadership Development Committees.

   

 

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Scott D. Cook

 

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Director since 2000

Age 64

 

 

 

Mr. Cook is Chairman of the Executive Committee of the Board of Intuit Inc. (a software and web services company), which he co-founded in 1983. He served as President and Chief Executive Officer of Intuit from 1983 to 1994 and as Chairman of the Board of Intuit from 1993 through 1998. Mr. Cook served on the Board of eBay Inc. from 1998 to July 2015.

 

Mr. Cook has a wealth of leadership, technology, consumer industry, strategy, risk management and marketing experience that he brings to the Board. He also brings valuable innovation experience and insight to the Innovation & Technology Committee as well as the full Board.

 

Chair of the Innovation & Technology Committee and member of the Compensation & Leadership Development Committee.

   

 

Terry J. Lundgren

 

LOGO

 

Director since 2013

Age 64

 

 

 

Mr. Lundgren is Chairman and Chief Executive Officer of Macy’s, Inc. (a national retailer), where he has served in various roles of increasing responsibility since joining Federated Department Stores in 1975. Mr. Lundgren held the title of President of Macy’s until April 2014. Mr. Lundgren assumed his current responsibilities as Chairman in 2004 and Chief Executive Officer in 2003 and has announced plans to step down as CEO in early 2017, but he will remain as Executive Chairman. He was a Director of Kraft Foods Group from 2012 to 2015.

 

Mr. Lundgren brings extensive leadership, strategy, and risk management experience to the Board. With over 35 years in the retail industry, he contributes his deep knowledge of the consumer industry and dynamic marketing practices, including digital marketing, to the Board.

 

Member of the Compensation & Leadership Development and Innovation & Technology Committees.

 

   

 

W. James McNerney, Jr.

(Jim)

 

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Director since 2003

Age 67

 

 

 

Mr. McNerney is a Senior Advisor at Clayton, Dubilier & Rice, LLC (a private equity investment firm). He retired as Chairman of the Board of The Boeing Company (aerospace, commercial jetliners and military defense systems) in 2016. He was President of The Boeing Company from 2005 to December 2013, Chief Executive Officer from 2005 to June 2015, and Chairman of the Board from 2005 to 2016. From 2001 to 2005, Mr. McNerney was CEO of 3M Company (a global technology company). Prior to his appointment as CEO of 3M Company, Mr. McNerney was employed by General Electric for nearly twenty years, where he held positions of increasing importance. He has been a Director of International Business Machines Corporation since 2009.

 

Mr. McNerney brings a wealth of leadership, global, strategy, risk management, and technology experience to the Board. His extensive experience managing large, global manufacturing companies, as well as his insight into government affairs, enable him to advise the Board on a variety of strategic and business matters.

 

Lead Director, Chair of the Compensation & Leadership Development Committee, and member of the Governance & Public Responsibility Committee.

 

   

 

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David S. Taylor

 

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Director since 2015

Age 58

 

 

Mr. Taylor is Chairman of the Board, President and Chief Executive Officer. Mr. Taylor has been President and CEO since November 2015 and was elected Chairman of the Board effective July 1, 2016. Mr. Taylor joined the Company in 1980 and, since that time, has held numerous positions of increasing responsibility in North America, Europe, and Asia in virtually all of the Company’s core businesses. Prior to his current role, Mr. Taylor was Group President-Global Health & Grooming (2013 to October 2015), Group President-Global Home Care (2007 to 2013), and President- Global Family Care (2005 to 2007). Mr. Taylor also played a key role in the design of the Company’s portfolio optimization strategy. Mr. Taylor served as a Director of TRW Automotive Corporation from 2010 until May 2015.

 

As a long-time employee and leader at the Company, Mr. Taylor brings vast global and business experience to the Board, as well as a deep knowledge of the Company. Mr. Taylor has significant leadership, strategy, risk management, consumer industry, marketing and international experience.

 

    

 

Margaret C. Whitman

(Meg)

 

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Director since 2011

Age 60

 

 

 

Ms. Whitman is President and Chief Executive Officer of Hewlett Packard Enterprise (multinational information technology enterprise). She served as President and Chief Executive Officer for the Hewlett-Packard Company from 2011 through 2015, as well as Chairman of the Board from 2014 through 2015, and President and Chief Executive Officer of eBay Inc. from 1998 to 2008. Since November 2015, she has been a Director of Hewlett Packard Enterprise and Chairman of the Board of HP Inc. She served as a Director of Zipcar, Inc. from 2011 to March 2013. She also served as a Director of the Company from 2003 to 2008, having resigned in preparation for her 2010 California gubernatorial bid.

 

Ms. Whitman has extensive leadership, strategy, risk management and consumer industry experience. Her current and prior management roles also provide her with significant marketing, innovation and technology experience.

 

Member of the Compensation & Leadership Development and Innovation & Technology Committees.

    

 

Patricia A. Woertz

(Pat)

 

LOGO

 

Director since 2008

Age 63

 

 

Ms. Woertz is the Retired Chairman of the Board and former Chief Executive Officer of Archer Daniels Midland Company (“ADM”) (agricultural processors of oilseeds, corn, wheat, etc.), where she joined in 2006 as Chief Executive Officer and President and was named Chairman in 2007. Ms. Woertz stepped down as Chief Executive Officer of ADM in January 2015 and as Chairman in January 2016. Prior to joining ADM, Ms. Woertz was with Chevron Corp. for 29 years and retired as EVP Global Downstream. She began her career as a certified public accountant with Ernst & Ernst. Ms. Woertz has been a Director of Royal Dutch Shell plc since June 2014 and 3M Company since February 2016.

 

Ms. Woertz has significant leadership, strategy and risk management experience. Having started her career as a CPA, and with a broad executive experience at Chevron and ADM, she also brings a significant amount of international, marketing, government relations, and finance experience.

 

Chair of the Audit Committee and member of the Governance & Public Responsibility Committee.

 

   

 

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Ernesto Zedillo

 

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Director since 2001

Age 64

 

 

 

Dr. Zedillo served as President of Mexico from 1994 to 2000 and currently serves as Director of the Center for the Study of Globalization and Professor in the field of International Economics and Politics at Yale University. He has been a Director of Alcoa, Inc. since 2002 and Citigroup, Inc. and Promotora de Informaciones S.A. since 2010. Dr. Zedillo was also a Director of Union Pacific Corporation from 2001 to 2006.

 

Dr. Zedillo’s prior service as President of Mexico provides him with significant government and leadership experience. His current role provides him with a wealth of international experience. He also has significant financial experience, having previously served on the Audit Committee of Union Pacific and as the Secretary of Economic Programming and the Budget for Mexico, as well as having held various positions at the Banco de Mexico.

 

Member of the Governance & Public Responsibility and Innovation & Technology Committees.

 

   

 

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The Board’s Leadership Structure

The Board regularly considers the appropriate leadership structure for the Company and has concluded that the Company and its shareholders are best served by the Board retaining discretion to determine whether the same individual should serve as both Chief Executive Officer (“CEO”) and Chairman of the Board, or whether the roles should be separated. This approach allows the Board to utilize its considerable experience and knowledge to elect the most qualified Director as Chairman of the Board, while maintaining the ability to separate the Chairman of the Board and CEO roles when necessary. Accordingly, at some points in the Company’s history, the CEO and Chairman of the Board roles were held by the same person. At other times, the roles were held by different individuals. The Board believes that it is important to retain the flexibility to make this determination at any given point in time based on what it believes will provide the best leadership structure for the Company and best serve the interests of the Company’s shareholders.

In connection with notice of Mr. Lafley’s retirement as Executive Chairman of the Board in June, the Board re-evaluated its leadership structure. Upon recommendation of the G&PR Committee, the non-employee Directors of the Board concluded that it would be in the best interests of the Company and its shareholders to recombine the roles of Chairman of the Board and CEO, with Mr. Taylor, who currently serves as CEO, becoming Chairman of the Board and serving in this dual capacity. This action is consistent with the Company’s past practice of combining the CEO and Chairman roles after an appropriate transition period for an incoming CEO. When Mr. Taylor was elected President and CEO in November 2015, the Board opted to split the Chairman and CEO roles in order to provide continuity in leadership and strategic oversight and appointed Mr. Lafley, who was very experienced, as Executive Chairman, and Mr. Taylor as incoming President and CEO. Throughout the year, Mr. Taylor and Mr. Lafley worked collaboratively to provide Company and Board leadership during a period of major strategic transformation for the Company. As a result, the Board believes that Mr. Taylor, a strong leader, is now well-poised to serve in a combined Chairman and CEO role, and that this combined structure will provide unified leadership and focus on the Company’s strategy, business plans, and productivity efforts. The Board also recognized that the combined Chairman and CEO role has worked well in the past, and that introduction of a new third person in the leadership structure would not be in the best interests of the Company at this time.

When the Board determines that the same individual should hold the positions of CEO and Chairman of the Board, or when the Chairman of the Board is not independent, the independent Directors of the Board elect a Lead Director from among the independent Directors, for an annual term. The Lead Director role is a significant one, with responsibilities consistent with accepted best practices, including:

 

   

preside at all meetings of the Board in the absence of, or upon the request of, the Chairman of the Board;

   

lead regular executive sessions of the independent members of the Board;

   

approve meeting agendas for the Board and information sent to the Board;

   

approve meeting schedules to assure that there is sufficient time for discussion of all agenda items;

   

advise the Chairman of the Board and/or the Secretary regarding the agendas for the Board meetings;

   

call meetings of the non-employee and/or independent members of the Board, with appropriate notice;

   

advise the G&PR Committee and the Chairman of the Board on the membership of the various Board committees and the selection of committee chairpersons;

   

advise the Chairman of the Board on the retention of advisors and consultants who report directly to the Board;

   

advise the Chairman of the Board and Chief Executive Officer, as appropriate, on issues discussed at executive sessions of non-employee and/or independent members;

   

with the Chair of the Compensation & Leadership Development (“C&LD”) Committee, review with the Chief Executive Officer the non-employee members’ annual evaluation of the Chief Executive Officer’s performance;

   

serve as principal liaison between the non-employee and/or independent members, as a group, and the Chairman of the Board and Chief Executive Officer, as necessary;

   

serve when necessary and appropriate, after consultation with the Chairman of the Board and Chief Executive Officer, as the liaison between the Board and the Company’s shareholders; and

   

select an interim Lead Director to preside over meetings at which he or she cannot be present.

 

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Mr. McNerney serves as the Board’s current Lead Director and has been annually re-elected to that role since August 14, 2007. Mr. McNerney has helped to lead the Board through executive leadership transitions, and currently as the Company undergoes a major strategic transformation. Mr. McNerney is a strong, independent Lead Director, who fulfilled each of these duties during the past year. As the former CEO and Chairman of the Board of The Boeing Company, and former CEO of 3M Company, he brings a wealth of diverse experiences and outside perspective to his role as Lead Director. In FY 2015-16, the independent Directors met 6 times in regularly scheduled executive sessions, without Messrs. Lafley and Taylor present. After each executive session, Messrs. Lafley and Taylor were advised on the Board’s discussions, including performance feedback.

In June 2016, in conjunction with the Board’s decision to recombine the Chairman and CEO roles, it considered Mr. McNerney’s strong and consistent independent leadership as another reason supporting its decision, and the non-employee Directors reappointed Mr. McNerney to serve as Lead Director for FY 2016-17. The Board is confident that Mr. Taylor, as Chairman and CEO, and Mr. McNerney, as Lead Director, will work well together, and that the appropriate balance of power will be maintained. The Board will continue to periodically evaluate the Company’s leadership structure.

Director Independence

The Board has determined that all of the Company’s Directors, with the exception of Mr. Taylor, are independent under the New York Stock Exchange (“NYSE”) listing standards and the Independence Guidelines. All members of the Board’s Audit, Compensation & Leadership Development, Governance & Public Responsibility, and Innovation & Technology Committees are independent under the NYSE listing standards and Independence Guidelines, and all members of the Audit Committee are also compliant with the Securities and Exchange Commission’s (“SEC”) enhanced independence requirement for audit committee members.

In making these independence determinations, the Board applied the NYSE listing standards and the categorical independence standards contained in the Board of Directors’ Guidelines for Determining the Independence of its Members (the “Independence Guidelines”). Under the Independence Guidelines, certain relationships were considered immaterial and, therefore, were not considered by the Board in determining independence, but were reported to the Chair of the G&PR Committee. Applying the NYSE listing standards and the Independence Guidelines, the Board determined that there are no transactions, relationships, or arrangements that would impair the independence or judgment of any of the Directors deemed independent by the Board.

Mr. Taylor is Chairman of the Board, President and CEO of the Company. As an employee of the Company, he cannot be deemed independent under the NYSE listing standards or the Independence Guidelines.

 

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Committees of the Board

To assist the Board in discharging its duties and to facilitate deeper penetration into certain key areas of oversight, the Board has established four standing committees. Each committee is fully independent under the NYSE listing standards and the Independence Guidelines, which can be found at www.pginvestor.com.

The charter for each of these committees can be found in the corporate governance section of the Company’s website at www.pginvestor.com.

 

 

Audit Committee

 

Meetings in 2015-16:    8

 

Current Members:

 

Patricia A. Woertz (Chair)

 

Frank S. Blake

 

Angela F. Braly

 

Kenneth I. Chenault

 

Susan Desmond-Hellmann

  

 

The Audit Committee has the responsibilities set forth in its charter with respect to:

 

•     accounting, financial reporting and disclosure processes, and adequacy of systems of disclosure and internal control established by management;

•     the quality and integrity of the Company’s financial statements;

•     the Company’s compliance with legal and regulatory requirements;

•     the Company’s overall risk management profile;

•     the independent registered public accounting firm’s qualifications and independence;

•     the performance of the Company’s internal audit function and the independent registered public accounting firm;

•     the performance of the Company’s ethics and compliance function; and

•     preparing the annual Report of the Audit Committee to be included in the Company’s proxy statement.

 

At each meeting, representatives of Deloitte & Touche LLP, the Company’s independent registered public accounting firm, and financial management were present to review accounting, control, auditing, and financial reporting matters. During certain of these meetings, the Audit Committee also held private sessions with the Company’s CFO, Chief Legal Officer, chief audit executive, and representatives of Deloitte & Touche LLP.

 

 

Compensation & Leadership Development Committee

 

Meetings in 2015-16:    7

 

Current Members:

 

W. James McNerney, Jr. (Chair)

 

Kenneth I. Chenault

 

Scott D. Cook

 

Terry J. Lundgren

 

Margaret C. Whitman

  

 

The C&LD Committee has a charter, under which:

 

•     the Committee has full authority and responsibility for the Company’s overall compensation policies, including base pay, short- and long-term pay, retirement benefits, perquisites, severance arrangements, recoupment, stock ownership requirements, and stock option holding requirements, if any, and their specific application to principal officers elected by the Board and to members of the Board.

•     the Committee assists the Board in the leadership development and evaluation of principal officers and also has the responsibility to periodically review organizational diversity.

 

The CEO makes recommendations to the Committee regarding the compensation elements of the principal officers (other than his own compensation) based on Company performance, individual performance, and input from Company management and the Committee’s independent compensation consultant. All final decisions regarding compensation for principal officers are made by this Committee, and this Committee makes a recommendation to the Board regarding the shareholder votes related to executive compensation. For more details regarding principal officer compensation or this Committee’s process for making decisions regarding the compensation of principal officers, please see the Compensation Discussion & Analysis section found beginning on page 21 of this proxy statement. This Committee retains an independent compensation consultant, hired directly by the Committee, to advise it regarding executive compensation matters.

 

 

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Governance & Public Responsibility Committee

 

Meetings in 2015-16:    8

 

Current Members:

 

Angela F. Braly (Chair)

 

Frank S. Blake

 

W. James McNerney, Jr.

 

Patricia A. Woertz

 

Ernesto Zedillo

  

 

The Governance & Public Responsibility Committee has governance responsibilities set forth in its charter with respect to:

 

•     identifying individuals qualified to become members of the Board;

•     recommending when new members should be added to the Board and individuals to fill vacant Board positions;

•     recommending to the Board the Director nominees for the next annual meeting of shareholders and whether to accept the resignation of any incumbent Director nominee who received a greater number of “against” votes than “for” votes in a non-contested election;

•     recommending Board committees and committee assignments;

•     periodically reviewing and recommending updates to the Corporate Governance Guidelines;

•     educating the Board and the Company in applicable governance laws and regulations;

•     assisting the Board and the Company in interpreting and applying the Corporate Governance Guidelines and other issues related to Board governance; and

•     evaluating the Board and its members.

 

The Committee also covers public responsibility topics, including:

 

•     overseeing the Company’s social investments and commitment to making a meaningful impact around the world, by reviewing strategies and plans for improving lives in ways that enable people to thrive and that increase their quality of living;

•     overseeing the Company’s commitment to, and efforts regarding, environmental sustainability;

•     overseeing the Company’s community and government relations;

•     overseeing the Company’s product quality and quality assurance systems;

•     overseeing protection of the Company’s corporate reputation; and

•     other matters of importance to the Company and its stakeholders (including employees, consumers, customers, suppliers, shareholders, governments, local communities, and the general public).

 

 

Innovation & Technology Committee

 

Meetings in 2015-16:    2

 

Current Members:

 

Scott D. Cook (Chair)

 

Susan Desmond-Hellmann

 

Terry J. Lundgren

 

Margaret C. Whitman

 

Ernesto Zedillo

 

  

 

The Innovation & Technology Committee has the responsibilities set forth in its charter with respect to:

 

•     reviewing and making recommendations to the Board on major strategies and other subjects relating to:

 

§       the Company’s approach to technical and commercial innovation;

§       the innovation and technology acquisition process to assure ongoing business growth; and

§       measurement and tracking systems important to successful innovation.

 

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The Board’s Oversight of Risk

The Company’s senior management has the responsibility to develop and implement the Company’s strategic plans, and to identify, evaluate, manage, and mitigate the risks inherent in those plans. It is the responsibility of the Board to understand and oversee the Company’s strategic plans, the associated risks, and the steps that senior management is taking to manage and mitigate those risks. The Board takes an active approach to its role in overseeing the development and execution of the Company’s business strategies as well as its risk oversight role. This approach is bolstered by the Board’s leadership and committee structure, which ensures proper consideration and evaluation of potential enterprise risks by the full Board under the auspices of the Chairman of the Board and Lead Director, and further consideration and evaluation of certain risks at the committee level.

As part of its strategic risk management oversight, the full Board conducts a number of reviews throughout the year to ensure that the Company’s strategy and risk management is appropriate and prudent, including:

 

   

A comprehensive annual review of the Company’s overall strategic plan, with updates throughout the year.

   

Direct discussions with the Chairman and CEO, in semi-executive sessions held at each Board meeting, about the state of the business.

   

Reviews of the strategic plans for the Company’s business sectors, including the risks associated with these strategic plans, at Board meetings during the year.

   

Reviews of other strategic focus areas for the Company, such as innovation and organizational management. The Board also has overall responsibility for leadership succession for the Company’s most senior officers, including the CEO, and reviews succession plans on an ongoing basis.

   

Annual review of the conclusions and recommendations generated by management’s robust enterprise risk management process. This process involves a cross-functional group of the Company’s senior management which, on a continual basis, identifies current and future potential risks facing the Company and ensures that actions are taken to manage and mitigate those potential risks.

In addition, the Board has delegated certain risk management oversight responsibilities to specific Board committees, each of which reports regularly to the full Board. In performing these oversight responsibilities, each committee has full access to management, as well as the ability to engage independent advisors.

The Board’s C&LD Committee employs an independent compensation consultant, Frederic W. Cook & Co., Inc., who does not work for management and, among other tasks, reviews, and reports on all of the Company’s executive compensation programs, including the potential risks and other impacts of incentives created by the programs. For more details on the arrangement with Frederic W. Cook & Co., Inc., please see the section entitled “Engagement of Independent Adviser” found on page 33 of this proxy statement.

The independent compensation consultant’s review included an analysis of the Company’s short-, medium-, and long-term compensation programs covering key program details, performance factors for each program, target award ranges, maximum funding levels, and plan administrative oversight and control requirements. Key program elements assessed relating to potential compensation risks were pay mix, performance metrics, performance goals and payout curves, payment timing and adjustments, severance packages, equity incentives, stock ownership requirements, prohibitions on hedging and pledging, and trading policies. Simultaneously, members of management performed a similar review of the Company’s other compensation programs. The results of the consultant’s analysis of the Company’s executive compensation programs, as well as management’s review of the Company’s other compensation programs, were shared with the C&LD Committee, which concluded that the Company’s compensation policies and practices are not reasonably likely to have a material adverse effect on the Company as a whole.

In reaching its conclusion, the C&LD Committee noted that the Company’s compensation programs include a mix of cash and equity, as well as annual, medium-term, and long-term incentives. This mix of compensation, the design features of these programs, and the Company’s respective oversight and control requirements mitigate the potential of any individual inclination toward taking unnecessary risks. The C&LD Committee also acknowledged various other features of the Company’s compensation programs, policies, and practices designed to mitigate

 

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unwarranted risk. For example, the Company’s annual cash bonus program, the Short-Term Achievement Reward (“STAR”), provides the C&LD Committee with discretion to reduce or eliminate any award that would otherwise be payable. In addition, the performance metrics under STAR include both quantitative measures (e.g., top-line growth, bottom-line profits, free cash flow, etc.) and qualitative measures (e.g., relative performance, internal collaboration, strategic strength, innovation, etc.). These non-metric features mitigate the risk of an executive focusing too much on the specific financial metrics under STAR. Moreover, the performance metrics associated with the STAR Company Factor (core earnings per share growth and organic sales growth) are aligned with the Company’s business plans and strategic objectives.

Further, the C&LD Committee recognized that the Company’s longer-term incentives include a balanced portfolio of stock options, restricted stock units, and performance-vested stock (under the Performance Stock Plan). These longer-term incentives incorporate a variety of payout horizons that focus executives on long-term performance: 10-year terms with three-year cliff vesting for stock options, five-year cliff vesting for restricted stock units, and a three-year performance period for performance-vested stock. The C&LD Committee also noted that the design of the Performance Stock Plan reduces the likelihood that an executive will focus too much on a single performance measure by including four different performance categories, each of which is equally weighted: organic sales growth, core before-tax operating profit growth, core earnings per share growth, and free cash flow productivity. In addition, actual performance against goals with respect to each of these performance measures will yield a payout from a minimum of 0% to a maximum of 200% of a senior executive’s target incentive opportunity. Using this sliding scale approach, versus an all-or-nothing approach, discourages participants from taking unnecessary risks. Each of the financial measures are defined and further explained on page 31 of this proxy statement.

Finally, the C&LD Committee acknowledged that the Company has adopted several policies intended to mitigate inappropriate risk taking, including stock ownership guidelines for senior executives, a recoupment policy that can be applied in the event of any significant financial restatement, and an insider trading policy that prohibits margin and hedging transactions by senior executives.

Board Engagement and Attendance

Our Directors are active and engaged. Board agendas are set in advance by the Chairman of the Board and Lead Director, to ensure that appropriate subjects are covered and that there is sufficient time for discussion. Directors are provided with comprehensive materials in advance of Board and committee meetings and are expected to review these materials before each meeting, to ensure that time in Board and committee meetings is focused on active discussions versus lengthy presentations. During the fiscal year ended June 30, 2016, the Board held 8 meetings, and the committees of the Board collectively held 25 meetings, for a total of 33 meetings. Average attendance at these meetings by members of the Board during the past year exceeded 96%, and all Directors attended greater than 83% of the meetings of the Board and the committees on which they serve. The Board expects all of its members to attend the annual meeting of shareholders; all Directors, with the exception of Mr. Cook and Ms. Whitman, attended the October 13, 2015 annual meeting.

The non-employee members of the Board met 6 times during FY 2015-16 in executive session (without the presence of Messrs. Lafley or Taylor, or other employees of the Company) to discuss various matters related to the oversight of the Company, the management of Board affairs, succession planning for the Company’s top management, the CEO transition, and the CEO’s performance.

Service on Other Public Boards

The Board believes that service on the boards of other public companies provides valuable governance and leadership experience that ultimately benefits the Company. The Board also recognizes that outside public board service requires a significant commitment of time and attention, and therefore, in accordance with best governance practices, limits Director participation on other public boards. Under the Corporate Governance Guidelines, Directors who are active CEOs of other public companies may sit on no more than two additional outside public boards (including his/her own company board), and other non-employee Directors may sit on no more than three additional

 

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outside public boards. All Directors are in compliance with this policy. This practice helps ensure that our Directors can give appropriate levels of time and attention to the affairs of the Company. In addition, when nominating a Director for service on the Board, the G&PR Committee considers whether the nominee will have adequate time to serve as a Director of the Company. Each Director demonstrates their strong engagement and high attendance, and has adequate time to devote to the affairs of the Company.

Code of Ethics

The Company has a code of ethics for its Directors, officers, and employees. The most recent version of this code of ethics is contained in the Worldwide Business Conduct Manual. The Worldwide Business Conduct Manual is reviewed each year for appropriate updates, and employees, officers, and Directors are asked to annually certify their understanding of, and compliance with, its requirements. Only the Board may grant a waiver of any provision for a Director or executive officer, and any such waiver, or any amendment to the manual, will be promptly disclosed as required at www.pg.com. The Worldwide Business Conduct Manual, which is firmly rooted in the Company’s long-standing Purpose, Values and Principles, is made available to employees in 28 different languages and can be found on the Company’s website at www.pg.com.

Review and Approval of Transactions with Related Persons

The Worldwide Business Conduct Manual requires that all employees and Directors disclose all potential conflicts of interest and promptly take actions to eliminate any such conflict when the Company requests. In addition, the Company has adopted a written Related Person Transaction Policy that prohibits any of the Company’s executive officers, Directors, or any of their immediate family members from entering into a transaction with the Company, except in accordance with the policy.

Under our Related Person Transaction Policy, the Chief Legal Officer is charged with primary responsibility for determining whether, based on the facts and circumstances, a related person has a direct or indirect material interest in a proposed or existing transaction. If the Chief Legal Officer determines that the related person would have a direct or indirect material interest in the transaction, the Chief Legal Officer must present the transaction to the Audit Committee for review or, if impracticable under the circumstances, to the Chair of the Audit Committee, who must then either approve or reject the transaction in accordance with the terms of the policy. In the course of making this determination, the Audit Committee shall consider all relevant information available and, as appropriate, must take into consideration the following:

 

   

whether the transaction was undertaken in the ordinary course of business of the Company;

   

whether the transaction was initiated by the Company or the related person;

   

whether the transaction contains terms no less favorable to the Company than terms that could have been reached with an unrelated third party;

   

the purpose of, and the potential benefits to the Company of, the transaction;

   

the approximate dollar value of the transaction, particularly as it involves the related person;

   

the related person’s interest in the transaction; and

   

any other information regarding the related person’s interest in the transaction that would be material to investors under the circumstances.

The Audit Committee may only approve the transaction if it determines that the transaction is not inconsistent with the best interests of the Company as a whole. Further, in approving any such transaction, the Audit Committee has the authority to impose any terms or conditions it deems appropriate on the Company or the related person. Absent this approval, no such transaction may be entered into by the Company with any related person. The Audit Committee has reviewed and approved the following transactions.

Jon R. Moeller, the Company’s Chief Financial Officer (“CFO”), is married to Lisa Sauer, a long-tenured employee of the Company who currently holds the position of Vice President, Product Supply, Global Home Products.

 

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Her total compensation in the last year was approximately $1,137,000, consisting of salary, bonus, equity grants, and retirement and health benefits. Her compensation is consistent with the Company’s overall compensation principles based on her years of experience, performance, and position within the Company. Prior to Mr. Moeller becoming CFO, the Audit Committee approved the continued employment of Ms. Sauer with the Company under the Company’s Related Person Transaction Policy, concluding that her continued employment was not inconsistent with the best interests of the Company as a whole.

Deborah P. Majoras, the Company’s Chief Legal Officer and Secretary, is married to John M. Majoras, one of approximately 800 partners in the law firm of Jones Day. The Company has hired Jones Day, in the ordinary course of business, to perform legal services. The Company’s relationship with Jones Day dates back more than 25 years and significantly precedes Ms. Majoras joining the Company as Vice President and General Counsel in 2008 from the Federal Trade Commission, where she served as Chairman. Mr. Majoras does not receive any direct compensation from the fees paid to Jones Day by the Company, his ownership in the Jones Day law firm is significantly less than 1%, and the fees paid by the Company to Jones Day in the last fiscal year were less than 1% of their annual revenues. Under the Company’s Related Person Transaction Policy, the Audit Committee reviewed and approved the continued use of Jones Day as a provider of legal services to the Company, but required the Company’s CEO to approve any recommendations by Ms. Majoras to hire Jones Day for a specific legal matter. In doing so, the Committee concluded that the Majorases did not have a direct or indirect material interest in the Company’s hiring of Jones Day and that the relationship is not inconsistent with the best interests of the Company as a whole.

Mark Biegger, the Company’s Chief Human Resources Officer (“CHRO”), has a brother, Brian Biegger, who retired from the Company on December 31, 2015. Brian Biegger began his employment at the Company in 1983, well before Mark Biegger’s appointment as CHRO in 2012. At the time of his retirement, Brian was serving as an Associate Director—eBusiness, and his total compensation from July 1, 2015 through his retirement date on December 31, 2015 was approximately $150,000, consisting of salary, bonus, equity grants, and retirement and health benefits. His compensation was consistent with the Company’s overall compensation principles based on his years of experience, performance, and positions within the Company. The Committee determined that Brian had a direct material interest in his annual compensation but approved this transaction because it was not inconsistent with the best interests of the Company as a whole, and appropriate controls were in place to avoid any potential conflicts of interest.

W. James McNerney, Jr. the Company’s Lead Director, has a brother, Rick McNerney, who is employed by Audience Science, Inc. (“ASI”), a digital media company. ASI is a Company vendor and also has a business partnership and development agreement with the Company. Rick McNerney was hired by ASI as Director of Enterprise Solutions in December 2014, well after the Company’s relationship with ASI was established. In that role, Rick McNerney does not work on P&G business. The Committee determined that Rick, as an employee of ASI, may have an indirect interest in ASI’s relationship with the Company given the size of the Company’s relationship with ASI, but approved the continuation of the Company’s relationship with ASI because it is in the best interest of the Company as a whole, and appropriate controls are in place to avoid any potential conflicts of interest.

Other than as noted above, there were no transactions, in which the Company or any of its subsidiaries was a participant, the amount involved exceeded $120,000, and any Director, Director nominee, executive officer, or any of their immediate family members had a direct or indirect material interest reportable under applicable SEC rules or that required approval of the Audit Committee under the Company’s Related Person Transaction Policy, nor are there any currently proposed.

Compensation Committee Interlocks and Insider Participation

All members of the Compensation & Leadership Development Committee during FY 2015-16 were independent directors and none were employees or former employees of the Company. The Company had a Related Person Transaction in connection with Mr. McNerney, as set forth in the preceding section of this proxy statement. There are no Compensation Committee interlocks between the Company and any other entities in which one of our executive officers served on the compensation committee (or equivalent) or the board of directors of another entity whose executive officer(s) served on our C&LD Committee or Board of Directors.

 

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Communication with Directors and Executive Officers

Shareholders and others who wish to communicate with the Board or any particular Director, including the Lead Director, or with any executive officer of the Company, may do so by email at boardofdirectors.im@pg.com or by writing to the following address:

[Name of Director(s)/Executive Officer or “Board of Directors”]

The Procter & Gamble Company

c/o The Corporate Secretary’s Office

One Procter & Gamble Plaza

Cincinnati, OH 45202-3315

All such correspondence is reviewed by the Corporate Secretary’s office, which logs the material for tracking purposes. The Board has asked the Corporate Secretary’s office to forward to the appropriate Director(s) all correspondence, except for personal grievances, items unrelated to the functions of the Board, business solicitations, advertisements, and materials that are profane.

Director Nominations for Inclusion in the 2017 Proxy Statement

In 2016, our Board amended the Company’s Code of Regulations to permit a shareholder, or a group of up to 20 shareholders, who has owned at least 3% of our outstanding Common Stock for at least 3 years, to nominate and include in our proxy statement candidates for our Board, subject to certain requirements. Each eligible shareholder, or group of shareholders, may nominate candidates for Director, up to a limit of the greater of 2 or 20% of the number of Directors on the Board. Any nominee must meet the qualification standards set forth in the Corporate Governance Guidelines, as described below.

Any such notice and nomination materials must be received at the address below not less than 120 days and not more than 150 days prior to the one-year anniversary of the preceding year’s annual shareholder meeting. Certain other notice periods apply if the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date. Based on the one-year anniversary of the 2016 annual meeting, an eligible shareholder wishing to nominate a candidate for election to the Board at the 2017 annual meeting must provide such notice no earlier than May 14, 2017 and no later than June 13, 2017. Any such notice and accompanying nomination materials must meet the requirements set forth in our Regulations, which are publicly available at www.pg.com.

Shareholder Recommendations of Board Nominees and Committee Process for Recommending Board Nominees

The Governance & Public Responsibility Committee will consider shareholder recommendations for candidates for the Board. The minimum qualifications and preferred specific qualities and skills required for Directors are set forth in Article II, Sections B through E of the Corporate Governance Guidelines. The Committee considers all candidates using these criteria, regardless of the source of the recommendation. The Committee’s process for evaluating candidates also includes the considerations set forth in Article II, Section B of the Committee’s Charter. After initial screening for minimum qualifications, the Committee determines appropriate next steps, including requests for additional information, reference checks, and interviews with potential candidates. In addition to shareholder recommendations, the Committee also relies on recommendations from current Directors, Company personnel, and others. From time to time, the Committee may engage the services of outside search firms to help identify candidates. During the fiscal year ended June 30, 2016, no such engagement existed, and no funds were paid to outside parties in connection with the identification of nominees. All nominees for election as Directors who currently serve on the Board are known to the Committee and were recommended by the Committee to the Board as Director nominees.

Pursuant to the Company’s Regulations, a shareholder wishing to nominate a candidate for election to the Board at an annual meeting of shareholders is required to give written notice to the Secretary of the Company of his or her intention to make such nomination. The notice of nomination must be received at the Company’s principal

 

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executive offices not less than 140 days nor more than 240 days prior to the one-year anniversary of the preceding year’s annual shareholder meeting. Certain other notice periods apply if the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date. Based on the one-year anniversary of the 2016 annual meeting, a shareholder wishing to nominate a candidate for election to the Board at the 2017 annual meeting must provide such notice no earlier than February 13, 2017, and no later than May 24, 2017.

As set forth in the Company’s Code of Regulations, the notice of nomination is required to contain information about both the nominee and the shareholder making the nomination, including information sufficient to allow the G&PR Committee to determine if the candidate meets certain criteria. A nomination that does not comply with the requirements set forth in the Company’s Code of Regulations will not be considered for presentation at the annual meeting.

Where to Send all Director Nominations and Recommendations:

The Procter & Gamble Company

c/o The Corporate Secretary’s Office

One Procter & Gamble Plaza

Cincinnati, OH 45202-3315

Availability of Corporate Governance Documents

In addition to their availability on the Company’s website at www.pg.com, copies of the Company’s Amended Articles of Incorporation, the Company’s Code of Regulations, all Committee Charters, the Corporate Governance Guidelines (including Independence Guidelines, Confidentiality Policy and Financial Literacy and Expertise Guidelines), the Worldwide Business Conduct Manual, the Company’s Purpose, Values, and Principles and the Related Person Transaction Policy are available in print upon request by writing to the Corporate Secretary at One Procter & Gamble Plaza, Cincinnati, OH 45202-3315.

 

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The objective of the C&LD Committee is to provide non-employee members of the Board a compensation package consistent with the size-adjusted median of the Peer Group. Directors can elect to receive any part of their fees or retainer (other than the annual grant of Restricted Stock Units (“RSUs”)) as cash, RSUs or unrestricted stock. Consistent with the practice of the past several years, the Company did not grant any stock options to Directors in FY 2015-16. Non-employee members of the Board receive the following compensation:

 

   

a grant of RSUs following election to the Board at the Company’s October 13, 2015 annual meeting of shareholders, with a grant date fair value of $175,000. These units are forfeited if the Director resigns during the year, do not deliver in shares until at least one year after the Director leaves the Board, and cannot be sold or traded until delivered in shares, thus encouraging alignment with the Company’s long-term interests and the interests of shareholders. These RSUs will earn dividend equivalents at the same rate as dividends paid to shareholders;

 

   

an annual retainer fee of $110,000 paid in quarterly increments; and

 

   

an additional annual retainer paid to the Lead Director and Chair of each committee as follows: Lead Director, $30,000; Chair of the Audit Committee, $25,000; Chair of the C&LD Committee, $20,000; Chairs of the Governance & Public Responsibility and Innovation & Technology Committees, $15,000.

At its June 14, 2016 meeting, the Board of Directors, upon the recommendation of the C&LD Committee, agreed to maintain the current Director compensation package for the upcoming fiscal year.

Non-employee members of the Board must own Company stock and/or RSUs worth six times their annual cash retainer. A number of the non-employee Directors were appointed or elected to the Board within the last few years. However, all non-employee Directors either meet or are on track to meet the ownership requirements within the five-year period established by the C&LD Committee.

The following table and footnotes provide information regarding the compensation paid to the Company’s non-employee Directors in FY 2015-16. Directors who are employees of the Company receive no compensation for their service as Directors.

 

 Director Compensation  Table                                     
     Fees                    
  Name

 

  Annual
Retainer
($)
   

Committee
Chair & Lead
Director Fees

($)

   

Total Fees
Earned or
Paid in
Cash1

($)

    Stock
Awards2
($)
    All Other
Compensation3
($)
   

Total

($)

 

Francis S. Blake

    110,000               110,000        175,000        0        285,000    

Angela F. Braly

    110,000        11,250        121,250        175,000        0        296,250    

Kenneth I. Chenault

    110,000               110,000        175,000        0        285,000    

Scott D. Cook

    110,000        15,000        125,000        175,000        0        300,000    

Susan Desmond-Hellmann

    110,000               110,000        175,000        0        285,000    

Terry J. Lundgren

    110,000               110,000        175,000        0        285,000    

W. James McNerney, Jr.

    110,000        50,000        160,000        175,000        0        335,000    

Margaret C. Whitman

    110,000               110,000        175,000        0        285,000    

Mary Agnes Wilderotter

    31,479               31,479               0        31,479    

Patricia A. Woertz

    110,000        25,000        135,000        175,000        0        310,000    

Ernesto Zedillo

    110,000        3,750        113,750        175,000        0        288,750    

 

1 Director fees are paid quarterly. Each director may elect to take these fees in cash, unrestricted stock, RSUs (which vest immediately), or a combination of the three. The RSUs earn dividend equivalents that are subject to the same vesting provision as the underlying RSUs and are accrued in the form of additional RSUs each quarter and credited to each Director’s holdings. The RSUs are ultimately deliverable in shares. Ms. Wilderotter

 

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retired from the Board at the end of her term on October 13, 2015, and her retainer was prorated accordingly. Mr. Blake elected to take $105,000 of his fees in unrestricted stock, which had a grant date fair value of $105,040. Ms. Braly received $3,750 of her fees in cash. She also took $112,500 of her fees in RSUs, which had a grant date fair value of $112,612. Mr. Cook elected to take $120,000 of his fees in unrestricted stock, which had a grant date fair value of $120,123. Mr. McNerney elected to take $155,000 of his fees in unrestricted stock, which had a grant date fair value of $155,129. Messrs. Chenault and Lundgren elected to take $105,000 of their fees in RSUs, which had a grant date fair value of $105,040. Dr. Zedillo took $86,250 of his fees in cash. He also elected to take $27,500 of his fees in RSUs, which had a grant date fair value of $27,548. The remaining Directors took their fees in cash.

2 Each year, upon election at the Company’s annual meeting of shareholders, every Director is awarded a grant of RSUs with a grant date fair value of $175,000. These RSUs vest after one year as long as the Director remains on the Board. Each Director has 2,422 RSUs outstanding (representing the grant on October 13, 2015 and subsequent dividend equivalents). In addition, the following Directors have shares of retirement restricted stock outstanding as of June 30, 2016: Ms. Braly (4,992 shares); Mr. Cook (9,948 shares); Mr. Lundgren (1,265 shares); and Dr. Zedillo (3,883 shares). Also, Mr. Cook and Dr. Zedillo each have 3,760 option awards outstanding.

3 For all Board meetings throughout the fiscal year, Directors were entitled to bring a guest so long as the Director used the Company aircraft to attend the meeting and the guest’s attendance did not result in any incremental aircraft costs, although no Director brought a guest to any Board meeting in FY 2015-16. Directors and their guests are also covered under the same insurance policy as all Company employees for accidental death while traveling on Company business (coverage is $750,000 for each Director and $300,000 for a guest). The incremental cost to the Company for this benefit is $2,980. In addition, the Company maintains a Charitable Awards Program for current and retired Directors who were participants prior to July 1, 2003. Under this program, at their death, the Company donates $1,000,000 per Director to up to five qualifying charitable organizations selected by each Director. Directors derive no financial benefit from the program because the charitable deductions accrue solely to the Company. The Company funds this contribution from general corporate assets. No payments were made during FY 2015-16. This program was discontinued for any new Director effective July 1, 2003. In FY 2015-16, the Company made a $500 donation on behalf of each Director to the Children’s Safe Drinking Water Program or to a different charity of their choice. These donations were also funded from general corporate assets, and the Directors derive no financial benefit from these donations because the charitable deductions accrue solely to the Company. As employee Directors, Messrs. Taylor and Lafley did not receive a retainer, fees, or a stock award.

 

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Report of the Compensation & Leadership Development Committee

The Compensation & Leadership Development Committee of the Board of Directors has reviewed and discussed the following section of this proxy statement entitled “Compensation Discussion & Analysis” with management. Based on this review and discussion, the Committee has recommended to the Board that the section entitled “Compensation Discussion & Analysis,” as it appears on the following pages, be included in this proxy statement and incorporated by reference into the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2016.

W. James McNerney, Jr., Chair

Kenneth I. Chenault

Scott D. Cook

Terry J. Lundgren

Margaret C. Whitman

August 9, 2016

 

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Introduction

The focus of this discussion and analysis is on the Company’s compensation philosophies and programs for its named executive officers (“NEOs”) for FY 2015-16: David Taylor, President and Chief Executive Officer; A.G. Lafley, Executive Chairman of the Board; Jon R. Moeller, Chief Financial Officer; Steven D. Bishop, Group President—Global Health Care; Giovanni Ciserani, Group President—Global Fabric and Home Care and Global Baby and Feminine Care; Patrice Louvet, Group President—Global Beauty; and Martin Riant, Group President and Advisor to the Chief Executive. Messrs. Lafley and Riant retired from the Company on June 30, 2016.

Leadership Change

The Board elected Mr. Taylor as President and Chief Executive Officer and Mr. Lafley as Executive Chairman, both effective November 1, 2015. On June 30, 2016, Mr. Lafley retired from the Company. In connection with Mr. Lafley’s retirement, the Board appointed Mr. Taylor Chairman of the Board, in addition to his role as President and CEO, effective July 1, 2016. There were no changes to Mr. Taylor’s compensation in conjunction with his July 1 appointment.

FY 2015-16 Results—Key Compensation Measures

The Company’s focus for FY 2015-16 was on the execution of four key strategic priorities: strengthen and simplify the portfolio, drive cost and cash productivity, accelerate top line growth via innovation and strengthened business models, and improve the organization and culture.

 

 Key Compensation Measures   

Original

FY 2015-16

Targets1

 

FY 2015-16

Actuals2

 
   

Organic Sales Growth3

 

   In-Line to Up Low
Single Digits

 

   

 

1%  

 

  

 

   

Core EPS Growth3

 

   Down Slightly to Up
Mid-Single Digits

 

   

 

-2%  

 

  

 

   

Adjusted Free Cash Flow Productivity3

 

   ³ 90%

 

   

 

115%  

 

  

 

 

1 The targets above reflect the original FY 2015-16 financial guidance provided by the Company on July 30, 2015. This guidance was subsequently revised during the fiscal year, primarily due to unusually high impacts from foreign exchange rates; however, as further detailed on pages 26-27, the original guidance numbers for Organic Sales Growth and Core EPS Growth were used to establish the STAR targets for the Company Performance Factor.

2 FY 2015-16 actuals for Core EPS Growth and Adjusted Free Cash Flow Productivity were used in the calculation of Year 3 Performance Stock Program results, as further detailed on pages 29-31.

3 Please see Exhibit A for a reconciliation of non-GAAP measures, including Organic Sales Growth, Core EPS Growth, and Adjusted Free Cash Flow Productivity.

Organic Sales Growth was 1%. This was just below the midpoint of the original target range primarily due to continued challenges in China and soft market shares in some country category combinations. Core EPS Growth of -2% was at the low end of the original target range primarily due to the negative impact of foreign exchange (-9% or -$1.0 billion).

The Company took two important steps to address the foreign exchange challenges. First, where feasible, the Company increased prices. Second, the Company accelerated work on savings across all elements of cost: cost of goods sold, non-manufacturing overhead, and marketing. The Company delivered $1.6 billion in cost of goods savings, spanning materials, manufacturing, and logistics. This savings exceeded the target annual run rate by $400 million.

The Company continued to accelerate overhead reduction. In February 2012, we announced a targeted 10% reduction of non-manufacturing enrollment by June 2016. As of June 30, 2016, we reduced roles by 24%, almost 2.5 times the original objective.

Adjusted Free Cash Flow Productivity was 115%, ahead of target. These cash results enabled over $7 billion in dividends and $4 billion in share repurchase. For the fiscal year, the Company effectively returned nearly $16 billion to shareholders, including the shares received from the Duracell transaction.

 

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Including the Company’s previously announced agreement to merge 41 Beauty brands with Coty, Inc., the Company has substantially completed plans for the strategic portfolio reshaping announced in August 2014. By the close of the Coty transaction, which is expected to occur in October 2016, the Company will have focused its portfolio on 10 categories and 65 brands (from 16 categories and 165 brands).

CEO Compensation for FY 2015-16

The Chief Executive Officer’s compensation is determined by the C&LD Committee with objective input from the C&LD Committee’s independent compensation consultant, Frederic W. Cook & Co. The C&LD Committee reviews and considers the following when making compensation decisions for the Chief Executive Officer:

 

   

benchmarked data and compensation opportunities for chief executive officers in the Peer Group (defined beginning on page 25);

 

   

Company financial results and total shareholder returns;

 

   

executive leadership development;

 

   

personal contributions, experience, and leadership; and

 

   

the total compensation package, including previously awarded compensation and the cost to the Company of all retirement programs, benefits, and executive benefits.

FY 2015-16 CEO Compensation Highlights

Mr. Taylor became Chief Executive Officer on November 1, 2015. At that time the C&LD Committee established a competitive pay package based on total compensation opportunities for CEOs in the Peer Group. At the same time, the Committee modified Mr. Lafley’s compensation opportunities to reflect his new role as Executive Chairman. These decisions are described below.

 

   

Salary. Mr. Taylor’s base salary was established at $1,600,000. The Committee adjusted Mr. Lafley’s base salary from $2,000,000 to $1,250,000.

 

   

STAR Annual Bonus Program. Upon his appointment as CEO, Mr. Taylor’s Short-Term Achievement Reward (STAR) target was set at 200% of salary. Because his promotion to CEO was effective during the fiscal year, however, his award target was prorated to 174% of salary. His STAR payout was $2,482,771, which is approximately 89% of target based on the one-year Company results as described above. Mr. Lafley’s STAR target was adjusted from 250% to 150% of salary. This award target was prorated to 184% of salary. His STAR payout was $2,051,040, which is also approximately 89% of target based on the one-year Company results.

 

   

Long-Term Incentive Programs. The C&LD Committee approved a long-term incentive award of $11,000,000 for Mr. Taylor and adjusted Mr. Lafley’s long-term incentive award from $12,000,000 to $6,000,000 based on his change in role from CEO to Executive Chairman. These awards are comprised of equity grants made under the Key Manager Program and the Performance Stock Plan (“PSP”). Approximately 50% of the total long-term incentive value is in the PSP, with payout for the FY 2015-16 grant to be made in August 2018 and based on achievement of the four performance goals described on page 31. The Key Manager Stock Grant is composed of a mix of stock options and RSUs as determined by the C&LD Committee. For Mr. Taylor the mix in the Key Manager Program was 50% stock options and 50% RSUs, while Mr. Lafley received 100% RSUs.

 

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Executive Compensation Practices

Our executive compensation practices support good governance and mitigate excessive risk-taking.

 

 What We Do:

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Significant share ownership and share holding requirements are in place for senior executives.

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Multiple performance metrics under STAR and PSP discourage excessive risk-taking by removing any incentive to focus on a single performance goal to the detriment of the Company.

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Appropriate balance between short-term and long-term compensation discourages short-term risk taking at the expense of long-term results.

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Double Trigger. Time-based equity awards do not vest solely on account of a change-in-control (requires a qualifying termination following a change-in-control).

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Engagement of an Independent Advisor. Our C&LD Committee engages an independent compensation consultant, who performs no other work for the Company, to advise on executive compensation matters.

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Clawback policy permits the C&LD Committee to recoup certain compensation payments in the event of a significant restatement of financial results for any reason. Additionally, the stock plan allows recovery of proceeds from stock transactions if a participant violates certain plan provisions.

 

 What We Do Not Do:

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No employment contracts with executives containing special severance payments such as golden parachutes.

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No special executive retirement programs and no severance programs that are specific to executive officers.

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No gross-up payments to cover personal income taxes or excise taxes that pertain to executive or severance benefits.

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No excessive perquisites for executives.

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No hedging or engaging in the following transactions that include shares of Common Stock: pledging, collars, short sales, and other derivative transactions.

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No re-pricing or backdating stock options.

Say on Pay Advisory Vote Outcome

In October 2015, shareholders approved the Company’s Say on Pay proposal, with 91.96% of votes cast in favor of the compensation paid to the NEOs. The Company considers this vote a positive endorsement of its executive compensation practices and decisions. The shareholders’ overwhelming support of the Company’s executive compensation program is one factor that contributed to the C&LD Committee’s decision not to make significant changes to the Company’s current executive compensation programs, principles, and policies. In addition, the Company routinely engages with investors to understand their issues and perspectives on the Company, including executive compensation practices. The C&LD Committee will continue to consider results from the annual shareholder advisory votes, including the next vote on October 11, 2016, as well as other shareholder input, when reviewing executive compensation programs, principles, and policies.

We design compensation programs to motivate executives to achieve the Company’s fundamental and overriding objective—to create value for our shareholders at leadership levels on a consistent long-term basis. As such, we encourage shareholders to support the Company’s advisory Say on Pay resolution, which can be found on page 60 of this proxy statement.

 

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Our Compensation Objectives

Our fundamental and overriding objective is to create value for our shareholders at leadership levels on a consistent long-term basis. To accomplish this goal, the C&LD Committee designs executive compensation programs that:

 

 

Emphasize Pay for Performance by aligning incentives with business strategies to reward executives who achieve or exceed Company, business unit, and individual goals, while discouraging excessive risk-taking by removing any incentive to focus on a single performance goal to the detriment of others.

 

 

Pay Competitively by setting target compensation opportunities to be competitive with other multinational corporations of similar size, value, and complexity.

 

 

Focus on Long-Term Success by including equity as a cornerstone of our executive pay programs and by using a combination of short-term and long-term incentives to ensure a strong connection between Company performance and actual compensation realized.

Emphasizing Pay for Performance

Our executive compensation program consists of four key components: salary, STAR, and two long-term incentive equity programs — PSP and the Key Manager Stock Grant. For FY 2015-16, these four components constituted approximately 89% on average of each NEO’s total compensation. The remaining 11% consisted of retirement, expatriate expenses, and other benefits.

We design our programs so that NEO compensation varies by type (fixed versus performance-based), length of performance period (short-term versus long-term), and form (cash versus equity). We believe that such variation is necessary to: (1) strike the appropriate balance between short- and long-term business goals; (2) encourage appropriate behaviors and discourage excessive risk-taking; and (3) align the interests of the Company’s executives with our shareholders.

While salary is considered fixed, salary progression over time is based on individual performance. The remaining compensation components vary based on the performance of the individual, the performance of the individual’s business unit, and the performance of the Company as a whole. This mix of components is designed to incent both individual accountability and collaboration to build long-term shareholder value. The charts below show the average mix of the four key components of FY 2015-16 NEO compensation by type, length, and form.

 

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Consistent with our design principles, performance-based programs pay out at 100% when target goals are achieved. Payouts below 100% occur when target goals are not achieved, and payouts above 100% are possible when target goals are exceeded. Over the previous ten years, the average STAR payout for NEOs ranged from a low of 67% of target to a high of 143% of target. Since the inception of PSP in 2010, the program has delivered payouts from a low of 20% of target to a high of 36% of target. For the current year, the average STAR payout for the NEOs was 95% of target, while the current PSP payout for the three years ending June 30, 2016 was 36% of target. Payouts under these programs were based on the results achieved as compared to the pre-established performance targets, highlighting the clear link between pay and performance that underlies our compensation programs.

Paying Competitively

The C&LD Committee structures executive compensation so that total targeted annual cash and long-term compensation opportunities are competitive with the targets for comparable positions at companies considered to be our peers (“Peer Group”), based on criteria described below. The C&LD Committee sets targets for each element of compensation considering the same elements of compensation paid to those holding similar jobs at companies in our Peer Group, focusing on positions with similar management and revenue responsibility. The C&LD Committee makes appropriate adjustments for differences in revenue size within the Peer Group. For the CEO’s compensation analysis, the C&LD Committee considers the Company’s revenue and market capitalization compared to our Peer Group.

The Peer Group is objectively determined and consists of global companies that generally meet the following criteria:

 

   

have revenue comparable to the Company ($76 billion in FY 2014-15) and/or market capitalization comparable to the Company (approximately $217 billion as of December 2015);

§     Peer Group revenues range from $17 billion to $484 billion with a median of $71 billion; and

§     Peer Group market capitalization ranges from $21 billion to $446 billion with a median of $147 billion.

 

   

compete with the Company in the marketplace for business and investment capital;

 

   

compete with the Company for executive talent; and

 

   

have generally similar pay models. We do not compare with companies in the financial services or insurance industries, where the mix of pay elements or program structure is generally materially different.

Each year, the C&LD Committee evaluates and, if appropriate, updates the composition of the Peer Group. Changes to the Peer Group are carefully considered and made infrequently to assure continuity from year to year. For FY 2015-16, the committee made several adjustments to select companies that more closely meet the criteria listed above. The Committee removed ConocoPhillips, DuPont, and Target, and added Microsoft and Nike. The Peer Group now consists of the following companies:

 

3M   Colgate-Palmolive   Home Depot   Merck   Pfizer
AT&T   ExxonMobil   IBM   Microsoft   United Technologies
Boeing   Ford Motor Co.   Johnson & Johnson   Mondelez   Verizon Communications
Chevron   General Electric   Kimberly-Clark   Nike   Wal-Mart Stores
Coca-Cola   HP Inc.   Lockheed Martin   PepsiCo  

While the target total compensation for our NEOs is set considering the size-adjusted median target total compensation within our Peer Group, actual compensation varies depending on the NEO’s experience in the particular role, as well as on total Company, business unit, and individual performance. Consistent with our principles to pay for performance and pay competitively, substantial differences may exist among NEOs’ pay.

Focus on Long-Term Success

To reinforce the importance of stock ownership and long-term focus for our most senior executives, including the NEOs, the C&LD Committee established the Executive Share Ownership Program and Stock Option Exercise Holding Requirement.

The Executive Share Ownership Program requires the CEO to own shares of Company stock and/or RSUs (including granted Performance Stock Units (“PSUs”)) valued at a minimum of eight times salary. Mr. Taylor currently

 

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holds approximately 11 times salary. All other NEOs must own stock and/or RSUs (including granted PSUs) valued at a minimum of four or five times salary, depending on the NEO’s role. The C&LD Committee annually reviews these holdings, and in 2016 each NEO exceeded these requirements.

The Share Holding Requirement ensures executives remain focused on sustained shareholder value even after exercising their stock options or receiving shares from RSU or PSU settlements. The share holding requirement applies when an executive, including an NEO, has not met the ownership requirements of the Executive Share Ownership Program. When the holding requirement applies, the CEO is required to hold the net shares received from stock option exercises, RSUs, and PSUs for at least three years, and the other NEOs are required to hold net shares received for at least one year. The holding requirement does not apply to incentive plan awards that executives elect to take as stock options instead of cash or unrestricted stock.

Elements of Our Compensation Programs

Annual Cash Compensation

The Company’s annual cash compensation consists of salary and STAR. We collect and analyze data from the Peer Group on the total annual cash compensation opportunity (salary plus annual bonus target) for positions comparable to those at the Company. We consider the target median annual cash compensation opportunity for each position within our Peer Group, adjusted for size using a regression analysis of Peer Group revenues, to set a salary range mid-point and a target for STAR, as a percentage of salary (“STAR target”).

Salary

Mr. Taylor’s annualized salary was set at $1,600,000 upon his election to CEO, effective November 1, 2015. In conjunction with this appointment, Mr. Lafley was elected Executive Chairman of the Board, and his salary was adjusted from $2,000,000 to $1,250,000. The salary for Mr. Moeller this year was increased from $850,000 to $950,000 reflecting his continued performance and leadership as CFO during the Company’s ongoing transformation. The C&LD Committee also approved a 6.3% increase to bring Mr. Ciserani’s salary to $850,000, and a 5% increase to bring Mr. Bishop’s salary to $810,000. These adjustments were made in recognition of their individual performance and market movement. Mr. Louvet’s salary was $725,000 as of July 1, 2015, and remained unchanged. Mr. Riant’s salary remained at $960,000.

STAR Annual Bonus

The STAR program links a substantial portion of each NEO’s annual cash compensation to the Company’s performance for the fiscal year. The program focuses on the achievement of business unit results, but also includes a component that measures the performance of the Company as a whole. STAR awards are generally paid in cash, but executives can also elect to receive their awards in stock options or deferred compensation.

STAR awards are calculated using the following formula:

 

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The basis for each element of STAR is:

 

   

STAR Target. The C&LD Committee sets STAR targets as a percentage of salary for NEOs, using annual bonus benchmarks for similar positions in our Peer Group.

 

   

Business Unit Performance Factor. The CEO, CFO, and CHRO (“STAR Committee”) recommend Business Unit Performance Factors for each business unit, based on a retrospective assessment of the performance of each of the 22 business units against seven metrics: operating TSR, organic sales growth, operating profit growth, adjusted free cash flow productivity, market share, productivity, and internal controls. This assessment is compared to each business unit’s role in the portfolio, reflecting the different industries in which the Company’s businesses compete and their growth potential. The C&LD Committee then determines the Business Unit Performance Factors based on the STAR Committee’s recommendations. None of the officers on the STAR Committee participates in discussions or recommends their own STAR awards to the C&LD Committee. The Business Unit Performance Factors can range between 53% and 167%. The Business Unit Performance Factor for global business services and corporate functions is the weighted average of all the global business units (“GBU”) and selling and market operations (“SMO”) Business Unit Performance Factors in order to align all organizations with the seven metrics.

The Business Unit Performance Factor for NEOs who lead multiple business units is based on a combination, as determined by the STAR Committee, of the results of the business units for which the NEO is ultimately responsible. There are no separate performance goals for the business unit combinations for purposes of compensation.

 

   

Total Company Performance Factor. The C&LD Committee sets targets for the Company’s annual Organic Sales Growth and Core EPS Growth as the basis for the Company Performance Factor to encourage a balanced focus on both top-line and bottom-line results and to encourage collaboration among the business units. These targets are typically linked to the external guidance provided at the beginning of the fiscal year, and the Core EPS target includes the expected impact of our share repurchase program. The Committee establishes performance levels and a payout matrix that determine a Company Performance Factor between a minimum of 70% and a maximum of 130%.

 

   

Transformation Factor. The C&LD Committee introduced a new P&G Transformation Factor for application to the STAR program beginning in FY 2015-16 to recognize the need for the entire leadership team to support multiple initiatives in several major areas. The STAR Committee recommends a Transformation Factor based on a retrospective assessment of the established transformation initiatives in the areas of Portfolio Execution, Commercial and Organization Design Changes, Supply Chain Reinvention, and Information Security Compliance activities. The C&LD Committee then determines an appropriate Transformation Factor in the range of 70% to 130%. This factor will continue into FY 2016-17 and is then expected to be discontinued.

While the formula described above is used to calculate potential STAR awards, the C&LD Committee retains the authority to make no STAR award in a given year and the discretion to accept, modify, or reject management’s recommendations for any or all employees, including the NEOs.

FY 2015-16 STAR Annual Bonus

Mr. Taylor’s STAR target was established at 200% of salary but was adjusted to 174% reflecting his mid-year election to CEO. The STAR target for Mr. Lafley was decreased from 250% to 150% in conjunction with his election as Executive Chair of the Board. His target was prorated to 184% reflecting the time he spent in each role during the fiscal year. The STAR targets for Messrs. Moeller, Ciserani, Louvet, and Riant are 120% of salary. The STAR target for Mr. Bishop is 100% of salary.

At the beginning of FY 2015-16, the C&LD Committee established Organic Sales Growth and Core EPS Growth targets of 1.5% for both measures, to be used to compute the FY 2015-16 Company Performance Factor, and established a payout matrix that would generate a Company Performance Factor between 70% and 130% depending on the actual Organic Sales and Core EPS Growth achieved. Both Organic Sales Growth and Core EPS Growth were below target at 1% and -2%, respectively, resulting in a Total Company Performance Factor of 70%.

 

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The Committee also established FY 2015-16 goals for the new Transformation Factor. Because all goals were achieved at or above target, the Transformation Factor was established at 130%.

The C&LD Committee then reviewed the recommendations provided for the 22 different Business Unit Performance Factors and, after considering the performance of the total Company, the Transformation Factor, and the appropriate combination of Business Unit Performance Factors for each NEO, approved the following STAR awards:

 

 FY 2015-16 STAR Awards  
 NEO  

STAR Target

($)

   

Business Unit
Performance
Factor

(%)

 

Total Company
Performance
Factor

(%)

 

Transformation
Factor

(%)

 

STAR Award

($)

 

David Taylor

    2,784,000      98   70   130     2,482,771   

A.G. Lafley

    2,300,000      98   70   130     2,051,140   

Jon R. Moeller

    1,140,000      98   70   130     1,016,652   

Steven D. Bishop

    810,000      119   70   130     873,464   

Giovanni Ciserani

    1,020,000      113   70   130     1,044,225   

Patrice Louvet

    870,000      105   70   130     827,327   

Martin Riant

    1,152,000      98   70   130     1,027,354   

In keeping with good governance practices, the C&LD Committee used the weighted average Business Unit Factor, the Company Performance Factor, and Transformation Factor to determine the awards for the NEO members of the STAR Committee (CEO, CFO) and the Executive Chair. This resulted in an award of $2,482,771 for Mr. Taylor, $2,051,140 for Mr. Lafley, and $1,016,652 for Mr. Moeller.

The STAR awards recommended to the C&LD Committee for Messrs. Bishop, Ciserani, Louvet, and Riant were computed using the formula described on page 26 of this proxy.

For Mr. Bishop, 75% of his Business Unit Performance Factor was based on the Oral Care business that he directly manages, while the remainder of the factor was based on the weighted average of the Oral Care and Personal Health Care businesses. Based on above-target results in these businesses, Mr. Bishop’s Business Unit Performance Factor was 119%.

Half of Mr. Ciserani’s Business Unit Performance Factor was based on Fabric Care business results, and the remainder of the factor was based on the weighted average of the Fabric and Home Care businesses. Based on the above-target results in these businesses, Mr. Ciserani’s Business Unit Performance Factor was 113%.

Half of Mr. Louvet’s Business Unit Performance Factor was based on the weighted average of the Salon Professional, Prestige Fragrances, and Cosmetics businesses, and the remainder was based on the weighted average of all Beauty businesses. Based on a combination of above-target results in the Salon Professional, Prestige Fragrances, and Cosmetics businesses, and below-target results in the balance of the Beauty businesses, Mr. Louvet’s Business Unit Performance Factor was 105%.

Mr. Riant’s Business Unit Performance Factor was based on the average of all business units, consistent with his role as Group President and Advisor to the CEO.

Long-Term Incentive Programs

The majority of the NEOs’ compensation is delivered through two long-term incentive programs tied to Company performance: the PSP and the Key Manager Stock Grant.

The C&LD Committee uses competitive market data to set total long-term compensation targets considering the median total long-term compensation of comparable positions in the Peer Group, regressed for revenue size.

 

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The CEO recommends NEO grants to the C&LD Committee based on benchmarked long-term compensation targets, adjusted for business results and individual contributions attributable to each NEO, including that individual’s leadership skills. These recommendations can be up to 50% above or 50% below the benchmarked target.

The C&LD Committee retains full authority to accept, modify, or reject these recommendations. In exceptional cases, no grant will be awarded. Approximately half of each NEO’s annual long-term compensation is allocated to PSP via an Initial PSU Grant (“Initial PSU Grant”) (as defined below). The other half is a Key Manager Stock Grant. The final grant date fair value of the awards may not reflect the 50/50 split between PSP and the Key Manager Stock Grant due to the final accounting valuations for stock awards (PSUs and RSUs) versus stock options.

Performance Stock Program

The PSP aligns the interests of the NEOs with shareholders by encouraging NEOs to focus on the aspects of the long-term performance of the Company that create shareholder value. In the first year of each three-year performance period, the C&LD Committee grants PSUs to participants. The number of PSUs that vest at the end of the performance period will depend on Company results over the three-year period.

The C&LD Committee sets targets at the beginning of each performance period for the following categories (“Performance Categories”): Organic Sales Growth, Core Before-Tax Operating Profit Growth, Core EPS Growth, and Adjusted Free Cash Flow Productivity. The Core EPS growth target for year one of the PSP program is typically linked to the external guidance provided at the beginning of the fiscal year. The Core EPS targets for years two and three are based on our longer term expected growth rates. These targets include the best estimates of the impact of our share repurchase program. The C&LD Committee then assigns a minimum and maximum performance goal for each Performance Category. At the end of the three-year performance period, each Performance Category will have a Performance Factor between 0% and 200%, depending on results achieved in each category. The Performance Factor will be 100% if the business results for the category are at target. Business results falling between the minimum and maximum performance goals are determined via linear interpolation. Using a sliding scale to reward performance, as opposed to “all or nothing” goals, discourages participants from taking unnecessary risks to ensure a final payment under the program. At the end of each three-year performance period, the C&LD Committee multiplies the average of the four Performance Factors by the Initial PSU Grant to determine the vested PSUs. The formula is as follows:

 

 

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PSUs vest at the earliest of the end of the three-year performance period or when the individual becomes retirement eligible, provided the NEO was an employee on June 30 following the grant date of the PSUs. Participants may elect to defer receipt of the shares of Common Stock by choosing to instead receive RSUs.

Key Manager Stock Grant

The Key Manager Stock Grant is the second component of the Company’s long-term incentive compensation for its senior executives. Executives can elect to receive all or a portion of their grants in RSUs or stock options, with the exception of the CEO, whose grant form and amount is solely determined by the C&LD Committee. Stock options are

 

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not exercisable (do not vest) until three years from the date of grant and expire ten years from the date of grant, or earlier as related to certain termination events. RSUs vest and are delivered in shares of Common Stock five years from the date of grant. In addition, NEOs must be employed on the June 30 following the grant date in order to retain the awards, even if they are retirement eligible. These awards focus executives on the long-term success of the Company, and the vesting restrictions enhance retention because employees who voluntarily resign from the Company during the specified vesting periods forfeit their grants.

FY 2015-16 Long-Term Incentive Grants

The following long-term incentive grants were made in FY 2015-16. Award amounts approved by the C&LD Committee vary from the grant date fair value shown in the table based on the grant date valuation factors as well as the stock option and RSU mix chosen by each NEO. The actual compensation realized by each NEO will be determined by future Company performance.

 

  FY 2015-16 Long-Term Incentive Grants  
     PSP Grant     Key Manager Stock Grant     Total  
  NEO  

PSUs

(#)

    Grant Date  
Fair Value   
($)  
    Options
(#)
    RSUs
(#)
    Grant Date
Fair  Value
($)
    Grant Date
Fair  Value
($)
 

David Taylor

    76,113        5,557,446          205,095        41,019        4,554,794        10,112,240   

A.G. Lafley

    41,517        3,031,394          0        44,748        3,066,469        6,097,863   

Jon R. Moeller

    37,241        2,719,179          150,393        10,027        1,965,873        4,685,052   

Steven D. Bishop

    20,426        1,491,419          54,802        10,961        1,217,096        2,708,515   

Giovanni Ciserani

    29,020        2,118,916          156,932        0        1,334,347        3,453,263   

Patrice Louvet

    20,800        1,518,727          56,047        11,210        1,244,744        2,763,471   

Martin Riant

    26,280        1,918,853          141,986        0        1,207,266        3,126,119   

The C&LD Committee approved $11,000,000 in long-term incentive value when Mr. Taylor was elected CEO. At the same time, the Committee approved $6,000,000 in total long-term incentive value for Mr. Lafley in association with his new role as Executive Chairman. When setting Mr. Taylor’s and Mr. Lafley’s total compensation opportunity, the C&LD Committee considered their respective considerable experience and leadership in driving portfolio simplification, as well as the relative size and value of the Company within the Peer Group. The C&LD Committee approved an increase to Mr. Moeller’s total long-term incentive award to $5,379,700 which is slightly above the median long-term compensation opportunity of other CFOs in the Peer Group for companies of similar size. This increase reflects Mr. Moeller’s performance as CFO, a scope of responsibilities that exceeds average Peer Group CFOs, his experience in role, and his contributions to Company results.

The C&LD determined a long-term incentive award of $4,201,200 for Mr. Ciserani, reflecting his increased scope of responsibility for the Baby and Feminine Care businesses. Mr. Bishop received an award of $2,945,600, and Mr. Louvet received an award of $3,006,000, which is modestly above market midpoint for their job scopes, reflecting their experience and business results. Mr. Riant received the same award as last year at $3,802,800.

 

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In conjunction with deciding the amount and allocation of the NEOs’ long-term incentive opportunities for FY 2015-16, the C&LD Committee set the PSP Performance Factors listed below. The delivery of results against these factors will determine the ultimate payout for this portion of compensation.

 

PSP Goals for Performance Period July 1, 2015-June 30, 2018

Organic Sales Growth1

  Core Before-Tax Operating  Profit2     Core EPS 3   Adjusted Free  Cash
Flow Productivity4

Percentile

Rank in

Peer Group

   Payout
Factor
 

%

    Growth    

  

Payout

Factor

 

%

Growth

   Payout
Factor
  %    Payout
Factor
80th    200%   ³ 8.3    200%   ³ 7.2    200%   ³ 115    200%
70th    167%   7.3    167%   6.2    167%   107    167%
60th    133%   6.3    133%   5.2    133%   98    133%
Target 50th    100%   Target 5.3    100%   Target 4.2    100%   Target 90    100%
40th    67%   4.3    67%   3.2    67%   82    67%
30th    33%   3.3    33%   2.2    33%   73    33%
£20th    0%   £ 2.3    0%   £ 1.2    0%   £ 65    0%

 

 

1 Organic Sales Growth is a measure of sales growth excluding the impacts of acquisitions, divestitures, foreign exchange and (as appropriate) certain other items from year-over-year comparisons, and will be based on the percentile rank of the 3-year compound annual growth rate within a peer group of directly competitive consumer product companies.

2 Core Before-Tax Operating Profit will be based on the 3-year compound annual growth rate, adjusted for certain items that are not deemed to be part of the Company’s sustainable results.

3 Core EPS Growth is a measure of the Company’s diluted net earnings per share from continuing operations growth, adjusted for certain items that are not deemed to be part of the Company’s sustainable results, and will be based on the 3-year compound annual growth rate.

4 Adjusted Free Cash Flow Productivity achieved will be based on the 3-year sum of Operating Cash Flow excluding (as appropriate) certain impacts less the sum of Capital Expenditures divided by the sum of the Net Earnings excluding (as appropriate) certain charges.

Looking Back: Realized Pay for PSP Performance Period July 1, 2013-June 30, 2016

In addition to setting the Performance Goals for the next three years, the C&LD Committee reviewed the results for the Performance Period (July 1, 2013 to June 30, 2016). The C&LD Committee reviewed these results against the goals established at the beginning of the Performance Period to determine the realized pay for each NEO.

 

PSP Performance for July 1, 2013-June 30, 2016
Performance Factor    Target     Actual     Payout
Organic Sales Growth Percentile Rank in Peer Group1         57th           12th      0%
Core Before-Tax Operating Profit Growth2      6.0%        -0.6%      0%
Core EPS Growth3      7.0%        0.2%      0%
Adjusted Free Cash Flow Productivity4      90%        101%      144%
PSP Payout (Average of Performance Factors)                    36%

 

 

1 Organic Sales Growth is a measure of sales growth excluding the impacts of Venezuelan deconsolidation, acquisitions, divestitures and foreign exchange from year-over-year comparisons, and is based on the percentile rank within a peer group of directly competitive consumer product companies of the 3-year compound annual growth rate.

2 Core Before-Tax Operating Profit Growth is based on the 3-year compound annual growth rate of Before-Tax Operating Profit Growth, adjusted for incremental restructuring, Venezuelan charges and balance sheet adjustments, and charges for certain European legal matters.

3 Core EPS Growth is a measure, based on the 3-year compound annual growth rate, of the Company’s diluted net earnings per share from continuing operations growth, adjusted for incremental restructuring, Venezuelan charges and balance sheet adjustment, and charges for certain European legal matters.

4 Adjusted Free Cash Flow Productivity achieved is based on the 3-year sum of Operating Cash Flow excluding certain divestiture impacts less the sum of Capital Expenditures divided by the sum of the Net Earnings excluding impairment charges and divestiture gain on the Batteries business and the Venezuelan deconsolidation charge.

 

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Based on results delivered, the NEOs received PSP payouts at 36% of target, which resulted in the following PSU awards for each NEO.

 

 

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1 The value of PSUs at target and awarded was calculated by multiplying the number of PSUs by the Company stock price as of June 30, 2016. These PSUs will deliver in shares of Common Stock or RSUs (as elected by the participants) in August 2016.

Special Equity Awards

On occasion, the C&LD Committee makes special equity grants in the form of RSUs to senior executives to encourage retention of the talent necessary to manage the Company successfully or to recognize superior performance. No special equity award was granted to any NEOs in FY 2015-16.

Retirement Programs

The Procter & Gamble Profit Sharing Trust and Employee Stock Ownership Plan (“PST”) is the Company’s primary retirement program for U.S.-based employees. The PST is a qualified defined contribution plan providing retirement benefits for full-time U.S. employees, including the NEOs. Under the PST, the Company makes an annual contribution of cash, which is used to purchase Company stock that is credited to each participant’s PST account, upon which dividends are earned. The amount of the stock grant varies based upon individual salaries and years of service.

Some participants in PST (including the NEOs) do not receive their full contribution due to federal tax limitations. As a result, they participate in the nonqualified PST Restoration Program. These individuals receive RSUs valued at an amount equal to the difference between the contribution made under PST and what would have otherwise been contributed under PST but for the tax limitations. Participants are vested in their PST accounts after five years of service, and similarly their PST Restoration RSUs become non-forfeitable after five years of service.

In addition, some individuals who should participate in the PST are ineligible due to their work location (including Mr. Ciserani). As a result, they participate in the nonqualified International Retirement Plan (“IRP”). These individuals receive RSUs valued at an amount equal to the contribution that would have otherwise been contributed under PST had they been eligible to participate in the PST. IRP RSUs also become non-forfeitable after five years of service.

The PST, the PST Restoration Program, and the IRP have created ownership at all levels of the Company. These programs continue to serve the Company and its shareholders well by focusing employees on the long-term success of the business.

For non-U.S.-based employees, individual country plans provide retirement benefits. In addition, employees who work in multiple countries during their careers may also be eligible for supplemental benefits under the Global International Retirement Arrangement (“IRA”). Messrs. Ciserani, Louvet, and Riant participate in this program.

 

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Executive Benefits

The Company provides certain other limited benefits to senior executives to fulfill particular business purposes, which are primarily for convenience and personal security. No changes were made to executive benefits over the past year, and the Company continues to manage executive benefits as a very small percentage (less than 1%) of total compensation for the NEOs during FY 2015-16.

Benefits that safeguard senior executives, such as home security systems, secured workplace parking, and an annual physical health examination, are available to NEOs, as needed. While Company aircraft are generally used for Company business only, for security reasons the Chief Executive Officer is required by the Board to use Company aircraft for all air travel, including personal travel. To increase executive efficiency, in limited circumstances, NEOs may travel to outside board meetings on Company aircraft. In addition, if a Company aircraft flight is already scheduled for business purposes and can accommodate additional passengers, NEOs and their spouses/guests may join flights for personal travel. To the extent any travel on Company aircraft (e.g. personal/spouse/guest travel) results in imputed income to the NEO, the NEO is responsible for paying the taxes on that income, and the Company does not provide separate gross-up payments based on the NEO’s personal income tax due. We also reimburse NEOs for the cost of some tax preparation and financial counseling to minimize distractions, keep NEOs’ attention focused on Company business, and assure accurate personal tax reporting. To remain competitive and retain our top executives, we offer executive group whole life insurance coverage (equal to annual salary rate plus STAR target up to $5,000,000). Also, to further increase executive efficiency, we provide limited local transportation within Cincinnati. The C&LD Committee periodically reviews these arrangements as needed to ensure they meet business needs and remain in line with market practices.

Employment Contracts

The C&LD Committee believes employment contracts for executives are not necessary because our executives have developed a focus on the Company’s long-term success. Moreover, the C&LD Committee does not provide special executive severance payments, such as golden parachutes, to its executives. In the event the Company encourages an NEO, or any other U.S. employee, to terminate employment with the Company (but not for cause), that individual may receive a separation allowance of up to one year’s annual salary, calculated based on years of service. As part of the redesign of certain executive roles in the Company, Mr. Riant received a separation allowance equal to one times salary upon his retirement from the Company.

Other Key Compensation Program Features

This additional information may assist the reader in better understanding the Company’s compensation practices and principles.

Engagement of Independent Adviser

The C&LD Committee renewed its agreement with Frederic W. Cook & Co., to advise it on various compensation matters, including Peer Group identification, competitive practices and trends, specific program design, and actions with respect to NEO and principal officer compensation. Prior to the renewal, the C&LD Committee evaluated the independence of Frederic W. Cook & Co., taking into account any relationships with the Company’s directors, officers, and employees in accordance with NYSE listing standards. Based on this evaluation, the C&LD Committee concluded that Frederic W. Cook & Co. is an independent advisor. Under the terms of its agreement with the C&LD Committee, Frederic W. Cook & Co. is prohibited from doing any other business for the Company or its management, and the C&LD Committee has direct responsibility for oversight and compensation of the work performed by Frederic W. Cook & Co. The C&LD Committee generally meets with its independent compensation consultant in an Executive Session at regularly scheduled C&LD Committee meetings.

Company management uses a separate compensation consultant, Meridian Compensation Partners, LLC, to provide compensation advice, competitive survey analysis, and other benchmark information related to trends and competitive practices in executive compensation.

 

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Tax Gross-Ups

Generally, the Company does not increase payments to any employees, including NEOs, to cover non-business-related personal income taxes. However, certain expatriate allowances, relocation reimbursements, and tax equalization payments are made to employees assigned to work outside their home countries, and the Company will cover the personal income taxes due on these items in accordance with expatriate policy because there is a business purpose. In addition, from time to time, the Company may be required to pay personal income taxes for certain separating executives hired through acquisitions in conjunction with pre-existing contractual obligations.

Governing Plans, Timing, Pricing, and Vesting of Stock-Based Grants

All grants of stock options, PSUs, and/or RSUs made to employees and non-employee directors after October 14, 2014, are made under The Procter & Gamble 2014 Stock and Incentive Compensation Plan (as amended) (“2014 Plan”). The 2014 Plan was approved by Company shareholders at the October 14, 2014 annual shareholder meeting. Previous grants were made under The Procter & Gamble 1992 Stock Plan, The Procter & Gamble 1993 Non-Employee Directors’ Stock Plan, The Procter & Gamble Future Shares Plan, The Procter & Gamble 2001 Stock and Incentive Compensation Plan (as amended) (“2001 Plan”), The Procter & Gamble 2003 Non-Employee Directors’ Plan, The Procter & Gamble 2009 Stock and Incentive Compensation Plan (as amended) (“2009 Plan”), The Gillette Company 2004 Long-Term Incentive Plan (“2004 Gillette Plan”), and the 2013 Non-Employee Directors’ Plan. The 1992, 1993, 2001, 2003, 2009, 2013, and 2014 Plans were approved by Company shareholders. The 2004 Gillette Plan was approved by Gillette shareholders and adopted by the Company in 2005 as part of its merger with The Gillette Company.

The 2014 Plan contains a vesting provision commonly known as a “double trigger,” which limits accelerated vesting in the event of a change in control. Time-based awards assumed as part of a change in control would only vest for involuntary terminations of employment for reasons other than cause and for terminations of employment for good reason. Performance awards not assumed as part of a change in control would be paid at the target level.

With the exception of any special equity awards discussed on page 32 of this proxy statement, the Company grants stock, PSUs, RSUs, and stock options on dates that are consistent from year to year. If the C&LD Committee changes a grant date, it is done in advance and only after careful review and discussion. The pre-established grant dates for the programs are as follows: PST Restoration and IRP, first Thursday in August; STAR, last business day on or before September 15; and PSP and Key Manager Stock Grants, last business day of February (and, if necessary for corrections, on the last business day on or before May 9).

The Company has never re-priced stock options and is not permitted to do so without prior shareholder approval. The Company does not backdate stock options. We use the closing price of the Common Stock on the date of grant to determine the grant price for executive compensation awards. However, because the PST uses the value of shares based on the average price of common stock for the last five days in June, the grants of RSUs made under the PST Restoration Program and IRP follow this same grant price practice.

Mitigation of Excessive Risk-Taking

Recoupment & Clawback

The C&LD Committee’s Senior Executive Officer Recoupment Policy permits the C&LD Committee to recoup or “clawback” STAR or long-term incentive program payments made to executives in the event of a significant restatement of financial results for any reason. This authority is in addition to the C&LD Committee’s authority under the 2014 Plan and prior plans to suspend or terminate any outstanding stock options if the C&LD Committee determines that the participant violated certain plan provisions. Moreover, the 2014 Plan and 2009 Plan each have a clawback provision that allows the Company or the C&LD Committee to recover certain proceeds from option exercises or delivery of shares if the participant violates certain plan provisions.

 

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Prohibition of Use of Company Stock in Derivative Transactions

The Company’s Insider Trading Policy prohibits NEOs from engaging in derivative transactions involving Company stock, including pledging, collars, short sales, hedging investments, and other derivative transactions. Purchases and sales of Company stock by NEOs can only be made during the one-month period following public earnings announcements or, if outside these window periods, with express permission from the Company’s Legal Division or in accordance with a previously established trading plan that meets SEC requirements.

Additional Information

Deferred Compensation Plan

The Procter & Gamble Company Executive Deferred Compensation Plan (“EDCP”) allows executives to defer receipt of up to 100% of their STAR awards and up to 75% of their annual salary. Executives may also elect to convert a portion of their PST Restoration RSUs into notional cash with investment choices that mirror those available to all U.S. employees who participate in the Company’s 401(k) plan. No above-market or preferential interest is credited on deferred compensation, as those terms are defined by the SEC.

Tax Treatment of Certain Compensation

Section 162(m) of the Internal Revenue Code limits the Company deductibility of executive compensation paid to certain NEOs to $1,000,000 per year, but contains an exception for certain performance-based compensation. Stock options awarded under the Key Manager Stock Grant, as well as awards granted under STAR and PSP programs, satisfy the performance-based requirements for deductible compensation.

While the C&LD Committee’s general policy is to preserve the deductibility of compensation paid to the NEOs, the C&LD Committee nevertheless may authorize payment of compensation that might not be deductible if it believes the payment of such compensation is in the best interests of the Company and its shareholders. In addition, in certain years, individuals may receive non-deductible payments resulting from awards made prior to becoming an NEO.

Executive Compensation Changes for FY 2016-17

The C&LD Committee reviewed current salary competitiveness and positioning for the CEO, CFO, and Group Presidents at its June 14, 2016 meeting. The Committee increased the salary of Mr. Ciserani from $850,000 to $900,000, effective August 1, 2016, based on continued strong performance and additional job responsibilities for the Baby and Feminine Care business. The Committee also increased the salary of Mr. Louvet to $765,000, effective July 1, 2016, based on continued strong performance.

At the April 8, 2016 meeting, the C&LD Committee elected to change the STAR annual incentive program to provide for more granular business unit awards to better align pay with performance. This change will allow the President of each business to differentiate award levels for those in his or her business unit based on performance of lower-level organizations. This change, which will be effective beginning with the FY 2016-17 STAR Program, only impacts STAR awards for those employees below the President level and therefore will not impact NEO compensation.

The C&LD Committee made several changes to the long-term incentive programs at the October 13, 2015, June 14, 2016, and August 9, 2016 meetings. These changes include expanding the PSP program to all Vice Presidents, which expands total participation to approximately 250 Company leaders. PSP will account for 25% of the total long-term incentive opportunity for the Vice Presidents. The PSP performance goals described on page 29 will be revised to better align with Company strategy and provide better balance between top-line and bottom-line metrics. The PSP measures will now be 30% organic sales growth, 30% core EPS, 20% constant currency core before-tax operating profit growth, and 20% adjusted free cash flow productivity. Other long-term incentive program changes include using grant date fair value for determining the number of stock options or RSUs to be awarded under the Key Manager and STAR programs, changing RSU vesting under the Key Manager Stock Grant from five-year cliff vesting to three-year cliff vesting, and implementing dividend equivalents on all RSUs and PSUs. Changes to the long-term incentive programs are effective July 1, 2016.

 

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The following tables, footnotes, and narratives provide information regarding the compensation, benefits, and equity holdings in the Company for the NEOs.

Summary Compensation

The following table and footnotes provide information regarding the compensation of the NEOs, for the fiscal years shown.

 

FY 2015-16 Summary Compensation Table  

 

Name and Principal Position

 

 

Year

    Salary     Bonus1     Stock
Awards2
    Option
Awards3
   

Non-

Equity

Incentive

Plan

Com-

pensation

    Change in
Pension
Value and
Nonqualified
Deferred
Compen-
sation
Earnings4
    All  Other
Compen-
sation5
    Total  
            ($)     ($)     ($)     ($)     ($)     ($)     ($)     ($)  
   

David Taylor

    2015-16        1,393,333        2,482,771        8,507,680        1,743,864        0        0        277,005        14,404,653   

President and Chief Executive Officer

    2014-15        945,000        790,272        2,664,167        1,630,508        0        0        71,795        6,101,742   
   

A.G. Lafley

    2015-16        1,500,000        2,051,140        6,296,280        0        0        0        198,284        10,045,704   

Executive Chairman of the Board

    2014-15        2,000,000        3,290,000        12,407,790        0        0        0        588,831        18,286,621   
    2013-14        2,000,000        4,400,000        12,230,582        0        0        0        873,771        19,504,353   
   

Jon R. Moeller

    2015-16        950,000        1,016,652        3,526,353        1,278,748        0        0        73,899        6,845,652   

Chief Financial Officer

    2014-15        850,000        671,160        4,212,468        1,222,877        0        0        87,850        7,044,355   
    2013-14        850,000        897,600        3,908,749        1,295,683        0        0        65,830        7,017,862   
   

Steven D. Bishop

    2015-16        796,667        873,464        2,342,867        465,966        0        0        71,003        4,549,967   

Group President - Global Health Care

                                                                       
   

Giovanni Ciserani6

    2015-16        845,833        1,044,225        2,280,962        1,334,347        0        1,052,000        291,337        6,848,704   

Group President - Global Fabric &

    2014-15        796,667        598,080        3,895,797        1,266,359        0        8,000        538,172        7,103,075   

Home Care and Global Baby &

    2013-14        755,833        938,995        1,705,374        1,160,129        0        226,000        356,281        5,142,612   

Feminine Care

                                                                       
   

Patrice Louvet

    2015-16        725,000        827,327        2,371,311        476,551        0        740,000        203,435        5,343,624   

Group President - Global Beauty

                                                                       
   

Martin Riant7

    2015-16        960,000        1,027,354        2,056,493        1,207,266        0        827,000        1,405,974        7,484,087   

Group President and Advisor to the Chief Executive

    2014-15        936,667        858,816        3,028,673        619,595        0        1,026,000        458,466        6,928,217   
    2013-14        907,500        845,222        2,475,696        580,065        0        914,000        1,595,401        7,317,884   

 

1 For FY 2015-16, Bonus reflects FY 2015-16 STAR awards that will be paid on September 15, 2016. Each NEO who participated in STAR could elect to take his STAR award in cash, deferred compensation, or stock options. For FY 2015-16, Mr. Taylor chose to take his STAR award as 75% options, 20% cash, and 5% deferred compensation. Messrs. Lafley and Riant chose to take their STAR awards as deferred compensation. Mr. Louvet took his award in stock options. Messrs. Bishop, Ciserani, and Moeller took their awards in cash.

2 For FY 2015-16, Stock Awards include the grant date fair value of any PST Restoration Program and International Retirement Plan awards and the PSUs granted in February 2016 under the PSP. For Messrs. Taylor, Lafley, Moeller, Bishop and Louvet, FY 2015-16 Stock Awards also include the grant date fair value of RSUs granted in February 2016 under the Key Manager Stock Grant. The amount shown is determined in accordance with FASB ASC Topic 718, and pursuant to SEC rules, excludes the impact of forfeitures related to service-based vesting conditions. Please see Note 7 to the Consolidated Financial Statements contained in the Company’s 2016 Annual Report on Form 10-K for more information. For more information regarding these awards, including retention and vesting requirements and applicable performance measures, see pages 30-34 of the Compensation Discussion & Analysis.

3 Option Awards for FY 2015-16 include the grant date fair value of each Key Manager Stock Grant, determined in accordance with FASB ASC Topic 718. Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. For additional information on the assumptions made in the valuation for the current year awards reflected in this column, please see Note 7 to the Consolidated Financial Statements contained in the Company’s 2016 Annual Report on Form 10-K. For information on the valuation assumptions with respect to grants made in prior fiscal years, please see the corresponding note to the Consolidated Financial Statements contained in the Company’s Annual Report for the respective fiscal year. For more information regarding these awards, including retention and vesting requirements and applicable performance measures, see pages 29-30 of the Compensation Discussion & Analysis.

 

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4 This column reflects aggregate changes in the actuarial present value of Messrs. Ciserani’s, Louvet’s, and Riant’s pension benefits under all defined benefit and actuarial pension plans. None of the other NEOs has a pension plan. None of the NEOs had above-market earnings on deferred compensation.

5 Please see the table below for information on the numbers that comprise the All Other Compensation column.

6 Mr. Ciserani’s salary was established in U.S. dollars and received in Swiss francs based on a Bloomberg monthly spot rate representing the average of the buy and sell rates for the month.

7 Mr. Riant’s salary was established in U.S. dollars and received in Singapore dollars based on a Bloomberg monthly spot rate representing the average of the buy and sell rates for the month.

 

All Other Compensation  
Name and Principal Position   Year     Retirement
Plan
Contributionsi
    Executive
Group
Life
Insuranceii
    Flexible
Compensation
Program
Contributionsiii
    Expatriate,
Relocation
and Tax
Equalization
Paymentsiv
    Separation
Allowances
    Executive
Benefitsv
    Totalvi  
           ($)     ($)     ($)     ($)     ($)     ($)     ($)  
   

David Taylor

    2015-16        52,843        3,875        5,250        594        0        214,443        277,005   

President and Chief Executive Officer

    2014-15        52,431        1,992        5,150        0        0        12,222        71,795   
   

A.G. Lafley

    2015-16        29,682        17,667        7,900        3,869        0        139,166        198,284   

Executive Chairman of the Board

    2014-15        29,392        15,650        2,600        2,902        0        538,287        588,831   
    2013-14        29,122        13,636        0        4,042        0        826,971        873,771   
   

Jon R. Moeller

    2015-16        52,843        5,431        5,250        0        0        10,375        73,899   

Chief Financial Officer

    2014-15        52,431        4,507        4,512        0        0        26,400        87,850   
      2013-14        52,058        4,097        3,788        0        0        5,887        65,830   
   

Steven D. Bishop

    2015-16        52,843        4,100        5,250        0        0        8,810        71,003   

Group President - Global Health Care

                 
   

Giovanni Ciserani

    2015-16        0        4,221        5,250        281,866        0        0        291,337   

Group President - Global Fabric & Home Care, Global Baby & Feminine Care

    2014-15        0        4,845        5,150        528,177        0        0        538,172   
    2013-14        0        3,729        5,050        347,502        0        0        356,281   
                 
   

Patrice Louvet

    2015-16        52,843        4,054        5,250        138,408        0        2,880        203,435   

Group President - Global Beauty

                 
   

Martin Riant

    2015-16        52,843        2,214        7,900        330,206        960,000        52,811        1,405,974   

Group President and Advisor to the Chief Executive

    2014-15        52,431        1,926        5,150        394,959        0        4,000        458,466   
    2013-14        52,058        1,667        5,050        1,535,691        0        935        1,595,401   

 

i Amounts contributed by the Company pursuant to the PST, a qualified defined contribution plan providing retirement benefits for U.S.-based employees. NEOs also receive contributions in the form of RSU grants pursuant to the PST Restoration Program, a nonqualified defined contribution plan. Mr. Ciserani receives IRP RSUs in lieu of a PST contribution. These RSU awards are included in the Stock Awards column of the Summary Compensation Table.

ii Under the Executive Group Life Insurance Program (“EGLIP”), the Company offers key executives who have substantially contributed to the success and development of the business, and upon whom the future of the Company chiefly depends, life insurance coverage equal to salary plus their STAR target up to a maximum of $5,000,000. These policies are owned by the Company. Because premium payments are returned to the Company when the benefit is paid out, we believe the annual premiums paid by the Company overstate the Company’s true cost of providing this life insurance benefit. Accordingly, the amounts shown in the table are an average based on Internal Revenue Service tables used to value the term cost of such coverage for calendar year 2015 and calendar year 2016, which reflect what it would cost the executive to obtain the same coverage in a term life insurance policy. The average of the two calendar years was used because fiscal year data is not available. The average of the dollar value of the premiums actually paid by the Company in calendar years 2015 and 2016 under these policies were as follows: Mr. Taylor, $80,349, Mr. Lafley, $0, Mr. Moeller, $49,361, Mr. Bishop, $37,421, Mr. Ciserani, $52,980, Mr. Louvet, $39,670, and Mr. Riant, $62,852. This program is in addition to any other Company-provided group life insurance in which an NEO may enroll that is also available to all employees on the same basis.

iii Flexible Compensation Program Contributions are given in the form of credits to pay for coverage in a number of benefit plans including, but not limited to, medical insurance and additional life insurance. Employees may also receive unused credits as cash. Credits are earned based on PST years of service.

iv The amounts shown are for tax equalization payments made by the Company to cover incremental taxes required in connection with the NEO’s prior expatriate assignments. Mr. Lafley’s tax equalization payments resulted from his previous assignment in Japan. In addition, the Company provides assistance to certain employees, including NEOs, related to expenses incurred in connection with expatriate assignments and Company-

 

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required relocations. Mr. Ciserani’s payment for expatriate assignment expenses resulted from his current assignment in Switzerland, which included a housing allowance and related support of $132,939; cost of living adjustments of $68,680; a transportation allowance of $12,897; education support of $42,990; and relocation-related expenses of $12,750. Expenses were paid in Swiss francs and converted to U.S. dollars using a Bloomberg monthly spot rate representing the average of the buy and sell rates for the month. The Company paid Mr. Louvet education support of $31,300 and $77,108 in tax equalization payments related to prior education support payments. Mr. Louvet also received tax preparation expenses of $30,000. Mr. Riant’s payments for expatriate assignment expenses resulted from his assignment in Singapore, which included a housing allowance and related support of $235,556; cost of living adjustments of $48,721; a transportation allowance of $13,039; tax preparation and immigration expenses of $10,630; and relocation-related expenses of $17,746. They were paid in Singapore dollars and converted to U.S. dollars using a Bloomberg monthly spot rate representing the average of the buy and sell rates for the month.

v In addition, all NEOs are entitled to the following personal benefits: financial counseling (including tax preparation), an annual physical examination, occasional use of a Company car, secure workplace parking, and home security and monitoring. The Company incurred a one-time expense of $43,448 related to security enhancements to Mr. Taylor’s residence when he became CEO. In association with his retirement, Mr. Riant received a lump sum payment of $44,311 for accrued but unused vacation days. While Company aircraft is generally used for Company business only, the CEO is required to use Company aircraft for all air travel, including travel to outside board meetings and personal travel, pursuant to the Company’s executive security program established by the Board of Directors. While traveling on Company aircraft, the CEO and Chairman of the Board may bring a limited number of guests (spouse, family member, or similar guest) to accompany him. The aggregate incremental aircraft usage costs associated with Mr. Taylor’s personal use of the Company aircraft during FY 2015-16 were $130,880. The aggregate incremental aircraft usage costs associated with Mr. Lafley’s personal use of the Company aircraft during FY 2015-16 were $122,120. Messrs. Moeller, Bishop, Ciserani, Louvet, and Riant are permitted to use the Company aircraft for travel to outside board meetings and, if the Company aircraft is already scheduled for business purposes and can accommodate additional passengers, may use it for personal travel and guest accompaniment. None of these NEOs used the Company aircraft for these purposes in FY 2015-16. The incremental costs to the Company for these benefits, other than use of Company aircraft, are the actual costs or charges incurred by the Company for the benefits. The incremental cost to the Company for use of the Company aircraft is calculated by using an hourly rate for each flight hour. The hourly rate is based on the variable operational costs of each flight, including fuel, maintenance, flight crew travel expense, catering, communications and fees, including flight planning, ground handling and landing permits. For any flights that involved mixed personal and business usage, any personal usage hours that exceed the business usage are utilized to determine the incremental cost to the Company.

vi This total does not reflect a charitable donation of $10,000 made by the Company to the Children’s Safe Drinking Water Program on behalf of the Company’s Global Leadership Council, of which each NEO is a member. This donation was funded from general corporate assets, and the NEOs derived no financial benefits from this donation because this charitable deduction accrues solely to the Company.

 

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Grants of Plan-Based Awards

The following table and footnotes provide information regarding grants of equity under Company plans made to the NEOs during FY 2015-16.

 

Grants of Plan-Based Awards                                            
Name/Plan Name   Grant
Date1
   

Compensation
& Leadership
Development

Committee

Action Date

         

All Other
Stock
Awards:
Number of
Shares or

Stock Units

(#)

   

All Other
Option
Awards:
Number of
Securities
Underlying

Options

(#)

   

Exercise
or Base
Price of
Option
Awards2

($ per

share)

   

Grant
Date

Fair

Value

of Stock
and
Option

Awards3

($)

 
      Estimated Future Payouts Under
Equity Incentive Plan Awards
         
     

Threshold  

(#)  

   

Target  

(#)  

   

Maximum  

(#)  

         

David Taylor

                     

Key Manager Options4

    02/29/2016        02/09/2016                  205,095        80.29        1,743,864   

Key Manager RSUs5

    02/29/2016        02/09/2016                41,019            2,810,930   

PSUs6

    02/29/2016        02/09/2016        0          76,113          152,226              5,557,446   

PST Restoration RSUs7

    08/06/2015        06/09/2015                1,758            139,304   

STAR Stock Options8

    09/15/2015        08/11/2015                  68,275        69.45        566,633   

A.G. Lafley

                     

Key Manager RSUs9

    02/29/2016        02/09/2016                44,748            3,066,469   

PSUs6

    02/29/2016        02/09/2016        0          41,517          83,034              3,031,394   

PST Restoration RSUs7

    08/06/2015        06/09/2015                2,504            198,417   

Jon R. Moeller

                     

Key Manager Options4

    02/29/2016        02/09/2016                  150,393        80.29        1,278,748   

Key Manager RSUs5

    02/29/2016        02/09/2016                10,027            687,125   

PSUs6

    02/29/2016        02/09/2016        0          37,241          74,482              2,719,179   

PST Restoration RSUs7

    08/06/2015        06/09/2015                1,515            120,049   

Steven D. Bishop

                     

Key Manager Options4

    02/29/2016        02/09/2016                  54,802        80.29        465,966   

Key Manager RSUs5

    02/29/2016        02/09/2016                10,961            751,130   

PSUs6

    02/29/2016        02/09/2016        0          20,426          40,852              1,491,419   

PST Restoration RSUs7

    08/06/2015        06/09/2015                1,266            100,318   

STAR Stock Options8

    09/15/2015        08/11/2015                  47,777        69.45        396,514   

Giovanni Ciserani

                     

Key Manager Options4

    02/29/2016        02/09/2016                  156,932        80.29        1,334,347   

PSUs6

    02/29/2016        02/09/2016        0          29,020          58,040              2,118,916   

IRP RSUs10

    08/06/2015        06/09/2015                2,045            162,046   

Patrice Louvet

                     

Key Manager Options4

    02/29/2016        02/09/2016                  56,047        80.29        476,551   

Key Manager RSUs5

    02/29/2016        02/09/2016                11,210            768,193   

PSUs6

    02/29/2016        02/09/2016        0          20,800          41,600              1,518,727   

PST Restoration RSUs7

    08/06/2015        06/09/2015                1,065            84,391   

STAR Stock Options8

    09/15/2015        08/11/2015                  32,514        69.45        269,843   

Martin Riant

                     

Key Manager Options4

    02/29/2016        02/09/2016                  141,986        80.29        1,207,266   

PSUs6

    02/29/2016        02/09/2016        0          26,280          52,560              1,918,853   

PST Restoration RSUs7

    08/06/2015        06/09/2015                1,737            137,640   

STAR Stock Options8

    09/15/2015        08/11/2015                                        74,196        69.45        615,773   

 

1 Grant dates for equity awards are consistent from year to year, as described on page 34 of this proxy statement.

2 The options granted were awarded using the closing price of the Company stock on the date of the grant.

3 This column reflects the grant date fair value of each award computed in accordance with FASB ASC Topic 718. For stock awards, the actual amount paid will be based on the stock price on the delivery date. For options, the actual amount paid will be determined by multiplying the number of shares acquired by the difference between the market price of the Company’s common stock upon exercise and the grant price of the options.

4 These options are forfeitable until the later of retirement eligibility or June 30th after the grant date, and will become exercisable on February 28, 2019, and expire on February 27, 2026.

5 These units are forfeitable until the later of retirement eligibility or June 30th after the grant date, and will deliver in shares on February 26, 2021.

6 For awards granted under the Performance Stock Plan, see page 31 of the Compensation Discussion & Analysis for applicable performance measures. These units are forfeitable until the later of retirement eligibility or June 30th after the grant date, and will deliver in shares in August 2018 unless elected otherwise by the NEO, subject to applicable tax rules and regulations.

7 For awards granted under the PST Restoration Program, dividend equivalents are earned at the same rate as dividends paid on common stock. These units will deliver in shares one year following retirement unless elected otherwise by the NEO, subject to applicable tax rules and regulations.

8 These options are nonforfeitable, and will become exercisable on September 15, 2018, and expire on September 15, 2025.

9 These units are nonforfeitable and will deliver in shares in ten annual installments commencing February 29, 2021.

10 For awards granted under the IRP, dividend equivalents are earned at the same rate as dividends paid on common stock. These units will deliver in shares one year following retirement unless elected otherwise by the NEO, subject to applicable tax rules and regulations.

 

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Outstanding Equity at Fiscal Year End

The following table and footnotes provide information regarding unexercised stock options and stock awards that have not yet vested as of the end of FY 2015-16.

 

Outstanding Equity at Fiscal Year-End Table

 

 
         Option Awards   Stock Awards  
Name   Grant
Date
  Number of
Securities
Underlying
Unexercised
Options
Exercisable
1
(#)
  Number of
Securities
Underlying
Unexercised
Options
Unexercisable
1
(#)
   

Option
Exercise
Price

($)

  Option
Expiration
Date
 

Number
of
Shares
or

Units of
Stock
that
Have
Not
Vested
2
(#)

    Market
Value of
Shares or
Units of
Stock
that
Have Not
Vested
3
($)
   

Equity

Incentive

Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
that Have
Not
Vested
2
(#)

 

Equity

Incentive

Plan
Awards:
Market
Value of
Unearned
Shares,
Units or
Other
Rights
that Have
Not
Vested
3
($)

 

David Taylor

  02/29/2008   49,865     66.1800   02/28/2018          
    02/27/2009   72,660     48.1700   02/27/2019          
    02/26/2010   71,113     63.2800   02/26/2020          
    02/28/2011   98,335     63.0500   02/28/2021          
    09/15/2011   16,338     62.7800   09/15/2021          
    02/29/2012   103,673     67.5200   02/28/2022          
    09/14/2012   43,045     69.1600   09/14/2022          
    02/28/2013   108,927     76.1800   02/28/2023          
    09/13/2013       74,520      79.0500   09/13/2023          
    02/28/2014       116,960      78.6600   02/28/2024          
    09/15/2014       65,054      83.8700   09/15/2024          
    02/27/2015       176,202      85.1300   02/27/2025          
    02/27/2015               32,656     2,764,984 (3) 
    09/15/2015       68,275      69.4500   09/15/2025          
    02/29/2016       205,095      80.2900   02/27/2026          
    02/29/2016                                       76,113     6,444,488 (4) 

A.G. Lafley

  02/29/2008   480,783     66.1800   02/28/2018          
    02/27/2009   566,177     48.1700   02/27/2019          
    02/27/2015               78,312     6,630,677 (3) 
    02/29/2016                                       41,517     3,515,244 (4) 

Jon R. Moeller

  02/28/2007   58,720     63.4900   02/28/2017          
    02/29/2008   56,709     66.1800   02/28/2018          
    02/27/2009   97,572     48.1700   02/27/2019          
    02/26/2010   82,965     63.2800   02/26/2020          
    02/28/2011   107,058     63.0500   02/28/2021          
    02/29/2012   122,187     67.5200   02/28/2022          
    02/29/2012             8,146        689,722         
    02/28/2013   127,987     76.1800   02/28/2023          
    02/28/2013             8,533        722,489         
    08/13/2013             12,246        1,036,869         
    02/28/2014       130,626      78.6600   02/28/2024          
    02/28/2014             8,709        737,391         
    02/27/2015       132,151      85.1300   02/27/2025          
    02/27/2015             8,811        746,027 (1)       
    02/27/2015               32,774     2,774,975 (3) 
    06/09/2015             12,675        1,073,192         
    02/29/2016       150,393      80.2900   02/27/2026          
    02/29/2016             10,027        848,986 (2)       
    02/29/2016                                       37,241     3,153,195 (4) 

Steven D. Bishop

  02/29/2008   33,243     66.1800   02/28/2018          
    02/27/2009   47,748     48.1700   02/27/2019          
    02/26/2010   41,088     63.2800   02/26/2020          
    02/28/2011   55,512     63.0500   02/28/2021          
    02/29/2012   62,945     67.5200   02/28/2022          
    02/28/2013   98,452     76.1800   02/28/2023          
    05/01/2013             6,495        549,932         
    02/28/2014       99,797      78.6600   02/28/2024          
    09/15/2014       22,336      83.8700   09/15/2024          
    02/27/2015       96,324      85.1300   02/27/2025          
    02/27/2015               17,856     1,511,868 (3) 
    09/15/2015       47,777      69.4500   09/15/2025          
    02/29/2016       54,802      80.2900   02/27/2026          
    02/29/2016             10,961        928,068 (2)       
    02/29/2016                                       20,426     1,729,469 (4) 

 

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LOGO

 

Outstanding Equity at Fiscal Year-End Table

 

 
         Option Awards   Stock Awards  
Name   Grant
Date
  Number of
Securities
Underlying
Unexercised
Options
Exercisable
1
(#)
  Number of
Securities
Underlying
Unexercised
Options
Unexercisable
1
(#)
   

Option
Exercise
Price

($)

  Option
Expiration
Date
 

Number
of
Shares
or

Units of
Stock
that
Have
Not
Vested
2
(#)

  Market
Value of
Shares or
Units of
Stock
that
Have Not
Vested
3
($)
   

Equity

Incentive

Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
that Have
Not
Vested
2
(#)

 

Equity

Incentive

Plan
Awards:
Market
Value of
Unearned
Shares,
Units or
Other
Rights
that Have
Not
Vested
3
($)

 

Giovanni Ciserani

  02/28/2007   45,166     64.5500   02/28/2017          
    02/29/2008   41,252     66.1800   02/28/2018          
    02/27/2009   57,090     48.1700   02/27/2019          
    02/26/2010   43,363     63.2800   02/26/2020          
    02/28/2011   95,163     63.0500   02/28/2021          
    02/29/2012   103,673     67.5200   02/28/2022          
    02/28/2013   105,015     76.1800   02/28/2023          
    02/28/2014       116,960      78.6600   02/28/2024          
    02/27/2015       136,850      85.1300   02/27/2025          
    02/27/2015               24,786     2,098,631 (3) 
    06/09/2015           25,349     2,146,300         
    02/29/2016       156,932      80.2900   02/27/2026          
    02/29/2016               29,020     2,457,123 (4) 

Patrice Louvet

  02/29/2008   39,411           66.1800   02/28/2018                        
    02/27/2009   56,935     48.1700   02/27/2019          
    02/26/2010   38,559     63.2800   02/26/2020          
    02/28/2011   23,791     63.0500   02/28/2021          
    02/29/2012   29,621     67.5200   02/28/2022          
    02/29/2012           5,925     501,670         
    02/28/2013   49,226     76.1800   02/28/2023          
    02/28/2013           9,846     833,661         
    05/01/2013           6,495     549,932         
    09/13/2013       38,844      79.0500   09/13/2023          
    02/28/2014       48,310      78.6600   02/28/2024          
    02/28/2014           9,662     818,082         
    09/15/2014       40,566      83.8700   09/15/2024          
    02/27/2015       48,162      85.1300   02/27/2025          
    02/27/2015           9,633     815,626 (1)       
    02/27/2015               17,856     1,511,868 (3) 
    09/15/2015       32,514      69.4500   09/15/2025          
    02/29/2016       56,047      80.2900   02/27/2026          
    02/29/2016           11,210     949,151 (2)       
    02/29/2016                                   20,800     1,761,136 (4) 

Martin Riant

  02/28/2007   47,252     63.4900   02/28/2017          
    02/29/2008   24,933     66.1800   02/28/2018          
    02/27/2009   36,330     48.1700   02/27/2019          
    02/26/2010   37,532     63.2800   02/26/2020          
    02/28/2011   47,582     63.0500   02/28/2021          
    09/15/2011   36,283     62.7800   09/15/2021          
    02/29/2012   48,134     67.5200   02/28/2022          
    09/14/2012   87,683     69.1600   09/14/2022          
    02/28/2013   52,508     76.1800   02/28/2023          
    09/13/2013       57,767      79.0500   09/13/2023          
    02/28/2014       58,480      78.6600   02/28/2024          
    09/15/2014       60,467      83.8700   09/15/2024          
    02/27/2015       66,957      85.1300   02/27/2025          
    02/27/2015               24,786     2,098,631 (3) 
    09/15/2015       74,196      69.4500   09/15/2025          
    02/29/2016       141,986      80.2900   02/27/2026          
    02/29/2016                                   26,280     2,225,128 (4) 

 

1 The following provides details regarding the vesting date for each of the option grants included in the table. The Vest Date indicates the date the options become exercisable.

 

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LOGO

 

Option Awards
     Grant Date    Vest Date         Grant Date    Vest Date     
   02/28/2007    02/28/2010       02/28/2013    02/28/2016   
   02/29/2008    02/28/2011       09/13/2013    09/13/2016   
   02/27/2009    02/27/2012       02/28/2014    02/28/2017   
   02/26/2010    02/26/2013       09/15/2014    09/15/2017   
   02/28/2011    02/28/2014       02/27/2015    02/27/2018   
   09/15/2011    09/15/2014       09/15/2015    09/15/2018   
   02/29/2012    02/28/2015       02/29/2016    02/28/2019   
   09/14/2012    09/14/2015            

2 The following provides detail regarding the vesting date for RSU and PSU holdings included in the table. The Vest Date for RSUs indicates the date such units become nonforfeitable. The Vest Date for PSUs indicates the date the award is earned. The PSU awards are delivered in shares in August following the date the award is earned.

 

Stock Awards

    

Award Type

  

Grant Date

  

Vest Date

   Key Manager RSUs    02/29/2012    02/28/2017
   Key Manager RSUs    02/28/2013    02/28/2018
   Key Manager RSUs    02/28/2014    02/28/2019

            (1)

   Key Manager RSUs    02/27/2015    02/27/2020

            (2)

   Key Manager RSUs    02/29/2016    02/26/2021

            (3)

   PSP PSUs    02/27/2015    06/30/2017

            (4)

   PSP PSUs    02/29/2016    06/30/2018
   Special Equity RSUs    05/01/2013    50% 05/01/2016, 50% 05/01/2018
   Special Equity RSUs    08/13/2013    50% 08/13/2016, 50% 08/13/2018
   Special Equity RSUs    11/03/2014    50% 11/03/2017, 50% 11/03/2019
   Special Equity RSUs    06/09/2015    06/09/2018

3 The Market Value of PSUs or RSUs that have not vested was determined by multiplying the closing market price of Company stock on June 30, 2016 ($84.67), by the number of PSUs or RSUs, respectively.

 

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LOGO

 

Option Exercises and Stock Vested

The following table and footnotes provide information regarding stock option exercises and stock vesting during FY 2015-16 for the NEOs.

 

Option Exercises and Stock Vested  
      Option Awards      Stock Awards  
             
Name   

Option
Grant

Date

    

Number
of
Shares
Acquired
on
Exercise1

(#)

     Value
Realized
on
Exercise2
($)
    

Stock
Award
Grant

Date

    

Number
of
Shares
Acquired
on
Vesting3

(#)

     Value
Realized
on
Vesting4
($)
 

David Taylor5

     02/28/2007         39,377         732,869              
                02/28/2014         7,827         662,712   
                08/06/2015         1,758         132,940   
                                  02/29/2016         41,019         3,458,312   

A.G. Lafley6

     02/28/2006         370,441         6,085,147              
       02/28/2007         579,906         9,805,367              
                02/28/2014         30,512         2,583,451   
                08/06/2015         2,504         189,352   
                                  02/29/2016         44,748         3,772,704   

Jon R. Moeller

              02/28/2011         7,931         638,247   
                02/28/2014         11,580         980,479   
                                  08/06/2015         1,515         114,564   

Steven D. Bishop

              05/01/2013         6,495         518,074   
                02/28/2014         6,454         546,460   
                                  08/06/2015         1,266         95,735   

Giovanni Ciserani

     09/24/2001         18,180         815,297              
       02/28/2006         39,106         751,939              
                02/28/2014         7,827         662,712   
                                  08/06/2015         2,045         154,643